Statement of Commissioner J. Christopher Giancarlo Regarding Final Response to District Court Remand Order in Securities Industry and Financial Markets Association, et al. v. United States Commodity Futures Trading Commission
August 4, 2016
I respectfully dissent from the Commodity Futures Trading Commission’s (CFTC or Commission) final response in the SIFMA litigation.
The CFTC appears to have addressed the District Court’s inquiry whether the costs and benefits identified in the remanded rulemakings apply to swaps activities outside of the United States (U.S.) and what differences are present in the costs and benefits between domestic and overseas activities. Nevertheless, it must be noted that the Commission has repeatedly failed to coordinate effectively with foreign regulators to “implement global standards” in financial markets as agreed to by the G-20 leaders in Pittsburgh in 2009.1 The lack of harmonization in the implementation date for margin for uncleared swaps is the latest example. The result for financial markets has been a complex, conflicting and costly array of CFTC cross-border regulations.
The Commission’s uncoordinated approach to regulation of swaps trading started with its July 2013 Interpretative Guidance and Policy Statement Regarding Compliance With Certain Swap Regulations (Interpretative Guidance).2 The Interpretative Guidance, which the District Court found is a non-binding general statement of policy, basically stated that every single swap a U.S. Person enters into, no matter where it is transacted, has a direct and significant connection with activities in, and effect on, commerce of the U.S. that requires imposing CFTC transaction rules.3 This uncoordinated approach has continued through the CFTC’s Cross-Border Application of Margin Requirements,4 in which the Commission unilaterally imposed a set of preconditions to substituted compliance that is overly complex, unduly narrow and operationally impractical.5
Unfortunately, the Commission’s uncoordinated approach to cross-border harmonization has allowed foreign regulators to respond in kind. The CFTC’s and European Union’s (EU) tortured and repeatedly delayed central counterparty clearinghouse equivalence process is a stark example, as is the EU's recent decision to postpone until 2017 new rules setting collateral requirements for uncleared derivatives.
The CFTC must do better to work with foreign regulators to implement global standards consistently in a way that ensures a level playing field and avoids market fragmentation, protectionism and regulatory arbitrage.6 As a good start, the CFTC should replace its Interpretative Guidance with a formal rulemaking that recognizes outcomes-based substituted compliance for competent non-U.S. regulatory regimes.7 Such an approach is practical, provides certainty and is in keeping with the cooperative spirit of the 2009 G-20 Pittsburgh Accords.8
1 G-20 Leaders’ Statement, The Pittsburgh Summit at 7 (Sept. 24-25, 2009) (G-20 Statement), available at http://www.treasury.gov/resource-center/international/g7-g20/Documents/pittsburgh_summit_leaders_statement_250909.pdf.
2 78 Fed. Reg. 45,292 (Jul. 26, 2013).
4 81 Fed. Reg. 34,818 (May 31, 2016).
5 Id. at 34,853-54.
6 G-20 Statement, par. 12.
7 Keynote Address of CFTC Commissioner J. Christopher Giancarlo at The Global Forum for Derivatives Markets, 35th Annual Burgenstock Conference, Geneva, Switzerland, Sept. 24, 2014, http://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlos-1.
8 See generally G-20 Statement.
Last Updated: August 4, 2016