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

SBS markets. In particular, with respect to SBS, participants may be
required to register as “SBS dealers” or “SBS MSPs,” thereby becoming
subject to significant regulation of their SBS activities as described
below. Dodd-Frank defines a SBS dealer as:
any person who—
(i) holds themself out as a dealer in security-based swaps;
(ii) makes a market in security-based swaps;
(iii) regularly enters into security-based swaps with counterparties
as an ordinary course of business for its own account; or
(iv) engages in any activity causing it to be commonly known in
the trade as a dealer or market maker in security-based
swaps. 302
The definition of SBS dealer specifically excludes “a person that
enters into security-based swaps for such person’s own account, either
individually or in a fiduciary capacity, but not as a part of regular
business” 303 and contains an exemption for an entity that “engages in
a de minimis quantity of security-based swap dealing in connection
with transactions with or on behalf of its customers.” 304 A person may
be designated a SBS dealer for one type, class, or category of SBS, and
not be considered a SBS dealer for other types, classes or categories of
SBS or activities. 305
In addition to the new category of “SBS dealer,” Dodd-Frank creates
a new designation for significant SBS market participants that are not
dealers—SBS MSP. A SBS MSP is defined in Dodd-Frank as:
any person—
What Is a Broker-Dealer? § 1A:4.4
(i) who is not a security-based swap dealer; and
(ii) (I) who maintains a substantial position in security-based
swaps for any of the major security-based swap categories,
as such categories are determined by the Commission,
excluding both positions held for hedging or
mitigating commercial risk and positions maintained
by any employee benefit plan (or any contract held by
such a plan) as defined in paragraphs (3) and (32) of
section 3 of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1002) for the primary purpose
of hedging or mitigating any risk directly associated
with the operation of the plan;
302. Exchange Act § 3(a)(71)(A), as amended by Dodd-Frank § 761(a).
303. Exchange Act § 3(a)(71)(C), as amended by Dodd-Frank § 761(a).
304. Exchange Act § 3(a)(71)(D), as amended by Dodd-Frank § 761(a).
305. Exchange Act § 3(a)(71)(B), as amended by Dodd-Frank § 761(a).
(Broker-Dealer Reg., Rel. #9, 9/10)
1A–71