The Securities and Exchange Commission Wednesday said it would start the process of setting rules for how security-based swap execution facilities will operate and how registration of such facilities will work.

Without establishing a date, the SEC said it will propose rules that:

    * Interpret the definition of "security-based SEFs" as set forth in Dodd-Frank.
    * Set out the registration requirements for security-based SEFs.
    * Implement the 14 core principles for security-based SEFs that the legislation outlined.
    * Establish the process for security-based SEFs to file rule changes and new products with the SEC.
    * Exempt security-based SEFs from the definition of "exchange" and from most regulation as a broker.

“Trading on registered security-based SEFs rather than in the over-the-counter markets should serve to enhance the transparency, efficiency, and competitiveness of the trading of security-based swaps,’’ said chairman Mary L. Schapiro. “That is why our rules must be designed to encourage the trading of security-based swaps on these markets in a manner that is transparent and fair.”

The Dodd-Frank Wall Street Reform and Consumer Protection Act authorized the SEC to implement a regulatory framework for security-based swaps, which currently trade exclusively in the over-the-counter markets on a deal-by-deal basis.

Public comments on the rule proposal should be received by the Commission by April 4, 2011.

Roughly speaking, a swaps execution facility is defined under the Dodd-Frank Act as "a trading system or platform in which multiple participants have the ability to execute or trade security-based swaps by accepting bids and offers made by multiple participants in the facility or system, through any means of interstate commerce. . . ."

Here is the background on “core principles” and other features of the rules that the SEC is getting ready to propose.