5 October 2023
The Securities and Exchange Commission (SEC) is tasked with creating and enforcing regulations that safeguard investors, promote fair and transparent markets, and facilitate capital formation. Recently, the SEC revised Rule 18a-6 to include Security-Based Swap Dealers (SBSDs) and Major Security-Based Swap Participants (MSBSPs).
To provide some background, SBSDs and MSBSPs have traditionally been exempt from certain regulatory recordkeeping requirements. However, in October 2022, Rule 18a-6 was updated alongside Rule 17a-4 to modernize electronic recordkeeping practices for SBSDs and MSBSPs, bringing them in line with the transparency and efficiency standards broker-dealers are subject to under Rule 17a-4.
The amendments introduced flexibility to Rule 18a-6 and aligned it with modern technological advancements. For example, firms now have an alternative to the traditional “write once, read many” (WORM) format, which was previously the sole accepted method for preserving electronic records. Rule 18a-6 now covers a wide range of activities, from how records are stored, produced, and accessed to their retention period and verification methods.
What are SBSDs and MSBSPs?
Security-based Swap Dealers (SbSDs) are entities that actively deal with security-based swaps, providing access and ensuring liquidity in these markets. Meanwhile, Major Security-based Swap Participants (MSBSPs) are entities that hold significant positions in security-based swaps without actively dealing in them, making them prominent players in the swap markets with potential systemic impact. To promote transparency and oversight in the U.S. financial markets, both categories were introduced and regulated under the Dodd-Frank Act, particularly after the 2007-2008 financial crisis.
What’s Next for Affected Entities?
Affected parties must ensure compliance with all recordkeeping requirements by November 3, 2023, to avoid potential regulatory violations and resulting fines. You can see the final rule here. Entities should consider steps such as evaluating and upgrading their current electronic recordkeeping systems, training their teams to understand the revised rules and efficiently navigate them, and implementing regular checks and audits to ensure ongoing compliance.
While firms may face initial challenges as they adapt, these amendments signal a commitment to leveraging modern technology to ensure more efficient, transparent, and robust recordkeeping. Entities that embrace these changes and invest in reliable systems and training stand to benefit in the long run by staying ahead of compliance and fostering trust in the market.
In conclusion, the recent amendments to SEC Rule 18a-6 underscore the importance of staying adaptable and evolving with the constantly changing financial landscape. By prioritizing modernization and transparency, and having a trustworthy archive storage solution, organizations have the building blocks to ensure the transparent record-keeping of essential information demonstrating compliance and reinforcing trust and credibility.