The 2008 financial crisis had many chapters, but a form of security-based swaps—credit default swaps—played a lead role throughout the story. Lest we forget, as a result of the financial crisis, eight million Americans lost their jobs, millions of Americans lost their homes, and small business folded across the country.

Thus, as part of the Dodd-Frank Act of 2010, Congress granted this agency broad authority with regard to security-based swaps.

In the 13 years since, security-based swaps have continued to play an influential role in our markets. Security-based swaps, though, often are thinly traded and bespoke. Today, the security-based swaps markets are approximately $8.5 trillion by gross notional value.

The activities in these markets affect the underlying referenced assets—particularly in the credit and equity markets. Thus, any misconduct in the security-based swaps market not only harms direct counterparties but also can affect reference entities and investors in those reference entities.

Today’s two adoptions will advance the SEC’s work to protect investors and enhance the integrity of these markets.

First, in section 9(j) of the Exchange Act, Congress prohibited any person from engaging in fraudulent, deceptive, or manipulative activity in connection with security-based swap transactions. Further, Congress mandated that the Commission shall put forward rules reasonably designed to prevent such fraudulent, deceptive, or manipulative practices in these markets.

Through today’s adoption, we will fulfill this mandate. Consistent with Dodd-Frank, the rule under section 9(j) takes into account the unique characteristics of a security-based swap and the broad definition of purchase and sale under the Exchange Act. The rule identifies the types of misconduct that are prohibited, including the manipulation of the price or valuation of any security-based swap. The rule also specifies that attempts to engage in covered misconduct, and misconduct in connection with the termination or extinguishment of some (but not all) of the rights or obligations under a security-based swap, are prohibited.

Second, Congress through Dodd-Frank set up a regime for the registration and regulation of security-based swap dealers under new Exchange Act section 15F. Today, we are adopting a rule to prohibit the personnel of security-based swap dealers from unduly influencing their chief compliance officers. The final rule will provide that it is unlawful to coerce, mislead, or otherwise interfere with the CCO carrying out duties related to the federal securities laws. Protecting the independence of these CCOs’ work protects investors and benefits market integrity.

Today’s adoption will mark, since the passage of Dodd-Frank, the completion of 28 rules related to the security-based swaps markets.[1]

This leaves the Commission with two rulemakings related to Dodd-Frank authorities regarding security-based swaps.[2]

One relates to Exchange Act 10B, where Congress gave us authority to require reporting of large security-based swap positions. In 2021, we proposed a rule under Section 10B at the same time as we first proposed today’s rules for adoption.[3] Our work on that rule for possible adoption continues.

The other relates to swap execution facilities (security-based SEFs). In 2022, we proposed rules with regard to security-based SEFs.[4] Work continues on those potential rules as well. If adopted, they would increase the transparency and integrity of these markets.

Given these markets’ size, scale, and importance, it is critical that the Commission protect investors and market integrity through helping prevent fraud, manipulation, and deception relating to security-based swaps. Today’s set of rules will do just that.

I’d like to thank the members of the SEC staff who worked on these final rules, including:

• Haoxiang Zhu, Andrea Orr, David Saltiel, Carol McGee, John Guidroz, Rajal Patel, Pam Carmody, and Will Miller in the Division of Trading and Markets.
• Jessica Wachter, Oliver Richard, Juan Echeverri, Y.C. Loon, Charles Woodworth, and Robert Girouard in the Division of Economic and Risk Analysis;
• Meridith Mitchell, Malou Huth, Robert Teply, Donna Chambers, Sean Bennett, Rachel McKenzie, Laura Jarsulic, and Stephen Ng in the Office of the General Counsel;
• Joshua Brodsky, Armita Cohen, Gregory Smolar, and Stephanie Reinhart in the Division of Enforcement;
• Adam Turk and Andrew Schoeffler in the Division of Corporation Finance; and
• Vivi Mazarakis, Carrie O’Brien, and Bradley Abel in the Division of Examinations.

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