June 29, 2012
Washington, DC – The Commodity Futures Trading Commission (Commission) today voted to propose a phased compliance program regarding certain swaps to non-U.S. swap dealers, non-U.S. major swap participants, U.S. swap dealers, U.S. major swap participants, and foreign branches of U.S. swap dealers and U.S. major swap participants. In order to ensure an orderly transition to the Dodd-Frank Act the Commission released for public comment a phased compliance regarding certain entity-level requirements (Entity-Level Requirements) and transaction-level requirements (Transaction-Level Requirements) subject in each case to specified conditions. The vote was conducted via a seriatim vote of the commission and was passed by a vote of 5 to 0. The Comment period is open for 30 days after the publication in the Federal Register.
The proposed phased compliance would become effective on the compliance date for registration of swap dealers and major swap participants and expire: (i) for non-U.S. swap dealers, non-U.S. major swap participants, foreign branches of U.S. swap dealers, and foreign branches of U.S. major swap participants, 12 months following the publication of the proposal; and (ii) for U.S. swap dealers and U.S. major swap participants, January 1, 2013.
During the relevant phased compliance period and subject to specified conditions in the proposal:
Conditions for Proposed Phased Compliance
Non-U.S. swap dealers, non-U.S. major swap participants, foreign branches of U.S. swap dealers, and foreign branches of U.S. major swap participants seeking to avail of the proposed phased compliance would be required to:
Comments Received by the Commission Regarding Cross-Border Activities
The Commission has received numerous comments during the Dodd-Frank Act rulemaking process from interested parties concerning the application of Title VII of the Dodd-Frank Act and the Commission’s implementing regulations thereunder to the cross-border activities of non-U.S. and U.S. market participants. The key issues raised by the commenters include (i) the nature of the connections to the United States that would require a non-U.S. person to register as a swap dealer or major swap participant under the CEA and the Commission’s regulations; (ii) which Dodd-Frank Act requirements apply to the swap activities of non-U.S. persons, U.S. persons, and their branches, agencies, subsidiaries and affiliates outside of the United States; and (iii) to the extent that Dodd-Frank Act requirements would apply, the circumstances under which the Commission would consider permitting a non-U.S. person to comply with the regulatory regime of its foreign jurisdiction instead of complying with the Dodd-Frank Act and the Commission’s regulations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act
On July 21, 2010, President Obama signed Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which amended the Commodity Exchange Act (CEA) and established a new regulatory framework for swaps. In enacting this legislation, Congress sought to address the deficiencies in the regulatory system that contributed to the financial crisis of 2008 by reducing systemic risk, increasing transparency, and promoting market integrity within the financial system.
Section 722(d) of the Dodd-Frank Act amends the CEA to add section 2(i) which states that the provisions added to the CEA by Title VII of the Dodd-Frank Act shall not apply to activities outside the United States unless those activities: (1) have a direct and significant connection with activities in, or effect on, commerce of the United States; or (2) contravene such rules or regulations as the Commission may prescribe or promulgate as are necessary or appropriate to prevent the evasion of any provision of the CEA.
Last Updated: June 29, 2012