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2012-26298

  • Federal Register, Volume 77 Issue 207 (Thursday, October 25, 2012)[Federal Register Volume 77, Number 207 (Thursday, October 25, 2012)]

    [Notices]

    [Pages 65177-65182]

    From the Federal Register Online via the Government Printing Office [www.gpo.gov]

    [FR Doc No: 2012-26298]

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    COMMODITY FUTURES TRADING COMMISSION

    Swap Data Repositories: Interpretative Statement Regarding the

    Confidentiality and Indemnification Provisions of the Commodity

    Exchange Act

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Interpretative statement.

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    SUMMARY: The Commodity Futures Trading Commission (``Commission'' or

    ``CFTC'') is issuing this interpretative statement (``Statement'') to

    provide guidance regarding the applicability of the confidentiality and

    indemnification provisions set forth in new section 21(d) of the

    Commodity Exchange Act (``CEA'') added by section 728 of the Dodd-Frank

    Wall Street Reform and Consumer Protection Act (``Dodd-Frank Act'').

    This Statement clarifies that the provisions of CEA section 21(d)

    should not operate to inhibit or prevent foreign regulatory authorities

    from accessing data in which they have an independent and sufficient

    regulatory interest, even if that data also has been reported pursuant

    to the CEA and Commission regulations.

    DATES: Effective date: October 25, 2012

    FOR FURTHER INFORMATION CONTACT: Adedayo Banwo, Counsel, Office of the

    General Counsel, at (202) 418.6249, abanwo@cftc.gov; With respect to

    questions relating to international consultation and coordination:

    Jacqueline Mesa, Director, at (202) 418.5386, jmesa@cftc.gov, or

    Mauricio Melara, Attorney-Advisor, at (202) 418.5719, mmelara@cftc.gov,

    Office of International Affairs, Commodity Futures Trading Commission,

    Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581.

    SUPPLEMENTARY INFORMATION:

    I. Background: Statutory and Regulatory Authorities

    On July 21, 2010, President Obama signed into law the Dodd-Frank

    Act.\1\ Title VII amended the CEA to establish a comprehensive new

    regulatory framework for swaps and security-based swaps.\2\ The

    legislation was enacted to reduce risk, increase transparency and

    promote market integrity within the financial system by, among other

    things: (i) Providing for the registration and comprehensive regulation

    of swap dealers and major swap participants; (ii) imposing clearing and

    trade execution requirements on standardized derivative products; (iii)

    creating robust recordkeeping and real-time reporting regimes; and (iv)

    enhancing the Commission's rulemaking and enforcement authorities with

    respect to, among others, all registered entities and intermediaries

    subject to the Commission's oversight.

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    \1\ See Dodd-Frank Wall Street Reform and Consumer Protection

    Act, Public Law 111-203, 124 Stat. 1376 (2010), available at http://www.cftc.gov/LawRegulation/OTCDERIVATIVES/index.htm.

    \2\ Pursuant to section 701 of the Dodd-Frank Act, Title VII may

    be cited as the ``Wall Street Transparency and Accountability Act of

    2010;'' 7 U.S.C. 1 et seq.

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    To enhance transparency, promote standardization and reduce

    systemic risk, section 727 of the Dodd-Frank Act

    [[Page 65178]]

    added to the CEA new section 2(a)(13)(G),\3\ which requires all swaps--

    whether cleared or uncleared--to be reported to swap data repositories

    (``SDRs''). SDRs are new registered entities created by section 728 of

    the Dodd-Frank Act.\4\ SDRs are required to perform specified functions

    related to the collection and maintenance of swap transaction data and

    information.\5\

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    \3\ 7 U.S.C. 2(a)(13)(G).

    \4\ Section 721 of the Dodd-Frank Act amends section 1a of the

    CEA to add a definition of the term ``swap data repository.''

    Pursuant to CEA section 1a(48), the term ``swap data repository

    means any person that collects and maintains information or records

    with respect to transactions or positions in, or the terms and

    conditions of, swaps entered into by third parties for the purpose

    of providing a centralized recordkeeping facility for swaps.'' 7

    U.S.C. 1a(48).

    \5\ See 7 U.S.C. 24a(c). See also Commission, Final Rulemaking:

    Swap Data Recordkeeping and Reporting Requirements, 77 FR 2136, Jan.

    13, 2012 (``Data Final Rules''). The Data Final Rules, among other

    things, set forth regulations governing SDR data collection and

    reporting responsibilities under part 45 of the Commission's

    regulations.

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    CEA section 21(c)(7) requires that SDRs make data available to

    certain domestic and foreign regulators \6\ under specified

    circumstances.\7\ Separately, CEA section 21(d) mandates that prior to

    receipt of any requested data or information from an SDR, a regulatory

    authority described in section 21(c)(7) shall agree in writing to abide

    by the confidentiality requirements described in section 8 of the

    CEA,\8\ and to indemnify the SDR and the Commission for any expenses

    arising from litigation relating to the information provided under

    section 8 of the CEA.\9\

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    \6\ The Commission's regulations designate such regulators as

    either an ``Appropriate Domestic Regulator'' or an ``Appropriate

    Foreign Regulator'' in Sec. 49.17(b). See Swap Data Repositories:

    Registration Standards, Duties and Core Principles, 76 FR 54538,

    54554 (Sep. 1, 2011) (``SDR Final Rules'').

    \7\ 7 U.S.C. 24a(c)(7).

    \8\ 7 U.S.C. 12.

    \9\ 7 U.S.C. 24a(d).

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    Section 752 of the Dodd-Frank Act seeks to ``promote effective and

    consistent global regulation of swaps,'' and provides that the CFTC and

    foreign regulatory authorities ``may agree to such information-sharing

    arrangements as may be deemed to be necessary or appropriate in the

    public interest. * * *.'' \10\ In light of this statutory directive,

    and consistent with section 21 of the CEA, the Commission has been

    working to provide sufficient access to SDR data to domestic and

    foreign regulators.

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    \10\ See section 752(a) of the Dodd-Frank Act.

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    In that regard, the Chairman of the CFTC and the Chairman of the

    Securities and Exchange Commission (``Chairmen'') jointly submitted a

    letter to Michel Barnier, European Commissioner for Internal Markets

    and Services,\11\ highlighting their desire for international

    cooperation. In the letter, the Chairmen expressed their belief that

    indemnification and notice requirements need not apply when a

    registered SDR is also registered in a foreign jurisdiction and the

    foreign regulatory authority, acting within the scope of its

    jurisdiction, seeks information directly from the SDR.

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    \11\ See letter from Gary Gensler, Chairman of the Commission,

    and Mary Schapiro, Chairman of the SEC, to Michel Barnier, European

    Commissioner for Internal Markets and Services, European Commission,

    dated June 8, 2011.

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    On September 1, 2011, the Commission adopted regulations

    implementing CEA section 21's registration standards, duties, and core

    principles for SDRs.\12\ To implement the provisions of sections

    21(c)(7) and (d), the Commission adopted definitions and standards for

    determining access by domestic and foreign regulators to data

    maintained by SDRs.

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    \12\ See, generally, SDR Final Rules.

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    The Commission acknowledged in the SDR Final Rules that the CEA's

    indemnification requirement could have the unintended effect of

    inhibiting direct access by other regulators to data maintained by SDRs

    due to various home country laws and regulations.\13\ The SDR Final

    Rules provided that under specified circumstances, certain

    ``Appropriate Domestic Regulators'' \14\ may gain access to the swap

    data reported and maintained by SDRs without being subject to the

    notice and indemnification requirements of CEA sections 21(c)(7) and

    (d).\15\ In connection with foreign regulatory authorities, the

    Commission determined in the SDR Final Rules that confidential swap

    data reported to and maintained by an SDR may be accessed by an

    Appropriate Foreign Regulator \16\ without the execution of a

    confidentiality and indemnification agreement when the Appropriate

    Foreign Regulator has supervisory authority over an SDR registered with

    it pursuant to foreign law and/or regulation that is also registered

    with the Commission.

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    \13\ See SDR Final Rules at 54554.

    \14\ The term ``Appropriate Domestic Regulator'' is defined in

    17 CFR 49.17(b)(1) as the Securities and Exchange Commission; each

    prudential regulator identified in section 1a(39) of the CEA. 7

    U.S.C. 1a(39); the Financial Stability Oversight Council; the

    Department of Justice; any Federal Reserve Bank; the Office of

    Financial Research; and any other person the Commission deems

    appropriate.

    \15\ In the Commission's view, it is appropriate to permit

    access to the swap data maintained by SDRs to Appropriate Domestic

    Regulators that have concurrent regulatory jurisdiction over such

    SDRs, without the application of the notice and indemnification

    provisions of sections 21(c)(7) and (d) of the CEA. See SDR Final

    Rules at 54554 n.163. Accordingly, these provisions do not apply to

    an Appropriate Domestic Regulator that has regulatory jurisdiction

    over an SDR registered with it pursuant to a separate statutory

    authority that is also registered with the Commission, if the

    Appropriate Domestic Regulator executes a memorandum of

    understanding (``MOU'') or similar information sharing arrangement

    with the Commission and the Commission, consistent with CEA section

    21(c)(4)(A), designates the Appropriate Domestic Regulator to

    receive direct electronic access. See 17 CFR 17(d)(2).

    \16\ The term ``Appropriate Foreign Regulator'' is defined in 17

    CFR 49.17(b)(2) as a foreign regulator with an existing MOU or

    similar type of information sharing arrangement executed with the

    Commission, and/or a foreign regulator without an MOU as determined

    on a case-by-case basis by the Commission.

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    The confidentiality and indemnification provisions of new CEA

    section 21 apply only when a regulatory authority seeks access to data

    from an SDR. In the SDR Final Rules, the Commission noted that section

    8(e) of the CEA permits the Commission (as opposed to an SDR) to share

    confidential information in its possession with any department or

    agency of the Government of the United States, or with any foreign

    futures authority, department or agency of any foreign government or

    political subdivision thereof,\17\ acting within the scope of its

    jurisdiction.\18\

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    \17\ Section 725(f) of the Dodd-Frank Act amended section 8(e)

    of the CEA to include foreign central banks and ministries.

    \18\ See SDR Final Rules at 54554.

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    The SDR Final Rules became effective on October 31, 2011.\19\ Under

    these rules, trade repositories may apply to the Commission for full

    registration as SDRs. Pending the full implementation of other, related

    regulatory provisions and definitions, however, such registrations are

    deemed ``provisional.'' \20\

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    \19\ Id.

    \20\ See 17 CFR 49.3(b).

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    II. The Proposed Interpretative Statement

    On May 1, 2012, the Commission issued a proposed interpretative

    statement (``Proposed Statement'') to address issues raised by

    interested members of the public and foreign regulatory authorities

    with respect to the scope and application of the confidentiality and

    indemnification provisions of new section 21(d) of the CEA.\21\ Under

    the Proposed Statement, the Commission clarified that the

    confidentiality and indemnification provisions of CEA section 21(d)

    should not operate to inhibit or prevent foreign regulatory authorities

    from accessing data in which they have an independent and sufficient

    regulatory interest.

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    \21\ See 77 FR 26709 (May 7, 2012).

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    [[Page 65179]]

    The Proposed Statement provided that a registered SDR would not be

    subject to the confidentiality and indemnification provisions of CEA

    section 21(d) if: (i) such registered SDR is also registered,

    recognized or otherwise authorized in a foreign jurisdiction's

    regulatory regime; and (ii) the data sought to be accessed by a foreign

    regulatory authority has been reported to such registered SDR pursuant

    to the foreign jurisdiction's regulatory regime. In addition, because

    some registered SDRs might also be registered, recognized or otherwise

    authorized in a foreign jurisdiction and may accept swap data reported

    pursuant to a foreign regulatory regime, the Commission concluded that

    the confidentiality and indemnification provisions of CEA section 21(d)

    generally apply only to such data reported pursuant to the CEA and

    Commission regulations.

    As detailed in Section III.B., interested members of the public and

    a foreign regulatory authority responded to the Commission's request to

    receive public comments on all aspects of the Proposed Statement.\22\

    In adopting this Statement, the Commission has carefully considered

    these comments.

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    \22\ See public comment file in response to the Proposed

    Statement, available at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1198.

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    III. Considerations Relevant to the Commission's Statement \23\

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    \23\ Legislation has been introduced in Congress that would

    amend the CEA to eliminate or substantially limit the SDR

    indemnification provision. As discussed in Section III.B.,

    commenters expressed the general view that a ``legislative fix''

    would be the best course of action to resolve issues regarding the

    section 21(d) requirements.

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    A. International Considerations

    As noted above, section 752(a) of the Dodd-Frank Act directs the

    Commission to consult and coordinate with foreign regulatory

    authorities regarding the establishment of consistent international

    standards for the regulation of swaps and various ``swap entities.''

    Section 752(a) also provides that the Commission ``may agree to such

    information-sharing arrangements [with foreign regulatory authorities]

    as may be deemed to be necessary or appropriate in the public

    interest'' or for the protection of investors and counterparties.\24\

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    \24\ See section 752(a) of the Dodd-Frank Act.

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    The Commission is committed to a cooperative international approach

    to the registration and regulation of SDRs, and consulted extensively

    with various foreign regulatory authorities in promulgating both its

    proposed and final regulations concerning SDRs and in the finalization

    of the Proposed Statement.\25\ The Commission notes that the SDR Final

    Rules are largely consistent with the recommendations and goals of the

    May 2010 ``CPSS-IOSCO Consultative Report, Considerations for Trade

    Repositories in the OTC Derivatives Market'' (``Working Group

    Report'').\26\

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    \25\ See public comment file in response to the proposal for the

    SDR Final Rules, available at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=939 and SDR Final Rules note 6 at

    54539, supra.

    \26\ This working group was jointly established by the Committee

    on Payment and Settlement Systems (``CPSS'') of the Bank of

    International Settlements and the Technical Committee of the

    International Organization of Securities Commissions (``IOSCO'').

    The Working Group Report presented a set of factors to consider in

    connection with the design, operation and regulation of SDRs. A

    significant focus of the Working Group Report is access to SDR data

    by appropriate regulators. The Working Group Report urges that a

    trade repository ``should support market transparency by making data

    available to relevant authorities and the public in line with their

    respective information needs.'' The Working Group Report is

    available at http://www.bis.org/publ/cpss90.pdf. See also CPSS-IOSCO

    Consultative Report, Principles of Financial Market Infrastructures

    (March 2011) available at http://www.bis.org/publ/cpss94.pdf (``PFMI

    Report''). See also Financial Stability Board (``FSB''),

    Implementing OTC Derivatives Market Reforms, Oct. 25, 2010 (``FSB

    Report''); FSB, Derivative Market Reforms, Progress Report on

    Implementation, Apr. 15, 2010 (``FSB Progress Report'').

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    Consistent with the international harmonization envisioned by

    section 752 of the Dodd-Frank Act, the Commission has engaged in

    consultations with foreign regulatory authorities regarding the

    Commission's adoption and implementation of regulations and the

    issuance of interpretative guidance relating to the Dodd-Frank Act. In

    this context, foreign regulatory authorities have expressed concern

    about the difficulty in complying with the indemnification provisions

    of CEA section 21(d).

    B. Comments on the Proposed Statement \27\

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    \27\ The Commission received five comments, four of which regard

    the Proposed Statement. All comment letters are available on the

    Commission Web site at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1198. Specific comment letters are identified by

    the submitter. Comments addressing the Proposed Statement were

    received from: (i) The European Securities and Markets Authority,

    June 5, 2012; (ii) the Financial Services Roundtable, June 6, 2012;

    (iii) Cloud Strategix, LLC, June 5, 2012; and (iv) the Depository

    Trust & Clearing Corporation, June 6, 2012. The fifth comment

    regards the implementation of section 619 of the Dodd-Frank Act.

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    The Depository Trust & Clearing Corporation (``DTCC'') stated its

    support of the adoption of the Proposed Statement as a ``necessary

    first step.'' Nevertheless, DTCC concluded that the statutory language

    at issue requires a ``legislative fix'' to clarify the scope and

    applicability of the confidentiality and indemnification provisions of

    CEA section 21(d) because ``the indemnification requirement'' would

    limit the sharing of trade repository data across borders. DTCC noted

    that a foreign regulator might have an interest in SDR data related to

    a swap transaction entered into by parties not subject to the foreign

    regulator's ``oversight authority.'' In this regard, DTCC noted

    concerns expressed by foreign regulatory authorities who believe that a

    ``jurisdictional nexus'' would nonetheless exist with respect to the

    terms of swap transactions (e.g., swap transactions using currencies or

    underlying reference entities subject to a foreign regulator's

    oversight authority) that are not reported ``pursuant to the foreign

    jurisdiction's regulatory regime.'' DTCC pointed out that access to

    such swap transaction data that is not reported ``pursuant to the

    foreign jurisdiction's regulatory regime'' would not be available

    unless the foreign regulator enters into a confidentiality and

    indemnification agreement with the SDR.

    DTCC also suggested certain substantive modifications to the

    Proposed Statement.\28\ Among them, DTCC suggested that the Commission

    expand on the meaning of ``registered, recognized or otherwise

    authorized'' in the Proposed Statement or, alternatively, state that

    operation in accordance with the PFMI Report would mean that an SDR is

    ``authorized'' for purposes of this Statement.

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    \28\ DTCC suggested that the Commission consider the following

    modifications to the Proposed Statement: (i) Provide that no

    registration or licensing would be necessary with respect to the

    condition that a registered SDR is also registered, recognized or

    otherwise authorized in a foreign jurisdiction's regulatory regime;

    (ii) provide that SDRs operating in accordance with principles

    relevant to trade repositories under the PFMI Report should be

    deemed authorized; and (iii) provide that with respect to the

    condition that the SDR data sought to be accessed by a foreign

    regulator is reported pursuant to the foreign jurisdiction's

    regulatory regime, the meaning attributed to regulatory regime

    includes a foreign jurisdiction's adherence to the PFMI Report

    provisions outlined for market regulators.

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    The European Securities and Markets Authority (``ESMA'') noted that

    it considers the Commission's ``recognition of foreign regimes and the

    access to data requirements originating from them'' under the Proposed

    Statement as a ``step in the right direction'' that would allow

    relevant European authorities to obtain data in accordance with

    relevant European Union laws and forthcoming

    [[Page 65180]]

    regulations. However, ESMA noted its concern that the Commission's

    interpretation of the indemnification provision of CEA section 21(d)

    ``cannot overrule the [Dodd-Frank] Act itself'' and concluded that

    ``the confidentiality and indemnification issue could only be fully

    addressed with a legislative amendment by repealing the original

    provision in the Dodd-Frank Act.'' In addition, consistent in part with

    DTCC's comment, ESMA noted that relevant European Union authorities

    could have an interest in accessing swap transaction data reported to a

    registered SDR pursuant to the Dodd-Frank Act, but not reported

    pursuant to European Union laws and forthcoming regulations.

    Accordingly, ESMA suggested certain modifications to the Proposed

    Statement.\29\

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    \29\ ESMA suggested that the Commission consider the following

    alternative modifications to the Proposed Statement: (i) delete the

    second condition of the Proposed Statement (i.e., ``The data sought

    to be accessed by a foreign regulatory authority is reported to such

    registered SDR pursuant to the foreign regulatory regime.''); or

    (ii) add the following bracketed language to the second condition

    such that it would read as follows: ``The data sought to be accessed

    by a foreign regulatory authority has been reported to such

    registered SDR pursuant to the foreign jurisdiction's regulatory

    regime [or the foreign regulatory authority is entitled to access

    such data pursuant to its regulatory regime to fulfill its

    respective responsibilities and mandates.]''

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    The Financial Services Roundtable (``FSR'') requested that the

    Commission support a legislative solution which would remove the

    indemnification provision from CEA section 21(d). FSR also requested

    that the Commission continue its discussions with regulators in other

    jurisdictions as well as its participation in standard-setting bodies

    to develop international standards relevant to the swap markets.

    Cloud Strategix, LLC (``Cloud Strategix''), representing the data

    hosting and cloud computing industry, in relevant part expressed a

    general concern with respect to the ``several costs, unintended

    consequences, and impracticalities'' related to the Proposed Statement

    and the SDR Final Rules. Specifically, Cloud Strategix noted that the

    Proposed Statement ``does not seem to consider the great cost to the

    data center that hosts the SDR in assisting the SDR with compliance

    with foreign regulators.'' In this context, Cloud Strategix suggested

    that the Commission ``provide an exemption for all data centers to

    indemnify SDRs for regulatory inquiries, enforcement proceedings, or

    litigation for both foreign and domestic regulators.''

    C. Commission Determination

    After considering the comments received to the Proposed Statement

    and following the aforementioned consultations with foreign regulatory

    authorities pursuant to the Congressional mandate for cooperation in

    section 752 of the Dodd-Frank Act, the Commission has concluded that

    the guidance described in the Proposed Statement is necessary to ensure

    that appropriate access by foreign regulatory authorities is not

    unnecessarily inhibited. Accordingly, while the SDR Final Rules address

    foreign regulators with supervisory authority and regulatory

    responsibility, the Commission is issuing this Statement to ensure that

    foreign regulators receive sufficient access to data reported to SDRs

    where such foreign regulators have an independent and sufficient

    regulatory interest.

    In response to DTCC's comment regarding expanding on the meaning of

    ``registered, recognized or otherwise authorized'' of the Proposed

    Statement or, alternatively, stating that operation in accordance with

    the PFMI Report would mean that an SDR is ``authorized'' for purposes

    of this Statement, the Commission believes, consistent with DTCC's

    comment, that a foreign regulator with ``oversight responsibilities''

    of an SDR pursuant to the regulatory regime of the applicable foreign

    jurisdiction would meet the ``registered, recognized or otherwise

    authorized'' prong herein. Nonetheless, the Commission declines to

    express a more detailed view on the regulatory or jurisdictional

    structures applicable to SDRs governed within foreign jurisdictions

    that would meet the ``registered, recognized or otherwise authorized''

    prong herein. As the Commission indicated in its Proposed Statement,

    access by foreign regulatory authorities ``should be governed by such

    foreign jurisdiction's regulatory regime,'' and the Commission believes

    that ``registered, recognized or otherwise authorized'' is sufficiently

    broad to cover a wide variety of foreign regulatory structures and

    regimes.

    Similarly, and in response to DTCC's and ESMA's comment regarding

    accessing data which is not reported pursuant to European Union laws

    and forthcoming regulations, the Commission acknowledges the difficulty

    that certain foreign regulators may face in this regard. The Commission

    reiterates that foreign and domestic regulators may nonetheless be able

    to receive confidential data from the Commission without the execution

    of a confidentiality and indemnification agreement.

    In response to FSR's comment regarding consultations and

    participation with standard-setting bodies, the Commission agrees and

    notes its participation in various international regulatory and

    industry-led working groups.\30\

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    \30\ Among the working groups the Commission is actively

    participating in to develop consistent international standards are

    the FSB, CPSS and IOSCO working group on data access (see infra n.

    36), the Technical Committee of IOSCO which developed the ``Report

    on OTC derivatives and aggregation requirements,'' and the FSB's

    Legal Entity Identifier Expert Group.

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    In response to the cost-benefit considerations raised by Cloud

    Strategix, the Commission has previously acknowledged such costs in its

    consideration of the costs and benefits of compliance with its SDR

    Final Rules \31\ and Data Final Rules.\32\ The Commission does not

    believe that the Proposed Statement changes or modifies its earlier

    consideration of the costs and benefits of the applicable final rules.

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    \31\ See SDR Final Rules, supra n. 6, at 54572.

    \32\ See Data Final Rules, supra n. 5, at 2176.

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    IV. Interpretative Statement

    In consideration of the foregoing, the Commission is providing

    guidance regarding the confidentiality and indemnification provisions

    of CEA section 21(d) by adopting the substance of the Proposed

    Statement. In this regard, the Commission seeks to ensure an orderly

    transition to the Dodd-Frank Act's swap data reporting regime by

    providing certainty to market participants and regulators with respect

    to the confidentiality and indemnification provisions of CEA section

    21(d).

    A. Data Reported to Registered SDRs

    The Commission understands that some registered SDRs also may be

    registered, recognized or otherwise authorized in a foreign

    jurisdiction and may accept swap data reported pursuant to the foreign

    regulatory regime. The Commission concludes that the confidentiality

    and indemnification provisions of CEA section 21(d) generally apply

    only to such data reported pursuant to the CEA and Commission

    regulations.

    The Commission further concludes that the confidentiality and

    indemnification provisions should not operate to inhibit or prevent

    foreign regulatory authorities from accessing data in which they have

    an independent and sufficient regulatory interest (even if that data

    also has been reported

    [[Page 65181]]

    pursuant to the CEA and Commission regulations).

    Accordingly, and consistent with the Commission's SDR Final Rules,

    the Commission interprets CEA section 21(d) such that a registered SDR

    would not be subject to the confidentiality and indemnification

    provisions of that section if:

    Such registered SDR also is registered, recognized or

    otherwise authorized in a foreign jurisdiction's regulatory regime; and

    The data sought to be accessed by a foreign regulatory

    authority has been reported to such registered SDR pursuant to the

    foreign jurisdiction's regulatory regime.

    This Statement is grounded in principles of international law and

    comity. For example, in F. Hoffmann-La Roche Ltd. v. Empagran S.A., the

    U.S. Supreme Court, in reviewing the extraterritorial applicability of

    a different federal statute, stated that extraterritorial jurisdiction

    should be construed, where ambiguous, ``to avoid unreasonable

    interference with the sovereign authority of other nations.''\33\ In

    cases considering concepts of international law and comity in

    evaluating the extraterritorial scope of federal statutes, the Supreme

    Court has noted that the principles in the Third Restatement of Foreign

    Relations Law are relevant to the interpretation of U.S. law.\34\

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    \33\ F. Hoffmann-LaRoche, Ltd. v. Empagran S.A., 542 U.S. 155,

    164 (2004). In Hoffmann-LaRoche, the Supreme Court also stated that

    canons of statutory construction ``assume that legislators take

    account of the legitimate sovereign interests of other nations when

    they write American laws.'' Id.

    \34\ Id. at 164-165.

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    Specifically, section 403 of the Third Restatement of Foreign

    Relations Law states, in relevant part:

    Whether exercise of jurisdiction over a person or activity is

    unreasonable is determined by evaluating all relevant factors,

    including, where appropriate:

    (a) The link of the activity to the territory of the regulating

    state, i.e., the extent to which the activity takes place within the

    territory, or has substantial, direct, and foreseeable effect upon

    or in the territory;

    (b) The connections, such as nationality, residence, or economic

    activity, between the regulating state and the person principally

    responsible for the activity to be regulated, or between that state

    and those whom the regulation is designed to protect;

    (c) The character of the activity to be regulated, the

    importance of regulation to the regulating state, the extent to

    which other states regulate such activities, and the degree to which

    the desirability of such regulation is generally accepted;

    (d) The existence of justified expectations that might be

    protected or hurt by the regulation;

    (e) The importance of the regulation to the international

    political, legal, or economic system;

    (f) The extent to which the regulation is consistent with the

    traditions of the international system;

    (g) The extent to which another state may have an interest in

    regulating the activity; and

    (h) The likelihood of conflict with regulation by another

    state.\35\

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    \35\ Rest. 3d., Third Restatement Foreign Relations Law section

    403 (scope of a statutory grant of authority must be construed in

    the context of international law and comity including, as

    appropriate, the extent to which regulation is consistent with the

    traditions of the international system).

    To avoid unnecessary interference with the sovereign authority of

    foreign regulatory authorities, this Statement is supported and

    underpinned by principles of international law and comity.

    B. Foreign Regulatory Access

    In the Commission's view, a foreign regulator's access to data held

    in a registered SDR that also is registered, recognized, or otherwise

    authorized in a foreign jurisdiction's regulatory regime, should be

    governed by such foreign jurisdiction's regulatory regime where the

    data sought to be accessed has been reported pursuant to that

    regulatory regime. The Commission concludes that it is appropriate not

    to apply the requirements of CEA section 21(d) in these circumstances,

    in light of, among other things, the importance of such data to the

    foreign jurisdiction's regulatory regime, foreign regulators' interest

    in unfettered access to such data, and the traditions of mutual trust

    and cooperation among international regulators.\36\

    ---------------------------------------------------------------------------

    \36\ The Commission notes that access to data held by trade

    repositories is a concept under discussion and development among

    international regulators. At the request of the FSB, CPSS and IOSCO

    have established a working group of relevant authorities to produce

    a forthcoming report regarding authorities' access to trade

    repository data.

    ---------------------------------------------------------------------------

    Therefore, the Commission concludes that a foreign regulator's

    access to data from a registered SDR that also is registered,

    recognized, or otherwise authorized in a foreign jurisdiction's

    regulatory regime, where the data to be accessed has been reported

    pursuant to that regulatory regime, will be dictated by that foreign

    jurisdiction's regulatory regime and not by the CEA or Commission

    regulations. Such access is appropriate, in the Commission's view, even

    if the applicable data is also reported to the registered SDR pursuant

    to the Commission's Data Final Rules.\37\

    ---------------------------------------------------------------------------

    \37\ Regarding the Commission's access to SDR data, section

    21(b)(1)(A) of the CEA states that the Commission ``shall prescribe

    standards that specify the data elements for each swap that shall be

    collected and maintained by each registered swap data repository.''

    Section 21(c)(1) of the CEA requires registered SDRs to ``accept

    data prescribed by the Commission for each swap under subsection

    (b).'' With respect to Commission access to data held in registered

    SDRs, the Commission concludes that the direct electronic access

    provisions of CEA section 21(c)(4) apply only to such data that the

    SDR is required to accept under section 21(c)(1), which is further

    defined by part 45 of the Commission's regulations. In this respect,

    the Commission concludes that its direct electronic access applies

    only to such data reported pursuant to section 21 and Commission

    regulations promulgated thereunder.

    ---------------------------------------------------------------------------

    Additionally, the Commission reiterates that a foreign regulatory

    authority, like domestic regulators, can nonetheless receive

    confidential data, without the execution of a confidentiality and

    indemnification agreement, from the Commission (as opposed to an SDR)

    pursuant to section 8(e) of the CEA.\38\ Such data sharing and access

    would be governed by the confidentiality provisions of section 8 of the

    CEA.\39\ The Commission is committed to continuing its close

    cooperation with: (i) foreign regulatory authorities to promptly

    address such information requests; and (ii) registered SDRs that

    request the Commission's assistance in determining if a foreign

    regulatory authority has an independent and regulatory interest in data

    that has been reported to such registered SDR pursuant to the relevant

    foreign jurisdiction's regulatory regime.

    ---------------------------------------------------------------------------

    \38\ CEA section 8(e), 7 U.S.C. 12(e), allows the Commission to

    share confidential information in its possession obtained in

    connection with the administration of the CEA with ``any department

    or agency of the Government of the United States'' or with any

    foreign futures authority or a department, central bank or ministry,

    or agency of a foreign government or political subdivision thereof,

    acting within the scope of its jurisdiction.

    \39\ 7 U.S.C. 12.

    ---------------------------------------------------------------------------

    * * * * *

    Issued in Washington, DC on October 22, 2012 by the Commission.

    Stacy D. Yochum,

    Counsel.

    Appendices to Swap Data Repositories: Interpretative Statement

    Regarding the Confidentiality and Indemnification Provisions of Section

    21(d) of the Commodity Exchange Act--

    Note: The following appendices will not appear in the Code of

    Federal Regulations.

    Appendix 1--Commission Voting Summary

    On this matter, Chairman Gensler and Commissioners Chilton and

    Wetjen voted in the affirmative; Commissioners Sommers and O'Malia

    voted in the negative.

    Appendix 2--Statement of Chairman Gary Gensler

    I support the final interpretative guidance regarding the

    confidentiality and

    [[Page 65182]]

    indemnification provisions of the Dodd-Frank Wall Street Reform and

    Consumer Protection Act (Dodd-Frank Act).

    The confidentiality and indemnification provisions in the Dodd-

    Frank Act state that before a registered swap data repository (SDR)

    may share information with certain domestic and foreign regulators,

    those regulators must first agree in writing to abide by the

    confidentiality provisions of Section 8 of the Commodity Exchange

    Act (CEA). In addition, the Dodd-Frank Act requires that regulators

    also must indemnify both the SDR and the Commodity Futures Trading

    Commission (Commission) for any expenses arising from litigation

    relating to the information provided under Section 8 of the CEA.

    The Commission recognizes the importance to foreign regulators

    of swap data reported under foreign regulatory regimes. The

    Commission's final SDR rules specified that confidential swap data

    reported to and maintained by an SDR may be accessed by an

    ``appropriate foreign regulator'' without a confidentiality and

    indemnification agreement when the SDR is also registered with that

    foreign regulator.

    To provide further clarity for foreign regulators, the

    Commission is issuing this interpretative guidance on the Dodd-Frank

    Act confidentiality and indemnification provisions. The final

    interpretative guidance makes clear that a foreign regulator will

    not be prevented from accessing data in which it has an independent

    and sufficient regulatory authority over the SDR and such data has

    been reported pursuant to the foreign jurisdiction's regulatory

    regime.

    With this interpretive guidance, the Commission has taken

    another important step to ensure appropriate access to SDRs by

    foreign regulatory authorities consistent with the provisions of the

    Dodd-Frank Act.

    Appendix 3--Statement of Commissioners Jill E. Sommers and Scott D.

    O'Malia

    We respectfully dissent from issuing this Final Interpretative

    Statement Regarding the Confidentiality and Indemnification

    Provisions of Section 21(d) of the Commodity Exchange Act (CEA)

    (Final Interpretative Statement). When the Commission issued the

    proposed guidance (Proposed Interpretative Statement) in May of this

    year, we were concerned that the statement did not actually solve

    the problem with the statutory language beyond providing some

    additional clarity to the Swap Data Repository (SDR) rules and we

    called for a permanent solution by way of a legislative repeal of

    the indemnification provisions.

    When finalizing the SDR rules, the Commission stated that a

    foreign regulator may have direct access to confidential swap data

    reported to and maintained by an SDR registered with the Commission

    without executing a Confidentiality and Indemnification Agreement

    when the SDR is also registered with the foreign regulator and the

    foreign regulator is acting in a regulatory capacity with respect to

    the SDR. See Swap Data Repositories: Registration Standards, Duties

    and Core Principles, 76 FR 54,538, 54,554 (Sept. 1, 2011). The Final

    Interpretative Statement expands this to SDRs that are registered,

    recognized or otherwise authorized in a foreign regulator's

    regulatory regime and clarifies that direct access to data should be

    granted even if the data the foreign regulator seeks also has been

    reported pursuant to the CEA and Commission regulations.

    The Commission received a comment from the European Securities

    and Markets Authority (ESMA) suggesting that we consider modifying

    the conditions that would need to be met so that a foreign regulator

    could escape being subject to the indemnification provisions.

    Specifically, ESMA suggested that the Commission consider the

    following alternative modifications: (1) delete the second condition

    of the Proposed Interpretative Statement, (i.e., ``The data sought

    to be accessed by a foreign regulatory authority is reported to such

    registered SDR pursuant to the foreign regulatory regime''), which

    would leave the sole condition that the SDR be registered,

    recognized or otherwise authorized in the foreign regulatory regime;

    or (2) add language to the second condition such that it would read

    as follows: ``The data sought to be accessed by a foreign regulatory

    authority has been reported to such registered SDR pursuant to the

    foreign jurisdiction's regulatory regime or the foreign regulatory

    authority is entitled to access such data pursuant to its regulatory

    regime to fulfill its respective responsibilities and mandates.''

    Although the Commission acknowledges the comment in the Final

    Interpretative Statement, we do not adopt either suggestion and do

    not justify their exclusion.

    Our second concern involves the distinction the Commission made

    in the SDR rules between an Appropriate Domestic Regulator and an

    Appropriate Domestic Regulator with Regulatory Responsibilities.

    Under the current rules only the CFTC and the SEC are able to

    directly access SDR data absent an indemnification agreement. All

    other U.S. Regulators (i.e. ``Appropriate Domestic Regulators'')

    would have to execute an indemnification agreement--something that

    we are told they are prohibited from doing. Adopting the second ESMA

    option and extending it to Appropriate Domestic Regulators would

    allow them direct access to data they believe is necessary to

    fulfill their regulatory mandate, and in our view is something that

    is within the Commission's discretion. Instead, the Commission has

    purposely chosen to interpret the statute in a manner that

    constrains other domestic regulators' ability to examine swap market

    data. For these reasons we cannot support the guidance issued today

    by the Commission.

    [FR Doc. 2012-26298 Filed 10-24-12; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: October 25, 2012



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