SEC Adopts E-Filing for Swap Clearing

     WASHINGTON (CN) – The Securities and Exchange Commission will allow central clearing agencies to use existing electronic filing systems to obtain SEC approval for swap transactions.
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     Clearing is the tiding up of all the loose ends of a transaction, such as reporting to the proper authorities, tax handling, and payment of fees until the transaction is settled and money and goods exchange hands.
     Dodd-Frank mandates the use of central clearing agencies for most swaps and security-based swaps, to isolate the negative impact a default could have on counterparties.
     To submit security-based swaps for review and to ask for SEC approval for changes to their clearing rules,
clearing agencies will use the electronic filing process used by self-regulatory organizations, which develop and implement rules for the nation’s securities exchanges.
     In new rules adopted to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC said it will treat central clearing agencies much like it treats the self-regulatory organizations.
     Clearing agencies will be treated differently from self-regulatory organizations, however, in that, for swaps, they will become the counterparty to each of the original parties to the swap, releasing them from the credit risk of a default. The agencies themselves take on the credit exposure with defaults paid by a combination of collateral posted by the original parties and default funds maintained by the clearing agency from member contributions.
     Another difference is that the swaps being traded are not uniform contracts but are individually negotiated contracts between the original parties.
     The new rules recognize the difference by creating a process where the SEC can exempt a particular swap or even whole categories of swaps from Dodd-Frank’s central clearing requirements.
     However, because changes needed to make the electronic filing system compatible with swap submissions will not be finished until December, the SEC is creating a dedicated email in-box to receive submissions.
     The rules also clarify the distinction between submissions from a clearing agency to determine if a security-based swap must be centrally cleared, and requests by an agency to voluntarily clear swaps.
     Both types of filings will use the electronic process, and though they are likely to be made simultaneously and by the same SEC staff, they will be separate determinations.
     The new rules go into effect Aug. 13 with compliance dates for some provisions delayed until Dec. 10.
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