The securities, banking and hedge
fund industries have asked the CFTC to extend the public comment period on
proposed guidance on the cross-border application of the Dodd-Frank derivatives
provisions from August 27 until September 10. According to SIFMA, the American
Bankers Association and the Managed Funds Association, the proposed guidance
will have a significant impact on how the global derivatives markets will be
regulated and will have broad repercussions on how banks, securities firms and
hedge funds conduct their swaps business. The associations are working together
to provide thoughtful and constructive comments to the Commission.
In addition, since the proposed guidance will have
implications for a substantial number of other regulations, it will take time
for interested parties to analyze the various regulatory inter-relationships
and dependencies to provide comments that are as informed and well-considered
as possible. Moreover, the guidance is likely attract substantial interest from
constituencies outside the United States, noted the industry associations, and
they should be afforded the opportunity to develop their comments in a thorough
manner.
The proposed
guidance also contains fundamental information concerning which entities will
need to register as swap dealers or major swap participants under Title VII of
Dodd-Frank. Thus, the industry groups urged the CFTC to delay the compliance
date for registration as a swap dealer or major swap participant until a period
of time after the Commission publishes its final cross-border interpretative
guidance.
The CFTC guidance introduces the concept of
substituted compliance under which, as recently explained by CFTC Chair Gary
Gensler at a congressional hearing, the CFTC would defer to comparable and
comprehensive foreign regulations. The CFTC proposes to permit a non-U.S. swap dealer or
non-U.S. major swap participant, once registered with the Commission, to comply
with a substituted compliance regime under certain circumstances. Substituted compliance
means that a non-U.S. swap dealer or non-U.S. major swap participant is
permitted to conduct business by complying with its home regulations, without
additional requirements under the Commodity Exchange Act.
The Commission
believes that a cross border policy that allows for flexibility in the
application of the Commodity Exchange Act, while ensuring the high level of
regulation contemplated by the Dodd-Frank Act and avoiding potentially
conflicting regulations, is consistent with principles of international comity.
It would also advance the congressional directive in Section 752 of the
Dodd-Frank Act that the Commission act in order to promote effective and
consistent global regulation of swaps and coordinate with foreign regulators on
the establishment of consistent international standards with respect to the regulation
of swaps.
In addition, practical
considerations underlie the substituted compliance doctrine. Namely, the
limitations in the Commission’s supervisory resources and its ability to effectively
oversee and enforce application of the Commodity Exchange Act to cross-border
transactions and activities support the CFTC in applying its regulations in a
manner that is focused on the primary objectives of the Act.