Statement on the Adoption of Rules 9J-1 and 15fh-4(c)

Thank you, Chair Gensler, and thank you to my fellow Commissioners. The need for increased regulatory oversight of the security-based swap market became abundantly clear following the 2008 financial crisis, in which security-based swaps played a central role.[1] In the years since, we have continued to see fraud and misconduct in that market, often in new, complex, and evolving forms.[2] In the wake of the crisis, Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act accorded additional regulatory authority to the SEC,[3] including to implement the security-based swap registration and reporting framework that was finalized in the fall of 2020.[4] Since then, as we have worked to implement our Title VII mandate, we have been reminded periodically of the continuing importance of the security-based swap market, including how events in that market can reverberate throughout the financial system.[5]

As my colleagues have explained, this rulemaking consists of two new rules relating to fraud, manipulation, and deception in the security-based swap market.[6] First, Rule 9j-1 would fulfill our statutory mandate to define, and prescribe means reasonably designed to prevent, fraudulent, manipulative, and deceptive behavior in connection with security-based swaps.[7] This anti-fraud rule takes into account the features fundamental to a security-based swap and the broad definitions of “purchase” and “sale” under the relevant statutes.[8] Among other types of misconduct, the rule should help address manufactured credit events and other opportunistic strategies in the credit derivatives market. The rule would also provide additional specificity and precision regarding the application of existing antifraud and anti-manipulation laws to other types of misconduct. This clarity should enhance the SEC’s oversight of this market, and benefit market participants of all types.

We are also adopting a new rule prohibiting undue influence over the Chief Compliance Officers (CCOs) of security-based swap dealers and major security-based swap participants. CCOs play a crucial role in promoting entities’ compliance with all of the federal securities laws. This is no different in the security-based swap market. The rule is designed to safeguard the independence and objectivity of a security-based swap entity’s CCO by preventing the personnel of that entity from taking actions to coerce, mislead, or otherwise interfere with the CCO. This common-sense safeguard should help empower and support CCOs in establishing a strong and committed culture of compliance among securities-based swap entities as they begin to fulfill their obligations under the Title VII regulatory framework.

I would like to echo my fellow Commissioners in thanking all of the staff who worked on these two rules. In particular, I’d like to thank the staff in the Division of Trading and Markets, the Office of General Counsel, the Division of Economic and Risk Analysis, and the Division of Enforcement. I truly appreciate your hard work, expertise, and dedication, as well as your responsiveness to my questions and the time spent on calls with me and my staff. This is an important rulemaking that should help promote the integrity of the security-based swap markets, and I am pleased to support it.