SEC Updates Wall Street Rules For Security-Based Swaps, Adds More Transparency

The U.S. Securities and Exchange Commission (SEC) announced new rules on Thursday related to security-based swaps, updating reforms passed in the 2010 Dodd-Frank Act.

The new rules and regulations allow security-based swaps trading platforms to register with the regulatory agency. This will grant the facilities to receive a process and regulations for how it should execute its trades. 

“The adoption makes a traditionally opaque market more transparent,” SEC Chair Gary Gensler said.

What Security-Based Swaps Are: Security-based swaps are a way for firms to bet on the future performance of a security or commodity without necessarily owning the underlying commodity. This makes it easier for firms to hedge against existing positions, and can often be a "win-win" scenario for both firms involved in the trade. 

The SEC hoped the new rules would lead to more transparency in the security-based swap world, which accounted for more than $8 trillion a year, according to Bloomberg. 

“To enhance transparency and oversight of the over-the-counter derivatives market, Title VII of the Dodd-Frank Act requires the Commission to implement a regulatory framework for SBS that requires the registration and regulation of SBSEFs and mitigates conflicts of interest on SBSEFs and SBS exchanges,” a fact-sheet from the SEC reads. 

A handful of companies were expected to register with the SEC using its new regulations. The SEC’s new rules were part of a larger effort to make Wall Street more transparent, which lawmakers have been calling for since the 2008 financial crisis.

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