Two men share securities regulation news

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Securities Regulation Daily, January 3, 2014

CFTC requests comment on cross-border compliance issues, extends no-action relief

By Lene Powell, J.D.

The CFTC requested comment today on a staff advisory issued in November 2013 that clarified the application of transactional-level requirements to swap contracts between a non-U.S. swap dealer and a non-U.S. person. The advisory, which interpreted staff guidance issued on July 26, 2013, that discussed cross-border compliance, generally provided that the transactional requirements for swaps do not apply or are subject to substituted compliance if the activities of the non-U.S. swap dealer take place outside the United States The derivatives industry associations have challenged in court the cross-border guidance, alleging that the CFTC circumvented the requirements of the Administrative Procedure Act (APA) and the Commodity Exchange Act by characterizing its regulations as "guidance" and failed to conduct any cost-benefit analysis.

The request for comment, which was approved three to one with Commissioner Scott O’Malia dissenting, was accompanied by a no-action letter extending relief for non-U.S. swap dealers from the transactional-level requirements for swaps. The deadline for comments will be 60 days after publication in the Federal Register.

CFTC Letter 14-01. The no-action letter extends to non-U.S. swaps dealers the relief provided in CFTC Letter 13-71 until September 15, 2014. Relief was granted for failure to comply with: (a) applicable transaction-level requirements with respect to covered transactions with a non-U.S. swap dealer; and (b) if the covered transaction is with a non-U.S. swap dealer, any transaction-level requirement other than the requirements under Regulations 23.503 and 23.504.

Request for comment. According to the request for comment, the advisory was issued in response to questions by swap market participants regarding compliance by non-U.S. swap dealers with the transactional requirements when using U.S. personnel or agents to enter into swaps with non-U.S. persons. The market participants asked whether the transactional requirements would apply to these swaps, and if so, whether substituted compliance was available for these swaps, even though such swaps are between two non-U.S. persons, regardless of whether the activities of the non-U.S. dealer that result in the swaps take place in the United States.

In response to the questions, the advisory said that for swaps between a non-U.S. swap dealer and a non-U.S. person, the transactional requirements either do not apply or may be subject to substituted compliance if the activities of the non-U.S. dealer take place outside the United States. The advisory further stated that, for transactions arranged, executed, or negotiated by personnel or agents located in the U.S. of non-U.S. dealers (whether affiliates or not of a U.S. person) regularly using personnel or agents located in the U.S. to arrange, negotiate, or execute swaps with non-U.S. persons (covered transactions), the non-U.S. dealer generally would have to comply with the transactional requirements. The staff advisory further stated that this would also apply to a covered transaction booked in a non-U.S. branch of the non-U.S. dealer

The request for comment seeks input on a number of questions: (1) whether the Commission should adopt the advisory as policy; (2) whether transactional requirements should apply to covered transactions with non-U.S. persons who are not guaranteed or conduit affiliates of U.S. persons; (3) whether there should be any differentiation in treatment of swaps with non-U.S. counterparties depending on the nature of the swap dealer (i.e., whether it is a guaranteed affiliate or a conduit affiliate of a U.S. person); (4) whether the non-U.S. swap dealer should be able to rely on a substituted compliance program to comply with the relevant transactional requirements, and if so, which requirements; (5) the meaning of “regularly” in the phrase “regularly using personal or agents located in the U.S. to arrange, negotiate, or execute swaps with non-U.S. persons”; (6) the scope of “arranging, negotiating, or executing” swaps.

Commissioner O’Malia dissent. Commissioner O’Malia dissented from the request for comment, saying it abrogated the CFTC’s legal obligations under the APA and was another example of the Commission’s unsound rule implementation process. According to O’Malia, it was outside the scope of the Guidance and Exemptive Order because it did not address the issue relating to swaps between non-U.S. swap dealers and non-U.S. counterparties acting through agents of the non-U.S. dealers located in the United States. It requested comment on only a narrow issue of the cross-border application of Dodd-Frank, while ignoring dozens of comments filed in response to the Exemptive Order. Commissioner O’Malia posed four questions of his own, including whether covered transactions with non-U.S. persons who are not guaranteed affiliates or conduit affiliates of U.S. persons fall within the CFTC’s jurisdiction.

MainStory: TopStory ExchangesMarketRegulation Derivatives Swaps InternationalNews DoddFrankAct CFTCNews

Securities Regulation Daily

Introducing Wolters Kluwer Securities Regulation Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.


A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.