FINRA Notice 20-36 Regarding Concept Proposal Application of FINRA Rules to Security-Based Swaps
Summary
SIFMA provided comments to FINRA Notice 20-36 regarding the application of FINRA rules to security-based swaps (“SBS”). Overall, SIFMA supports many aspects of FINRA’s proposal. However, we suggest further tailoring, as described below. Our comments are driven in large part by a desire to seek greater clarity from FINRA regarding the application of its rules to SBS, to ensure that standalone broker-dealers are not placed at a disadvantage relative to broker-dealers that are dually registered as SBS dealers, and to better harmonize certain of FINRA’s rules applicable to SBS with the SBS regime implemented by the Securities and Exchange Commission (“SEC”).
Excerpt
Submitted electronically to: [email protected]
Jennifer Piorko Mitchell
Office of the Corporate Secretary
FINRA
1735 K Street, NW
Washington, DC 20006-1506
Re: Regulatory Notice 20-36 – FINRA Requests Comment on a Concept Proposal Regarding the Application of FINRA Rules to Security-Based Swaps
Dear Ms. Mitchell:
The Securities Industry and Financial Markets Association (“SIFMA”)1 appreciates the opportunity to comment on Financial Industry Regulatory Authority (“FINRA”) Regulatory Notice 20-36 (“Notice 20-36”) regarding the application of FINRA rules to security-based swaps (“SBS”). Overall, SIFMA supports many aspects of FINRA’s proposal. However, we suggest further tailoring, as described below. Our comments are driven in large part by a desire to seek greater clarity from FINRA regarding the application of its rules to SBS, to ensure that standalone broker-dealers are not placed at a disadvantage relative to broker-dealers that are dually registered as SBS dealers, and to better harmonize certain of FINRA’s rules applicable to SBS with the SBS regime implemented by the Securities and Exchange Commission (“SEC”).
1. Extension of Expiration Date
FINRA proposes to extend its existing exemptions contained in Rule 0180 from September 1, 2021 to October 6, 2021, which is the earliest date by which an SBS dealer or major SBS participant (collectively, “SBS Entities”) may register as such with the SEC. However, as the SEC staff has explained, the earliest date by which an SBS Entity will be required to register will be November 1, 2021; specifically, a person is not required to begin counting SBS transactions towards the SBS dealer de minimis threshold until August 6, 2021, i.e., the counting date, and then is not deemed to be an SBS dealer (and hence will not be required to register) until two months after the end of the month in which the person crosses the de minimis threshold, which makes November 1, 2021 the date when a person that crosses the de minimis threshold on August 6, 2021 must register as an SBS dealer.2 Because registration will trigger an obligation to comply with the requirements applicable to an SBS dealer, we expect that most if not all SBS dealers will wait to register until November 1, 2021.
In light of these considerations, and given FINRA’s desire to “align the expiration of Rule 0180 with the compliance date for the SEC’s SBS rules,” we request that FINRA extend the expiration date of current Rule 0180 to November 1, 2021, not October 6, 2021.