Joint Concurring Statement of Commissioners Dan M. Berkovitz and Rostin Behnam
Order of Exemption of Certain Approved Exchanges and Recognised Market Operators Authorized within Singapore from the Swap Execution Facility Registration Requirements
March 13, 2019
The derivatives markets are global. Many markets and products trade 24/7 with the opening and closing of markets following the sun. The trading day begins in Europe, then moves to the U.S., and as our markets close, traders in Asia take over. Banks, traders, and market operators domiciled in the U.S. are major participants and competitors in all of these markets. It is important that we as regulators be vigilant in our efforts to avoid allowing risk to develop in other markets around the globe that could be brought back to the U.S., but in so doing we also should avoid unnecessarily impeding proper market activity. This consideration favors a mutual recognition of markets with other countries where appropriate, effective regulation and oversight exist.
Under the Commodity Exchange Act (“CEA”), in order to exempt a swap execution facility (“SEF”) from registration, the Commission must determine that the facility is “subject to comparable, comprehensive supervision and regulation on a consolidated basis” by the facility’s home regulator. This determination should not only be based on the home country’s written laws and regulations, but also give due consideration to that country’s system of regulation including its approach to supervision, guidance, and enforcement.
When assessing whether to exempt a facility subject to the laws of a foreign jurisdiction, the Commission also should be mindful of the principle of comity: the reciprocal recognition of the legislative, executive, and judicial acts of another jurisdiction. Nonetheless, this Commission has a legal responsibility to ensure that U.S. persons trading on an exempt SEF in a foreign jurisdiction are afforded protections that are comparable to those provided under U.S. law, and that U.S. markets are protected as well.
We are concurring in today’s determination because the combination of Singapore’s stated goals in its laws for regulation of the listed Approved Exchanges (“AEs”) and Recognized Market Operators (“RMOs”), together with the Monetary Authority of Singapore’s (“MAS”) monographs, guidance, and overall system of supervision and regulation, can attain an outcome that is as comparable and comprehensive on a consolidated basis as our laws and regulations for SEFs. In reaching this conclusion, we relied heavily on the analysis and communications with MAS conducted by the excellent staff of the CFTC, which included an extensive comparative analysis of Singapore’s regulatory system.
MAS’s legal framework for regulating AEs and RMOs is different from the CFTC’s regulation of SEFs in a few notable ways. MAS relies more heavily on guidance, directives, and hands-on oversight by the regulator than our system of regulation. Singapore’s Securities and Futures Act (“SFA”) and relevant regulations for AEs and RMOs do not have the same specificity that the CEA and our regulations have for SEFs. For example, Congress established pre-trade price transparency as one of two primary goals for SEF regulation. To implement this goal, the CFTC adopted regulations requiring that, at a minimum, all SEFs maintain an order book functionality and all transactions required to be traded on SEFs must be traded through an order book or request for quote system offering the quote to at least three parties for a specified period of time.
The SFA and related regulations contain a general goal that its markets be “fair, orderly and transparent,” but do not set forth specific requirements for achieving pre-trade price transparency, such as prescribed methods of execution. However, MAS’s Monograph on the Objectives and Principles of Financial Sector Oversight in Singapore provides that “[p]re-trade information, such as bids and offers, should be made available to enable investors to know whether they can deal and at what prices.”
After considering the extensive analysis provided by CFTC staff, which is based in part upon their dialogue with MAS, we conclude that the statutory objectives of fairness and transparency, when considered with the more specific directives and oversight provided by MAS, provide for an outcome that is comparable to our SEF regulations.
Ultimately, under the principle of comity we should, where possible, respect the differences in approach that other countries take to implement effective regulation. We understand that Singapore will take the same approach in recognizing our SEFs.
Today’s Order states that the Commission may, at its discretion, modify, condition, suspend, terminate, or otherwise restrict the terms of the Order. As discussed above, MAS relies more heavily on monographs, guidance, and active oversight in the regulation of Singapore’s AE and RMO facilities, as compared to our more specific legislative and regulatory requirements.
Accordingly, we are requesting that the CFTC staff continue to monitor whether the implementation of this regulatory regime is in fact comparable in practice. As a general principle, such monitoring is particularly important when comparability determinations rely on representations, undertakings, or conditions to address what might otherwise be meaningful differences between the CFTC’s regulatory regime for SEFs and that of a foreign regulator.
 CEA section 5h(g).
 See Restatement (Third) of The Foreign Relations Law in the United States, section 101 (1987) (Am. Law Inst. 2019); https://www.law.cornell.edu/wex/comity.
 CEA section 5h(e).
 Commission Regulation 37.3.
 Commission Regulation 37.9.
 Similarly, the SFA and related regulations do not provide specific requirements that are either similar to, or that would serve as comparable alternatives for, many other specific SEF regulatory requirements. For example, straight through processing, certain membership requirements and oversight, maintenance of audit trails and full transaction records, facility emergency authority rules, and compliance officer requirements are either not addressed or are addressed less specifically than these requirements are addressed in our SEF regulations and core principles.