What is a Broker-Dealer? - Davis Polk & Wardwell

§ 1A:4.4 BROKER-DEALER REGULATION
However, “security-based swap” specifically does not include agreements,
contracts or transactions that only meet the definition of SBS
due to referencing, being based upon, or settling through the transfer,
delivery or receipt of government securities and certain other “exempted
securities” (not including municipal securities). 299 The effect
of this is to allocate jurisdiction of swaps on government securities to
the CFTC.
Certain options and physically settled forwards on securities are
excluded from the definitions of “swap” and “security-based swap,”
but continue to be “securities” under the Exchange Act. 300
Dodd-Frank adds “security-based swap” to the definition of “security”
in section 3(a)(10) of the Exchange Act. 301 Before Dodd-Frank,
section 3A of the Exchange Act excluded “non-security-based swap
agreements” from the definition of “security” for all purposes of the
Exchange Act, and “security-based swap agreements” for purposes of
the Exchange Act other than certain anti-fraud, anti-manipulation,
and insider trading purposes. Section 3A has been amended to remove
reference to “non-security-based swap agreements.” New section 3A(b)(1)
of the Exchange Act provides that the definition of security “shall not
include any security-based swap agreement.”
New and amended definitions of “swap agreement” and “securitybased
swap agreement” can be found in infra Appendix 1A-A. Significantly,
the definition of “security-based swap agreement” excludes
any SBS. Therefore, amended section 3A only serves to exclude from
the definition of “security” only certain securities-related derivatives
that do not constitute SBS as defined above.
[C][1][b] “SBS Dealer,” “SBS MSP” and “SBS SEF”
In addition to regulation of swap and SBS products, Dodd-Frank
establishes a regime for the regulation of participants in the swap and
299. Exchange Act § 3(a)(68)(C), as amended by Dodd-Frank § 761(a).
300. The Dodd-Frank derivatives title excludes from the definitions of SBS and
“security-based swap agreement” certain “identified banking products”
that are effected by a bank under the jurisdiction of an appropriate federal
banking agency: (1) a deposit account, savings account, certificate of
deposit or other deposit instrument issued by a bank; (2) a banker’s
acceptance; (3) a letter of credit issued or a loan made by a bank; (4) a
debit account at a bank arising from a credit card or similar arrangement;
and (5) a participation, sold to certain persons, in a loan that the bank or
an affiliate of the bank, other than a broker or dealer, has funded and
participates in or owns. However, Dodd-Frank authorizes the appropriate
federal banking agency to except an identified banking product from the
exclusion above if it determines, in consultation with the CFTC and the
SEC, that the product has been structured to evade the Commodity
Exchange Act or the Exchange Act.
301. Exchange Act § 3(a)(10), as amended by Dodd-Frank § 761(a).
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