The security-based swap market has a gross notional amount outstanding of approximately
The SEC adopted Rule 9j-1 to criminalize fraud, manipulation, and insider trading in the $8.5 trillion security-based swap market and Rule 15fh-4(c) to protect CCO independence, with both rules becoming effective 60 days after Federal Register publication.
The SEC adopted Rule 9j-1 to make it unlawful to engage in fraud, manipulation, or deception in security-based swap transactions, including using material nonpublic information to trade SBS instruments—closing a key loophole that previously allowed evasion of insider trading liability. The rule targets misconduct such as false statements, price manipulation, and deceptive schemes tied to the $8.5 trillion SBS market and provides two affirmative defenses for compliant contractual actions and inadvertent trades by entities with robust compliance policies. Concurrently, Rule 15fh-4(c) prohibits SBS entity personnel from coercing, misleading, or interfering with Chief Compliance Officers, ensuring their independence in enforcing federal securities laws.
The U.S. Securities and Exchange Commission adopted two final rules to strengthen oversight of the $8.5 trillion security-based swap (SBS) market, effective 60 days after publication in the Federal Register. Rule 9j-1 makes it unlawful to employ any device, scheme, or artifice to defraud, make material misstatements, manipulate SBS prices or valuations, or obtain money through deception in connection with SBS transactions. Crucially, the rule clarifies that trading SBS based on material nonpublic information about the underlying security constitutes insider trading liability, closing a previously exploited loophole. Rule 9j-1 also provides two affirmative defenses: compliance with binding written contractual obligations and transactions by entities that lacked knowledge of material nonpublic information while maintaining reasonable compliance policies. Separately, Rule 15fh-4(c) protects the independence of Chief Compliance Officers (CCOs) at SBS entities by prohibiting officers, directors, or employees from coercing, manipulating, misleading, or fraudulently influencing the CCO in performing their regulatory duties. Together, these rules enhance the SEC’s ability to detect, deter, and prosecute misconduct in the complex and high-stakes SBS market while reinforcing accountability and compliance culture within regulated firms.
Extracted insights
- $8500.00B $8.5 trillion ≥$1B
- agency Securities and Exchange Commission
- U.S. Securities and Exchange Commission Adopted Rule 9j-1 under the Securities Exchange Act of 1934 to prevent fraud, manipulation, and deception in security‑based swap transactions
- U.S. Securities and Exchange Commission Adopted Rule 15fh-4(c) under the Exchange Act to prohibit undue influence over the Chief Compliance Officer of an SBS Entity
- Rule 9j-1 Makes Unlawful Any person to effect or attempt to effect any transaction in a security‑based swap in connection with fraud or manipulation
- Rule 15fh-4(c) Prohibits Any officer, director, supervised person, or employee of an SBS Entity from coercing, manipulating, misleading, or fraudulently influencing the CCO
Warning: TT: undefined function: 32 FACT SHEET Final Rules: SBS Fraud & Manipulation; CCO Independence U.S. SECURITIES AND EXCHANGE COMMISSION PAGE 1 OF 2 Why This Matters The security-based swap market has a gross notional amount outstanding of approximately $8.5 trillion as of late 2022, and the particular aspects and characteristics of security-based swaps provide opportunities and incentives for misconduct. Rule 9j-1 will be an important additional tool to augment the Commission’s oversight of the security-based swap markets and will aid the Commission in its pursuit of actions that directly target misconduct that reaches security-based swaps. Rule 15fh-4(c) will protect the independence and objectivity of an SBS Entity’s CCO by preventing the personnel of an SBS Entity from taking actions to coerce, mislead, or otherwise interfere with the CCO. How This Rule Applies Rule 9j-1 will: ● Make it unlawful for any person, directly or indirectly, to effect any transaction in, or attempt to effect any transaction in, any security-based swap, or to purchase or sell, or induce or attempt to induce the purchase or sale of, any security-based swap in connection with the following misconduct: ○ Employing or attempting to employ any device, scheme, or artifice to defraud or manipulate; ○ Making or attempting to make any untrue statement of a material fact, or omitting a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading; ○ Obtaining money or property by means of any untrue statement of a material fact or any omission of a material fact; The Securities and Exchange Commission adopted new Rule 9j-1 under the Securities Exchange Act of 1934 to prevent fraud, manipulation, and deception in connection with security- based swap transactions. In addition, the Commission adopted Rule 15fh-4(c) under the Exchange Act to prohibit undue influence over the Chief Compliance Officer (CCO) of a security-based swap dealer or a major security-based swap participant (each, an SBS Entity). FACT SHEET | Final Rules: SBS Fraud & Manipulation; CCO Independence U.S. SECURITIES AND EXCHANGE COMMISSION Page 2 of 2 ○ Engaging in any act, practice, or course of business that operates or would operate as a fraud or deceit upon any person; ○ Attempting to obtain money or property by means of any untrue statement of a material fact or omission of a material fact, or attempting to engage in any act, practice, or course of business that operates or would operate as a fraud or deceit upon any person; or ○ Manipulating or attempting to manipulate the price or valuation of any security-based swap or any payment or delivery related thereto. ● Provide two affirmative defenses for actions taken in accordance with binding rights and obligations in written security-based swap documentation and for transactions by entities when the individual at the entity making the investment decision was not aware of material nonpublic information and the entity had implemented reasonable policies and procedures to prevent violations of the rule; and ● Provide that a person cannot escape liability for trading based on possession of material non-public information about a security by purchasing or selling a security- based swap based on that security and cannot escape liability under the rule by purchasing or selling the underlying security (as opposed to purchasing or selling a security-based swap that is based on that security). Exchange Act Rule 15fh-4(c) will: ● Prohibit any officer, director, supervised person, or employee of an SBS Entity, or any person acting under such person's direction, to take any action to coerce, manipulate, mislead, or fraudulently influence the SBS Entity's CCO in the performance of their duties under the federal securities laws. What’s Next The final rules will become effective 60 days after the date of publication of the adopting release in the Federal Register.
FACT SHEET Final Rules: SBS Fraud & Manipulation; CCO Independence U.S. SECURITIES AND EXCHANGE COMMISSION PAGE 1 OF 2 Why This Matters The security-based swap market has a gross notional amount outstanding of approximately $8.5 trillion as of late 2022, and the particular aspects and characteristics of security-based swaps provide opportunities and incentives for misconduct. Rule 9j-1 will be an important additional tool to augment the Commission’s oversight of the security-based swap markets and will aid the Commission in its pursuit of actions that directly target misconduct that reaches security-based swaps. Rule 15fh-4(c) will protect the independence and objectivity of an SBS Entity’s CCO by preventing the personnel of an SBS Entity from taking actions to coerce, mislead, or otherwise interfere with the CCO. How This Rule Applies Rule 9j-1 will: ● Make it unlawful for any person, directly or indirectly, to effect any transaction in, or attempt to effect any transaction in, any security-based swap, or to purchase or sell, or induce or attempt to induce the purchase or sale of, any security-based swap in connection with the following misconduct: ○ Employing or attempting to employ any device, scheme, or artifice to defraud or manipulate; ○ Making or attempting to make any untrue statement of a material fact, or omitting a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading; ○ Obtaining money or property by means of any untrue statement of a material fact or any omission of a material fact; The Securities and Exchange Commission adopted new Rule 9j-1 under the Securities Exchange Act of 1934 to prevent fraud, manipulation, and deception in connection with security- based swap transactions. In addition, the Commission adopted Rule 15fh-4(c) under the Exchange Act to prohibit undue influence over the Chief Compliance Officer (CCO) of a security-based swap dealer or a major security-based swap participant (each, an SBS Entity). FACT SHEET | Final Rules: SBS Fraud & Manipulation; CCO Independence U.S. SECURITIES AND EXCHANGE COMMISSION Page 2 of 2 ○ Engaging in any act, practice, or course of business that operates or would operate as a fraud or deceit upon any person; ○ Attempting to obtain money or property by means of any untrue statement of a material fact or omission of a material fact, or attempting to engage in any act, practice, or course of business that operates or would operate as a fraud or deceit upon any person; or ○ Manipulating or attempting to manipulate the price or valuation of any security-based swap or any payment or delivery related thereto. ● Provide two affirmative defenses for actions taken in accordance with binding rights and obligations in written security-based swap documentation and for transactions by entities when the individual at the entity making the investment decision was not aware of material nonpublic information and the entity had implemented reasonable policies and procedures to prevent violations of the rule; and ● Provide that a person cannot escape liability for trading based on possession of material non-public information about a security by purchasing or selling a security- based swap based on that security and cannot escape liability under the rule by purchasing or selling the underlying security (as opposed to purchasing or selling a security-based swap that is based on that security). Exchange Act Rule 15fh-4(c) will: ● Prohibit any officer, director, supervised person, or employee of an SBS Entity, or any person acting under such person's direction, to take any action to coerce, manipulate, mislead, or fraudulently influence the SBS Entity's CCO in the performance of their duties under the federal securities laws. What’s Next The final rules will become effective 60 days after the date of publication of the adopting release in the Federal Register. Why This Matters How This Rule Applies What’s Next