3:16 pm - Friday January 21, 2985

DFA and Federal regulation of the derivatives market

Title VII of Dodd-Frank Wall Street Reform and Consumer Protection Act address the gap in U.S. financial regulation of OTC derivatives by providing a comprehensive framework for their regulation.

The Dodd-Frank Act divides regulatory authority over swap agreements between the CFTC and SEC.

The SEC has regulatory authority over “security-based swaps,” which are defined as swaps based on a single security or loan or a narrow-based group or index of securities, or events relating to a single issuer or issuers of securities in a narrow-based security index.

The CFTC has primary regulatory authority over all other swaps, such as energy and agricultural swaps.

The CFTC and SEC share authority over “mixed swaps,” which are security-based swaps that also have a commodity component.

In addition, the SEC has anti-fraud enforcement authority over swaps that are related to securities but that do not come within the definition of “security-based swap.” These are called “security-based swap agreements.”

The Dodd-Frank Act provides the SEC with access to information relating to security-based swap agreement in the possession of the CFTC and certain CFTC-regulated entities, such as derivatives clearing organizations, designated contract markets, and swap data repositories.

The CFTC and SEC are required to act jointly to define key terms relating to jurisdiction (such as swap, security-based swap, and security-based swap agreement) and market intermediaries (such as swap and security-based swap dealers and major swap and security-based swap participants), as well as adopt joint regulations regarding mixed swaps and prescribe trade repository recordkeeping requirements, and books and records requirements for swap entities related to security-based swap agreements.

Many thanks SEC and CFTC for the inputs



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