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SEC proposes regulations for security-based swap transactions

The U.S. Securities and Exchange Commission proposed rules that require risk mitigation for portfolios of uncleared security-based swaps.

The proposed rules are pursuant to Title VII of the Dodd-Frank Act, and these would affect registered security-based swap, or SBS, dealers and major SBS participants. They aim for the reconciliation of outstanding SBS with applicable counterparties, engagement in certain portfolio compression exercises and execution of written security-based swap trading documentation with counterparties.

The SEC said that requiring documentation for SBS entities will give a clearer view for market participants of their legal rights and obligations under the transactions. It also said that portfolio reconciliation will help counterparties in identifying discrepancies in trade transactions and that portfolio compression will reduce the number of open contracts which will lead to fewer trades to manage and fewer opportunities for processing errors.

The SEC will seek public comment on these proposed rules for 60 days following their publication in the Federal Register.