The Securities and Exchange Commission (SEC) has introduced new regulations governing the registration of security-based swap execution facilities (SBSEFs). This development is a response to the regulatory requirements designed to address concerns in the over-the-counter derivatives market.

The SEC's Chair Gary Gensler, while endorsing the new regulations, emphasized the company's role in enhancing transparency and market integrity. The objective of the new rules is to bring greater transparency and integrity to the security-based swap market, the US securities watchdog said.

Harmonization with CFTC Rules

By adopting the new regulations, the SEC seeks to align its regulatory framework closely with the Commodity Futures Trading Commission (CFTC) to enhance market efficiency and protect investors. The regulator's approach closely mirrors the rules established by the CFTC for swap execution Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Read this Term facilities.

Gensler said: "Adopting Regulation SE fulfills Congress’ mandate and increases the transparency and integrity of the security-based swap market. In taking up these matters in 2021, we heard from many market participants suggesting we should look to the CFTC CFTC The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss Read this Term rules for swap execution facilities as our template."

The newly adopted rules will take effect 60 days after publication in the federal register. Entities that qualify as SBSEFs must apply for registration with the SEC starting from the effective date.

The Securities and Exchange Commission today adopted rules to create a regime for the registration and regulation of security-based swap execution facilities.

The new regulatory framework was required under the Dodd-Frank Act relating to the over-the-counter derivatives market.

— U.S. Securities and Exchange Commission (@SECGov) November 2, 2023

Recently, the SEC introduced a new proposal to eliminate volume-based transaction pricing and rebates offered by national securities exchanges, all in pursuing a fairer marketplace. Gensler underlined the urgency of leveling the playing field, as the current system imposes disproportionately high fees on mid-sized and smaller broker-dealers compared to their larger counterparts.

SEC's Focus on Securities Lending

According to the SEC, there is unequal competition between broker-dealers due to volume-based transaction pricing. This practice effectively results in mid-sized and smaller firms paying more to trade on most exchanges compared to their larger counterparts. The SEC's new rule is poised to address this long-standing disparity.

The SEC's regulatory changes include a rule that mandates lenders of securities to report loans and changes to existing ones daily. This rule, intended to enhance transparency in securities lending, plays a crucial role in short selling, a strategy often employed by hedge funds.

The SEC is taking significant steps to protect customers in the securities trading industry. In a new proposal, the regulator is pushing for a change in the rules governing broker-dealers, requiring them to calculate the net cash owed to customers and other broker-dealers daily rather than weekly.