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

§ 1A:4.4 BROKER-DEALER REGULATION
(II) whose outstanding security-based swaps create substantial
counterparty exposure that could have serious
adverse effects on the financial stability of the
United States banking system or financial markets; or
(III) that is a financial entity that—
(aa) is highly leveraged relative to the amount of capital
such entity holds and that is not subject to capital
requirements established by an appropriate Federal
banking agency; and
(bb) maintains a substantial position in outstanding
security-based swaps in any major security-based
swap category, as such categories are determined
by the Commission. 306
As with SBS dealers, an entity may be designated a SBS MSP for one or
more categories of SBS without being classified as a SBS MSP for all
classes of SBS. 307
Dodd-Frank requires the SEC to adopt rules, within one year of
enactment of the Act (July 21, 2011), providing for the registration of
SBS Dealers and SBS MSPs. 308 These registration requirements apply
regardless of whether the person is also registered with the CFTC as a
Swap Dealer or MSP. 309 Upon registration as a SBS Dealer or SBS MSP,
an entity will become subject to a number of regulatory requirements,
including:
(i) clearing and exchange trading of formerly over-the-counter
derivatives,
(ii) trade reporting,
(iii) minimum capital and margin requirements,
(iv) segregation of customers’ collateral,
(v) new business conduct standards, and
(vi) position limits.
Certain of these requirements also apply to those entities that trade in
SBS but are not themselves SBS dealers or MSPs. The CFTC’s regime
for regulation of swap dealers and MSPs is largely, though not entirely,
parallel.
There is no exception from the definition of “SBS dealer” or “SBS
MSP,” or the registration requirements for SBS dealers or SBS MSPs,
306. Exchange Act § 3(a)(67)(A), as amended by Dodd-Frank § 761(a).
307. Exchange Act § 3(a)(67)(C), as amended by Dodd-Frank § 761(a).
308. Exchange Act § 15F(d), as amended by Dodd-Frank § 764(a).
309. Exchange Act § 15F(c), as amended by Dodd-Frank § 764(a).
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