§ 240.15Fh-4 Antifraud provisions for security-based swap dealers and major security-based swap participants; special requirements for security-based swap dealers acting as advisors to special entities.  


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  • (a) Antifraud provisions. It shall be unlawful for a security-based swap dealer or major security-based swap participant:

    (1) To employ any device, scheme, or artifice to defraud any special entity or prospective customer who is a special entity;

    (2) To engage in any transaction, practice, or course of business that operates as a fraud or deceit on any special entity or prospective customer who is a special entity; or

    (3) To engage in any act, practice, or course of business that is fraudulent, deceptive, or manipulative.

    (b) Special requirements for security-based swap dealers acting as advisors to special entities. A security-based swap dealer that acts as an advisor to a special entity regarding a security-based swap shall comply with the following requirements:

    (1) Duty. The security-based swap dealer shall have a duty to make a reasonable determination that any security-based swap or trading strategy involving a security-based swap recommended by the security-based swap dealer is in the best interests of the special entity.

    (2) Reasonable efforts. The security-based swap dealer shall make reasonable efforts to obtain such information that the security-based swap dealer considers necessary to make a reasonable determination that a security-based swap or trading strategy involving a security-based swap is in the best interests of the special entity. This information shall include, but not be limited to:

    (i) The authority of the special entity to enter into a security-based swap;

    (ii) The financial status of the special entity, as well as future funding needs;

    (iii) The tax status of the special entity;

    (iv) The hedging, investment, financing or other objectives of the special entity;

    (v) The experience of the special entity with respect to entering into security-based swaps, generally, and security-based swaps of the type and complexity being recommended;

    (vi) Whether the special entity has the financial capability to withstand changes in market conditions during the term of the security-based swap; and

    (vii) Such other information as is relevant to the particular facts and circumstances of the special entity, market conditions and the type of security-based swap or trading strategy involving a security-based swap being recommended.

    (3) Exception. The requirements of this paragraph (b) shall not apply with respect to a security-based swap if:

    (i) The transaction is executed on a registered or exempt security-based swap execution facility or registered national securities exchange; and

    (ii) The security-based swap dealer does not know the identity of the counterparty at a reasonably sufficient time prior to execution of the transaction to permit the security-based swap dealer to comply with the obligations of paragraph (b) of this section.

    [81 FR 30144, May 13, 2016]

[81 FR 30144, May 13, 2016