US Securities and Exchange Commission Finalizes Rule of Practice 194

The Securities and Exchange Commission has adopted, by a 3-2 vote, Rule of Practice 194, which establishes the process for a registered security-based swap dealer or major security-based swap participant (collectively, SBS Entities) to apply to the SEC for a waiver that would allow a statutorily disqualified natural person to effect or be involved in effecting security-based swaps on behalf of the SBS Entity, subject to certain conditions.  The final rule, which was first proposed in 2015, represents a continuation of the agency’s efforts to implement its security-based swap regulations pursuant to Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and will become relevant when the SEC begins requiring registration of SBS Entities.

Consistent with the Commodity Futures Trading Commission’s regulations for swap dealers, the final rule contains an additional exclusion that would allow an entity that is an associated person to continue to be involved in effecting security-based swaps on behalf of an SBS Entity where the entity is subject to statutory disqualification, without need for a formal waiver.

As part of the application process for a waiver for natural persons, applicants would be required to demonstrate to the SEC that the reinstatement of such disqualified associated person is “consistent with the public interest,” notwithstanding the statutory disqualification.  Applicants must also provide any order, notice or other document reflecting the grant, denial or other disposition of any prior application concerning the associated person under Rule of Practice 194 or other applicable regulations.

Further, an SBS Entity need not apply to allow a statutorily disqualified associated person to effect or be involved in effecting security-based swaps on the SBS Entity’s behalf under Rule of Practice 194 if the SEC, the CFTC, a self-regulatory organization or a registered futures association has granted a prior application or granted relief from a statutory disqualification in respect of such associated person.

The final rule will go into effect on April 22, 2019.  However, the compliance dates are dependent on the adoption of two additional final rules, and will be the later of: (i) six months following the date of publication in the Federal Register of a final rule establishing capital, margin and segregation requirements for SBS Entities; or (ii) the compliance date of final rules establishing recordkeeping and reporting requirements for SBS Entities.

View the press release and accompanying fact sheet.

View the final rule. 

Return to main website.