Regulation of Swaps Between Non-US Swap Dealers & Non-US Counterparties
Summary
SIFMA, the Futures Industry Association (FIA), and The Financial Services Roudtable (FSR) provide the Commodity Futures Trading Commission (CFTC) on the advisory issued by the Commission staff on November 14, 2013 (the Staff Advisory). The Staff Advisory addresses the applicability of certain Commission regulations to activity in the United States of swap dealers (SDs) and major swap participants (MSPs) registered with the CFTC that are established in jurisdictions other than the U.S.
The groups believe the Commission misreads Section 2(i) of the Commodity Exchange Act (CEA) to require a personnel-based test. Section 2(i) of the CEA is a restriction on the Commission’s cross-border jurisdiction that is to be read in light of the Dodd-Frank Act’s broader purpose, rather than in isolation. Title VII of the Dodd-Frank Act was adopted, in significant part, to decrease risk in the U.S. swaps markets through risk-based regulation. Thus, if a swap transaction does not import risk into the U.S., it should not be subject to Title VII or the CFTC’s rules thereunder. Accordingly, Section 2(i) of the CEA should be read as a limitation on those circumstances where the CFTC can assert jurisdiction, not as an invitation to the Commission to adopt a personnel-based approach to swaps regulation in the absence of such a risk-based nexus.
Excerpt
Ms. Melissa D. Jurgens
Secretary of the Commission
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street NW
Washington, DC 20581
Re: Comment Letter on the Application of Commission Regulations to Swaps Between Non-U.S. Swap Dealers and Non-U.S. Counterparties Involving Personnel or Agents of the Non-U.S. Swap Dealers Located in the United States
Dear Ms. Jurgens:
The Securities Industry and Financial Markets Association (“SIFMA”), the Futures Industry Association (“FIA”) and The Financial Services Roundtable (“FSR”) (together, the “Associations”)1 appreciate the opportunity to provide the Commodity Futures Trading Commission (the “Commission”) with comments on the advisory issued by the Commission staff on November 14, 2013 (the “Staff Advisory”).2 The Staff Advisory addresses the applicability of certain Commission regulations to activity in the United States of swap dealers (“SDs”) and major swap participants (“MSPs”) registered with the Commission that are established in jurisdictions other than the United States.3
Over the past several months, the Commission’s introduction of elements of a personnel-based test to the cross-border application of its swaps rules has concerned us greatly. The location of personnel involved in a swap transaction does not alter the risk posed by the swap transaction, making the location of personnel inapposite to the riskreduction goal of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Title VII” of the “Dodd-Frank Act”). In addition, a personnel-based approach is impractical for the swaps markets and inconsistent with the Commission’s general cross-border approach to the application of its Title VII rules, which our members have spent, and are continuing to spend, significant time and resources building towards over the past several months.