June 29, 2012
I support the proposed cross interpretive guidance and policy statement and exemptive order. These are global interconnected markets and we need to work with our colleagues around the planet to ensure that we have, to the greatest extent practical, harmonized rules, regulations, surveillance and enforcement. The recent Barclays matter, the JPMorgan loss and many other illustrations make the case for this far better than anything else. As they say in the detective programs: These are real cases with real victims.
I’ve often heard teenagers protest, “You're not the boss of me." Well, we in the U.S. aren’t seeking to be the boss of anyone. Nation’s around the world have their own laws, rules and regulations and they have individual sovereign and idiosyncratic issues that not only should be considered, but are at the very fundamental core of nations’ rights to incorporate into whatever they do. No argument on that. At the same time, we all need to accept that these global financial markets operate all the time and cross borders as a matter of course. Risk is very portable; it can be shifted around like a shell game. Trading for a firm headquartered in one nation can take place in another. Like nations’ sovereignty is a fact, so is it a fact that these markets cross borders and are interconnected. These are facts—evident truths.
So, while we do not seek to be the boss of anyone, we do seek to ensure that our consumers, taxpayers, markets and our economy are protected. I assume other nations not only have this parochial interest as well, but that they will ensure analogous laws that address the matter. If nations do this, as a matter of self-interest and global interest, there should not be any bossing around of anyone—easy peasy.
If for some reason, there are not comparable laws of self-interest in nations, and there is the possibility that the lack thereof would be a potential matter of concern to the U.S., our law requires that we address it in an appropriate fashion, and we will do so.
Here are the key points on what the proposal and exemptive order suggest, and I look forward to comments upon both of these important matters. The proposed interpretive guidance and policy statement proposes to (1) define U.S. persons, (2) provide that foreign SDs and MSPs (swaps dealers and major swaps participants, respectively) and foreign affiliates of U.S. SDs and MSPs may be exempted from entity-level requirements under Dodd-Frank if they are subject to comparable and comprehensive foreign regulations, (3) provide that foreign SDs and MSPs and foreign affiliates of U.S. SDs and MSPs are not exempt generally from transaction-level requirements for swaps facing U.S. persons and foreign persons guaranteed by a U.S. person, and (4) provide that foreign SDs and MSPs and foreign affiliates of U.S. SDs and MSPs are generally exempt from transaction-level requirements for swaps facing non-U.S. persons.
Entity-level requirements include: capital; chief compliance officer; risk management; swap data recordkeeping and reporting; and large trader reporting. Transaction-level requirements include: clearing and swap processing; margin and segregation for uncleared swap transactions; mandatory trade execution requirement; swap trading relationship documentation; portfolio reconciliation and compression; real-time public reporting; trade confirmation; and daily trading records.
The proposed exemptive order regarding compliance with certain swap regulations exempts foreign persons (foreign affiliates of U.S. SDs and MSPs and foreign SDs and MSPs) and foreign branches of U.S. SDs and MSPs from transaction-level requirements for swaps with foreign counterparties for 12 months. Swaps with U.S. persons will still be subject to Dodd-Frank transaction-level requirements also for 12 months. External business conduct standards, however, only apply when both counterparties are U.S. persons. The proposed order also exempts U.S. SDs and MSPs from entity-level requirements, except for swap data reporting, recordkeeping, and large trader reporting requirements until January 1, 2013.
In particular, I am interested in receiving comments about how to prevent gaming through the use of conduits or other globe-trotting structures and under what circumstances foreign entities should be seen as being subject to “comparable and comprehensive” regulations. On the latter point, I think we should take an approach that encourages our sister regulators abroad to make the strong reforms necessary to ensure fair and safe global markets.
What we are proposing allows for nations to undertake their own protections that can fit into the overall global regulation, supervision and enforcement of markets. This is not about anyone trying to boss anyone around. This is about a balanced and thoughtful approach—a planetary patchwork of harmonized financial and markets rules of the road. That said, I look forward to comments to ensure that we get this correct.
Last Updated: June 29, 2012