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by Fred Bellamy, Jamie Cain, Tom Gick, Steve
Roth, and Ann Battle
In addition to requiring the Commodity Futures Trading
Commission (the CFTC) and the Securities and Exchange Commission (the SEC) to
promulgate rules further defining the terms "swap" and "security-based swap"
under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
Dodd-Frank Act), Title VII of the Dodd-Frank Act requires the CFTC and the SEC
to conduct a study of whether stable value contracts (SVCs) fall within the
term "swap." This study is to be completed by October 21, 2011, 15 months after
the enactment of the Dodd-Frank Act. In furtherance of their study, the CFTC and
the SEC have published a request for public comment on SVCs (the SVC Joint
Release), a copy of which is available here. Comments are due on
September 26, 2011.
The definition of swap contained in Section 1a(47) of the
Commodity Exchange Act (the CEA), as amended by the Dodd-Frank Act, and the
definition of security-based swap contained in Section 3(a)(68) of the
Securities Exchange Act (the Exchange Act), as amended by the Dodd-Frank Act,
are very broad and could encompass a number of commercial instruments,
including insurance and annuity products, that historically have not been
considered swaps. The CFTC and the SEC previously issued joint proposed rules
and interpretive guidance further defining the terms "swap" and "security-based
swap" (the Product Definition Joint Release). A copy of the Product Definition
Joint Release is available here, and copies of the public comments
received in response to it are available here. Both the proposed rules
and the interpretive guidance contained in the Product Definition Joint Release
clarify that certain insurance and annuity contracts are not swaps under the
CEA or security-based swaps under the Exchange Act, but they do not address
The Dodd-Frank Act directs the CFTC and the SEC to (a)
determine whether SVCs fall within the definition of swap and (b) if the CFTC
and the SEC determine that SVCs fall within the definition of swap, determine
whether it is "appropriate and in the public interest" to exempt SVCs from the
definition of swap and issue regulations implementing such determinations. Until
the effective date of such regulations, SVCs will not be subject to regulation
under Title VII of the Dodd-Frank Act. In addition, the Dodd-Frank Act
clarifies that any SVCs in effect prior to the effective date of such
regulations will not be considered swaps.
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