The Commodity Futures Trading Commission has issued a final response to the District Court Remand Order from SIFMA v CFTC, which required that the commission explain and consider the costs and benefits of certain cross border swaps regulations. In addition to the response, the CFTC issued a no-action letter that extends relief from certain transaction level requirements under the Commodity Exchange Act to non-U.S. swap dealers registered with the CFTC.
Remand response. In the SIFMA case, several trade groups representing the swaps industry challenged the CFTC’s authority to regulate cross border swaps transactions. In deciding that case, the court denied the plaintiffs’ demand that the CFTC be enjoined from enforcing extraterritorially Title VII of the Dodd-Frank Act and related regulations, and upheld the CFTC’s 2013 cross-border guidance document, the Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations.
At the same time, the court remanded and directed the CFTC to further explain and consider the costs and benefits of eight swaps-related rulemakings. The CFTC published an initial response to the court order and solicited public comments. After receiving four comments, the CFTC created its final response, which it said contained further consideration of costs and benefits and explained the approach to international harmonization of swaps regulations to carry out the Dodd-Frank reforms in cooperation with global regulators and to promote stable and healthy markets.
No-action relief. The latest no-action letter (16-64) extends relief from certain transaction-level requirements with respect to activities addressed in a Division of Swap Dealer and Intermediary Oversight (DSIO) advisory issued November 14, 2013.
The advisory was issued in response to inquiries from swap market participants regarding the applicability of the Commission’s Transaction-Level requirements with respect to swaps between a non-U.S. swap dealer (SD) and a non-U.S. person if the swap was arranged, negotiated, or executed by personnel or agents of the non-U.S. SD located in the United States.
In its latest letter, the staff indicated that the relief was extended until the earlier of September 30, 2017 or the effective date of any CFTC action with respect to matters addressed by the DSIO advisory.
Chairman’s statement. CFTC Chairman Timothy Massad said in a statement that he supported the actions taken by the Commission. Massad said that the remand response and the no-action extension were part of an overall effort to address the cross-border implications of swap activity, while at the same time harmonizing derivatives regulation with other jurisdictions as much as possible.
"Our first responsibility is to implement our nation’s laws faithfully, which requires us to address the cross-border implications of swap activity. A strong global regulatory framework is the best way to do so, and that is why harmonization is so important," Massad said. "To focus on the fact that full harmonization has not been reached, or that progress sometimes occurs in fits and starts, I believe misses the forest for the trees," Massad said.
Commissioner’s statement. On the other hand, CFTC Commissioner J. Christopher Giancarlo issued a statement in which he dissented from the CFTC’s final response in the SIFMA litigation. Acknowledging that the CFTC had addressed the court’s inquiry whether the costs and benefits identified in the remanded rulemakings apply to swaps activities outside of the United States, Giancarlo said that nevertheless, the Commission has "repeatedly failed to coordinate effectively with foreign regulators to implement global standards in financial markets as agreed to by the G-20 leaders in Pittsburgh in 2009. The result for financial markets has been a complex, conflicting and costly array of CFTC cross-border regulations," he said.
"The CFTC must do better work with foreign regulators to implement global standards consistently in a way that ensures a level playing field and avoids market fragmentation, protectionism and regulatory arbitrage," Giancarlo said in the statement.
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