SEC Investment Advisor

SEC Implements New Rules to Prevent Fraud and Manipulation in Security-Based Swaps

June 7, 2023 – The SEC has recently implemented crucial regulations aimed at curbing fraud, manipulation, and deception in the realm of security-based swap transactions. Additionally, measures have been taken to prevent undue influence over the chief compliance officers (CCOs) of security-based swap dealers and major participants in security-based swaps (SBS Entities). This article will delve into the significance of these new rules and their implications for investors, reference entities, and the overall market integrity.

Preventing Fraud, Manipulation, and Deception

SEC Chair Gary Gensler emphasizes the detrimental impact of misconduct in the security-based swaps market. He acknowledges that such wrongdoing not only affects direct counterparties but also has the potential to harm reference entities and investors associated with them. Given the immense size, scale, and importance of these markets, the Commission’s primary objective is to safeguard investors and maintain market integrity. To achieve these goals, a comprehensive set of rules has been established to prevent fraud, manipulation, and deception concerning security-based swaps.

The Role of Antifraud and Anti-Manipulation Rule

The newly adopted antifraud and anti-manipulation rule assumes a pivotal role in preventing misconduct related to security-based swaps. Its scope encompasses transactions, attempts to effect transactions, and the purchase or sale of security-based swaps. By considering the fundamental characteristics of these financial instruments, this rule empowers the Commission to proactively target and address misconduct that directly impacts security-based swaps.

Protecting the Independence and Objectivity of CCOs

In addition to the antifraud and anti-manipulation rule, the SEC has also implemented a rule specifically designed to safeguard the independence and objectivity of CCOs working within security-based swap dealers and major participants. This measure aims to mitigate any undue influence that could compromise the CCO’s ability to fulfill their regulatory obligations effectively. By ensuring their autonomy, the rule strengthens the oversight and compliance functions within SBS Entities, thereby bolstering market integrity. <h2>Publication and Effective Date</h2> The SEC’s adopting release, which contains detailed information about the newly implemented rules, will be published in the Federal Register. Following the publication, the final rules will take effect after a 60-day period. This timeline allows market participants and relevant entities to familiarize themselves with the regulations, make any necessary adjustments, and ensure compliance with the new requirements.

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