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SEC Proposes Rules Against Fraud, Manipulation and Deception in Connection with Security-based Swaps
November 16, 2010
On November 3, 2010, the Securities and Exchange Commission (the "SEC") proposed new Rule 9j-1 under the Securities Exchange Act of 1934 (the "Exchange Act"), which is intended to prohibit fraud, manipulation and deception in connection with security-based swaps. The proposed rule is issued as a result of the SEC's expanded anti-manipulation powers under new section 9(j) of the Exchange Act, which was added by the Dodd-Frank Act to specifically authorize the SEC to adopt rules to prevent fraudulent, deceptive or manipulative practices in connection with security-based swaps. Once the Dodd-Frank Act takes effect, security-based swaps will be treated as securities subject to the existing general antifraud and anti-manipulation provisions of the securities laws. However, due to structural differences between security-based swaps and most other securities, the SEC deemed it necessary to go beyond the reach of the current provisions and to explicitly outline the scope of the antifraud and anti-manipulation provisions of the Exchange Act as they relate to security-based swaps.