SEC Proposes Fiduciary Duty for Public-Fund Swap Advisers

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The U.S. Securities and Exchange Commission proposed a rule that would impose the fiduciary duty as part of business-conduct practices for swap dealers advising so-called special entities.    The rule would require swap dealers advising pension funds, endowments and municipalities to place the interests of such investors above their own.    Dealers would also have to “reasonably believe” the investors have an independent representative capable of evaluating risks.

The Dodd-Frank Act required regulators including the SEC, which oversees security-based swaps, to crack down on abuses in sales to states, cities and school districts.     The Commodity Futures Trading Commission, which oversees swaps tied to interest rates, has already proposed a similar rule.

In addition, the proposed rule would require dealers to provide counterparties with material information about swaps, including risks and conflicts of interest.    Dealers would have to provide information on daily valuations and determine whether recommendations to clients meet suitability standards.

The SEC will seek public comment through Aug. 29 on the rule.

Anna Timone (195 Posts)

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