SEC Finalizes Liquidity Dealer Rule

The rule would require unregistered liquidity providers to register as dealers with the SEC.



The Securities and Exchange Commission finalized a rule Tuesday that will require market actors that engage in “significant liquidity-providing roles” to register with the SEC and the Financial Industry Regulatory Authority as securities dealers.

The rule will apply to organizations that regularly engage in trading on both sides of a market for the same security in a manner that makes the security accessible to others. It will also apply to those that earn “revenue primarily from capturing bid-ask spreads.”

The SEC stated that electronic trading has encouraged the growth of unregistered market actors that provide liquidity, when historically that role has been provided by registered dealers. The rule excludes market participants with less than $50 million in assets.

Jay Gould, a special counsel with Baker Botts, says the rule “reaches a pretty narrow set of people,” since many actors involved in liquidity markets are already registered with the SEC. He explains that the target of the rule is likely certain hedge funds that trade Treasurys but do not report certain data to the SEC.

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The SEC “wants transparency into these liquidity transactions to understand the scope of the market,” Gould says, so the regulator can understand which actors are providing it and in what amounts, which can help the SEC assess systemic risk through more thorough data collection.

He adds that the rule is consistent with other SEC rules designed to create more transparency in liquidity markets, such as a rule finalized in December 2023 that requires more secondary Treasury transactions to be centrally cleared.

The rule will take effect 60 days after it is entered into the Federal Register.

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Shell Closes $4.9B Pension Risk Transfer With Prudential

The pension obligations cover 21,500 of the company's retirees, the first large PRT transaction in the U.S. this year. 



Prudential Financial Inc. announced on Wednesday it had closed a $4.9 billion pension risk transfer deal with Shell USA Inc.
 

The transaction would be the first major pension risk transfer in the U.S. this year, following record years for the pension risk transfer market in 2022 and 2023.  

“Prudential is honored to help continue meeting the retirement security needs of Shell’s retirees,” said Alexandra Hyten, head of institutional retirement strategies at Prudential, in a statement. “We are confident that our commitment to flawless execution—from the transaction itself to participant onboarding and service delivery—will serve Shell retirees well, protecting the lifetime income they’ve worked hard to earn.” 

Prudential will take responsibility for making payments to the 21,500 affected Shell retirees beginning May 15. According to Shell’s most recent 5500 filing, the company’s pension fund had 26,536 active participants at the end of the 2022 plan year and 9,299 retired or separated participants entitled to future benefits. At the end of 2022, the plan had assets of $14.468 billion. 

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Including the transaction, Prudential has completed seven of the 10 largest PRT transactions on record, according to the release. These deals include Prudential’s $16 billion pension risk transfer for 100,000 IBM retirement plan participants and beneficiaries in 2022. Prudential innovated the modern pension buyout market with its $25.1 million General Motors deal in 2012. 

2022 was a record year for the PRT market, with $48.3 billion in single-premium buyout deals, according to data from S&P Global Inc., showcasing an increased activity in companies transferring pension liabilities to insurers. According to LGRA, the market for PRT deals is projected to be $45 billion in 2023.  

Pension risk transfers are also increasing at record numbers in the U.K., where higher interest rates have boosted the funded statuses of U.K. pension plans, leading to an increase in transactions as plan sponsors seek to offload their pension liabilities.  

Related Stories: 

Pension Risk Transfer Growth Fuels UK Insurance Rating 

Pension Risk Transfer Contracts Hit Record Numbers in 3Q 

Pension Risk Transfers Poised for 2nd Strongest Year Ever 

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