CFTC Chair Discusses Overseas Application of its Swaps Rules
August 4, 2016
I support the two actions the Commission and staff have taken today, which address issues related to the cross-border application of our rules on swaps. I thank the staff for their hard work on these matters, my fellow Commissioners for their consideration, and the public for their feedback.
Today, the CFTC has issued a final response to the remand order of the U.S. District Court for the District of Columbia in litigation brought by the Securities Industry and Financial Markets Association and other industry associations against the Commission. The litigation challenged the extra-territorial application of several swaps rules and unsuccessfully sought to invalidate the Commission’s 2013 cross-border guidance. Today we have supplemented our earlier answer to the Court’s inquiry regarding the costs and benefits of the overseas application of those rules.
In addition, Commission staff today has extended for another year the previously issued no-action relief from certain transaction-level requirements for transactions between non-U.S. parties that regularly use personnel or agents located in the U.S. to “arrange, negotiate, or execute” them.
These actions are part of our overall effort to address the cross-border implications of swap activity, while at the same time harmonizing derivatives regulation with other jurisdictions as much as possible. The past several years have been marked by progress in this regard. In the last year alone, we have accomplished a great deal in each of the four basic areas of derivatives regulation—central clearing, oversight of swap dealers, trading and reporting. Consider the following:
With regard to central clearing, we and the European Commission agreed upon a common approach regarding requirements for central clearing counterparties (CCPs), which will permit U.S. and European CCPs to continue providing clearing services to entities in each other’s jurisdiction. We also granted exempt status to several foreign clearinghouses. The CFTC is also co-chairing a task force with international regulators to address resiliency requirements and engage in recovery planning, while also participating in international resolution planning for CCPs.
When it comes to the oversight of swap dealers, we harmonized the substance of rules setting margin requirements for uncleared swaps, one of the most important parts of our overall regulatory framework. We also agreed on an international timetable for implementation. Although the European Commission recently delayed their implementation for technical reasons, they have made clear that this delay will be modest. We adopted a cross-border application of our margin rule, which provides a broad scope of substituted compliance. And we are currently working with other jurisdictions on substituted compliance determinations that will supplement those we have previously made in other areas.
On trading, the CFTC is looking at ways to harmonize our swap execution facility rules with those of other jurisdictions. For example, now that the European Securities and Markets Authority has published its MiFiD II technical standards, we are working with our European counterparts to look at differences in our respective rules and make progress toward harmonization. We also recently issued no-action relief to an Australia-based trading platform.
We are focused on harmonizing data reporting standards as well. The CFTC co-chairs an international task force that is leading this effort. CFTC staff is also working with international regulators and the Office of Financial Research to develop effective means to identify swaps and swap activity by participant, transaction and product type throughout the swap lifecycle.
We will continue making progress in all these areas. For example, this fall I intend to ask the Commission to consider a rule to begin to address the “arrange, negotiate, or execute” issues raised by the no-action relief that we have extended today.
Our first responsibility is to implement our nation’s laws faithfully, which requires us to address the cross-border implications of swap activity. A strong global regulatory framework is the best way to do so, and that is why harmonization is so important. To focus on the fact that full harmonization has not been reached, or that progress sometimes occurs in fits and starts, I believe misses the forest for the trees. Regulations are implemented by individual nations, or unions of nations, each of which has its own legal traditions, regulatory philosophies, political processes, and often, statutory timetables. There will always be differences, just as there are in every other area of financial regulation. The more important story is we are making good, steady progress.
Last Updated: August 4, 2016
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