CFTC Files Supplemental Declaration in CFTC Cross-Border Guidance Case
Commentary by Bob Zwirb
In the closely watched cross-border guidance case, SIFMA v. CFTC, the CFTC filed a motion to submit the supplemental declaration of CFTC Assistant General Counsel Martin B. White (the "declaration") and two additional documents that, in the words of the CFTC, contradict "the positions SIFMA and other Plaintiffs have taken on key legal points in this case." Specifically, the two exhibits filed include (i) a document titled "Note Regarding Non-U.S. Affiliate Participation in Swaps Market" ("SIFMA's Note"), and (ii) a copy of an article published by POLITICO Pro titled "Banks Outline Pushback on Swap Guarantee Worries."
According to the declaration, SIFMA's Note states that Congress "set standards" for cross-border swaps regulation, which contradicts the claims of SIFMA, ISDA and the Institution of International Bankers ("Associations") in the Cross-Border Guidance case. Additionally, the CFTC stated, SIFMA's Note concedes that the Cross-Border Guidance is "guidance," which differs from the Associations' claim that the Cross-Border Guidance "is a rule in disguise that extends the Title VII Rules overseas."
The CFTC also claimed that the apparent purpose of SIFMA's Note is to suggest to its members a public explanation for a new business practice, in which U.S. parents of overseas affiliates remove guarantees from swaps with foreign counterparties. The CFTC stated that this indicates that the Associations' claim to injury from the Cross-Border Guidance may not be true.
See: CFTC Motion to File Supplemental Declaration; Martin White's Supplemental Declaration (with SIFMA Note and POLITICO Pro Article).
Related news: Associations Submit Response to CFTC's Notice of Supplemental Authority in CFTC Cross-Border Guidance Case (June 26, 2014); Court Requests Supplemental Briefs from Parties in SIFMA v. CFTC Cross-Border Guidance Case (June 24, 2014); SIFMA v. CFTC Cross-Border Guidance Case Reassigned to New Judge (June 19, 2014)Judge Grants Amici Motion for Leave to File Brief in Support of CFTC; CFTC Submits Notice of Supplemental Authority in SIFMA v. CFTC Cross-Border Guidance Case (with Lofchie Comment) (June 18, 2014); Congressional Democrats' Amicus Brief Sides with CFTC in SIFMA v. CFTC (with Lofchie Comment and Energy Metro Desk Article Quoting Commissioner O'Malia) (March 24, 2014); Better Markets Amicus Brief Supports CFTC's Cross-Border Guidance (with Lofchie and Zwirb Comments) (March 20, 2014) CFTC Legal Memorandum to Dismiss Challenge to Its Cross-Border Guidance (with Lofchie and Zwirb Comments) (March 17, 2014) Chamber of Commerce Submits Amicus Brief Regarding Lawsuit against CFTC Cross-Border Rule (with Zwirb Comment) (February 4, 2014) Market Participants File Amended Complaint Challenging CFTC Cross-Border Guidance (with Zwirb and Lofchie Comments) (January 7, 2014) Market Participants File Lawsuit Challenging CFTC Cross-Border Guidance for Being a Rule Adopted in Violation of the APA (with Lofchie Comment) (December 4, 2013).
Commentary
The CFTC motion and declaration illustrate the importance of ensuring that parties to litigation articulate positions consistent with that litigation in all of their public and private communications. That said, the CFTC's argument that SIFMA's Note contradicts SIFMA's litigating position does not seem persuasive.
First, while it is true, as the CFTC points out, that the SIFMA Note states that "Congress set standards for cross-border regulation of swaps," that language does not prove, as the CFTC argues, that SIFMA concedes that Congress rather than the CFTC is setting policy here. After all, when former Chairman Gensler - arguably the true architect of the CFTC's expansive cross-border policy - characterized that policy in a public forum last November as something that global market participants should "come into compliance with" (see "Remarks by Chairman Gensler"), the CFTC's General Counsel was quick to argue to the court that one should not take the chairman at his word because he was only speaking "colloquially." One could say with perhaps more justification that SIFMA's internal communication to its members in the form of talking points should also be taken "colloquially" rather than as a legal characterization.
Second, the CFTC argues that SIFMA's Note at page 2 concedes that the CFTC's cross-border guidance is "guidance" rather than a rule. However, SIFMA's reference to "guidance" relates to that of the United States and Europe, and other nations collectively. When SIFMA discusses the CFTC cross-border policy in isolation, it refers repeatedly to the "CFTC's July 2013 cross-border release" or the "CFTC's approach."
Finally, the CFTC's argument, that SIFMA's Note advising its members on how to get around the CFTC's requirements proves that its claim to injury "may have no current basis in fact," seems too cute by half. Only a government agency could argue that forcing market participants to undertake less efficient arrangements for conducting financial transactions with foreign parties proves they are not being injured. The better measure would be to design a cross-border standard that does not force market participants, both here and abroad, to find ways to avoid being deemed to have done business in the United States.