SIFMA, FIA and FSR Submit Comments to CFTC on Regulation of Swaps between Non-U.S. SDs and Non-U.S. Counterparties

SIFMA, the Futures Industry Association ("FIA") and the Financial Services Roundtable ("FSR") (collectively, the "Associations") submitted comments to the CFTC on its staff advisory issued on November 14, 2013. The comments concern the applicability of CFTC rules to activity within the U.S. of CFTC-registered swap dealers ("SDs") and major swap participants ("MSPs") that are outside the U.S.

The Associations stated that they are greatly concerned by the CFTC's introduction of a personnel-based test to the cross-border application of its swaps rules, and that they believe that the CFTC has misread CEA Section 2(i) ("Applicability to Swap Activities Outside the U.S.") to require a personnel-based test. According to the letter, Section 2(i) is a restriction on the CFTC's cross-border jurisdiction "that is to be read in light of the Dodd-Frank Act's broader purpose, rather than in isolation."

The Associations stated that Dodd-Frank Title VII was adopted to decrease risk in the U.S. swaps market through risk-based regulation; therefore, if a swap transaction does not import risk into the United States, it should not be subject to Title VII or the CFTC's rules thereunder. Accordingly, the Associations stated that Section 2(i) should be read as a limitation on 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."

The Associations urged the CFTC to abandon the personnel-based elements, and to adopt an approach which would ensure that "competitive imbalances are not created and proper account is taken of comparable foreign regulation."

See: SIFMA, FIA and FSR Comment Letter.Related news: CFTC Issues Advisory on Applicability of Transaction-Level Requirements in Certain Cross-Border Situations (CFTC Letter 13-69) (with Lofchie Comment) (November 14, 2013); CFTC Requests Comment Regarding Activities of Non-U.S. Swap Dealers and O'Malia Dissents (with Lofchie Comment) (January 3, 2014); CFTC Solicits Comments Regarding Cross-Border Applicability Rules for Non-U.S. Swap Dealers and Non-U.S. Counterparties (Fed. Reg.) (January 8, 2014); CFTC Holds Global Markets Advisory Committee Meeting (with Robins Comment and Delta Strategy Group Summary) (February 13, 2014).