§ 240.9j-1 - Prohibition against fraud, manipulation, or deception in connection with security-based swaps.

§ 240.9j-1 xxx

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Prohibition against fraud, manipulation, or deception in connection with security-based swaps.

(a) It shall be 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 (including but not limited to, in whole or in part, the execution, termination (prior to its scheduled maturity date), assignment, exchange, or similar transfer or conveyance of, or extinguishing of any rights or obligations under, a security based-swap, as the context may require), in connection with which such person:

(1) Employs or attempts to employ any device, scheme, or artifice to defraud or manipulate;

(2) Makes or attempts to make any untrue statement of a material fact, or omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading;

(3) Obtains money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading;

(4) Engages in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person;

(5) Attempts to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or attempts to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person; or

(6) Manipulates or attempts to manipulate the price or valuation of any security-based swap, or any payment or delivery related thereto.

(b) Wherever communicating, or purchasing or selling a security (other than a security-based swap) while in possession of material nonpublic information would violate, or result in liability to any purchaser or seller of the security under, either the Act or the Securities Act of 1933, or any rule or regulation thereunder, such conduct in connection with a purchase or sale of a security-based swap with respect to such security or with respect to a group or index of securities including such security shall also violate, and result in comparable liability to any purchaser or seller of that security under, such provision, rule, or regulation.

(c) Wherever taking any of the actions set forth in paragraph (a) of this section involving a security-based swap would violate, or result in liability under, Section 9(j) of the Act or this section, such conduct, when taken by a counterparty to such security-based swap (or any affiliate of, or a person acting in concert with, such security-based swap counterparty in furtherance of such prohibited activity), in connection with a purchase or sale of a security, loan, or group or index of securities on which such security-based swap is based, shall also violate, and shall be deemed a violation of, section 9(j) of the Act or paragraph (a) of this section.

(d) For purposes of this section, the terms “purchase” and “sale” shall have the same meanings as set forth in Sections 3(a)(13) (15 U.S.C. 78c(a)(13)) and 3(a)(14) (15 U.S.C. 78c(a)(14)) of the Act.

(e) A person shall not be liable under paragraphs (a)(1) through (a)(5) of this section solely for being aware of material nonpublic information while taking the following actions:

(1) Actions taken by a person in accordance with binding contractual rights and obligations under a security-based swap (as reflected in the written documentation governing such security-based swap or any amendment thereto) so long as the person demonstrates that:

(i) The security-based swap was entered into, or the amendment was made, before the person became aware of such material nonpublic information, and

(ii) The security-based swap was entered into in good faith and not as part of a plan or scheme to evade the prohibitions of this section.

(2) Actions taken by a person other than a natural person if the person demonstrates that:

(i) The individual making the investment decision on behalf of the person taking the action was not aware of the material nonpublic information, and

(ii) The person had implemented reasonable policies and procedures, taking into consideration the nature of the person's business, to ensure that individuals making investment decisions would not be in violation of paragraphs (a)(1) through (a)(5) of this section. These policies and procedures may include those that restrict effecting a transaction in, or purchasing or selling, any security, including any security-based swap, as to which the person has material nonpublic information, or those that prevent such individuals from becoming aware of such information.

[88 FR 42584, June 30, 2023

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