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2013-17467

  • Federal Register, Volume 78 Issue 140 (Monday, July 22, 2013)[Federal Register Volume 78, Number 140 (Monday, July 22, 2013)]

    [Rules and Regulations]

    [Pages 43785-43796]

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

    [FR Doc No: 2013-17467]

    [[Page 43785]]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Chapter I

    RIN 3038-AE05

    Exemptive Order Regarding Compliance With Certain Swap

    Regulations

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Exemptive order; request for comments.

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    SUMMARY: On January 7, 2013, the Commodity Futures Trading Commission

    (``Commission'' or ``CFTC'') issued a final order (``January Order'')

    that granted market participants temporary conditional relief from

    certain provisions of the Commodity Exchange Act (``CEA''), as amended

    by Title VII of the Dodd-Frank Wall Street Reform and Consumer

    Protection Act (``Dodd-Frank Act'' or ``Dodd-Frank'') (and Commission

    regulations thereunder). The January Order expires on July 12, 2013. In

    this Exemptive Order (``Exemptive Order''), the Commission provides

    temporary conditional relief effective upon the expiration of the

    January Order in order to facilitate transition to the Dodd-Frank swaps

    regime.

    DATES: The Exemptive Order is effective July 13, 2013, and will expire

    December 21, 2013, or such earlier date specified in the Exemptive

    Order.

    ADDRESSES: You may submit comments, identified by RIN number 3038-AE05,

    by any of the following methods:

    The agency's Web site: at http://comments.cftc.gov. Follow

    the instructions for submitting comments through the Web site.

    Mail: Melissa D. Jurgens, Secretary of the Commission,

    Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

    Street NW., Washington, DC 20581.

    Hand Delivery/Courier: Same as mail above.

    Federal eRulemaking Portal: http://www.regulations.gov.

    Follow the instructions for submitting comments.

    Please submit your comments using only one method.

    All comments must be submitted in English, or if not, accompanied

    by an English translation. Comments will be posted as received to

    www.cftc.gov. You should submit only information that you wish to make

    available publicly. If you wish the Commission to consider information

    that you believe is exempt from disclosure under the Freedom of

    Information Act, a petition for confidential treatment of the exempt

    information may be submitted according to the procedures established in

    Sec. 145.9 of the Commission's regulations.\1\

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    \1\ See 17 CFR 145.9.

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    The Commission reserves the right, but shall have no obligation, to

    review, pre-screen, filter, redact, refuse or remove any or all of your

    submission from www.cftc.gov that it may deem to be inappropriate for

    publication, such as obscene language. All submissions that have been

    redacted or removed that contain comments on the merits of the proposal

    will be retained in the public comment file and will be considered as

    required under the Administrative Procedure Act \2\ and other

    applicable laws, and may be accessible under the Freedom of Information

    Act.\3\

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    \2\ 5 U.S.C. 551, et seq.

    \3\ 5 U.S.C. 552.

    FOR FURTHER INFORMATION CONTACT: Gary Barnett, Director, Division of

    Swap Dealer and Intermediary Oversight, (202) 418-5977,

    gbarnett@cftc.gov; Sarah E. Josephson, Director, Office of

    International Affairs, (202) 418-5684, sjosephson@cftc.gov; Mark

    Fajfar, Assistant General Counsel, Office of General Counsel, (202)

    418-6636, mfajfar@cftc.gov; Laura B. Badian, Counsel, Office of General

    Counsel, (202) 418-5969, lbadian@cftc.gov; Evan H. Winerman, Attorney-

    Advisor, Office of General Counsel, (202) 418-5674, ewinerman@cftc.gov;

    Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

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    Street NW., Washington, DC 20581.

    SUPPLEMENTARY INFORMATION:

    I. Background

    On July 21, 2010, President Obama signed the Dodd-Frank Act,\4\

    which amended the CEA \5\ to establish a new regulatory framework for

    swaps. The legislation was enacted to reduce systemic risk, increase

    transparency, and promote market integrity within the financial system

    by, among other things: (1) Providing for the registration and

    comprehensive regulation of swap dealers (``SDs'') and major swap

    participants (``MSPs''); (2) imposing clearing and trade execution

    requirements on standardized derivative products; (3) creating rigorous

    recordkeeping and data reporting regimes with respect to swaps,

    including real-time public reporting; and (4) enhancing the

    Commission's rulemaking and enforcement authorities over all registered

    entities, intermediaries, and swap counterparties subject to the

    Commission's oversight. Section 722(d) of the Dodd-Frank Act also

    amended the CEA to add section 2(i), which provides that the swaps

    provisions of the CEA apply to cross-border activities when certain

    conditions are met, namely, when such activities have a ``direct and

    significant connection with activities in, or effect on, commerce of

    the United States'' or when they contravene a Commission rulemaking.\6\

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    \4\ See Dodd-Frank Wall Street Reform and Consumer Protection

    Act, Public Law 111-203, 124 Stat. 1376 (July 21, 2010).

    \5\ 7 U.S.C. 1 et seq. (amended 2010).

    \6\ 7 U.S.C. 2(i).

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    In the nearly three years since its enactment, the Commission has

    finalized 69 actions to implement Title VII of the Dodd-Frank Act. The

    finalized actions include rules promulgated under CEA section 4s,\7\

    which address registration of SDs and MSPs and other substantive

    requirements applicable to SDs and MSPs. Notably, many section 4s

    requirements applicable to SDs and MSPs are tied to the date on which a

    person is required to register, unless a later compliance date is

    specified.\8\ A number of other rules specifically applicable to SDs

    and MSPs have been proposed but are not finalized.\9\

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    \7\ 7 U.S.C. 6s.

    \8\ Examples of section 4s implementing rules that become

    effective for SDs and MSPs at the time of their registration include

    requirements relating to swap data reporting (Commission regulation

    23.204) and conflicts of interest (Commission regulation 23.605(c)-

    (d)). The chief compliance officer requirement (Commission

    regulations 3.1 and 3.3) is an example of those rules that have

    specific compliance dates. The compliance dates are summarized on

    the Compliance Dates page of the Commission's Web site. (http://www.cftc.gov/LawRegulation/DoddFrankAct/ComplianceDates/index.htm).

    The Commission's regulations are codified at 17 CFR Ch. 1.

    \9\ These include rules under CEA section 4s(e),7 U.S.C. 6s(e)

    (governing capital and margin requirements for SDs and MSPs), and

    CEA section 4s(l), 7 U.S.C. 6s(l) (governing segregation

    requirements for uncleared swaps).

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    Further, the Commission published for public comment the Proposed

    Guidance,\10\ which set forth the manner in which it proposed to

    interpret section 2(i) of the CEA as it applies to the requirements

    under the Dodd-Frank Act and the Commission's regulations promulgated

    thereunder regarding cross-border swaps activities. Specifically, in

    the Proposed Guidance, the Commission described the general manner in

    which it proposed to consider: (1) Whether a non-U.S. person's swap

    dealing activities are sufficient to require registration as a ``swap

    dealer,'' \11\ as further defined in a joint release adopted by the

    Commission

    [[Page 43786]]

    and the Securities and Exchange Commission (``SEC'') (collectively, the

    ``Commissions''); \12\ (2) whether a non-U.S. person's swap positions

    are sufficient to require registration as a ``major swap participant,''

    \13\ as further defined in the Final Entities Rules; and (3) the

    treatment of foreign branches, agencies, affiliates, and subsidiaries

    of U.S. SDs and U.S. branches of non-U.S. SDs. The Proposed Guidance

    also generally described the policy basis and procedural framework

    underlying the Commission's determination to allow compliance with a

    comparable regulatory requirement of a foreign jurisdiction to

    substitute for compliance with the requirements of the CEA and

    Commission regulations thereunder. Last, the Proposed Guidance set

    forth the manner in which the Commission proposed to interpret section

    2(i) of the CEA as it applies to the clearing, trading, and certain

    reporting requirements under the Dodd-Frank Act with respect to swaps

    between counterparties that are not SDs or MSPs.

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    \10\ Cross-Border Application of Certain Swaps Provisions of the

    Commodity Exchange Act, 77 FR 41214 (Jul. 12, 2012) (``Proposed

    Guidance'').

    \11\ 7 U.S.C. 1a(49) (defining the term ``swap dealer'').

    \12\ See Further Definition of `Swap Dealer,' `Security-Based

    Swap Dealer,' `Major Swap Participant,' `Major Security-Based Swap

    Participant' and `Eligible Contract Participant,' 77 FR 305969 (May

    23, 2012) (``Final Entities Rules'').

    \13\ 7 U.S.C. 1a(33) (defining the term ``major swap

    participant'').

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    Contemporaneously with the Proposed Guidance, the Commission

    published the Exemptive Order Regarding Compliance With Certain Swap

    Regulations (``Proposed Order'') \14\ pursuant to section 4(c) of the

    CEA, in order to foster an orderly transition to the new swaps

    regulatory regime and to provide market participants greater certainty

    regarding their obligations with respect to cross-border swaps

    activities prior to finalization of the Proposed Order. The Proposed

    Order would have granted temporary relief from certain swaps provisions

    of Title VII of the Dodd-Frank Act.

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    \14\ 77 FR 41110 (Jul. 12, 2012).

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    On January 7, 2013, the Commission published the Final Exemptive

    Order Regarding Compliance with Certain Swap Regulations (``January

    Order''),\15\ which finalized the Proposed Order, with modifications,

    and granted temporary relief from certain swaps provisions of Title VII

    of the Dodd-Frank Act. In particular, the January Order: (1) Applies,

    for purposes of the January Order, a definition of the term ``U.S.

    person'' based on the counterparty criteria set forth in CFTC Letter

    No. 12-22,\16\ with certain modifications; (2) provides relief

    concerning SD de minimis and MSP threshold calculations; (3)

    classifies, for purposes of the January Order, requirements of the CEA

    and Commission regulations as either ``Entity-Level Requirements'' or

    ``Transaction-Level Requirements;'' (4) allows non-U.S. persons that

    register as SDs or MSPs to delay compliance with certain Entity-Level

    Requirements and Transaction-Level Requirements; and (5) allows foreign

    branches of U.S. SDs or MSPs to delay compliance with certain

    Transaction-Level Requirements. The January Order was effective

    December 21, 2012, and expires July 12, 2013.

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    \15\ 78 FR 858 (Jan. 7, 2013).

    \16\ CFTC Division of Swap Dealer and Intermediary Oversight,

    Re: Time-Limited No-Action Relief: Swaps Only With Certain Persons

    to be Included in Calculation of Aggregate Gross Notional Amount for

    Purposes of Swap Dealer De Minimis Exception and Calculation of

    Whether a Person is a Major Swap Participant, No-Action Letter No.

    12-22 (Oct. 12, 2012).

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    II. Need for Further Exemptive Relief With Request for Comments

    In issuing the January Order, the Commission attempted to be

    responsive to industry's concerns regarding implementation and thereby

    ensure that market practices would not be unnecessarily disrupted

    during the transition to the new swaps regulatory regime. At the same

    time, however, the Commission endeavored to comply with the

    Congressional mandate to implement the new SD and MSP regulatory scheme

    in a timely manner. Accordingly, the January Order was carefully

    tailored both in scope and duration in order to strike the proper

    balance between these competing demands.

    Following the issuance of the January Order, Commission staff

    addressed various implementation issues through no-action letters and

    interpretative letters in order to ensure a smooth transition to the

    new swaps regulatory regime. Furthermore, the Commission and its staff

    have closely consulted with SEC staff and with foreign regulators in an

    effort to harmonize cross-border regulatory approaches. As a result,

    significant progress has been made towards implementation of the Dodd-

    Frank swaps regime. Under these circumstances, the Commission does not

    believe that an extension of the January Order is necessary or

    appropriate. The Commission believes, however, that further

    transitional relief is necessary in order to avoid unnecessary market

    disruptions and to facilitate market participants' transition to the

    new Dodd-Frank swaps regime. Specifically, with the expiration of the

    January Order, the temporary definition of the term ``U.S. person''

    will no longer be available. As a result, market participants will need

    additional time to adjust their operational and compliance systems in

    order to incorporate the revised scope of the term ``U.S. person.''

    The Commission also recognizes that implementation of the

    Commission's substituted compliance program would benefit from

    additional time.\17\ Under this ``substituted compliance program,'' the

    Commission may determine that certain laws and regulations of a foreign

    jurisdiction are comparable to, and as comprehensive as, a

    corresponding category of U.S. laws and regulations.\18\ A finding of

    comparability, however, may not be possible at this time for a number

    of reasons, including that the foreign jurisdiction has not yet

    implemented or finalized particular requirements and that the

    Commission does not have sufficient information to make the

    comparability determinations (``Substituted Compliance

    Determinations''). Moreover, the Commission has only recently received

    requests for Substituted Compliance Determinations from parties located

    in Australia, Canada, the European Union, Hong Kong, Japan, and

    Switzerland.\19\

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    \17\ See Interpretive Guidance and Policy Statement Regarding

    Compliance with Certain Swap Regulations, (``Guidance''), adopted

    concurrently with the Exemptive Order.

    \18\ As stated in the Guidance, any comparability analysis will

    be based on a comparison of specific foreign requirements against

    specific related CEA provisions and Commission regulations in 13

    categories of regulatory obligations, considering certain factors

    described in the Guidance.

    \19\ The Commission notes that of 78 SDs and two MSPs registered

    as of June 14, 2013, 33 SDs are from six non-U.S. jurisdictions:

    Twenty from the European Union; five from Australia; five from

    Canada; one from Japan; one from Hong Kong; and one from

    Switzerland.

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    The Commission is issuing the Exemptive Order today, with a request

    for comments, as it is cognizant that, in the absence of immediate

    exemptive relief, market participants will be faced with significant

    legal uncertainty and the risk of adverse consequences to their global

    business, especially in light of the ongoing discussions with foreign

    regulatory entities and their evolving regulatory regimes. For all of

    the foregoing reasons, the Commission finds that public notice and

    comment on this Exemptive Order would be impracticable, unnecessary,

    and contrary to the public interest.\20\

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    \20\ See 5 U.S.C. 553(b)(B).

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    Because the Commission understands that the transition to the

    Guidance is complex and could apply in varied ways to different

    situations, the Commission is seeking public comment on any issues that

    are not fully addressed by the Exemptive Order. Thus, the Exemptive

    Order is effective as of July 13, 2013, and the Commission is

    soliciting comments for 30 days. The

    [[Page 43787]]

    Commission will take into consideration arguments made in all comments

    received and make adjustments to the Exemptive Order, as necessary.

    In summary, like the January Order, the Exemptive Order will

    provide targeted, time-limited relief from certain Dodd-Frank

    requirements to facilitate an orderly transition to the Dodd-Frank

    regulatory regime, while, at the same time, ensuring that the Dodd-

    Frank swaps market reform is implemented without undue delay.

    III. Scope of Exemptive Order

    A. Definition of ``U.S. Person'' and Phase-In of Guaranteed Affiliates

    and ``Affiliate Conduits''

    As discussed above, the Commission recognizes that market

    participants may need additional time to facilitate their transition to

    the interpretation of the term ``U.S. person.'' Accordingly, under the

    Exemptive Order, the definition of the term ``U.S. person'' contained

    in the January Order will continue to apply from July 13, 2013 (the

    date on which the Exemptive Order is effective) until 75 days after the

    Final Guidance is published in the Federal Register. The Commission

    expects that this step, and the other relief provided in this Exemptive

    Order, will substantially address concerns regarding the complexity of

    implementing the swap requirements for the interim period during which

    the Exemptive Order is in effect. In addition, guaranteed affiliates

    and affiliate conduits do not need to comply with Transaction-Level

    Requirements relating to swaps with non-U.S. persons and foreign

    branches of U.S. swap dealers and MSPs until 75 days after the Final

    Guidance is published in the Federal Register.

    B. De Minimis Calculation

    The Commission has adopted final rules and interpretive guidance

    implementing the statutory definitions of the terms ``swap dealer'' and

    ``major swap participant'' in CEA sections 1a(49) and 1a(33).\21\ The

    Final Entities Rules delineate the activities that cause a person to be

    an SD and the level of swap positions that cause a person to be an MSP.

    In addition, the Commission has adopted rules concerning the statutory

    exceptions from the definition of an SD, including the de minimis

    exception.\22\ Commission regulation 1.3(ggg)(4) sets forth a de

    minimis threshold of swap dealing, which takes into account the

    notional amount of a person's swap dealing activity over the prior 12

    months.\23\ When a person engages in swap dealing transactions above

    that threshold, the person meets the SD definition in section 1a(49) of

    the CEA.\24\ Commission regulations 1.3(jjj)(1) and 1.3(lll)(1) set

    forth swap position thresholds for the MSP definition in Commission

    regulation 1.3(hhh). When a person holds swap positions above those

    thresholds, such person meets the MSP definition in section 1a(39) of

    the CEA.

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    \21\ 7 U.S.C. 1a(49) and 1a(33). See Final Entities Rules.

    \22\ Section 1a(49)(D) of the CEA, 7 U.S.C. 1a(49)(D), provides

    that ``[t]he Commission shall exempt from designation as a swap

    dealer an entity that engages in a de minimis quantity of swap

    dealing in connection with transactions with or on behalf of its

    customers. The Commission shall promulgate regulations to establish

    factors with respect to the making of this determination to

    exempt.'' This provision is implemented in Commission regulation

    1.3(ggg)(4).

    \23\ As used in the Exemptive Order, the meaning of the term

    ``swap dealing'' is consistent with that used in the Final Entities

    Rules.

    \24\ Under Commission regulations 3.10(a)(1)(v)(C) and 23.21, a

    person is required to register as an SD when, on or after October

    12, 2012, the person falls within the definition of an SD. However,

    the rule defining ``swap dealer'' includes a de minimis threshold so

    that an entity is not an SD if it, together with the entities

    controlling, controlled by, and under common control with it,

    engages in swap dealing activity during the prior 12 months in an

    aggregate gross notional amount of less than the specified

    thresholds. The rule further specifies that swap dealing activity

    engaged in before the effective date of both the ``swap dealer'' and

    ``swap'' definition rules (i.e., before October 12, 2012) does not

    count toward the de minimis threshold. The rule also provides that

    an entity that exceeds the de minimis threshold must register as an

    SD two months after the end of the month in which it exceeds the

    threshold. See Commission regulation 1.3(ggg)(4).

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    As described in the January Order, the Commission believed it

    appropriate to provide, during the pendency of the Commission's cross-

    border interpretive guidance, temporary relief for non-U.S. persons

    (regardless of whether the non-U.S. persons' swap obligations are

    guaranteed by U.S. persons) from the requirement that a person include

    all its swaps in its calculation of the aggregate gross notional amount

    of swaps connected with its swap dealing activity for SD purposes or in

    its calculations for MSP purposes.\25\ In order to facilitate an

    orderly transition to the revised scope of the term ``U.S. person,''

    the Exemptive Order provides that until 75 days after the Guidance is

    published in the Federal Register, a non-U.S. person (regardless of

    whether the non-U.S. person's swaps obligations are guaranteed by U.S.

    persons) does not need to include in its calculation of the aggregate

    gross notional amount of swaps connected with its swap dealing activity

    for purposes of Commission regulation 1.3(ggg)(4) or in its calculation

    of whether it is an MSP for purposes of Commission regulation 1.3(hhh),

    any swaps where the counterparty is a non-U.S. person, or any swap

    where the counterparty is a foreign branch of a U.S. person that is

    registered as a swap dealer.

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    \25\ On the other hand, the Commission believes that it is not

    appropriate to provide a non-U.S. person with relief from the

    registration requirement when the aggregate level of its swap

    dealing with U.S. persons, as that term is defined in the Guidance,

    exceeds the de minimis level of swap dealing, or when the level of

    its swap positions with U.S. persons, again as that term is defined

    above, exceeds one of the MSP thresholds. In the Commission's view,

    such relief from the registration requirement is inappropriate when

    a level of swaps activities that is substantial enough to require

    registration as an SD or an MSP when conducted by a U.S. person, is

    conducted by a non-U.S. person with U.S. persons as counterparties.

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    C. Aggregation

    Commission regulation 1.3(ggg)(4) requires that a person include,

    in determining whether its swap dealing activities exceed the de

    minimis threshold, the aggregate notional value of swap dealing

    transactions entered by its affiliates under common control. Under the

    January Order, a non-U.S. person that is engaged in swap dealing

    activities with U.S. persons as of the effective date of the January

    Order is not required to include, in its calculation of the aggregate

    gross notional amount of swaps connected with its swap dealing activity

    for purposes of Commission regulation 1.3(ggg)(4), the aggregate gross

    notional amount of swaps connected with the swap dealing activity of

    its U.S. affiliates under common control.\26\ Further, a non-U.S.

    person that is engaged in swap dealing activities with U.S. persons as

    of the effective date of the January Order and is an affiliate under

    common control with a person that is registered as an SD is also not

    required to include, in its calculation of the aggregate gross notional

    amount of swaps connected with its swap dealing activity for purposes

    of Commission regulation 1.3(ggg)(4), the aggregate gross notional

    amount of swaps connected with the swap dealing activity of any non-

    U.S. affiliate under common control that is either (i) engaged in swap

    dealing activities with U.S. persons as of the effective date of the

    January Order or (ii) registered as an SD. Also, under the January

    Order, a non-U.S. person is not required to include, in its calculation

    of the aggregate gross notional amount of swaps connected with its swap

    dealing

    [[Page 43788]]

    activity for purposes of Commission regulation 1.3(ggg)(4), the

    aggregate gross notional amount of swaps connected with the swap

    dealing activity of its non-U.S. affiliates under common control with

    other non-U.S. persons as counterparties.

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    \26\ For this purpose, the Commission construes ``affiliates''

    to include persons under common control as stated in the

    Commission's final rule further defining the term ``swap dealer,''

    which defines control as ``the possession, direct or indirect, of

    the power to direct or cause the direction of the management and

    policies of a person, whether through the ownership of voting

    securities, by contract or otherwise.'' See Final Entities Rules, 77

    FR at 30631 n. 437.

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    In order to facilitate transition to the expanded scope of the term

    ``U.S. person,'' the Exemptive Order allows all non-U.S. persons to

    apply the aggregation principle applied in the January Order until 75

    days after the Guidance is published in the Federal Register.

    D. Swap Dealer Registration

    A non-U.S. person that was previously exempt from registration as

    an SD because of the temporary relief extended to such person under the

    Commission's January Order, but that is required to register as an SD

    under Commission regulation 1.3(ggg)(4) because of changes to the scope

    of the term ``U.S. person'' or changes in the de minimis SD calculation

    or aggregation for purposes of the de minimis calculation, is not

    required to register as an SD until two months after the end of the

    month in which such person exceeds the de minimis threshold for SD

    registration.

    E. Entity-Level and Transaction-Level Requirements

    1. Categorization

    For purposes of the Exemptive Order, the Dodd-Frank swaps

    provisions applicable to SDs and MSPs are categorized as Entity-Level

    or Transaction-Level Requirements in the same way as they are

    categorized in the Guidance.\27\ In particular, for purposes of the

    Exemptive Order, Entity-Level Requirements consist of: (1) Capital

    adequacy; (2) chief compliance officer; \28\ (3) risk management; \29\

    (4) swap data recordkeeping; \30\ and (5) swap data repository

    (``SDR'') Reporting.\31\ The Transaction-Level Requirements consist of:

    (1) Clearing and swap processing; \32\ (2) margin and segregation

    requirements for uncleared swaps; (3) trade execution; \33\ (4) swap

    trading relationship documentation; \34\ (5) portfolio reconciliation

    and compression; \35\ (6) real-time public reporting; \36\ (7) trade

    confirmation; \37\ (8) daily trading records; \38\ and (9) external

    business conduct standards.\39\ Under the Guidance, Transaction-Level

    Requirements (1) to (8) are the ``Category A Transaction-Level

    Requirements,'' while external business conduct standards are the

    ``Category B Transaction-Level Requirements.''

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    \27\ Because, as described in the Guidance, substituted

    compliance is not possible with respect to Large Trader Reporting

    (``LTR'') requirements (i.e., non-U.S. persons that are subject to

    part 20 of the Commission's regulations would comply with it in the

    same way that U.S. persons comply), LTR requirements are not

    included within the term ``Entity-Level Requirements'' for purposes

    of the Exemptive Order.

    \28\ 17 CFR 3.3.

    \29\ 17 CFR 23.600, 23.601, 23.602, 23.603, 23.605, 23.606,

    23.608, and 23.609.

    \30\ 17 CFR 1.31, 23.201 and 23.203.

    \31\ 17 CFR parts 45 and 46.

    \32\ 17 CFR 23.506, 23.610, and part 50.

    \33\ The Commission has adopted regulations for determining when

    a swap is ``available to trade'' and a compliance schedule for the

    trade execution requirement that applies when a swap subject to

    mandatory clearing is available to trade. At the present time, no

    swap either has been determined to be made available to trade or is

    subject to the trade execution requirement. See Process for a

    Designated Contract Market or Swap Execution Facility To Make a Swap

    Available to Trade, Swap Transaction Compliance and Implementation

    Schedule, and Trade Execution Requirement Under the Commodity

    Exchange Act, 78 FR 33606 (Jun. 4, 2013). See CEA section 2(h)(8)

    and 17 CFR 37.12 or 38.11.

    \34\ 17 CFR 23.504 and 23.505.

    \35\ 17 CFR 23.502 and 23.503.

    \36\ 17 CFR 23.205 and part 43.

    \37\ 17 CFR 23.501.

    \38\ 17 CFR 23.202.

    \39\ 17 CFR 23.400 to 23.451.

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    The Commission notes that it has not yet finalized regulations

    regarding capital adequacy or margin and segregation for uncleared

    swaps. In the event that the Commission finalizes regulations regarding

    capital adequacy or margin and segregation for uncleared swaps before

    December 21, 2013, non-U.S. SDs and non-U.S. MSPs would comply with

    such requirements in accordance with any compliance date provided in

    the relevant rulemaking.

    2. Application of Entity-Level Requirements

    i. Application to non-U.S. SDs and non-U.S. MSPs

    As described in the Guidance, non-U.S. SDs and non-U.S. MSPs can

    generally comply with specified Entity-Level Requirements by complying

    with regulations of the jurisdiction in which the non-U.S. SD or non-

    U.S. MSP is established, assuming the Commission has made a Substituted

    Compliance Determination with respect to the particular regulatory

    regime.\40\ In addition to SDs in the United States, there are

    provisionally registered SDs that are established in Australia, Canada,

    the European Union, Hong Kong, Japan, and Switzerland. Market

    participants or regulators in all of these jurisdictions have recently

    submitted requests for Substituted Compliance Determinations. Given

    that the Guidance is being issued now, and that the Commission did not

    receive any submissions in support of Substituted Compliance

    Determinations with sufficient time to review them and reach a final

    determination, the Commission has determined to temporarily delay

    compliance with Entity-Level Requirements in these jurisdictions.

    Accordingly, under the Exemptive Order, a non-U.S. SD or non-U.S. MSP

    established in Australia, Canada, the European Union, Hong Kong, Japan

    or Switzerland may defer compliance with any Entity-Level Requirement

    for which substituted compliance would be possible, as described in the

    Commission's Guidance, until the earlier of December 21, 2013 or 30

    days following the issuance of a Substituted Compliance Determination

    for the relevant regulatory requirements of the jurisdiction in which

    the non-U.S. SD or non-U.S. MSP is established.\41\

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

    \40\ As detailed in the Guidance, non-U.S. SDs and MSPs may

    generally rely on substituted compliance with respect to capital

    adequacy, chief compliance officer, risk management, and certain

    swap data recordkeeping. Non-U.S persons may also generally rely on

    substituted compliance with respect to SDR reporting and certain

    aspects of swap data recordkeeping relating to complaints and

    marketing and sales materials, but only for transactions with non-

    U.S. counterparties.

    \41\ The Commission anticipates that non-U.S. SDs/MSPs may

    require additional time after a Substituted Compliance Determination

    in order to phase in compliance with the relevant requirements of

    the jurisdiction in which the non-U.S. SDs or MSP is established.

    The Commission and its staff intend to address the need for any

    further transitional relief in connection with the subject

    Substituted Compliance Determination.

    In addition, if an SD or MSP established in another jurisdiction

    files a request for registration before December 21, 2013, the

    Commission may consider a request for deferring compliance with the

    Entity-Level Requirements if a substituted compliance request is

    filed concurrently with the application.

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

    Under the January Order, non-U.S. SDs and non-U.S. MSPs are

    required to comply with SDR Reporting for all swaps with U.S.

    counterparties. However, non-U.S. SDs and non-U.S. MSPs that are not

    part of an affiliated group in which the ultimate parent entity is a

    U.S. SD, U.S. MSP, U.S. bank, U.S. financial holding company or U.S.

    bank holding company are relieved, during the pendency of the January

    Order, from complying with the SDR Reporting requirements for swaps

    with non-U.S. counterparties. In order to facilitate the transition to

    fully compliant SDR Reporting, the Commission will provide non-U.S. SDs

    and non-U.S. MSPs established in Australia, Canada, the European Union,

    Hong Kong, Japan or Switzerland that are not part of an affiliated

    group in which the ultimate parent entity is a U.S. SD, U.S. MSP, U.S.

    bank, U.S. financial holding company, or U.S. bank

    [[Page 43789]]

    holding company with temporary relief from the SDR reporting

    requirements of part 45 and part 46 of the Commission's regulations

    with respect to swaps with non-U.S. counterparties on the condition

    that, during the relief period: (i) Such non-U.S. SDs and non-U.S. MSPs

    are in compliance with the swap data recordkeeping and reporting

    requirements of their home jurisdictions; or (ii) where no swap data

    reporting requirements have been implemented in their home

    jurisdictions, such non-U.S. SDs and non-U.S. MSPs comply with the

    recordkeeping requirements of Commission regulations 45.2, 45.6, 46.2

    and 46.4. This relief will expire the earlier of December 21, 2013 or,

    in the event of a Substituted Compliance Determination for the

    regulatory requirements of parts 45 and 46 for the jurisdiction in

    which the non-U.S. SD or non-U.S. MSP is established, 30 days following

    the issuance of such Substituted Compliance Determination.

    3. Application of Transaction-Level Requirements

    i. Application to U.S. SDs and MSPs

    Generally, U.S. SDs and MSPs must comply with all Transaction-Level

    Requirements that are in effect. As described in the Guidance, however,

    a foreign branch of a U.S. SD or MSP that enters into a swap with a

    non-U.S. counterparty would be able to comply with the requirements of

    the local law and regulations in the foreign location of the branch in

    lieu of compliance with Category A Transaction-Level Requirements if

    the Commission has made a Substituted Compliance Determination with

    respect to those regulatory requirements. Additionally, as described in

    the Guidance, a foreign branch of a U.S. bank that is an SD or MSP need

    not comply with Category B Transaction-Level Requirements unless its

    swap counterparty is a U.S. person other than a foreign branch of a

    U.S. bank that is an SD or MSP.

    Given that the Guidance is being issued now, and that the

    Commission did not receive any submissions in support of Substituted

    Compliance Determinations with sufficient time to review them and reach

    a final determination, the Commission has determined to temporarily

    defer compliance with the Category A Transaction-Level Requirements by

    foreign branches of U.S. banks if they are located in any of the six

    jurisdictions for which the Commission has received, or expects to

    receive in the near term, a request for substituted compliance

    determinations, for transactions for which substituted compliance is

    possible under the Guidance for such entities.\42\ Accordingly, under

    the Exemptive Order, a foreign branch \43\ of a U.S. bank that is an SD

    or MSP, and which is located in Australia, Canada, the European Union,

    Hong Kong, Japan, or Switzerland, may comply with any law and

    regulations of the jurisdiction where the foreign branch is located

    (and only to the extent required by such jurisdiction) in lieu of

    complying with any Category A Transaction-Level Requirement for which

    substituted compliance would be possible under the Guidance (other than

    a clearing requirement under CEA section 2(h)(1), Commission

    regulations under part 50, and Commission regulation 23.506; a trade

    execution requirement under CEA section 2(h)(8) and regulation 37.12 or

    38.11; \44\ or a real-time reporting requirement under part 43 of the

    Commission regulations for swaps with guaranteed affiliates \45\ of a

    U.S. person), until the earlier of December 21, 2013 or 30 days

    following the issuance of a Substituted Compliance Determination for

    the relevant regulatory requirements of the country in which the

    foreign branch is located. For swaps transactions with guaranteed

    affiliates of a U.S. person, a foreign branch of a U.S. SD or MSP

    established in Australia, Canada, the European Union, Hong Kong, Japan

    or Switzerland may comply with the law and regulations of the

    jurisdiction where the foreign branch is located related to real-time

    reporting (and only to the extent required by such jurisdiction) in

    lieu of complying with the real-time reporting requirements of part 43

    of the Commission regulations until September 30, 2013. In the case of

    swaps with guaranteed affiliates of a U.S. person, the Commission

    believes that it the real-time reporting requirements of part 43 of the

    Commission's regulations should be effective as expeditiously as

    possible in order to achieve their underlying statutory objectives.

    Therefore, the Commission has determined that it would not be in the

    public interest to further delay reporting under part 43 of the

    Commission's regulations with respect to such swaps beyond September

    30, 2013.

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

    \42\ If an SD or MSP established in any other jurisdiction files

    an application for registration before December 21, 2013, the

    Commission may consider a request for deferring compliance with the

    Transaction-Level Requirements if a substituted compliance request

    is filed concurrently with the application.

    The Commission notes that Transaction-Level Requirements apply

    on a transaction-by-transaction basis. As described in the Guidance,

    if a Substituted Compliance Determination is applicable to the

    jurisdiction in which a foreign branch of a U.S. bank is located for

    the relevant regulatory requirements and the branch enters into a

    swap (either in the jurisdiction in which it is located or another

    jurisdiction), then the branch can elect to comply with either the

    regulatory regime of the jurisdiction in which it is located for

    which the Substituted Compliance Determination has been made, or the

    comparable Category A Transaction-Level Requirements.

    \43\ For purposes of this Exemptive Order, market participants

    must use the term ``foreign branch'' and the interpretation of when

    a swap is with a foreign branch set forth in the Guidance. See

    Guidance regarding the types of offices which the Commission would

    consider to be a ``foreign branch'' of a U.S. bank, and the

    circumstances in which a swap is with such foreign branch.

    \44\ The Commission has adopted regulations for determining when

    a swap is ``available to trade'' and a compliance schedule for the

    trade execution requirement that applies when a swap subject to

    mandatory clearing is available to trade. At the present time, no

    swap either has been determined to be made available to trade or is

    subject to the trade execution requirement. See Process for a

    Designated Contract Market or Swap Execution Facility To Make a Swap

    Available to Trade, Swap Transaction Compliance and Implementation

    Schedule, and Trade Execution Requirement Under the Commodity

    Exchange Act, 78 FR 33606 (Jun. 4, 2013). See CEA section 2(h)(8)

    and 17 CFR 37.12 or 38.11.

    \45\ As used in the Exemptive Order, the term ``guaranteed

    affiliate'' refers to a non-U.S. person that is affiliated with a

    U.S. person and guaranteed by a U.S. person. In addition, for

    purposes of the Exemptive Order, the Commission interprets the term

    ``guarantee'' generally to include not only traditional guarantees

    of payment or performance of the related swaps, but also other

    formal arrangements that, in view of all the facts and

    circumstances, support the non-U.S. person's ability to pay or

    perform its swap obligations with respect to its swaps. See Proposed

    Guidance, 77 FR at 41221 n. 47. The term ``guarantee'' encompasses

    the different financial arrangements and structures that transfer

    risk directly back to the United States. In this regard, it is the

    substance, rather than the form, of the arrangement that determines

    whether the arrangement should be considered a guarantee for

    purposes of the Exemptive Order.

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

    With respect to a swap that is subject to the clearing requirement

    under CEA section 2(h)(1), Commission regulations under part 50, and

    Commission regulation 23.506, any foreign branch of a U.S. bank that is

    an SD or MSP that was not required to clear under the January Order may

    delay complying with such clearing requirement until 75 days after the

    publication of the Guidance in the Federal Register. As the Commission

    explained in the Clearing Requirement Determination proposal,\46\ the

    movement of swaps into central clearing by swap dealers has been taking

    place for many years. As part of the OTC Derivatives Supervisors' Group

    (``ODSG''), the Federal Reserve Bank of New York led an effort along

    with the primary supervisors of certain swap dealers \47\ to enhance

    risk

    [[Page 43790]]

    mitigation practices for OTC derivatives, a key element of which was

    introduction of and commitment to central clearing of swaps, including

    clearing CDS (credit default swap) indices and interest rate swaps.

    Clearing is at the heart of the Dodd-Frank financial reform.\48\

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

    \46\ 77 FR 47170, 47209 (Aug. 7, 2012).

    \47\ The ODSG's group of 14 dealers included: Bank of America-

    Merrill Lynch; Barclays Capital; BNP Paribas; Citi; Credit Suisse;

    Deutsche Bank AG; Goldman Sachs & Co.; HSBC Group, J.P. Morgan;

    Morgan Stanley; The Royal Bank of Scotland Group;

    Soci[eacute]t[eacute] G[eacute]n[eacute]rale; UBS AG; and Wells

    Fargo Bank N.A.

    \48\ See Clearing Requirement Determination under Section 2(h)

    of the CEA, 77 FR 74284, 74285 (Dec. 13, 2013).

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

    With regard to the CDS indices that are subject to the Commission's

    clearing determination rules, SDs and other market participants have

    been working since 2008 to comply with their commitment to their ODSG

    supervisors to clear CDS. Similarly, while clearing of interest rate

    swaps began in the late 1990s, SDs and other market participants began

    committing in the mid-2000s to clear interest rate swaps in significant

    volumes. The SD commitments included both dealer-to-dealer clearing, as

    well as clearing by buy-side participants and others. Because SDs and

    MSPs have been committed to clearing their CDS and interest rate swaps

    for many years, and indeed have been voluntarily clearing for many

    years, any further delay of the Commission's clearing requirement is

    unwarranted.

    In addition, under this Exemptive Order, a foreign branch of a U.S.

    SD or MSP located in any jurisdiction other than Australia, Canada,

    European Union, Hong Kong, Japan or Switzerland may comply with any law

    and regulations of the jurisdiction where the foreign branch is located

    (and only to the extent required by such jurisdiction) for the relevant

    Transaction-Level Requirement in lieu of complying with any

    Transaction-Level Requirement for which substituted compliance would be

    possible under the Commission's Guidance until 75 days after the

    publication of the Guidance in the Federal Register.

    ii. Application to Non-U.S. SDs and Non-U.S. MSPs

    As described in the Guidance, a non-U.S. SD or non-U.S. MSP should

    generally comply with the Category A Transaction-Level Requirements for

    its swaps with U.S. persons and with non-U.S. persons that are

    guaranteed by, or are affiliate conduits of,\49\ a U.S. person

    (although substituted compliance would generally be available to a non-

    U.S. SD or non-U.S. MSP for transactions with (1) foreign branches of a

    U.S. bank that is an SD or MSP and (2) guaranteed affiliates or

    affiliate conduits of a U.S. person). Additionally, as described in the

    Guidance, a non-U.S. SD or non-U.S. MSP would generally need to comply

    with Category B Transaction-Level Requirements for all swaps with a

    U.S. person (other than a foreign branch of a U.S. bank that is an SD

    or an MSP).

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

    \49\ See Guidance regarding when a non-U.S. person generally

    would be considered to be an affiliate conduit.

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

    Given that the Guidance is being issued now, and that the

    Commission did not receive any submissions in support of Substituted

    Compliance Determinations with sufficient time to review them and reach

    a final determination, the Commission has determined to temporarily

    defer compliance with the Category A Transaction-Level Requirements by

    non-U.S. SDs and non-U.S. MSPs established in any of the six

    jurisdictions for which the Commission has received, or expects to

    receive in the near term, a request for substituted compliance

    determinations for transactions for which substituted compliance is

    possible under the Guidance for such entities.\50\ Accordingly, under

    the Exemptive Order, a non-U.S. SD or non-U.S. MSP established in

    Australia, Canada, European Union, Hong Kong, Japan or Switzerland \51\

    may comply with any law and regulations of the home jurisdiction where

    such non-U.S. SD or non-U.S. MSP is established (and only to the extent

    required by such jurisdiction) in lieu of complying with any Category A

    Transaction-Level Requirement for which substituted compliance would be

    possible under the Commission's Guidance (other than a clearing

    requirement under CEA section 2(h)(1), Commission regulations under

    part 50, and Commission regulation 23.506; a trade execution

    requirement under CEA section 2(h)(8) and regulation 37.12 or 38.11;

    \52\ or a real-time reporting requirement under part 43 of the

    Commission regulations for swaps with guaranteed affiliates of a U.S.

    person), until the earlier of December 21, 2013 or 30 days following

    the issuance of a Substituted Compliance Determination for the relevant

    regulatory requirements of the jurisdiction in which the non-U.S. SD or

    non-U.S. MSP is established.\53\ For swap transactions with guaranteed

    affiliates of a U.S. person under the Commission's Guidance, a non-U.S.

    SD or non-U.S. MSP established in Australia, Canada, the European

    Union, Hong Kong, Japan or Switzerland may comply with any law and

    regulations of the home jurisdiction where such non-U.S. SD or non-U.S.

    MSP is established related to real-time reporting requirements (and

    only to the extent required by such home jurisdiction) in lieu of

    complying with the real-time reporting requirements of part 43 of the

    Commission regulations, until September 30, 2013. In the case of swaps

    with guaranteed affiliates of a U.S. person, the Commission believes

    that the real-time reporting requirements of part 43 of the

    Commission's regulations should be effective as expeditiously as

    possible in order to achieve their underlying statutory objectives.

    Therefore, the Commission has determined that it would not be in the

    public interest to further delay reporting under part 43 of the

    Commission's regulations with respect to such swaps beyond September

    30, 2013.

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

    \50\ The Commission notes that Transaction-Level Requirements

    apply on a transaction-by-transaction basis. As described in the

    Guidance, if a Substituted Compliance Determination is applicable to

    the jurisdiction in which a non-U.S. SD or non-U.S. MSP is

    established and that entity enters into a swap (either in the

    jurisdiction in which it is established or another jurisdiction),

    then the entity can elect to comply with either the regulatory

    regime of the jurisdiction in which it is established for which the

    Substituted Compliance Determination has been made, or the

    comparable Category A Transaction-Level Requirements.

    \51\ If an SD or MSP established in any other jurisdiction files

    an application for registration before December 21, 2013, the

    Commission may consider a request for deferring compliance with the

    Transaction-Level Requirements if a substituted compliance request

    is filed concurrently with the application.

    \52\ The Commission has adopted regulations for determining when

    a swap is ``available to trade'' and a compliance schedule for the

    trade execution requirement that applies when a swap subject to

    mandatory clearing is available to trade. At the present time, no

    swap either has been determined to be made available to trade or is

    subject to the trade execution requirement. See Process for a

    Designated Contract Market or Swap Execution Facility To Make a Swap

    Available to Trade, Swap Transaction Compliance and Implementation

    Schedule, and Trade Execution Requirement Under the Commodity

    Exchange Act, 78 FR 33606 (Jun. 4, 2013). See CEA section 2(h)(8)

    and 17 CFR 37.12 or 38.11.

    \53\ The Commission anticipates that non-U.S. SD and MSPs may

    require additional time after a Substituted Compliance Determination

    in order to phase in compliance with the relevant requirements of

    the jurisdiction in which the non-US SD or MSP is established. The

    Commission and its staff intend to address the need for any further

    transitional relief at the time that the subject Substituted

    Compliance Determination is made.

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

    With respect to a swap that is subject to the clearing requirement

    under CEA section 2(h)(1), Commission regulations under part 50, and

    Commission regulation 23.506, any non-U.S. SD or non-U.S. MSP that was

    not required to clear under the January Order may delay complying with

    such clearing requirement until 75 days after the

    [[Page 43791]]

    publication of the Guidance in the Federal Register.\54\

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

    \54\ See discussion, supra.

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

    In addition, under this Exemptive Order, for swaps transactions

    with guaranteed affiliates of a U.S. person, a non-U.S. SD or a non-

    U.S. MSP established in any jurisdiction other than Australia, Canada,

    European Union, Hong Kong, Japan or Switzerland may comply with any law

    and regulations of the home jurisdiction where such non-U.S. SD or non-

    U.S. MSP is established (and only to the extent required by such

    jurisdiction) in lieu of complying with any Transaction-Level

    Requirement for which substituted compliance would be possible under

    the Commission's Guidance until 75 days after the publication of the

    Guidance in the Federal Register.

    iii. Application to Non-Registrants

    Under this Exemptive Order, for swaps transactions between a

    guaranteed affiliate of a U.S. person (established in any jurisdiction

    outside the United States) that is not registered as a SD or MSP and

    another guaranteed affiliate of a U.S. person(established in any

    jurisdiction outside the United States) that is not registered as a SD

    or MSP, such non-registrants may comply with any law and regulations of

    the jurisdiction where they are established (and only to the extent

    required by such jurisdictions) for the relevant Transaction-Level

    Requirement in lieu of complying with any Transaction-Level Requirement

    for which substituted compliance would be possible under the

    Commission's Guidance until 75 days after the publication of the

    Guidance in the Federal Register.

    IV. Section 4(c) of the CEA

    Section 4(c)(1) of the CEA authorizes the Commission to ``promote

    responsible economic or financial innovation and fair competition'' by

    exempting any transaction or class of transaction from any of the

    provisions of the CEA (subject to certain exceptions) where the

    Commission determines that the exemption would be consistent with the

    public interest and the purposes of the CEA.\55\ Under section 4(c)(2)

    of the CEA, the Commission may not grant exemptive relief unless it

    determines that: (1) The exemption is appropriate for the transaction

    and consistent with the public interest; (2) the exemption is

    consistent with the purposes of the CEA; (3) the transaction will be

    entered into solely between ``appropriate persons;'' and (4) the

    exemption will not have a material adverse effect on the ability of the

    Commission or any contract market to discharge its regulatory or self-

    regulatory responsibilities under the CEA.

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

    \55\ CEA section 4(c)(1), 7 U.S.C. 6(c)(1).

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

    The Commission has determined that the Exemptive Order meets the

    requirements of CEA section 4(c). First, in enacting section 4(c),

    Congress noted that the purpose of the provision ``is to give the

    Commission a means of providing certainty and stability to existing and

    emerging markets so that financial innovation and market development

    can proceed in an effective and competitive manner.'' \56\ Like the

    January Order, the Commission is issuing this relief in order to ensure

    an orderly transition to the Dodd-Frank regulatory regime.

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

    \56\ H.R. Conf. Rep. No. 102-978, 1992 U.S.C.C.A.N. 3179, 3213

    (1992).

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

    This exemptive relief also will advance the congressional mandate

    concerning harmonization of international standards with respect to

    swaps, consistent with section 752(a) of the Dodd-Frank Act. In that

    section, Congress directed that, in order to ``promote effective and

    consistent global regulation of swaps and security-based swaps,'' the

    Commission, ``as appropriate, shall consult and coordinate with foreign

    regulatory authorities on the establishment of consistent international

    standards with respect to the regulation'' of swaps and security-based

    swaps.\57\ This relief, by providing non-U.S. registrants the latitude

    necessary to develop and modify their compliance plans as the

    regulatory structure in their respective home jurisdictions evolve,

    will promote the adoption and enforcement of robust and consistent

    standards across jurisdictions. The Commission emphasizes that the

    Exemptive Order is temporary in duration and reserves the Commission's

    enforcement authority, including its anti-fraud and anti-manipulation

    authority. As such, the Commission has determined that the Exemptive

    Order is consistent with the public interest and purposes of the CEA.

    For similar reasons, the Commission has determined that the Exemptive

    Order will not have a material adverse effect on the ability of the

    Commission or any contract market to discharge its regulatory or self-

    regulatory duties under the CEA. Finally, the Commission has determined

    that the Exemptive Order is limited to appropriate persons within the

    meaning of CEA section 4c(3), since the SDs and MSPs eligible for the

    relief are likely to be the types of entities enumerated in that

    section and active in the swaps market. Therefore, upon due

    consideration, pursuant to its authority under section 4(c) of the CEA,

    the Commission hereby issues the Exemptive Order.

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

    \57\ See section 752(a) of the Dodd-Frank Act.

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

    V. Paperwork Reduction Act

    The Paperwork Reduction Act (``PRA'') \58\ imposes certain

    requirements on Federal agencies in connection with their conducting or

    sponsoring any collection of information as defined by the PRA. An

    agency may not conduct or sponsor, and a person is not required to

    respond to, a collection of information unless it displays a currently

    valid control number.

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

    \58\ 44 U.S.C. 3501 et seq.

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

    The Exemptive Order does not require the collection of any

    information as defined by the PRA.

    VI. Cost-Benefit Considerations

    Section 15(a) of the CEA \59\ requires the Commission to consider

    the costs and benefits of its actions before promulgating a regulation

    under the CEA or issuing certain orders. Section 15(a) further

    specifies that the costs and benefits shall be evaluated in light of

    five broad areas of market and public concern: (1) Protection of market

    participants and the public; (2) efficiency, competitiveness and

    financial integrity of futures markets; (3) price discovery; (4) sound

    risk management practices; and (5) other public interest

    considerations. The Commission considers the costs and benefits

    resulting from its discretionary determinations with respect to the

    section 15(a) factors.

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

    \59\ 7 U.S.C. 19(a).

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

    A. Introduction

    Throughout the Dodd-Frank rulemaking process, the Commission has

    strived to ensure that new regulations designed to achieve Dodd-Frank's

    protections are implemented in a manner that is both timely and also

    minimizes unnecessary market disruption. In its effort to implement the

    Dodd-Frank regulations on a cross-border basis, the Commission's

    approach has not been different. In this respect, the Commission has

    attempted to be responsive to industry's concerns regarding

    implementation and the timing of new compliance obligations, and

    thereby to ensure that market practices would not be unnecessarily

    disrupted during the transition to the new swaps regulatory regime. At

    the same time, however, the Commission has endeavored to comply with

    the

    [[Page 43792]]

    Congressional mandate to implement the new SD and MSP regulatory scheme

    in a timely manner. The Commission, therefore, also seeks to ensure

    that the implementation of these requirements is not subject to undue

    delay. The Commission believes that the Exemptive Order strikes the

    proper balance between promoting an orderly transition to the new

    regulatory regime under the Dodd-Frank Act, while appropriately

    tailoring relief to ensure that market practices are not unnecessarily

    disrupted during such transition.

    The Exemptive Order also reflects the Commission's recognition that

    international coordination is essential in this highly interconnected

    global market, where risks are transmitted across national borders and

    market participants operate in multiple jurisdictions.\60\ The

    Exemptive Order would allow market participants to implement the

    calculations related to SD and MSP registration on a uniform basis and

    to delay compliance with certain Dodd-Frank requirements while the

    Commission continues to work closely with other domestic financial

    regulatory agencies and its foreign counterparts in an effort to

    further harmonize the cross-border regulatory framework.

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

    \60\ See generally CFTC-SEC Joint Report on International Swap

    Regulation Required by Section 719(c) of the Dodd-Frank Wall Street

    Reform and Consumer Protection Act at 105-09 (Jan. 31, 2012),

    available at http://www.cftc.gov/ucm/groups/public/@swaps/documents/file/dfstudy_isr_013112.pdf.

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

    B. Consideration of Costs and Benefits of the Exemptive Order

    The Exemptive Order permits, subject to the conditions specified

    therein, market participants outside the United States to: (i) Apply

    the January Order's limited, interim definition of the term ``U.S.

    person'' for a period of 75 days; (ii) make the SD and MSP registration

    calculations in accordance with the January Order's guidance for a

    period of 75 days; and (iii) delay compliance with certain Dodd-Frank

    requirements specified in the Exemptive Order. The Exemptive Order

    reflects the Commission's determination to protect U.S. persons and

    markets through the cross-border application of the provisions of the

    Dodd-Frank Act and the Commission's regulations in a manner consistent

    with section 2(i) of the CEA and longstanding principles of

    international comity. By carefully tailoring the scope and extent of

    the phasing-in provided by the Exemptive Order, the Commission believes

    that it achieves an appropriately balanced approach to implementation

    that mitigates the costs of compliance while avoiding open-ended delay

    in protecting the American public from swaps activities overseas. To be

    sure, the conditions attached to the Exemptive Order are not without

    cost, but the Commission believes that the phasing-in of certain Dodd-

    Frank requirements as permitted by the Exemptive Order will reduce

    overall costs to market participants.

    In the absence of the Exemptive Order, non-U.S. SDs or MSPs would

    be required to be fully compliant with the Dodd-Frank regulatory regime

    without further delay. The Exemptive Order allows non-U.S. SDs and MSPs

    (and foreign branches of U.S. SDs and MSPs) to delay compliance with a

    number of these requirements until (at latest) December 21, 2013. With

    respect to these entities, therefore, the benefits include not only the

    avoided costs of compliance with certain requirements during the time

    that the Exemptive Order is in effect, but also increased efficiency,

    because the additional time allowed to phase in compliance will allow

    market participants more flexibility to implement compliance in a way

    that is compatible with their systems and practices. The additional

    time provided by the Exemptive Order will also give foreign regulators

    more time to adopt regulations covering similar topics, which could

    increase the likelihood that substituted compliance will be an option

    for market participants. Thus, the Exemptive Order is expected to help

    reduce the costs to market participants of implementing compliance with

    certain Dodd-Frank requirements. These and other costs and benefits are

    considered below.

    1. Costs

    The costs of the Exemptive Order are similar to those of the

    January Order. One potential cost, which is difficult to quantify, is

    the potential that the relief provided herein--which will delay the

    application of certain Dodd-Frank requirements to non-US SDs and MSPs

    and to foreign branches of U.S. SDs and MSPs--will leave market

    participants without certain protections and will leave U.S. taxpayers

    exposed to systemic risks. As with the January Order, however, the

    Commission believes that these risks are mitigated by the relatively

    short time period of the Exemptive Order's application.

    When the Commission issued the January Order, it also considered

    the possibility that the order could result in competitive disparities

    from the delay in compliance permitted to non-U.S. market participants,

    discouraging potential non-U.S. counterparties from engaging in swaps

    with U.S. persons. As the Commission noted in the January Order, it was

    difficult to estimate quantitatively the potential negative effects

    that the January Order would have on U.S. SDs and MSPs. Similarly,

    while the Commission cannot exclude the possibility that the Exemptive

    Order could result in negative competitive effects on U.S. SDs and

    MSPs, it would be difficult to estimate those potential negative

    effects quantitatively. Nevertheless, the Commission notes that, in the

    six months since it issued the January Order, it has not observed

    significant competitive disparities that discouraged potential non-U.S.

    counterparties from engaging in swaps with U.S. SDs and MSPs. Given the

    short time period of the Exemptive Order's application, the Commission

    believes it is unlikely that the Exemptive Order (which is more limited

    in scope than the January Order) will cause significant competitive

    disparities that will harm U.S. SDs and MSPs.

    2. Benefits

    As with the January Order, the primary benefit of the Exemptive

    Order is that it affords entities additional time to come into

    compliance with certain of the Commission's regulations. By phasing in

    (1) the term ``U.S. person,'' (2) SD and MSP calculations, and (3) the

    application of various Entity- and Transaction-Level requirements to

    persons in six jurisdictions outside the U.S., the Exemptive Order will

    reduce compliance costs for such persons. This relief will provide

    market participants with the additional time that they need for an

    orderly transition and will allow market participants to apply the

    Dodd-Frank requirements flexibly to their particular circumstances.

    Importantly, the Exemptive Order allows non-U.S. SDs and non-U.S.

    MSPs and foreign branches of U.S. SDs and MSPs from six jurisdictions

    to delay compliance with Entity-Level Requirements (as defined in the

    Exemptive Order) and Transaction-Level Requirements (other than

    clearing and trade execution) for which substituted compliance is

    possible, as described in the Guidance. This delay will permit the

    Commission to properly develop the scope and standards of its

    ``substituted compliance'' regime by allowing foreign regulators

    additional time to implement regulatory changes necessary to facilitate

    the Commission's determination of comparability.

    [[Page 43793]]

    C. Section 15(a) Factors

    1. Protection of Market Participants and the Public

    The exemptive relief provided in the Exemptive Order will protect

    market participants and the public by facilitating a more orderly

    transition to the new regulatory regime than might otherwise occur in

    the absence of the order. In particular, non-U.S. persons are afforded

    additional time to come into compliance than would otherwise be the

    case, which contributes to greater stability and reliability of the

    swaps markets during the transition process.

    2. Efficiency, Competitiveness, and Financial Integrity of the Markets

    The Commission believes that the efficiency and integrity of the

    markets will be furthered by the additional compliance time provided in

    the Exemptive Order. As discussed above, the Commission is mindful of

    the possibility that the Exemptive Order could potentially cause

    competitive disparities, but believes it is unlikely that the Exemptive

    Order will cause significant competitive disparities that will harm

    U.S. SDs and MSPs.

    3. Price Discovery

    The Commission has not identified any costs or benefits of the

    Exemptive Order with respect to price discovery.

    4. Risk Management

    As with the January Order, application of Entity-Level risk

    management and capital requirements to non-U.S. SDs and MSPs could be

    delayed by operation of the Exemptive Order, which could weaken risk

    management. However, such potential risk is limited by the fact that

    the Exemptive Order is applicable for a finite time.

    5. Other Public Interest Considerations

    The Commission has not identified any other public interest

    considerations relating to costs or benefits of the Exemptive Order.

    VII. Exemptive Order

    The Commission, in order to provide for an orderly implementation

    of Title VII of the Dodd-Frank Wall Street Reform and Consumer

    Protection Act (``Dodd-Frank Act''), and consistent with the

    determinations set forth above, which are incorporated in the Exemptive

    Order by reference, hereby grants, pursuant to section 4(c) of the

    Commodity Exchange Act (``CEA''), time-limited relief to non-U.S. swap

    dealers (``SDs'') and major swap participants (``MSPs'') and to foreign

    branches of U.S. SDs and MSPs, from certain swap provisions of the CEA,

    subject to the terms and conditions below.

    (1) Phase-in of ``U.S. Person'' Definition: For purposes of the

    Exemptive Order, from July 13, 2013 until 75 days after the

    Interpretive Guidance and Policy Statement Regarding Compliance with

    Certain Swap Regulations (``Guidance'') is published in the Federal

    Register, all market participants, including a prospective or

    registered SD or MSP, must apply a ``U.S. person'' definition which

    would define the term as:

    (i) A natural person who is a resident of the United States;

    (ii) A corporation, partnership, limited liability company,

    business or other trust, association, joint-stock company, fund or any

    form of enterprise similar to any of the foregoing, in each case that

    is (A) organized or incorporated under the laws of a state or other

    jurisdiction in the United States or (B) for all such entities other

    than funds or collective investment vehicles, having its principal

    place of business in the United States;

    (iii) A pension plan for the employees, officers or principals of a

    legal entity described in (ii) above, unless the pension plan is

    primarily for foreign employees of such entity;

    (iv) An estate of a decedent who was a resident of the United

    States at the time of death, or a trust governed by the laws of a state

    or other jurisdiction in the United States if a court within the United

    States is able to exercise primary supervision over the administration

    of the trust; or

    (v) An individual account or joint account (discretionary or not)

    where the beneficial owner (or one of the beneficial owners in the case

    of a joint account) is a person described in (i) through (iv) above.

    Until 75 days after the Guidance is published in the Federal

    Register, any person not listed in (i) to (v) above is a ``non-U.S.

    person'' for purposes of the Exemptive Order.

    (2) Phase-In of Guaranteed Affiliates and ``Affiliate Conduits'':

    Guaranteed affiliates and affiliate conduits do not need to comply with

    Transaction-Level Requirements relating to swaps with non-U.S. persons

    and foreign branches of U.S. swap dealers and MSPs until 75 days after

    the Final Guidance is published in the Federal Register.

    (3) De Minimis SD and MSP Threshold Calculations: From July 13,

    2013 until 75 days after the Guidance is published in the Federal

    Register, a non-U.S. person is not required to include, in its

    calculation of the aggregate gross notional amount of swaps connected

    with its swap dealing activity for purposes of Commission regulation

    1.3(ggg)(4), or in its calculation of whether it is an MSP for purposes

    of Commission regulation 1.3(hhh):

    (i) Any swap where the counterparty is not a U.S. person, or

    (ii) Any swap where the counterparty is a foreign branch of a U.S.

    person that is registered as an SD.

    (4) Aggregation for Purposes of the De Minimis Calculation: From

    July 13, 2013 until 75 days after the Guidance is published in the

    Federal Register, a non-U.S. person that was engaged in swap dealing

    activities with U.S. persons as of December 21, 2012 is not required to

    include, in its calculation of the aggregate gross notional amount of

    swaps connected with its swap dealing activity for purposes of

    Commission regulation 1.3(ggg)(4), the aggregate gross notional amount

    of swaps connected with the swap dealing activity of its U.S.

    affiliates under common control.\61\ Further, from July 13, 2013 until

    75 days after the Guidance is published in the Federal Register, a non-

    U.S. person that was engaged in swap dealing activities with U.S.

    persons as of December 21, 2012 and is an affiliate under common

    control with a person that is registered as an SD is also not required

    to include, in its calculation of the aggregate gross notional amount

    of swaps connected with its swap dealing activity for purposes of

    Commission regulation 1.3(ggg)(4), the aggregate gross notional amount

    of swaps connected with the swap dealing activity of any non-U.S.

    affiliate under common control that is either (i) engaged in swap

    dealing activities with U.S. persons as of December 21, 2012 or (ii)

    registered as an SD. Also, from July 13, 2013 until 75 days after the

    Guidance is published in the Federal Register, a non-U.S. person is not

    required to include, in its calculation of the aggregate gross notional

    amount of swaps connected with its swap dealing activity for purposes

    of Commission regulation 1.3(ggg)(4), the aggregate gross notional

    amount of swaps connected with the swap dealing activity of its non-

    U.S. affiliates under common control with

    [[Page 43794]]

    other non-U.S. persons as counterparties.

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

    \61\ For this purpose, the Commission construes ``affiliates''

    to include persons under common control as stated in the

    Commission's final rule further defining the term ``swap dealer,''

    which defines control as ``the possession, direct or indirect, of

    the power to direct or cause the direction of the management and

    policies of a person, whether through the ownership of voting

    securities, by contract or otherwise.'' See Final Entities Rules, 77

    FR at 30631, n. 437.

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

    (5) SD Registration: A non-U.S. person that was previously exempt

    from registration as an SD because of the temporary relief extended to

    such person under the Commission's exemptive order issued on January 7,

    2013,\62\ but that is required to register as an SD under Commission

    regulation Sec. 1.3(ggg)(4) because of changes to the scope of the

    term ``U.S. person'' or changes in the de minimis SD calculation or

    aggregation for purposes of the de minimis calculation, is not required

    to register as an SD until two months after the end of the month in

    which such person exceeds the de minimis threshold for SD registration.

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

    \62\ Final Exemptive Order Regarding Compliance with Certain

    Swap Regulations, 78 FR 858 (Jan. 7, 2013) (``January Order'').

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

    (6) Entity-Level Requirements:

    (i) Non-U.S. SDs and non-U.S. MSPs. Except as provided in (ii) of

    this paragraph 6, a non-U.S. SD or non-U.S. MSP established in

    Australia, Canada, the European Union, Hong Kong, Japan or Switzerland

    need not comply with any Entity-Level Requirement \63\ for which

    substituted compliance is possible under the Commission's Guidance

    until the earlier of December 21, 2013 or 30 days following the

    issuance of an applicable substituted compliance determination under

    the Guidance (``Substituted Compliance Determination'') for the

    relevant Entity-Level Requirement of the jurisdiction in which the non-

    U.S. SD or non-U.S. MSP is established.

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

    \63\ For purposes of the Exemptive Order, the term ``Entity-

    Level Requirements'' refers to the requirements set forth in

    Commission regulations 3.3, 23.201, 23.203, 23.600, 23.601, 23.602,

    23.603, 23.605, 23.606, 23.608, 23.609, and parts 45 and 46. The

    Commission notes that it has not yet finalized regulations regarding

    capital adequacy or margin and segregation for uncleared swaps. In

    the event that the Commission finalizes regulations regarding

    capital adequacy or margin and segregation for uncleared swaps

    before December 21, 2013, non-U.S. SDs and non-U.S. MSPs would

    comply with such requirements in accordance with any compliance date

    provided in the relevant rulemaking.

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

    (ii) Notwithstanding paragraph (6)(i), non-U.S. SDs and non-U.S.

    MSPs established in Australia, Canada, the European Union, Hong Kong,

    Japan or Switzerland that are not part of an affiliated group in which

    the ultimate parent entity is a U.S. SD, U.S. MSP, U.S. bank, U.S.

    financial holding company, or U.S. bank holding company may delay

    compliance with the swap data repository (``SDR'') reporting

    requirements of part 45 and part 46 of the Commission's regulations

    with respect to swaps with non-U.S. counterparties on the condition

    that, during the relief period: (1) Such non-U.S. SDs and non-U.S. MSPs

    are in compliance with the swap data recordkeeping and reporting

    requirements of their home jurisdictions; or (2) where no swap data

    reporting requirements have been implemented in their home

    jurisdictions, such non-U.S. SDs and non-U.S. MSPs comply with the

    recordkeeping requirements of Regulations 45.2, 45.6, 46.2 and 46.4.

    This relief will expire the earlier of December 21, 2013 or, in the

    event of a Substituted Compliance Determination for the regulatory

    requirements of parts 45 and 46 of the jurisdiction in which the non-

    U.S. SD or non-U.S. MSP is established, 30 days following the issuance

    of such Substituted Compliance Determination.\64\

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

    \64\ Commission staff also extended no-action relief regarding

    reporting in the cross-border context to address privacy law

    conflicts. See CFTC Division of Market Oversight, Time-Limited No-

    Action Relief Permitting Part 45 and Part 46 Reporting

    Counterparties to Mask Legal Entity Identifiers, Other Enumerated

    Identifiers and Other Identifying Terms and Permitting Part 20

    Reporting Entities to Mask Identifying Information, with respect to

    certain Enumerated Jurisdictions, No-Action Letter No. 13-41 (Jun.

    28, 2013).

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

    (7) Transaction-Level Requirements Applicable to Non-U.S. SDs and

    MSPs.\65\ A non-U.S. SD or non-U.S. MSP established in Australia,

    Canada, the European Union, Hong Kong, Japan or Switzerland may comply

    with any law and regulations of the home jurisdiction where such non-

    U.S. SD or non-U.S. MSP is established (and only to the extent required

    by such jurisdiction) in lieu of complying with any Transaction-Level

    Requirement for which substituted compliance would be possible under

    the Commission's Guidance (other than a clearing requirement under CEA

    section 2(h)(1), Commission regulations under part 50, and Commission

    regulation 23.506; a trade execution requirement under CEA section

    2(h)(8) and regulation 37.12 or 38.11; \66\ or a real-time reporting

    requirement under part 43 of the Commission regulations for swaps with

    guaranteed affiliates of a U.S. person),\67\ until the earlier of

    December 21, 2013 or 30 days following the issuance of a Substituted

    Compliance Determination for the relevant regulatory requirement of the

    jurisdiction in which the non-U.S. SD or non-U.S. MSP is established.

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

    \65\ For purposes of the Exemptive Order, the term

    ``Transaction-Level Requirements'' refers to the requirements set

    forth in Commission regulations 23.202, 23.205, 23.400 to 23.451,

    23.501, 23.502, 23.503, 23.504, 23.505, 23.506, 23.610 and parts 43

    and 50. The Commission notes that (1) it has not yet finalized

    regulations regarding margin and segregation for uncleared swaps and

    (2) it has not yet determined that any swap is ``available to

    trade'' such that a trade execution requirement applies to the swap.

    In addition, to the extent that a guaranteed affiliate is given

    exemptive relief from any particular Transaction-Level Requirement

    under this Exemptive Order, the same exemptive relief would apply to

    affiliate conduits.

    \66\ The Commission has adopted regulations for determining when

    a swap is ``available to trade'' and a compliance schedule for the

    trade execution requirement that applies when a swap subject to

    mandatory clearing is available to trade. At the present time, no

    swaps no swap either has been determined to be made available to

    trade or is subject to a trade execution requirement. See Process

    for a Designated Contract Market or Swap Execution Facility To Make

    a Swap Available to Trade, Swap Transaction Compliance and

    Implementation Schedule, and Trade Execution Requirement Under the

    Commodity Exchange Act, 78 FR 33606 (Jun. 4, 2013). See CEA section

    2(h)(8) and 17 CFR 37.12 or 38.11.

    \67\ As used in the Exemptive Order, the term ``guaranteed

    affiliate'' refers to a non-U.S. person that is affiliated with a

    U.S. person and guaranteed by a U.S. person. In addition, for

    purposes of the Exemptive Order, the Commission interprets the term

    ``guarantee'' generally to include not only traditional guarantees

    of payment or performance of the related swaps, but also other

    formal arrangements that, in view of all the facts and

    circumstances, support the non-U.S. person's ability to pay or

    perform its swap obligations with respect to its swaps. See Cross-

    Border Application of Certain Swaps Provisions of the Commodity

    Exchange Act, 77 FR 41214, 41221 n. 47 (Jul. 12, 2012). The term

    ``guarantee'' encompasses the different financial arrangements and

    structures that transfer risk directly back to the United States. In

    this regard, it is the substance, rather than the form, of the

    arrangement that determines whether the arrangement should be

    considered a guarantee for purposes of the Exemptive Order.

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

    (8) With respect to a swap that is subject to a clearing

    requirement under CEA section 2(h)(1), Commission regulations under

    part 50, and Commission regulation 23.506, any non-U.S. SD or non-U.S.

    MSP that was not required to clear under the January Order may delay

    complying with such clearing requirement until 75 days after the

    publication of the Guidance in the Federal Register.

    (9) For swaps transactions with guaranteed affiliates of a U.S.

    person, a non-U.S. SD or non-U.S. MSP established in Australia, Canada,

    the European Union, Hong Kong, Japan or Switzerland may comply with any

    law and regulations of the home jurisdiction where such non-U.S. SD or

    non-U.S. MSP is established related to real-time reporting requirements

    (and only to the extent required by such home jurisdiction) in lieu of

    complying with the real-time reporting requirements of part 43 of the

    Commission regulations, until September 30, 2013.

    (10) For swaps transactions with guaranteed affiliates of a U.S.

    person, a non-U.S. SD or a non-U.S. MSP established in jurisdiction

    other than Australia, Canada, European Union, Hong Kong, Japan or

    Switzerland may comply with any law and regulations of

    [[Page 43795]]

    the home jurisdiction where such non-U.S. SD or non-U.S. MSP is

    established (and only to the extent required by such jurisdiction) in

    lieu of complying with any Transaction-Level Requirement for which

    substituted compliance would be possible under the Commission's

    Guidance until 75 days after the publication of the Guidance in the

    Federal Register.

    (11) U.S. Registrants: The Exemptive Order does not apply to a U.S.

    person that is required to register as an SD or MSP. Notwithstanding

    the previous sentence, a foreign branch of a U.S. SD or MSP located in

    Australia, Canada, the European Union, Hong Kong, Japan or Switzerland

    may comply with any law and regulations of the jurisdiction where the

    foreign branch is located (and only to the extent required by such

    jurisdiction) for the relevant Transaction-Level Requirement in lieu of

    complying with any Transaction-Level Requirement for which substituted

    compliance would be possible under the Commission's Guidance (other

    than a clearing requirement under CEA section 2(h)(1), Commission

    regulations under part 50, and Commission regulation 23.506; a trade

    execution requirement under CEA section 2(h)(8) and regulation 37.12 or

    38.11; \68\ or a real-time reporting requirement under part 43 of the

    Commission regulations for swaps with guaranteed affiliates of a U.S.

    person), until the earlier of December 21, 2013 or 30 days following

    the issuance of a Substituted Compliance Determination for the relevant

    Transaction-Level Requirement in the applicable jurisdiction in which

    the foreign branch is located.

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

    \68\ The Commission has adopted regulations for determining when

    a swap is ``available to trade'' and a compliance schedule for the

    trade execution requirement that applies when a swap subject to

    mandatory clearing is available to trade. At the present time, no

    swap either has been determined to be made available to trade or is

    subject to a trade execution requirement. See Process for a

    Designated Contract Market or Swap Execution Facility To Make a Swap

    Available to Trade, Swap Transaction Compliance and Implementation

    Schedule, and Trade Execution Requirement Under the Commodity

    Exchange Act, 78 FR 33606 (Jun. 4, 2013). See CEA section 2(h)(8)

    and 17 CFR 37.12 or 38.11.

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

    (12) With respect to a swap that is subject to the clearing

    requirement under CEA section 2(h)(1), Commission regulations under

    part 50, and Commission regulation 23.506, any foreign branch of a U.S.

    SD or MSP that was not required to clear under the January Order may

    delay complying with such clearing requirement until 75 days after the

    publication of the Guidance in the Federal Register.

    (13) For swaps transactions with guaranteed affiliates of a U.S.

    person, a foreign branch of a U.S. SD or MSP located in Australia,

    Canada, the European Union, Hong Kong, Japan or Switzerland may comply

    with the law and regulations of the jurisdiction where the foreign

    branch is located related to real-time reporting (and only to the

    extent required by such jurisdiction) in lieu of complying with the

    real-time reporting requirements of part 43 of the Commission

    regulations until September 30, 2013.

    (14) A foreign branch of a U.S. SD or MSP located in any

    jurisdiction other than Australia, Canada, European Union, Hong Kong,

    Japan or Switzerland may comply with any law and regulations of the

    jurisdiction where the foreign branch is located (and only to the

    extent required by such jurisdiction) for the relevant Transaction-

    Level Requirement in lieu of complying with any Transaction-Level

    Requirement for which substituted compliance would be possible under

    the Commission's Guidance until 75 days after the publication of the

    Guidance in the Federal Register.

    (15) For swaps transactions between a guaranteed affiliate of a

    U.S. person (established in any jurisdiction outside the United States)

    that is not registered as a SD or MSP and another guaranteed affiliate

    of a U.S. person (established in any jurisdiction outside the United

    States) that is not registered as a SD or MSP, such non-registrants may

    comply with any law and regulations of the jurisdiction where they are

    established (and only to the extent required by such jurisdiction) for

    the relevant Transaction-Level Requirement in lieu of complying with

    any Transaction-Level Requirement for which substituted compliance

    would be possible under the Commission's Guidance until 75 days after

    the publication of the Guidance in the Federal Register.

    (16) Inter-Affiliate Exemption. Where one of the counterparties is

    electing the Inter-Affiliate Exemption, nothing in this Exemptive Order

    affects or eliminates the obligation of any party to comply with the

    conditions of the Inter-Affiliate Exemption, including the treatment of

    outward-facing swaps condition in Commission regulation 50.52(b)(4)(i).

    (17) Expiration of Relief: The relief provided to non-U.S. SDs,

    non-U.S. MSPs and foreign branches of a U.S. SD or U.S. MSP in this

    order shall be effective on July 13, 2013 and expire on December 21,

    2013 or such earlier date specified in the Order.

    (18) Scope of Relief: The time-limited relief provided in this

    order: (i) Shall not affect, with respect to any swap within the scope

    of this order, the applicability of any other CEA provision or

    Commission regulation (i.e., those outside the Entity-Level and

    Transaction-Level Requirements); (ii) shall not limit the applicability

    of any CEA provision or Commission regulation to any person, entity or

    transaction except as provided in this order; (iii) shall not affect

    the applicability of any provision of the CEA or Commission regulation

    to futures contracts, or options on futures contracts; and (iv) shall

    not affect any effective or compliance date set forth in any Dodd-Frank

    Act rulemaking by the Commission. Nothing in this order affects the

    Commission's enforcement authority, including its anti-fraud and anti-

    manipulation authority.

    Issued in Washington, DC, on July 16, 2013, by the Commission.

    Melissa D. Jurgens,

    Secretary of the Commission.

    Appendices to Exemptive Order Regarding Compliance With Certain Swap

    Regulations--Commission Voting Summary and Chairman's Statement

    Appendix 1--Commission Voting Summary

    On this matter, Chairman Gensler and Commissioners Chilton and

    Wetjen voted in the affirmative. Commissioner O'Malia voted in the

    negative.

    Appendix 2--Statement of Chairman Gary Gensler

    I support the Exemptive Order Regarding Compliance with Certain

    Swap Regulations (Order). With this Commission action another

    important step has been taken to make swaps market reform a reality.

    Since the enactment of the Dodd-Frank Wall Street Reform and

    Consumer Protection Act (Dodd Frank Act), the Commission has worked

    steadfastly toward a transition from an opaque unregulated

    marketplace to a transparent, regulated swaps marketplace and has

    phased in the timing for compliance to give market participants time

    to adjust to the new regulatory regime and smooth the transition.

    The Order provides a phased-in compliance period for foreign swap

    dealers (including overseas affiliates of U.S. persons) and overseas

    branches of U.S. swap dealers with respect to certain requirements

    of the Dodd-Frank Act.

    Today's Order is a continuation of the Commission's commitment

    to this phasing of compliance--in this case for foreign market

    participants--and follows upon the Commission's January 2013 phase-

    in exemptive order, which expired on July 12, 2013. The Order will

    remain in effect until December 21, 2013, and is intended to

    complement other Commission and staff actions that facilitate an

    orderly transition.

    As of July 12th, 80 swap dealers have registered with the

    Commission. Of these, 35

    [[Page 43796]]

    are established in jurisdictions other than United States, including

    Australia, Canada, the European Union, Hong Kong, Japan, and

    Switzerland.

    The Order provides for a phase-in of the cross-border

    application of Dodd-Frank requirements. Such phase-in period

    provides for 75 days following the publication of the Order in the

    Federal Register for market participants to adapt to the cross-

    border application of the Dodd-Frank requirements. This relates to,

    for example, who is a U.S. person, swap activity conducted by or

    with affiliates that are guaranteed by a U.S. person, swap activity

    conducted by or with overseas branches of U.S. based swap dealers,

    the aggregation guidelines applicable to a group of affiliates for

    the purpose of determining whether a specific affiliate is required

    to register as a swap dealer, and identifying relevant transactions

    for the purpose of the swap dealer registration de minimis

    calculation.

    Thus, within several months, the public will gain greater

    protections as hedge funds, organized in the Cayman Islands, but

    with their principal place of business here in the U.S., will be

    subject to reforms applicable to all other U.S. persons, including

    the clearing requirement.

    Secondly, during the transitional period through December 21st,

    a foreign swap dealer may phase in compliance with certain entity-

    level requirements. In addition, those entities (as well as foreign

    branches of U.S. swap dealers) are provided time-limited relief from

    specified transaction-level requirements when transacting with

    overseas affiliates guaranteed by U.S. entities (as well as with

    foreign branches of U.S. swap dealers).

    The phase-in period provides time for the Commission to work

    with foreign regulators to consider their jurisdictions' submissions

    related to substituted compliance. Substituted compliance, where

    appropriate, would allow for foreign swap dealers to meet the reform

    requirements of the Dodd-Frank Act by complying with comparable and

    comprehensive foreign regulatory requirements. With respect to any

    transaction with a U.S. person, though, compliance will be required

    in accordance with previously issued rules and staff guidance.

    To this end, the Commission has received substituted compliance

    submissions from market participants or regulators located in

    Australia, Canada, the European Union, Hong Kong, Japan and

    Switzerland. Commission staff has actively engaged in substantive

    discussions and active coordination with the appropriate regulators

    in these jurisdictions as an integral part of the submission review

    process.

    Now, 3-years after the passage of financial reform, and a full

    year after the Commission proposed guidance with regard to the cross

    border application of reform, it is time for reforms to properly

    apply to and cover those activities that, as identified by Congress

    in section 722(d) of the Dodd-Frank Act, have ``a direct and

    significant connection with activities in, or effect on, commerce of

    the United States.'' With the additional transitional phase in

    period provided by this Order, it is now time for the public to get

    the full benefit of the transparency and the measures to reduce risk

    included in Dodd Frank reforms.

    [FR Doc. 2013-17467 Filed 7-19-13; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: July 22, 2013



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