Derivatives: A first take on cross-border comparability

December 2013
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Derivatives: A first take on cross-border comparability

At a glance

CFTC’s comparability determinations bring some clarity to the cross-border compliance table, but several issues remain unaddressed.

On Friday, December 20, 2013, the Commodity Futures Trading Commission (“CFTC”) provided a first look at its swaps regulation “comparability” determinations – indicating which entity-level, and in some cases transaction-level, requirements in six jurisdictions the Commission deemed “comparable” to its own rules, thus permitting non-US swap dealers (“SDs”) major swap participants (“MSPs”), and the foreign branches of US SDs and MSPs in these jurisdictions to comply with local rules in lieu of Commission rules. While the headline was “CFTC makes comparability determinations,” the reality is that the task is far from over.

The CFTC met its December 21st deadline by issuing a brief press release and an accompanying table summarizing their determinations – and related caveats – across the six jurisdictions. While providing some clarity around the CFTC’s cross-border compliance expectations, the devil will once again be in the details that we expect will be found in the full text of the comparability determinations, and in how the CFTC will address the application of the requirements that were left out of Friday’s release. Moreover, even taking the summary documents at face value, the comparability determinations are hardly a panacea and must be viewed in context. On transaction-level rules, in particular, the determinations present challenges, namely a lack of clear guidance on how those rules will be applied in practice, and what the CFTC expects in cases where they’ve neither made comparability determinations nor provided some form of no-action relief. Barring any last-minute reprieve from the Commission, impacted swap dealers should be prepared to immediately comply with those requirements where neither a comparability determination nor some type of time-limited relief was provided on Friday.

This Financial Services Regulatory Brief provides (a) an overview of the CFTC’s comparability announcements for entity- and transaction level-requirements, and (b) our insight regarding what this may mean in the near term for both US and non-US swap dealers.

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