SEC Proposes Antifraud Derivatives Rule Related to Securities-Based Swaps

The Securities and Commission has agreed to propose an antifraud rule that deals with the issue of security-based swaps-related fraud, manipulation, and deception. The proposed Rule 9j-1 would bar fraud and manipulation in the offer, sale, and purchase of the swaps. Unlike regular securities transactions, securities-based swaps involve ongoing payments and deliveries between when they are bought and sold. The issues of payments, deliveries, and other rights and obligations are also tackled.

SEC Chairman Mary Schapiro says that the proposed rule would be an important way to make sure that the swap market is run with integrity while allowing the Commission the chance to target potential fraud or other misconduct through enforcement. The relevant change with this proposed rule from current antifraud provisions Section 17(a) of the 1933 Securities Act and Section 10(b) of the 1934 Act is that the proposed rule is applicable to ongoing rights and activities.

The Dodd-Frank Wall Street Reform and Consumer Protection Act has given oversight of security-based swaps to the SEC, while the Commodity Futures Trading Commission is charged with overseeing non-security-based swaps. The CFTC had already proposed its anti-manipulation rule amendments dealing with manipulative and fraudulent conduct of swaps under its jurisdiction.

The SEC has also agreed to propose rules to effect a whistleblower bounty program.

Related Web Resources:
SEC Targets Security-Based Swaps,, November 19, 2010

SEC reveals security-based swap rules, GFSNews, November 22, 2010

Securities and Exchange Commission

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