The 2008 financial crisis and the collapse of Archegos Capital Management in March 2021 have been attributed to the role of Security-Based Swaps according to SEC Chair Gary Gensler.
The SEC has proposed a new rule, Rule 10B-1, which would require the reporting of large security-based swap (SBS) positions. The rule would apply to any person, or group of persons, who, after acquiring or selling (directly or indirectly) any SBS position, is the direct or indirect owner or seller of an SBS position that exceeds a certain threshold amount. The threshold amounts differ depending on the type of SBS acquired or traded, but generally range from $150 million to $300 million in gross notional amount.
The rule would require the reporting person to file a Schedule 10B with the SEC within one business day of the transaction that results in the SBS position exceeding the applicable reporting threshold. The Schedule 10B would disclose information such as the identity of the reporting person(s), the notional amount of the applicable SBS position(s), ownership of all debt or equity securities underlying the SBS and all SBS positions based on debt or equity securities issued by the same reference entity, and ownership of any other instrument relating to the SBS position and/or any underlying security or loan.
A Schedule 10B amendment also must be promptly filed upon the occurrence of any “material change,” but in no event later than the end of the first business day following the material change. A change equal to 10% or more of a position previously disclosed in Schedule 10B would be deemed material.
The SEC believes that Rule 10B-1 would enhance market transparency and integrity and provide both the SEC and market participants with information about large positions and related securities that could have an impact on the markets, counterparties or other market participants. However, the rule may also impose significant reporting burdens on certain market participants, especially in light of the one business day filing deadline.
The SEC has sought comments from interested persons on the proposed rules.
Artius Global Comments:
If the rules are adopted and enacted, market participants may incur significant reporting burdens to monitor and manage their SBS positions. The one business day filing deadline for Schedule 10B and any subsequent amendments would imply speed of response.
Read more here: SEC Proposes Rules to Prevent Fraud in Connection with Security-Based Swaps Transactions
Connect With Us
For those wanting more information, feel free to contact us or drop us a note directly at enquiries@artiusglobal.com.