Thursday, June 28, 2012

Chamber of Commerce Urges CFTC to Conduct Formal Rulemaking on Cross-Border Application of Dodd-Frank Swaps Dealer Provisions

In a letter to CFTC Chair Gary Gensler, the US Chamber of Commerce expressed concern about reports that the Commission intends to address the extraterritorial application of the swaps dealer provisions of the Dodd-Frank Act through interpretative guidance rather than in a release that the Commission denominates a substantive rule and promulgates according to the procedures required for such rules. The Chamber noted suggestions that the Commission is considering proceeding in this manner to avoid the requirements of Section 15(a) of the Commodity Exchange Act, which directs the Commission to evaluate the costs and benefits of its actions in light of their effects on efficiency, competitiveness, and price discovery.

The Chamber urged the CFTC to conduct a full rulemaking, taking and considering public comments on the proposal in accordance with the Administrative Procedure Act and giving full consideration to the economic consequences of its action. In the Chamber’s view, setting an appropriate scope for Dodd-Frank’s extraterritorial application is crucial for achieving effective cross-border swaps regulation.

The letter went on to express the Chamber’s agreement with the position of European Commissioner for the Internal Market Michel Barnier that where the rules of a foreign country are comparable and consistent with the objectives of U.S. law, it is reasonable to expect U.S. authorities to rely on those rules and recognize activities regulated under them as compliant  with U.S. regulations. The Chamber cautioned that an overly-broad extraterritorial application of new derivatives regulations could create competitive disadvantages for U.S. firms. Foreign branches of U.S. firms could have to comply with U.S. regulations in foreign markets, the letter said, whereas foreign firms in foreign markets would have to comply with host country regulations. More costly regulations would drive up expenses for U.S. firms and could reduce the number of counterparties available to U.S. end-users.