Trade Associations Submit Comments to the CFTC on Jurisdiction and Aggregation (with Lofchie Comment)

SIFMA, The Clearing House ("TCH") and The Financial Services Roundtable ("FSR") provided the attached comments to the CFTC on Further Proposed Guidance Regarding Compliance with Certain Swap Regulations (78 FR 909). The letter provides detailed commentary on the CFTC's specific proposals in the Further Proposed Guidance. The main points are as follows:

1. The groups do not support the proposed clarifications to two prongs of the proposed "U.S. person" definition.
2. The groups believe that both the concept of indirect majority ownership and the concept of "bearing unlimited responsibility" for obligations and liabilities are ambiguous, and create "significant and unachievable compliance burdens" in determining a party's U.S. person status.
3. The groups do not support the proposed alternative interpretation of the aggregation requirement, which requires aggregation of swap transactions of non-U.S. persons with U.S. affiliates.

Lofchie Comment: Reading the detailed criticism of the CFTC's guidance in the SIFMA letter, in conjunction with the extensive comments sent to the CFTC by banking and fund associations, makes two things clear: (a) neither the buy-side nor the sell-side wants much to do with these rules that purport to make the markets better and safer; and (b) the CFTC is far away from actually having a workable regulatory structure; (c) three of the most basic regulatory questions remain wholly unresolved: (1) although we have a definition of "swap," it is so overly broad and convoluted that no understands it. (I have no doubt that it will be regularly "misinterpreted" outside the geography of the United States. Few would be willing or able to invest tens of thousands of dollars of lawyer time to "correctly" interpret a term which is wholly dependent on "facts and circumstances"); (2) issues of geographic and territorial jurisdiction are hardly more advanced than they were when Dodd-Frank was adopted. The CFTC put out wildly divergent proposals with no explanation of the theory or policy that underlies any of them; and (3) it is not clear how the regulatory status of one member of a corporate group is affected by the activities of its affiliates.

Click here to view comment letter in full (links externally to SIFMA website).In yesterday's news, we published and commented on two other industry trade letters that were critical of the CFTC's proposed definition of "U.S. person": see IIB Final Comment Letter on CFTC Further Proposed Cross-Border Guidance (with TWO Lofchie Comments); MFA and AIMA Submit Joint Letter to CFTC on Further Proposed Cross-Border Guidance (with Lofchie Comment).