The SEC on Wednesday voted to propose rules to impose more stringent business conduct standards on swaps dealers, particularly in their dealings with pension plans, endowments and municipalities.
The 5-0 vote by commissioners launches a public comment period until Aug. 29 for the proposed rules, which were mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
For pension funds, governmental plans and other groups that the SEC considers special entities, security-based swap dealers and major swap participants would need to act in the investors’ best interest, and would have to know if those types of investors have independent representatives who can understand and evaluate the pricing and risks of the swap. Those representatives would be subject to pay-to-play regulations, and for ERISA plans, would have to be a fiduciary.
For all potential counterparties, swaps dealers would have to communicate in a fair and balanced manner, and disclose risks, conflicts of interest and material incentives, as well as provide daily valuations.
“The standards we propose today are intended to establish a framework that protects investors and also promotes efficiency, competition, and capital formation,” SEC Chairwoman Mary L. Schapiro said.