Thank you, Chair Gensler, and thank you to my fellow Commissioners.

Over the last year, we have taken a number of important steps toward fulfilling the agency’s Dodd-Frank mandate to establish a comprehensive regulatory framework for security-based swaps.  We took the final steps to implement our security-based swap entity registration and reporting rules, which should give the SEC improved oversight of, and visibility into, the security-based swap market.[1]  We re-proposed rules designed to prevent fraudulent, manipulative, and deceptive behavior in connection with security-based swaps, and we proposed new rules prohibiting undue influence over the Chief Compliance Officers of security-based swap dealers and major security-based swap participants, and requiring the disclosure of large security-based swap positions.[2]  We also proposed electronic recordkeeping requirements for security-based swap dealers and major security-based participants.[3] 

The security-based swap market was at the center of the events that precipitated the 2008 financial crisis, and it remains a multi-trillion dollar market. [4]  Its size, interconnected nature, and global reach means that events in that market have the potential to echo throughout the financial system.  I am pleased that the agency has made so much progress toward finalizing our Title VII framework, and I congratulate the staff on these significant accomplishments. 

Today, we are considering whether to propose rules that would create a regime for the registration and regulation of security-based swap execution facilities (SBSEFs).[5]  Among the proposed requirements are provisions addressing conflicts of interest involving SBSEFs and security-based swap exchanges, as required by Title VII of the Dodd-Frank Act.[6]

A guiding principle behind the proposal we are considering today is harmonization with the CFTC’s regulatory regime for swap execution facilities (SEFs), which has been effective for a number of years.[7]  As noted in the release, most, if not all entities that we expect to register with the SEC will also be registered as SEFs with the CFTC.[8] Harmonizing with the CFTC to the extent possible, as proposed in the release, should help minimize the costs of compliance for those entities.

However, the security-based swap market is distinct from the swap market, including among other things, a swap that is based on a cash equity, a crypto/digital asset security, or a security option.  And I’ll note that as I understand it, the term “crypto/digital asset security,” as used in this proposal, has the same meaning as the term “digital asset security,” which we have used in past publications, such as the Commission’s 2020 statement on the custody of digital asset securities by special-purpose broker-dealers.[9]  Given that these are distinct markets, there may be instances where differences in the SEC’s statutory authority or differences in the SBS market relative to the swap market may necessitate differences between the Commission’s rules and the CFTC’s. There may also be instances where the benefits of deviating from the CFTC’s rules justify the costs associated with imposing different or additional requirements.  I hope commenters will share their views on whether the proposed approach goes too far, or not far enough, in harmonizing with the CFTC’s regime.

One important aspect of the CFTC’s regime that we are proposing to harmonize with is the use of the Legal Entity Identifier, or LEI, to identify execution facilities.  The LEI is a code that provides a single, unique, international identifier for legal entities.[10]  As such, it facilitates the reliable, consistent identification of entities within and across data sets – such as, for example, the data sets collected by the CFTC and SEC on swap execution facilities. I believe we should leverage the benefits of the LEI by incorporating it into our forms and filings wherever appropriate, and I’m glad that we are proposing to do so here.

Thanks as always to the staff for all of your hard work on this proposal, and your continued work to stand up the Title VII regime.  In particular, I want to join my colleagues in thanking the staff of the Division of Trading and Markets, the Division of Economic and Risk Analysis, and the Office of the General Counsel.  Today’s proposal, if adopted, should bring improved transparency and oversight to the security-based swap market, and I am pleased to support it.