The Commodity Futures Trading Commission (CFTC) continued its progress this week toward a scheme for regulating global swap transactions, culminating in a final framework for regulated cross-border activities of US and non-US swap dealers. The public meeting that took place on July 12th finalizing the CFTC’s cross-border guidance and providing more time for firms to conform came just before an important deadline – the temporary Exemptive Order under which many global swap dealers had been operating was set to expire the same day.
While the industry awaits the guidance’s specifics in the form of definitive language, the CFTC’s vote provides firms with important new clarity. Some key takeaways, based on the CFTC’s summary documents and the public meeting, include the following:
- The US Person definition has been expanded to include certain off-shore hedge funds.
- Foreign branches of US swap dealers (SDs) have seemingly been placed on a more level playing field with their non-US SD competitors. Foreign branches will be able to obtain substituted compliance for certain transaction level requirements in their transactions with certain counterparties, allowing both foreign branches of US SDs and their non-US SD competitors to operate under the same set of rules in those instances.
- If not located in one of the six major market jurisdictions (as described below), foreign branches of US SDs may be able to conform to their local country rules without a CFTC comparability declaration “under certain circumstances,” which we understand to mean that their derivatives activities would have to fall below a certain low threshold.The aggregation rule has changed from what was allowed under the now expired exemptive order, requiring new analysis of notional volumes.
- Transactions with US-guaranteed foreign subsidiaries will be subject to certain Dodd-Frank requirements – substituted compliance may apply.
This Financial Services Regulatory Brief describes the approach taken by the CFTC in its final guidance and extension of relief, and provides context and perspective for global dealers as they press forward under the clarified regime.