An SB swap is defined as a “swap” (as defined under the Commodity Exchange Act Section 1a) that is on a narrow-based security index, a single security or loan, or an event relating to a single issuer of a security or the issuers of securities in a narrow-based security index, provided that the event affects the finances of the issuer. 15 U.S.C. § 78c(a)(68).3 A major SB swap participant is a person that holds a substantial position in SB swaps but is not a SB swap dealer. 17 C.F.R. § 240.3a67-1; see also 17 C.F.R. § 240.3a67-2.4 The term “persons associated with” or “associated persons of” an SBS Entity are defined to include: (a) partners, officers or directors of an SBS Entity, (b) any person controlling, controlled by or under common control with an SBS Entity, and (c) any employee of an SBS Entity other than employees whose functions are solely clerical or ministerial.

Because a “person” includes both natural persons and companies (15 USC § 80b-2(a)(16)), associated persons of an investment adviser include entities that control or are controlled by an investment adviser. By contrast, when the Exchange Act refers to associated persons of a broker or dealer, it is understood to include, among others, persons (including companies) controlling, controlled by or under common control with, such broker or dealer. See 15 USC §§ 78c(a)(9), 78c(a)(18). 12 The Dodd-Frank Act does not amend the Exchange Act to include a definition of the term “associated person of a commodity trading advisor.”

In re Blockchain Credit Partners d/b/a DeFi Money Market, Securities and Exchange Commission File No. 3-20453 (Aug. 6, 2021), https://www.sec.gov/litigation/admin/2021/33-10961.pdf (DMM Order). 494 U.S. at 60. 15 U.S.C. §78c(a)(10). The Securities Act of 1933 contains a similar definition, and the Court has interpreted the two identically.

In particular, the terms “security” and “securities” are very broadly defined in the Securities Act and Securities Exchange Act to include not only traditional stocks and bonds but any “investment contract,” among other items. See 15 U.S.C. § 77b(a)(1); 15 U.S.C. § 78c(a)(10).[1] The U.S. Supreme Court has in turn interpreted “investment contract” to mean “a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”

t Union Act (12 U.S.C. §1752).Depository institution holding company (Exemption #5)—An entity qualifies for this exemption if either of the following two criteria apply: (i) the entity is a “bank holding company” as defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. §1841), or (ii) the entity is a “savings and loan holding company” as defined in section 10(a) of the Home Owners’ Loan Act (12 U.S.C. §1467a).Money transmitting business (Exemption # 6)—An entity qualifies for this exemption if either of the following two criteria apply: (i) the entity is a money-transmitting business registered with FinCEN under 31 U.S.C. §5330; or (ii) the entity is a money-services business registered with FinCEN under 31 C.R.F. §1022.380.Broker or dealer in securities (Exemption #7)—An entity qualifies for this exemption if both of the following criteria apply: (i) the entity is a “broker” or “dealer,” as those terms are defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. §78c), and (ii) the entity is registered under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. §78o).Securities exchange or clearing agency (Exemption #8)—An entity qualifies for this exemption if both of the following criteria apply: (i) the entity is an “exchange” or “clearing agency” as those terms are defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. §78c), and (ii) the entity is registered under sections 6 (15 U.S.C. 78f) and 17A (15 U.S.C. §78q-1) of that Act.Other Exchange Act registered entity (Exemption #9)—An entity qualifies for this exemption if both of the following criteria apply: (i) the entity is not a securities reporting issuer as defined in Exemption #1, broker or dealer as defined in Exemption #7, or securities exchange or clearing agency as defined under Exemption #8; and (ii) the entity is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934.Investment company or investment advisor (Exemp

on Act (12 U.S.C. § 1752).Depository institution holding company (Exemption #5)—An entity qualifies for this exemption if either of the following two criteria apply: (i) the entity is a “bank holding company” as defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. § 1841), or (ii) the entity is a “savings and loan holding company” as defined in section 10(a) of the Home Owners’ Loan Act (12 U.S.C. § 1467a).Money transmitting business (Exemption # 6)—An entity qualifies for this exemption if either of the following two criteria apply: (i) the entity is a money-transmitting business registered with FinCEN under 31 U.S.C. § 5330; or (ii) the entity is a money-services business registered with FinCEN under 31 C.R.F. § 1022.380.Broker or dealer in securities (Exemption #7)—An entity qualifies for this exemption if both of the following criteria apply: (i) the entity is a “broker” or “dealer,” as those terms are defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. § 78c), and (ii) the entity is registered under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. § 78o).Securities exchange or clearing agency (Exemption #8)—An entity qualifies for this exemption if both of the following criteria apply: (i) the entity is an “exchange” or “clearing agency” as those terms are defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. § 78c), and (ii) the entity is registered under sections 6 (15 U.S.C. 78f) and 17A (15 U.S.C. § 78q-1) of that Act.Other Exchange Act registered entity (Exemption #9)—An entity qualifies for this exemption if both of the following criteria apply: (i) the entity is not a securities reporting issuer as defined in Exemption #1, broker or dealer as defined in Exemption #7, or securities exchange or clearing agency as defined under Exemption #8; and (ii) the entity is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934.Investment company or investment advisor (Ex

er-wants-to-regulate-crypto.16See Press Release, Sec. & Exch. Comm’n, SEC Charges Crypto Asset Trading Platform Bittrex and its Former CEO for Operating an Unregistered Exchange, Broker, and Clearing Agency (Apr. 17, 2023), https://www.sec.gov/news/press-release/2023-78.17See Press Release, Sec. & Exch. Comm’n, SEC Charges Crypto Trading Platform Beaxy and its Executives for Operating an Unregistered Exchange, Broker, and Clearing Agency (Mar. 29, 2023), https://www.sec.gov/news/press-release/2023-64.18According to the SEC, a firm must register as an exchange when it facilitates the trading of digital assets that qualify as securities and meets the definition of “exchange” as defined under the federal securities laws. See Sec. & Exch. Comm’n, Cryptocurrency/ICOs (May 18, 2023), https://www.sec.gov/securities-topics/ICO.19The U.S. Securities Exchange Act of 1934 defines a “broker” as “any person engaged in the business of effecting transactions in securities for the account of others.” 15 U.S.C. § 78c(a)(4).20The U.S. Securities Exchange Act of 1934 defines a “clearing agency” as “any person who acts as an intermediary in making payments or deliveries or both in connection with transactions in securities or who provides facilities for comparison of data respecting the terms of settlement of securities transactions, to reduce the number of settlements of securities transactions, or for the allocation of securities settlement responsibilities.” 15 U.S.C. § 78c(a)(23).21See Press Release, Sec. & Exch. Comm’n, Kraken to Discontinue Unregistered Offer and Sale of Crypto Asset Staking-As-A-Service Program and Pay $30 Million to Settle SEC Charges (Feb. 9, 2023), https://www.sec.gov/news/press-release/2023-25.22See Rebecca Fike & Eli Sterbcow, A Stake in the Ground? — What the SEC’s Settlement With Kraken Tells Us About the Future of Crypto Regulation and Enforcement, Vinson & Elkins LLP (Feb. 27, 2023), https://www.velaw.com/insights/a-stake-in-the-ground-what-the-secs-settlement-with-kraken-t

that is an issuer of a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 781) or that is required to file reports under section 15(d) of that Act (15 U.S.C. 78o(d)); A business concern constituted, sponsored, or chartered by a State or Indian Tribe, a political subdivision of a State or Indian Tribe, under an interstate compact between two or more States, by a department or agency of the United States, or under the laws of the United States; A depository institution (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813); A credit union (as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752); A bank holding company (as defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841)) or a savings and loan holding company (as defined in section 10(a) of the Home Owners’ Loan Act (12 U.S.C. 1467a(a)); A broker or dealer (as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c)) that is registered under section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o); An exchange or clearing agency (as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c)) that is registered under section 6 or 17A of the Securities Exchange Act of 1934 (15 U.S.C. 78fand 78q–1); An investment company (as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a–3)) or an investment adviser (as defined in section 202(11) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–2(11))), if the company or adviser is registered with the Securities and Exchange Commission, has filed an application for registration which has not been denied, under the Investment Company Act of 1940 (15 U.S.C. 80a–1et seq.) or the Investment Adviser Act of 1940 (15 U.S.C. 80b–1et seq.), or is an investment adviser described under section 203(l) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–3(l)); An insurance company (as defined in section 2 of the Invest

The Commission’s proposed rule is Release No. 34-94524; File No. S7-12-22. Public comments may be submitted until at least May 27, 2022.SEC Proposes Rules to Include Certain Significant Market Participants as “Dealers” or “Government Securities Dealers”, Securities and Exchange Commission (Mar. 28, 2022) available at https://www.sec.gov/news/press-release/2022-54. 15 U.S.C. § 78c(a)(5)(A). 15 U.S.C. § 78c(a)(5)(B).

This Client Alert details:the proposed amendments to the definition of exchange in Rule 3b-16; andthe potential avenues for challenging the proposed amendments to Rule 3b-16—either through public comment or litigation. The Proposed Redefinition of ExchangeCurrently, Rule 3b-16(a) contains the following definition for exchange:(a) An organization, association, or group of persons shall be considered to constitute, maintain, or provide ‘a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange,’ as those terms are used in section 3(a)(1) of the Act, (15 U.S.C. 78c(a)(1)), if such organization, association, or group of persons:Brings together the orders for securities of multiple buyers and sellers; andUses established, non-discretionary methods (whether by providing a trading facility or by setting rules) under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of a trade.5The SEC is proposing significant amendments to subsections 1 and 2 of Rule 3b-16(a).