CFTC Holds Global Markets Advisory Committee Meeting
CFTC Acting Chairman Mark Wetjen held the first meeting of the Global Markets Advisory Committee ("GMAC") under his leadership to discuss the CFTC staff advisory regarding application of the CFTC's cross-border guidance to non-US swap dealers that use personnel in the U.S. to arrange, negotiate or execute swaps with counterparties. The advisory, issued by the Division of Swap Dealer and Intermediary Oversight ("DSIO"), stated that non-U.S. swaps dealers must comply with "Transaction-Level Requirements" when using such personnel, regardless of whether the counterparty is a U.S. person.
The Committee was comprised of two panels that discussed the advisory, the first comprised of CFTC staff and the second comprised of staff from the SEC, Financial Conduct Authority ("FCA"), and the European Commission ("EC").
Click here to view a summary of the meeting prepared by Delta Strategy Group.
See also: Meeting Agenda; Participants List.
Related news: CFTC Releases Joint Statement with EC and Two No-Action Letters for European Exchanges (CFTC Letters 14-15 and 14-16) (with Lofchie Comment) (February 12, 2014); CFTC Holds TAC Meeting Regarding SEF Issues (with Delta Strategy Group Summary) (February 12, 2014); CFTC Publishes Guidance, No-Action Letter and Interim Final Rule to Promote Trading on SEFs and Support an Orderly Transition to Mandatory Trading (CFTC Letter 14-12) (February 10, 2014); CFTC No-Action Letter (14-01) on Application of Transaction-Level Requirements to Non-U.S. Swap Dealers (with Lofchie Comment) (January 3, 2014); CFTC Issues Advisory on Applicability of Transaction-Level Requirements in Certain Cross-Border Situations (CFTC Letter 13-69) (with Lofchie Comment) (November 14, 2013); The CFTC and the European Commission on Common "Path Forward" for Regulating Derivatives (with Lofchie Comment) (July 11, 2013); CFTC Staff Issues Four No-Action Letters on Cross-Border Swaps Issues (Letters 13-43, 13-44, 13-45, 13-46) (with Lofchie Comment) (July 11, 2013).
Commentary
Two impressions from the GMAC. First, the degree to which the CFTC's schema of "Entity-Level Requirements" and "Transaction-Level Requirements" continues to create difficulties for the CFTC, non-U.S, regulators and market participants in sorting through the issues raised by the CFTC's broad assertion of jurisdiction is striking. Because the Transaction-Level Requirements lump together rules that have vastly different policy rationales – risk regulation of dealers, customer protection, market integrity, and data transparency to the regulators (among others) – discussing questions like how to apply the Transaction-Level Rules based on location of sales personnel quickly run into conceptual obstacles. It is entirely unclear, for example, why the application of margin rules intended to protect a swap dealer from credit risk should have anything to do with whether the counterparty is a "U.S. person," much less why the type of counterparty should lead to a different result depending on the location of the dealer's salespeople.
Second, one of the more pointed, yet unremarked upon, aspects of the discussion was the commentary from representatives of both U.S. and non-U.S. firms that European clients are choosing dealers in order to avoid the CFTC's Transaction-Level Requirements. While CFTC staff asked for commentary on the competitive impact of the advisory on U.S. and non-U.S. registered dealers, avoidance of the U.S. by market participants that the regulations are intended to protect is a blow to the economy as a whole.