Federal Register, Volume 78 Issue 249 (Friday, December 27, 2013)[Federal Register Volume 78, Number 249 (Friday, December 27, 2013)]
[Notices]
[Pages 78878-78890]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-30981]
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COMMODITY FUTURES TRADING COMMISSION
Comparability Determination for the European Union: Certain
Transaction-Level Requirements
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of Comparability Determination for Certain Requirements
under the European Market Infrastructure Regulation.
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SUMMARY: The following is the analysis and determination of the
Commodity Futures Trading Commission (``Commission'') regarding certain
parts of a joint request by the European Commission (``EC'') and the
European Securities and Markets Authority (``ESMA'') that the
Commission determine that laws and regulations applicable in the
European Union (``EU'') provide a sufficient basis for an affirmative
finding of comparability with respect to the following regulatory
obligations applicable to swap dealers (``SDs'') and major swap
participants (``MSPs'') registered with the Commission: (i) swap
trading relationship documentation; (ii) swap portfolio reconciliation
and compression; (iii) trade confirmation; and (iv) daily trading
records (collectively, the ``Business Conduct Requirements'').
DATES: Effective Date: This determination will become effective
immediately upon publication in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Gary Barnett, Director, 202-418-5977,
[email protected], Frank Fisanich, Chief Counsel, 202-418-5949,
[email protected], and Ellie Jester, Special Counsel, 202-418-5874,
[email protected], Division of Swap Dealer and Intermediary Oversight,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Introduction
On July 26, 2013, the Commission published in the Federal Register
its ``Interpretive Guidance and Policy Statement Regarding Compliance
with Certain Swap Regulations'' (``Guidance'').\1\ In the Guidance, the
Commission set forth its interpretation of the manner in which it
believes that section 2(i) of the Commodity Exchange Act (``CEA'')
applies Title VII's swap provisions to activities outside the U.S. and
informed the public of some of the policies that it expects to follow,
generally speaking, in applying Title VII and certain Commission
regulations in contexts covered by section 2(i). Among other matters,
the Guidance generally described the policy and procedural framework
under which the Commission would consider a substituted compliance
program with respect to Commission regulations applicable to entities
located outside the U.S. Specifically, the Commission addressed a
recognition program where compliance with a comparable regulatory
requirement of a foreign jurisdiction would serve as a reasonable
substitute for compliance with the attendant requirements of the CEA
and the Commission's regulations promulgated thereunder.
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\1\ 78 FR 45292 (July 26, 2013). The Commission originally
published proposed and further proposed guidance on July 12, 2012
and January 7, 2013, respectively. See Cross-Border Application of
Certain Swaps Provisions of the Commodity Exchange Act, 77 FR 41214
(July 12, 2012) and Further Proposed Guidance Regarding Compliance
with Certain Swap Regulations,78 FR 909 (Jan. 7, 2013).
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In addition to the Guidance, on July 22, 2013, the Commission
issued the
[[Page 78879]]
Exemptive Order Regarding Compliance with Certain Swap Regulations (the
``Exemptive Order'').\2\ Among other things, the Exemptive Order
provided time for the Commission to consider substituted compliance
with respect to six jurisdictions where non-U.S. SDs are currently
organized. In this regard, the Exemptive Order generally provided non-
U.S. SDs and MSPs (and foreign branches of U.S. SDs and MSPs) in the
six jurisdictions with conditional relief from certain requirements of
Commission regulations (those referred to as ``Transaction-Level
Requirements'' in the Guidance) until the earlier of December 21, 2013,
or 30 days following the issuance of a substituted compliance
determination.\3\ However, the Commission provided only transitional
relief from the real-time public reporting requirements under part 43
of the Commission's regulations until September 30, 2013, stating that
``it would not be in the public interest to further delay reporting
under part 43 . . . .'' \4\ Similarly, the Commission provided
transitional relief only until October 10, 2013, from the clearing and
swap processing requirements (as described in the Guidance), stating
that, ``[b]ecause SDs and MSPs have been committed to clearing their
[credit default swaps] 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.'' \5\ The
Commission did not make any comparability determination with respect to
clearing and swap processing prior to October 10, 2013, or real-time
public reporting prior to September 30, 2013.
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\2\ 78 FR 43785 (July 22, 2013).
\3\ The Transaction-Level Requirements under the Exemptive Order
consist of 17 CFR 37.12, 38.11, 23.202, 23.205, 23.400-451, 23.501,
23.502, 23.503, 23.504, 23.505, 23.506, 23.610, and parts 43 and 50
of the Commission's regulations.
\4\ See id. at 43789.
\5\ See id. at 43790.
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On May 7, 2013, the EC and ESMA (collectively, the ``applicant'')
submitted a request that the Commission determine that laws and
regulations applicable in the EU provide a sufficient basis for an
affirmative finding of comparability with respect to certain
Transaction-Level Requirements, including the Business Conduct
Requirements.\6\ The applicant provided Commission staff with an
updated submission on August 6, 2013. On November 11, 2013, the
application was further supplemented with corrections and additional
materials. The following is the Commission's analysis and determination
regarding the Business Conduct Requirements, as detailed below.
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\6\ For purposes of this notice, the Business Conduct
Requirements consist of 17 CFR 23.202, 23.501, 23.502, 23.503, and
23.504.
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In addition to the Business Conduct Requirements described below,
the applicant also requested a comparability determination with respect
to law and regulations applicable in the EU governing (1) clearing and
swap processing;\7\ and (2) real-time public reporting. The Commission
declines to take up the request for such comparability determination at
this time due to the Commission's view that there are not laws or
regulations applicable in the EU to compare with the requirements of
the Commission's regulations on mandatory clearing and swap processing,
and real-time public reporting. The Commission may address these
requests in a separate notice at a later date in consequence of further
developments in the law and regulations applicable in the EU.
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\7\ According to the most recent Financial Stability Board
Progress Report, the EU is scheduled to have a clearing requirement
by Q3 2014. That report also states that the EU is scheduled to
begin authorizing CCPs in Q4 2013, issue its first clearing
determinations in Q1 2014, and adopt central clearing Regulatory
Technical Standards (RTS) in Q2 2014 (OTC Derivatives Working Group,
``OTC Derivatives Market Reforms: Sixth Progress Report on
Implementation,'' Financial Stability Board, Sept. 2, 2013). Under
EMIR, ESMA would determine which swaps would be subject to mandatory
clearing according to provisions that are comparable to those set
forth in Commission regulation 39.5(b). A clearing requirement would
apply to financial entities, as well as to non-financial entities
whose swap activity exceeds a certain threshold. ESMA's ``Discussion
Paper, The Clearing Obligation under EMIR'' (July 2013) describes
the standardized swaps that could be subject to a clearing
requirement. Such swaps include the interest rate and credit default
swaps covered by the Commission's clearing requirement (Commission
regulation 50.4), other credit default swap indices, non-deliverable
forwards that may be included in a Commission clearing requirement,
and many other swaps including OTC equity index derivatives cleared
only through European central counterparties, some of which are not
Commission-registered derivatives clearing organizations.
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II. Background
On July 21, 2010, President Obama signed the Dodd-Frank Wall Street
Reform and Consumer Protection Act\8\ (``Dodd-Frank Act'' or ``Dodd-
Frank''), which, in Title VII, established a new regulatory framework
for swaps.
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\8\ Public Law 111-203, 124 Stat. 1376 (2016).
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Section 722(d) of the Dodd-Frank Act amended the CEA by adding
section 2(i), which provides that the swap provisions of the CEA
(including any CEA rules or regulations) 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 Commission rules or regulations as are necessary or
appropriate to prevent evasion of the swap provisions of the CEA
enacted under Title VII of the Dodd-Frank Act.\9\
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\9\ 7 U.S.C. 2(i).
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In the three years since its enactment, the Commission has
finalized 68 rules and orders to implement Title VII of the Dodd-Frank
Act. The finalized rules include those promulgated under section 4s of
the CEA, which address registration of SDs and MSPs and other
substantive requirements applicable to SDs and MSPs. With few
exceptions, the delayed compliance dates for the Commission's
regulations implementing such section 4s requirements applicable to SDs
and MSPs have passed and new SDs and MSPs are now required to be in
full compliance with such regulations upon registration with the
Commission.\10\ Notably, the requirements under Title VII of the Dodd-
Frank Act related to SDs and MSPs by their terms apply to all
registered SDs and MSPs, irrespective of where they are located, albeit
subject to the limitations of CEA section 2(i).
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\10\ 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.)
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To provide guidance as to the Commission's views regarding the
scope of the cross-border application of Title VII of the Dodd-Frank
Act, the Commission set forth in the Guidance its interpretation of the
manner in which it believes that Title VII's swap provisions apply to
activities outside the U.S. pursuant to section 2(i) of the CEA. Among
other matters, the Guidance generally describes the policy and
procedural framework under which the Commission would consider a
substituted compliance program with respect to Commission regulations
applicable to entities located outside the U.S. Specifically, the
Commission established a recognition program where compliance with a
comparable regulatory requirement of a foreign jurisdiction would serve
as a reasonable substitute for compliance with the attendant
requirements of the CEA and the Commission's regulations. With respect
to the standards forming the basis for any determination of
comparability (``comparability determination'' or ``comparability
finding''), the Commission stated:
In evaluating whether a particular category of foreign
regulatory requirement(s) is comparable and comprehensive to the
applicable requirement(s) under the CEA and Commission regulations,
the Commission will take into consideration all relevant
[[Page 78880]]
factors, including but not limited to, the comprehensiveness of
those requirement(s), the scope and objectives of the relevant
regulatory requirement(s), the comprehensiveness of the foreign
regulator's supervisory compliance program, as well as the home
jurisdiction's authority to support and enforce its oversight of the
registrant. In this context, comparable does not necessarily mean
identical. Rather, the Commission would evaluate whether the home
jurisdiction's regulatory requirement is comparable to and as
comprehensive as the corresponding U.S. regulatory
requirement(s).\11\
\11\ 78 FR 45342-45345.
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Upon a comparability finding, consistent with CEA section 2(i) and
comity principles, the Commission's policy generally is that eligible
entities may comply with a substituted compliance regime subject to any
conditions the Commission places on its finding, and subject to the
Commission's retention of its examination authority and its enforcement
authority.\12\
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\12\ See the Guidance, 78 FR 45342-44.
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In this regard, the Commission notes that a comparability
determination cannot be premised on whether an SD or MSP must disclose
comprehensive information to its regulator in its home jurisdiction,
but rather on whether information relevant to the Commission's
oversight of an SD or MSP would be directly available to the Commission
and any U.S. prudential regulator of the SD or MSP.\13\ The
Commission's direct access to the books and records required to be
maintained by an SD or MSP registered with the Commission is a core
requirement of the CEA\14\ and the Commission's regulations,\15\ and is
a condition to registration.\16\
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\13\ Under Sec. Sec. 23.203 and 23.606, all records required by
the CEA and the Commission's regulations to be maintained by a
registered SD or MSP shall be maintained in accordance with
Commission regulation 1.31 and shall be open for inspection by
representatives of the Commission, the United States Department of
Justice, or any applicable prudential regulator.
In its Final Exemptive Order Regarding Compliance with Certain
Swap Regulations, 78 FR 858 (Jan. 7, 2013), the Commission noted
that an applicant for registration as an SD or MSP must file a Form
7-R with the National Futures Association and that Form 7-R was
being modified at that time to address existing blocking, privacy,
or secrecy laws of foreign jurisdictions that applied to the books
and records of SDs and MSPs acting in those jurisdictions. See id.
at 871-72 n. 107. The modifications to Form 7-R were a temporary
measure intended to allow SDs and MSPs to apply for registration in
a timely manner in recognition of the existence of the blocking,
privacy, and secrecy laws. In the Guidance, the Commission clarified
that the change to Form 7-R impacts the registration application
only and does not modify the Commission's authority under the CEA
and its regulations to access records held by registered SDs and
MSPs. Commission access to a registrant's books and records is a
fundamental regulatory tool necessary to properly monitor and
examine each registrant's compliance with the CEA and the
regulations adopted pursuant thereto. The Commission has maintained
an ongoing dialogue on a bilateral and multilateral basis with
foreign regulators and with registrants to address books and records
access issues and may consider appropriate measures where requested
to do so.
\14\ See e.g., sections 4s(f)(1)(C), 4s(j)(3) and (4) of the
CEA.
\15\ See e.g., Sec. Sec. 23.203(b) and 23.606.
\16\ See supra note 13.
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III. Regulation of SDs and MSPs in the EU
On May 7, 2013, the EC and ESMA submitted a request that the
Commission assess the comparability of laws and regulations applicable
in the EU with the requirements of the CEA and the Commission's
regulations, and that a determination be made on the extent to which
SDs and MSPs in the EU can rely on substituted compliance.\17\ The
applicant provided Commission staff with an updated submission on
August 6, 2013. On November 11, 2013, the application was further
supplemented with corrections and additional materials.
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\17\ On July 11, 2013, the Commission staff issued a no-action
letter related to EU rules on risk mitigation. See No-Action Relief
for Registered Swap Dealers and Major Swap Participants from Certain
Requirements under Subpart I of Part 23 of Commission Regulations in
Connection with Uncleared Swaps Subject to Risk Mitigation
Techniques under EMIR, CFTC Letter No. 13-45 (July, 11, 2013)
(``Risk Mitigation Letter''). The Commission staff found that the
Commission and the EU have essentially identical rules in important
areas of risk mitigation for the largest counterparty swap market
participants. Specifically, the Commission staff determined that
under EMIR, the EU has adopted risk mitigation rules that are
essentially identical to certain provisions of the Commission's
business conduct standards for SDs and MSPs. In areas such as
confirmation, portfolio reconciliation, portfolio compression,
valuation, and dispute resolution, the Commission staff found that
the respective regimes are essentially identical. The Commission
staff determined that where a swap/OTC derivative is subject to
concurrent jurisdiction under US and EU risk mitigation rules,
compliance under EMIR will achieve compliance with the relevant
Commission rules because they are essentially identical. The
Commission's analysis of the subject submission is informed by the
staff's finding in connection with the Risk Mitigation Letter but
the Commission notes that the standards applied in that context are
distinguishable from the ``comparable and comprehensive'' standards
applied in the instant comparability determination.
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As represented to the Commission by the applicant, swap activities
in the EU member states is governed primarily by the European Market
Infrastructure Regulation (``EMIR'').\18\
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\18\ EMIR: Regulation (EU) No 648/2012 of the European
Parliament and of the Council of 4 July 2012 on OTC derivatives,
central counterparties and trade repositories. http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:201:0001:0059:EN:PDF
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EMIR and the Regulatory Technical Standards (``RTS'') are
regulations with immediate, binding, and direct effect in all EU member
states (i.e., no transposition into domestic law is required). EMIR
entered into force on August 16, 2012.
Commission Delegated Regulation (EU) No 149/2013 of December 19,
2012 supplementing Regulation (EU) No 648/2012 of the European
Parliament and of the Council with regard to regulatory technical
standards on indirect clearing arrangements, the clearing obligation,
the public register, access to a trading venue, non-financial
counterparties, and risk mitigation techniques for OTC derivatives
contracts not cleared by a central counterparty (``CCP'') (``OTC RTS'')
entered into force on March 15, 2013.
It is helpful to note certain terminology used in EMIR:
Financial counterparties (``FCs''), Article 2(8) EMIR: all
types of counterparties established in the EU--regardless of size or
activity--that are financial in nature and authorized as such: credit
institutions, insurers/reinsurers, pension funds, and hedge funds.
Non-financial counterparties (``NFCs''), Article 2(9)
EMIR: all types of counterparties established in the EU that do not
meet the definition of an FC (e.g., corporates, certain SPVs).
Non-financial counterparties above the clearing threshold
(``NFCs+''), Non-financial counterparties below the clearing threshold
(``NFCs-''):
The clearing thresholds are calculated at the group level
and are as follows:
(a) EUR 1 billion in gross notional value for OTC credit derivative
contracts;
(b) EUR 1 billion in gross notional value for OTC equity derivative
contracts;
(c) EUR 3 billion in gross notional value for OTC interest rate
derivative contracts;
(d) EUR 3 billion in gross notional value for OTC foreign exchange
derivative contracts; and
(e) EUR 3 billion in gross notional value for OTC commodity
derivative contracts and other OTC derivative contracts not provided
for under points (a) to (d).
However, transactions objectively measurable as reducing risks
directly relating to the commercial activity or treasury financing
activity of the NFC or its group (i.e., hedges) do not count towards
the clearing threshold.\19\ Under the hedging definition both portfolio
and macro hedging are allowed.
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\19\ See EMIR Article 10 and RTS Article 10.
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Certain requirements of EMIR and the RTS are subject to delayed
implementation. EMIR Article 11 and
[[Page 78881]]
RTS Articles 12 to 17 are subject to a phase-in period:
Timely Confirmation: Staggered phase-in according to
product type.
Portfolio Reconciliation, Compression, and Dispute
Resolution: Requirements operational for all market participants
subject to them (different provisions apply to FC, NFC+ and NFC-) as of
September 15, 2013.
Daily mark-to-market and mark-to-model: Applies to FC and
NFC+ as of March 15, 2013.
In addition, as represented to the Commission by the applicant,
swap activities in the EU are also governed by a number of regulatory
requirements other than EMIR.
Markets in Financial Instruments Directive (``MiFID)'':\20\ MiFID
is a directive and in accordance with the Treaty on the Functioning of
the European Union, all member states of the EU are legally bound to
implement the provisions of MiFID by November 1, 2007, by transposing
them into their national laws. MiFID applies in particular to
investment firms, which comprise any legal person whose regular
occupation or business is the provision of one or more investment
services to third parties and/or the performance of one or more
investment activities on a professional basis. Investment services and
activities means any of the services and activities listed in Section A
of Annex I of MiFID relating to any of the instruments listed in
Section C of Annex I of MiFID. Section C of Annex 1 refers explicitly
to swaps as well as ``other derivative financial instruments.''
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\20\ Directive 2004/39/EC and the relevant implementing measures
(Directive 2006/73/EC and Regulation 1287/2006). http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32004L0039:EN:NOT
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Due to the requirement that each EU member state transpose MiFID
into its national law, the comparability determinations in this notice
are based on the representations of the applicant to the Commission
that (i) each member state of the EU where an SD or MSP would seek to
rely on substituted compliance on the basis of the comparability of the
MiFID standards has completed the process of transposing MiFID into its
national law;\21\ (ii) such national laws have transposed MiFID without
change in any aspect that is material for a comparability determination
contained herein; and (iii) such transposed law is in full force and
effect as of the time that any SD or MSP seeks to rely on a relevant
comparability determination contained herein. The Commission notes that
to the extent that any of the foregoing representations are incorrect,
an affected comparability determination will not be valid.\22\
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\21\ See the Web site of the European Commission for
confirmation of the transposition of MiFID into the national law of
each member state, available here: http://ec.europa.eu/internal_market/securities/docs/transposition/table_en.pdf. Note that the
issue of partial implementation in the Netherlands was resolved in
2008, http://ec.europa.eu/eu_law/eulaw/decisions/dec_08_05_06.htm.The Commission notes that the EC has certified to the
Commission that each member state in which a registered SD or MSP is
organized has completed the transposition process (e.g., Ireland,
UK, France, Spain, and Germany).
\22\ Because the applicant's request and the Commission's
determinations herein are based on the comparability of EU
requirements applicable to entities subject to EMIR and MiFID, an SD
or MSP that is not subject to the requirements of EMIR or MiFID upon
which the Commission bases its determinations, may not be able to
rely on the Commission's comparability determinations herein. The
applicant has noted for the Commission that the concept of an MSP is
not explicitly mirrored in EU legislation and so it cannot be
confirmed that MSPs would always be covered by EMIR and MiFID.
However, the applicant states that the definition of an ``investment
firm'' under MiFID is considerably wider than that of an SD, and
thus MSP's should, in most cases, be caught within the definition of
``investment firm.''
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In addition to MiFID, the applicant noted that there are a number
of proposed laws and regulations that, when implemented, would affect
the regulation of SDs and MSPs in the EU.\23\
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\23\ The applicant provided information regarding MiFID II and
the Markets in Financial Instruments Regulation (``MiFIR''), http://ec.europa.eu/internal_market/securities/isd/mifid/index_en.htm,
stating that these two proposals are part of the legislative package
for the review of MiFID, and that the legislative process may be
concluded with the adoption of the final political agreement by the
end of 2013. The applicant further stated that an additional 18 to
24 months will be needed to adopt implementing measures, with the
overall package to be applied by the end of 2015.
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IV. Comparable and Comprehensiveness Standard
The Commission's comparability analysis will be based on a
comparison of specific foreign requirements against the specific
related CEA provisions and Commission regulations as categorized and
described in the Guidance. As explained in the Guidance, within the
framework of CEA section 2(i) and principles of international comity,
the Commission may make a comparability determination on a requirement-
by-requirement basis, rather than on the basis of the foreign regime as
a whole.\24\ In making its comparability determinations, the Commission
may include conditions that take into account timing and other issues
related to coordinating the implementation of reform efforts across
jurisdictions.\25\
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\24\ 78 FR 45343.
\25\ 78 FR 45343.
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In evaluating whether a particular category of foreign regulatory
requirement(s) is comparable and comprehensive to the corollary
requirement(s) under the CEA and Commission regulations, the Commission
will take into consideration all relevant factors, including, but not
limited to:
The comprehensiveness of those requirement(s),
The scope and objectives of the relevant regulatory
requirement(s),
The comprehensiveness of the foreign regulator's
supervisory compliance program, and
The home jurisdiction's authority to support and enforce
its oversight of the registrant.\26\
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\26\ 78 FR 45343.
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In making a comparability determination, the Commission takes an
``outcome-based'' approach. An ``outcome-based'' approach means that
when evaluating whether a foreign jurisdiction's regulatory
requirements are comparable to, and as comprehensive as, the corollary
areas of the CEA and Commission regulations, the Commission ultimately
focuses on regulatory outcomes (i.e., the home jurisdiction's
requirements do not have to be identical).\27\ This approach recognizes
that foreign regulatory systems differ and their approaches vary and
may differ from how the Commission chose to address an issue, but that
the foreign jurisdiction's regulatory requirements nonetheless achieve
the regulatory outcome sought to be achieved by a certain provision of
the CEA or Commission regulation.
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\27\ 78 FR 45343. The Commission's substituted compliance
program would generally be available for swap data repository
reporting (``SDR Reporting''), as outlined in the Guidance, only if
the Commission has direct access to all of the data elements that
are reported to a foreign trade repository pursuant to the
substituted compliance program. Thus, direct access to swap data is
a threshold matter to be addressed in a comparability evaluation for
SDR Reporting. Moreover, the Commission explains in the Guidance
that, due to its technical nature, a comparability evaluation for
SDR Reporting ``will generally entail a detailed comparison and
technical analysis.'' A more particularized analysis will generally
be necessary to determine whether data stored in a foreign trade
repository provides for effective Commission use, in furtherance of
the regulatory purposes of the Dodd-Frank Act. See 78 FR 45345.
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In doing its comparability analysis, the Commission may determine
that no comparability determination can be made\28\ and that the non-
U.S. SD or non-U.S. MSP, U.S. bank that is an SD or MSP with respect to
its foreign branches, or non-registrant, to the extent
[[Page 78882]]
applicable under the Guidance, may be required to comply with the CEA
and Commission regulations.
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\28\ A finding of comparability may not be possible for a number
of reasons, including the fact that the foreign jurisdiction has not
yet implemented or finalized particular requirements.
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The starting point in the Commission's analysis is a consideration
of the regulatory objectives of the foreign jurisdiction's regulation
of swaps and swap market participants. As stated in the Guidance,
jurisdictions may not have swap specific regulations in some areas, and
instead have regulatory or supervisory regimes that achieve comparable
and comprehensive regulation to the Dodd-Frank Act requirements, but on
a more general, entity-wide, or prudential, basis.\29\ In addition,
portions of a foreign regulatory regime may have similar regulatory
objectives, but the means by which these objectives are achieved with
respect to swap market activities may not be clearly defined, or may
not expressly include specific regulatory elements that the Commission
concludes are critical to achieving the regulatory objectives or
outcomes required under the CEA and the Commission's regulations. In
these circumstances, the Commission will work with the regulators and
registrants in these jurisdictions to consider alternative approaches
that may result in a determination that substituted compliance
applies.\30\
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\29\ 78 FR 45343.
\30\ As explained in the Guidance, such ``approaches used will
vary depending on the circumstances relevant to each jurisdiction.
One example would include coordinating with the foreign regulators
in developing appropriate regulatory changes or new regulations,
particularly where changes or new regulations already are being
considered or proposed by the foreign regulators or legislative
bodies. As another example, the Commission may, after consultation
with the appropriate regulators and market participants, include in
its substituted compliance determination a description of the means
by which certain swaps market participants can achieve substituted
compliance within the construct of the foreign regulatory regime.
The identification of the means by which substituted compliance is
achieved would be designed to address the regulatory objectives and
outcomes of the relevant Dodd-Frank Act requirements in a manner
that does not conflict with a foreign regulatory regime and reduces
the likelihood of inconsistent regulatory obligations. For example,
the Commission may specify that [SDs] and MSPs in the jurisdiction
undertake certain recordkeeping and documentation for swap
activities that otherwise is only addressed by the foreign
regulatory regime with respect to financial activities generally. In
addition, the substituted compliance determination may include
provisions for summary compliance and risk reporting to the
Commission to allow the Commission to monitor whether the regulatory
outcomes are being achieved. By using these approaches, in the
interest of comity, the Commission would seek to achieve its
regulatory objectives with respect to the Commission's registrants
that are operating in foreign jurisdictions in a manner that works
in harmony with the regulatory interests of those jurisdictions.''
78 FR 45343-44.
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Finally, the Commission generally will rely on an applicant's
description of the laws and regulations of the foreign jurisdiction in
making its comparability determination. The Commission considers an
application to be a representation by the applicant that the laws and
regulations submitted are in full force and effect, that the
description of such laws and regulations is accurate and complete, and
that, unless otherwise noted, the scope of such laws and regulations
encompasses the swaps activities\31\ of SDs and MSPs\32\ in the
relevant jurisdictions. \33\ Further, as stated in the Guidance, the
Commission expects that an applicant would notify the Commission of any
material changes to information submitted in support of a comparability
determination (including, but not limited to, changes in the relevant
supervisory or regulatory regime) as, depending on the nature of the
change, the Commission's comparability determination may no longer be
valid.\34\
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\31\ ``Swaps activities'' is defined in Commission regulation
23.600(a)(7) to mean, ``with respect to a registrant, such
registrant's activities related to swaps and any product used to
hedge such swaps, including, but not limited to, futures, options,
other swaps or security-based swaps, debt or equity securities,
foreign currency, physical commodities, and other derivatives.'' The
Commission's regulations under Part 23 (17 CFR Part 23) are limited
in scope to the swaps activities of SDs and MSPs.
\32\ No SD or MSP that is not legally required to comply with a
law or regulation determined to be comparable may voluntarily comply
with such law or regulation in lieu of compliance with the CEA and
the relevant Commission regulation. Each SD or MSP that seeks to
rely on a comparability determination is solely responsible for
determining whether it is legally required to comply with the laws
and regulations found comparable. Currently, there are no MSPs
organized outside the U.S. and the Commission therefore cautions any
non-financial entity organized outside the U.S. and applying for
registration as an MSP to carefully consider whether the laws and
regulations determined to be comparable herein are applicable to
such entity.
\33\ The Commission has provided the relevant foreign
regulator(s) with opportunities to review and correct the
applicant's description of such laws and regulations on which the
Commission will base its comparability determination. The Commission
relies on the accuracy and completeness of such review and any
corrections received in making its comparability determinations. A
comparability determination based on an inaccurate description of
foreign laws and regulations may not be valid.
\34\ 78 FR 45345.
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The Guidance provided a detailed discussion of the Commission's
policy regarding the availability of substituted compliance\35\ for the
Business Conduct Requirements.
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\35\ See 78 FR 45348-50. The Commission notes that registrants
and other market participants are responsible for determining
whether substituted compliance is available pursuant to the Guidance
based on the comparability determination contained herein (including
any conditions or exceptions), and its particular status and
circumstances.
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V. Supervisory Arrangement
In the Guidance, the Commission stated that, in connection with a
determination that substituted compliance is appropriate, it would
expect to enter into an appropriate memorandum of understanding
(``MOU'') or similar arrangement\36\ with the relevant foreign
regulator(s). Although existing arrangements would indicate a foreign
regulator's ability to cooperate and share information, ``going
forward, the Commission and relevant foreign supervisor(s) would need
to establish supervisory MOUs or other arrangements that provide for
information sharing and cooperation in the context of supervising [SDs]
and MSPs.''\37\
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\36\ An MOU is one type of arrangement between or among
regulators. Supervisory arrangements could include, as appropriate,
cooperative arrangements that are memorialized and executed as
addenda to existing MOUs or, for example, as independent bilateral
arrangements, statements of intent, declarations, or letters.
\37\ 78 FR 45344.
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The Commission is in the process of developing its registration and
supervision regime for provisionally-registered SDs and MSPs. This new
initiative includes setting forth supervisory arrangements with
authorities that have joint jurisdiction over SDs and MSPs that are
registered with the Commission and subject to U.S. law. Given the
developing nature of the Commission's regime and the fact that the
Commission has not negotiated prior supervisory arrangements with
certain authorities, the negotiation of supervisory arrangements
presents a unique opportunity to develop close working relationships
between and among authorities, as well as highlight any potential
issues related to cooperation and information sharing.
Accordingly, the Commission is negotiating such a supervisory
arrangement with each applicable foreign regulator of an SD or MSP. The
Commission expects that the arrangement will establish expectations for
ongoing cooperation, address direct access to information,\38\ provide
for
[[Page 78883]]
notification upon the occurrence of specified events, memorialize
understandings related to on-site visits,\39\ and include protections
related to the use and confidentiality of non-public information shared
pursuant to the arrangement.
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\38\ Section 4s(j)(3) and (4) of the CEA and Commission
regulation 23.606 require a registered SD or MSP to make all records
required to be maintained in accordance with Commission regulation
1.31 available promptly upon request to, among others,
representatives of the Commission. See also 7 U.S.C. 6s(f); 17 CFR
23.203. In the Guidance, the Commission states that it ``reserves
this right to access records held by registered [SDs] and MSPs,
including those that are non-U.S. persons who may comply with the
Dodd-Frank recordkeeping requirement through substituted
compliance.'' 78 FR 45345 n. 472; see also id. at 45342 n. 461
(affirming the Commission's authority under the CEA and its
regulations to access books and records held by registered SDs and
MSPs as ``a fundamental regulatory tool necessary to properly
monitor and examine each registrant's compliance with the CEA and
the regulations adopted pursuant thereto'').
\39\ The Commission retains its examination authority, both
during the application process as well as upon and after
registration of an SD or MSP. See 78 FR 45342 (stating Commission
policy that ``eligible entities may comply with a substituted
compliance regime under certain circumstances, subject, however, to
the Commission's retention of its examination authority'') and 45344
n. 471 (stating that the ``Commission may, as it deems appropriate
and necessary, conduct an on-site examination of the applicant'').
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These arrangements will establish a roadmap for how authorities
will consult, cooperate, and share information. As with any such
arrangement, however, nothing in these arrangements will supersede
domestic laws or resolve potential conflicts of law, such as the
application of domestic secrecy or blocking laws to regulated entities.
VI. Comparability Determination and Analysis
The following section describes the requirements imposed by
specific sections of the CEA and the Commission's regulations for the
Business Conduct Requirements in the ``risk mitigation and
transparency'' category that are the subject of this comparability
determination and the Commission's regulatory objectives with respect
to such requirements. Immediately following a description of the
requirement(s) and regulatory objective(s) of the specific Business
Conduct Requirements that the requestor submitted for a comparability
determination, the Commission provides a description of the foreign
jurisdiction's comparable laws, regulations, or rules and whether such
laws, regulations, or rules meet the applicable regulatory objective.
The Commission's determinations in this regard and the discussion
in this section are intended to inform the public of the Commission's
views regarding whether the foreign jurisdiction's laws, regulations,
or rules may be comparable to and as comprehensive as those
requirements in the Dodd-Frank Act (and Commission regulations
promulgated thereunder) and therefore, may form the basis of
substituted compliance. In turn, the public (in the foreign
jurisdiction, in the United States, and elsewhere) retains its ability
to present facts and circumstances that would inform the determinations
set forth in this release.
As was stated in the Guidance, the Commission understands the
complex and dynamic nature of the global swap market and the need to
take an adaptable approach to cross-border issues, particularly as it
continues to work closely with foreign regulators to address potential
conflicts with respect to each country's respective regulatory regime.
In this regard, the Commission may review, modify, or expand the
determinations herein in light of comments received and future
developments.
A. Portfolio Reconciliation and Compression
CEA section 4s(i) directs the Commission to prescribe regulations
for the timely and accurate processing and netting of all swaps entered
into by SDs and MSPs. Accordingly, pursuant to CEA section 4s(i), the
Commission adopted Sec. Sec. 23.502 and 23.503, which require SDs and
MSPs to perform portfolio reconciliation and compression, respectively,
for all swaps.\40\
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\40\ 7 U.S.C. 6s(i).
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1. Portfolio Reconciliation (Sec. 23.502)
Commission Requirement: Regulation 23.502 provides standards for
the timely and accurate confirmation, processing, and valuation of
uncleared swaps by SDs and MSPs. The regulation requires SDs and MSPs
to engage in portfolio reconciliation,\41\ which is a post-execution
processing and risk management technique that is designed to: (i)
identify and resolve discrepancies between the counterparties with
regard to the terms of a swap after execution and during the life of
the swap; and (ii) identify and resolve discrepancies between the
counterparties regarding the valuation of the swap.
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\41\ The term ``portfolio reconciliation'' is defined in Sec.
23.500(i) as any process by which the two parties to one or more
swaps: (1) exchange the terms of all swaps in the swap portfolio
between the counterparties; (2) exchange each counterparty's
valuation of each swap in the swap portfolio between the
counterparties as of the close of business on the immediately
preceding business day; and (3) resolve any discrepancy in material
terms and valuations.
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Pursuant to Commission regulation 23.502, for swap portfolios with
other SDs/MSPs, an SD/MSP must agree in writing on the terms of
reconciling the terms and valuations of each uncleared swap in the
portfolio (which may be performed bilaterally or by a qualified third
party), and must perform the reconciliation no less frequently than:
Each business day for portfolios of 500 or more swaps;
Once each week for portfolios of more than 50 but fewer
than 500 swaps; and
Quarterly for portfolios of no more than 50 swaps.
Discrepancies in material terms must be resolved immediately; and
SDs and MSPs must have policies and procedures to resolve discrepancies
of 10% or greater in valuations as soon as possible but no later than
five business days, provided that the SD or MSP has policies and
procedures for identifying how it will comply with variation margin
requirements pending resolution of a valuation dispute.
For swap portfolios with non-SDs/MSPs, an SD/MSP must establish
policies and procedures for engaging in portfolio reconciliation that
include:
Agreement in writing on the terms for reconciling the
terms and valuations of each uncleared swap in the portfolio (which may
be performed bilaterally or by a qualified third party);
Portfolio reconciliation frequencies of quarterly for
portfolios of more than 100 swaps, and annually for portfolios of 100
or fewer swaps; and
Discrepancies in material terms and valuations of more
than 10% must be subject to procedures for resolving such discrepancies
in a timely fashion.
An SD/MSP must report any valuation dispute exceeding $20,000,000
to the Commission and any applicable prudential regulator if not
resolved within three business days (with respect to disputes between
SDs/fMSPs) or five business days (with any other counterparty).
Regulatory Objective: The Commission's portfolio reconciliation
rule is designed to ensure accurate confirmation of a swap's terms and
to identify and resolve any discrepancies between counterparties
regarding the valuation of the swap. Given that arriving at a daily
valuation is one of the building blocks for the margin regulations and
is essential for the mitigation of risk posed by swaps, the regulations
are aimed at ensuring that valuation disputes are resolved in a timely
manner. Disputes related to confirming the terms of a swap, as well as
swap valuation disputes impacting margin payments, have long been
recognized as a significant problem in the OTC derivatives market, and
portfolio reconciliation is widely recognized as an effective means of
identifying and resolving these disputes. By identifying and managing
mismatches in key economic terms and valuation for individual
transactions across an entire portfolio, the regulations are aimed at
achieving a process in which overall risk can be
[[Page 78884]]
identified and reduced. The frequency of reconciliation of material
terms and valuations of each swap required by the regulations will
ensure the risk-reducing benefits of reconciliation by presenting a
consolidated view of counterparty exposure down to the transaction
level. The frequency with which portfolio reconciliation must be
performed is a key component of this regulation.
Comparable EU Law and Regulations: The applicant has represented to
the Commission that the following provisions of law and regulations
applicable in the EU are in full force and effect in the EU, and
comparable to and as comprehensive as section 4s(i) of the CEA and
Commission regulation 23.502.
OTC RTS Art. 13.1: FCs and NFCs must agree with each of
their counterparties in writing or other equivalent electronic means on
the terms on which portfolios of uncleared OTC derivative contracts
shall be reconciled. Such agreement must be reached before entering
into the OTC derivative contract.
OTC RTS Art. 13.2: Portfolio reconciliation must be
performed by the counterparties to the OTC derivative contracts with
each other, or by a qualified third party duly mandated to this effect
by a counterparty.
The portfolio reconciliation must cover key trade terms
that identify each particular OTC derivative contract and must include
at least the valuation attributed to each contract in accordance with
the mark-to-market/mark-to-model obligation.
In order to identify at an early stage any discrepancy in
a material term of the OTC derivative contract, including its
valuation, the portfolio reconciliation must be performed within the
following timeframes. For portfolios between or among FCs or NFCs+,
each business day when the counterparties have 500 or more OTC
derivative contracts outstanding with each other; once per week when
the counterparties have between 51 and 499 OTC derivative contracts
outstanding with each other at any time during the week; and once per
quarter when the counterparties have 50 or less OTC derivative
contracts outstanding with each other at any time during the quarter.
For portfolios where at least one of the counterparties is an NFC-,
once per quarter when the counterparties have more than 100 OTC
derivative contracts outstanding with each other at any time during the
quarter; and once per year when the counterparties have 100 or less OTC
derivative contracts outstanding with each other.
Commission Determination: Pursuant to the foregoing standards under
EMIR, FCs and NFCs must agree in writing with each of their OTC
derivatives counterparties on the terms on which portfolios will be
reconciled,\42\ which corresponds to the requirement in Commission
regulation 23.502(a) and (b) that SDs and MSPs agree in writing with
each counterparty (financial and non-financial) on the terms for
conducting portfolio reconciliation.
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\42\ See Article 13 of the EMIR Regulatory Technical Standards.
In addition, Article 13(2) permits the reconciliation to be
performed by a third-party, which corresponds to Commission
regulation 23.502(a)(2) and (b)(2).
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The EMIR standards require portfolio reconciliation covering key
trade terms of each OTC derivative contract, including at least the
valuation of each contract,\43\ which corresponds to the requirements
under Commission regulation 23.502 that discrepancies in material terms
and valuations be resolved.
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\43\ See Article 13(2) of the EMIR Regulatory Technical
Standards.
---------------------------------------------------------------------------
Frequency of reconciliation required under the EMIR standards for
FCs and NFCs+ is daily when the number of outstanding OTC derivative
contracts between counterparties is 500 or more, weekly when the number
of outstanding OTC derivative contracts between counterparties is
greater than 50 and less than 500, and quarterly when the number of OTC
derivative contracts between counterparties is 50 or less,\44\ which
corresponds with the frequency required of SDs and MSPs outlined above
with respect to portfolios with other SDs and MSPs. EMIR requires
reconciliation with NFCs- less frequently; quarterly for portfolios of
more than 100 transactions and annually otherwise\45\--which
corresponds with the requirement of Commission regulation 23.502(b)(3).
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\44\ See Article 13(3)(a) of the EMIR Regulatory Technical
Standards.
\45\ See Article 13(3)(b) of the EMIR Regulatory Technical
Standards.
---------------------------------------------------------------------------
The EMIR standards require FCs to report to the relevant competent
authority any disputes between counterparties relating to an OTC
derivative contract, its valuation or the exchange of collateral for an
amount or a value higher than [euro]15 million and outstanding for at
least 15 business days,\46\ while Commission regulation 23.502(c) has a
similar reporting requirement for disputes of at least $20 million
outstanding from three to five days, depending on counterparty type.
The EMIR standards, similar to Sec. 23.502(a)(5), require FCs and NFCs
to have detailed procedures and processes for resolving disputes
related to valuation.
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\46\ See Article 15(2) of the EMIR Regulatory Technical
Standards.
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Generally identical in intent to Sec. 23.502, the EMIR portfolio
reconciliation standards are designed to ensure that valuation disputes
are recognized and resolved in a timely manner. This regular
reconciliation will assist in identifying and resolving discrepancies,
which in turn will aid the entities in their collateralization and risk
management.
Based on the foregoing and the representations of the applicant,
the Commission finds that the portfolio reconciliation requirements of
the EMIR standards submitted by the applicant are comparable to and as
comprehensive as the portfolio reconciliation requirements of
Commission regulation 23.502.
2. Portfolio Compression (Sec. 23.503)
Commission Requirement: Portfolio compression is a post-trade
processing and netting mechanism whereby substantially similar
transactions among two or more counterparties are terminated and
replaced with a smaller number of transactions of decreased notional
value. Portfolio compression is intended to ensure timely and accurate
processing and netting of swaps,\47\ and is widely acknowledged as an
effective risk mitigation tool.\48\
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\47\ For example, the reduced transaction count may decrease
operational risk as there are fewer trades to maintain, process, and
settle.
\48\ See Confirmation, Portfolio Reconciliation, Portfolio
Compression, and Swap Trading Relationship Requirements for Swap
Dealers and Major Swap Participants, 77 FR 55904, 55932 (Sept. 11,
2012).
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Pursuant to Sec. 23.503, an SD/MSP must establish policies and
procedures for terminating fully offsetting uncleared swaps, when
appropriate; for periodically participating in bilateral and
multilateral compression exercises for uncleared swaps with other SDs/
MSPs, when appropriate; and for engaging in such exercises for
uncleared swaps with non-SDs/MSPs upon request.
Regulatory Objective: The purpose of portfolio compression is to
reduce the operational risk, cost, and inefficiency of maintaining
unnecessary transactions on the counterparties' books.
Comparable EU Law and Regulations: The applicant has represented to
the Commission that the following provisions of law and regulations
applicable in the EU are in full force and effect in the EU, and
comparable to and as comprehensive as section 4s(i) of the CEA and
Commission regulation 23.503:
[[Page 78885]]
OTC RTS Art. 14: FCs and NFCs with 500 or more uncleared
OTC derivative contracts outstanding with a counterparty must have
procedures to regularly, and at least twice a year, analyse the
possibility of conducting a portfolio compression exercise in order to
reduce their counterparty credit risk and engage in such a portfolio
compression exercise; and
FCs and NFCs must ensure that they are able to provide a
reasonable and valid explanation to the relevant competent authority
for concluding that a portfolio compression exercise is not
appropriate.
Commission Determination: The EMIR standards specified above
require FCs and NFCs with 500 or more OTC uncleared derivative
contracts outstanding with a counterparty to have procedures to
regularly, and at least twice a year, analyze the possibility of
conducting a portfolio compression exercise in order to reduce their
counterparty credit risk and engage in such a portfolio compression
exercise,\49\ which corresponds to the requirement under Sec. 23.503
that SDs and MSPs establish procedures for periodically engaging in
compression exercises with their counterparties.
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\49\ See Article 14 of the EMIR Regulatory Technical Standards.
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Under the EMIR standards, FCs and NFCs also must ensure that they
are able to provide a reasonable and valid explanation to the relevant
competent authority for concluding that a portfolio compression
exercise is not appropriate.\50\ This requirement corresponds directly
to regulation 23.503 that SDs and MSPs engage in compression exercises
with their counterparties ``when appropriate,'' which would necessarily
require such registrants to demonstrate to the Commission why a
compression opportunity was not appropriate.
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\50\ See id.
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Generally identical in intent to Sec. 23.503, the EMIR portfolio
compression standards are designed to reduce the operational risk,
cost, and inefficiency of maintaining unnecessary transactions on the
counterparties' books.
Based on the foregoing and the representations of the applicant,
the Commission finds that the EMIR portfolio compression standards
submitted by the applicant are comparable to and as comprehensive as
the portfolio compression requirements of Commission regulation 23.503.
B. Trade Confirmation (Sec. 23.501)
Commission Requirement: Section 4s(i) of the CEA\51\ requires that
each SD and MSP comply with the Commission's regulations prescribing
timely and accurate confirmation of swaps.
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\51\ 7 U.S.C. 6s(i).
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Subject to an implementation period, Sec. 23.501 requires
confirmation of swap transactions (which includes execution,
termination, assignment, novation, exchange, transfer, amendment,
conveyance, or extinguishing of rights or obligations of a swap) among
SDs and MSPs by the end of the first business day following the day of
execution.
Subject to an implementation period, with respect to swaps with
non-SDs/MSPs, SDs and MSPs are required to establish policies and
procedures reasonably designed to ensure confirmation with non-SDs and
non-MSPs by the end of the first business day following the day of
execution if the counterparty is a financial entity or the end of the
second business day if the counterparty is a non-financial entity.
SDs and MSPs are also required to send an acknowledgement of a swap
transaction to a counterparty that is not an SD/MSP by the end of the
first business day following the day of execution, and are required to
provide a draft confirmation to non-SDs/MSPs prior to execution of a
swap, if requested.
The day of execution is determined by reference to the business
days of the counterparties and whether the swap was executed after 4:00
p.m. in the place of at least one of the counterparties.
Commission regulation 23.501 does not apply to swaps executed on a
swap execution facility (``SEF'') or designated contract market
(``DCM'') if the SEF/DCM provides for confirmation of swap transactions
at the same time as execution. It also does not apply to swap
transactions that are submitted for clearing by a derivatives clearing
organization (``DCO'') within the time required for confirmation and
the DCO provides confirmation at the same time the swap transaction is
accepted for clearing.
Regulatory Objective: Timely and accurate confirmation of swaps--
together with portfolio reconciliation and compression--are important
post-trade processing mechanisms for reducing risks and improving
operational efficiency. Through Sec. 23.501, the Commission seeks to
ensure that both parties to a trade are informed of and agree upon all
terms of a swap transaction\52\ in writing in a timely manner following
execution, thereby promoting post-trade processing, netting, and
valuation of the swap for risk management purposes. The correct
calculation of cash flows, margin requirements, discharge of settlement
obligations, and accurate measurement of counterparty credit exposure
are all dependent on timely and accurate confirmation.\53\
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\52\ Pursuant to Sec. 23.500(l), ``swap transaction'' is
defined to mean ``any event that results in a new swap or in a
change to the terms of a swap, including execution, termination,
assignment, novation, exchange, transfer, amendment, conveyance, or
extinguishing of rights or obligations of a swap.''
\53\ See Confirmation, Portfolio Reconciliation, Portfolio
Compression, and Swap Trading Relationship Documentation
Requirements for Swap Dealers and Major Swap Participants, 12 CFR
Part 23, 77 FR 55904 at 55917 (September 11, 2012) (Final Rule).
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Comparable EU Law and Regulations: The applicant has represented to
the Commission that the following provisions of law and regulations
applicable in the EU are in full force and effect in the EU, and
comparable to and as comprehensive as section 4s(i) of the CEA and
Commission regulation 23.501.
OTC RTS Art 12.1: Subject to an implementation period, FCs and
NFCs+ must have in place procedures to ensure that uncleared OTC
derivatives transactions between FCs and NFCs+ are confirmed, where
available via electronic means, as soon as possible and at the latest
by the end of the next business day following the date of execution.
OTC RTS Art. 12.2: Subject to an implementation period, FCs and
NFCs+ must have in place procedures to ensure that non-centrally
cleared OTC derivatives transactions with non- FCs/NFCs+ are confirmed,
where available via electronic means, as soon as possible and at the
latest by the end of the second business day following the date of
execution.
OTC RTS Art. 12.3: For transactions concluded after 4:00 p.m. local
time, or with a counterparty located in a different time zone which
does not allow confirmation by the set deadline, the confirmation must
take place as soon as possible and, at the latest, one business day
following the deadline set out above.
OTC RTS Art. 12.4: FCs must establish the necessary procedure to
report on a monthly basis to the relevant competent authority the
number of unconfirmed OTC derivative transactions referred to in OTC
RTS Art. 12.1--12.3 that have been outstanding for more than five
business days.
[[Page 78886]]
Commission Determination: Pursuant to the EMIR standards specified
above, and subject to a phase-in period, OTC derivative contracts
entered into between FCs or NFCs+ must be confirmed as soon as possible
and at the latest by the end of the next business day following the
date of execution,\54\ which corresponds to Commission regulation
23.501(a)(1) and (3)(i), requiring confirmation with other SDs, MSPs,
and financial entities by the end of the first business day following
the day of execution.
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\54\ See Article 12 of the EMIR Regulatory Technical Standards.
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For OTC derivative contracts with all other NFCs, the EMIR
standards require confirmation as soon as possible and, at the latest,
by the end of the second business day following the date of
execution.\55\ This approach corresponds to the Commission regulation
23.501(a)(3)(ii), which requires written policies and procedures
reasonably designed to ensure confirmation with non-SDs, non-MSPs, or
non-financial entities by the end of the second business day following
the day of execution.
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\55\ See id.
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As with Commission regulation 23.501(a)(5), which provides for a
next business day adjustment for transactions executed after 4:00 p.m.
or on a non-business day, the EMIR standards provide that transactions
concluded after 4:00 p.m. local time, or with a counterparty located in
a different time zone that does not allow confirmation by the set
deadline, the confirmation must take place as soon as possible and, at
the latest, one business day following the otherwise applicable
deadline.
Generally identical in intent to Sec. 23.501, the EMIR trade
confirmation requirements are designed to ensure that both parties to a
trade are informed of, and agree upon, all terms of a swap transaction
in writing in a timely manner following execution, thereby promoting
post-trade processing, netting, and valuation of the swap for risk
management purposes.
Based on the foregoing and the representations of the applicant,
the Commission finds that the trade confirmation requirements of the
EMIR standards are comparable to and as comprehensive as the swap
transaction confirmation requirements of Commission regulation 23.501.
C. Swap Trading Relationship Documentation (Sec. 23.504)
Commission Requirement: Section 4s(i) of the CEA requires each SD
and MSP to conform to Commission standards for the timely and accurate
confirmation, processing, netting, documentation, and valuation of
swaps.\56\ Pursuant to this requirement, the Commission adopted Sec.
23.504.
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\56\ See 7 U.S.C. 6s(i).
---------------------------------------------------------------------------
Pursuant to Sec. 23.504(a), SDs and MSPs must have policies and
procedures reasonably designed to ensure that the SD or MSP enters into
swap trading relationship documentation with each counterparty prior to
executing any swap with such counterparty. Such requirement does not
apply to cleared swaps.
Pursuant to Sec. 23.504(b), SDs and MSPs must, at a minimum,
document terms relating to:
Payment obligations;
Netting of payments;
Events of default or other termination events;
Netting of obligations upon termination;
Transfer of rights/obligations;
Governing law;
Valuation--must be able to value swaps in a predictable
and objective manner--complete and independently verifiable methodology
for valuation;
Dispute resolution procedures; and
Credit support arrangements with initial/variation margin
at least as high as set for SD/MSPs or prudential regulator
(identifying haircuts and class of eligible assets).
Regulatory Objective: Through Commission regulation 23.504, the
Commission seeks to reduce the legal, operational, counterparty credit,
and market risk that can arise from undocumented swaps or undocumented
terms of swaps. Inadequate documentation of swap transactions is more
likely to result in collateral and legal disputes, thereby exposing
counterparties to significant counterparty credit risk.
In particular, documenting agreements regarding valuation is
critical because, as the Commission has noted, the ability to determine
definitively the value of a swap at any given time lies at the center
of many of the OTC derivatives market reforms contained in the Dodd-
Frank Act and is a cornerstone of risk management. With respect to
other SDs/MSPs and financial entities, or upon request of any other
counterparty, the regulation requires agreement on the process
(including alternatives and dispute resolution procedures) for
determining the value of each swap for the duration of such swap for
purposes of complying with the Commission's margin and risk management
requirements, with such valuations based on objective criteria to the
extent practicable.
Comparable EU Law and Regulations: The applicant has represented to
the Commission that the following provisions of law and regulations
applicable in the EU are in full force and effect in the EU, and
comparable to and as comprehensive as section 4s(i) of the CEA and
Commission regulation 23.504.
MiFID requires counterparties to be classified as retail clients,
professional clients,\57\ and eligible counterparties,\58\ and
corresponding different conduct of business rules apply.\59\ Investment
firms have to correctly categorize clients and notify those clients of
their classification; furthermore, investment firms should be able to
demonstrate the correctness of the classification.
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\57\ Annex II of MiFID.
\58\ Article 24 MiFID.
\59\ Article 19 MiFID and 28 to 34 of MiFID L2D.
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Firms have to conclude agreements with retail and professional
clients setting out the respective rights and obligations and any other
terms for the provision of the services.\60\ Ex-ante information has to
be provided to clients on the services provided, the risks, and the
safeguarding of their assets.\61\ Adequate ex-post reports also have to
be provided.\62\ Irrespective of the classification of clients,
specific record-keeping obligations regulate the recording of client
orders and transactions.\63\
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\60\ Article 19 (7) MiFID.
\61\ Article 19 (3) MiFID and Articles 29-33 MiFID L2D.
\62\ Article 19 (8) MiFID and Articles 40-43 of MiFID L2D.
\63\ Article 51 MiFID L2D and Articles 7-8 and Annex I, table I
of MiFID L2R.
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With respect to dispute resolution, when concluding OTC derivative
contracts with each other, FCs and NFCs must have agreed detailed
procedures and processes in relation to: (a) the identification,
recording, and monitoring of disputes relating to the recognition or
valuation of the contract and to the exchange of collateral between
counterparties, and (b) the resolution of disputes in a timely manner
with a specific process for handling those disputes that are not
resolved within five business days. Those procedures must at least
record the length of time for which the dispute remains outstanding,
the counterparty, and the amount which is disputed.\64\
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\64\ EMIR Art. 11 and OTC RTS Art 15.
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Commission Determination: The EMIR standards specified above
require OTC derivative contracts entered into between FCs or NFCs to be
confirmed in
[[Page 78887]]
writing,\65\ which corresponds to the requirements of Commission
regulation 23.504(b)(2).
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\65\ See Article 12 of the EMIR Regulatory Technical Standards.
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Pursuant to EMIR Article 11, FCs and NFCs+ are required to value
outstanding OTC derivatives contracts on a mark-to-market basis daily,
or where market conditions determine otherwise, a ``reliable and
prudent marking to model'' may be used.\66\ This corresponds with
Commission regulation 23.504(b)(4)(i), which requires SDs and MSPs to
engage in daily valuation with other SDs and MSPs, and financial
entities, but allows such procedures to be included in documentation
with NFCs to the extent such counterparties request them.
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\66\ See Article 11(2) of EMIR. See also Article 16 of the EMIR
Regulatory Technical Standards (describing the market conditions
that prevent marking-to-market) and Article 17 of the EMIR
Regulatory Technical Standards (describing the criteria for using
marking-to-model).
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Under the EMIR standards, when concluding OTC derivative contracts
with each other, counterparties must have agreed detailed procedures
and processes in relation to the identification, recording, and
monitoring of disputes relating to the recognition or valuation of the
contracts and to the exchange of collateral between counterparties and
in relation to the resolution of disputes in a timely manner, including
a specific process for handling disputes that are not resolved within
five business days. These aspects of the EMIR standards correspond to
the valuation documentation requirements under Commission regulation
23.504(b)(4), which also require use of market transactions for
valuations to the extent practicable, or other objective criteria, and
an agreement on detailed processes for valuation dispute resolution for
purposes of complying with margin requirements.
Generally identical in intent to Sec. 23.504(b)(2) and (4), the
EMIR confirmation and valuation documentation requirements are designed
to reduce the legal, operational, counterparty credit, and market risk
that can arise from undocumented transactions or terms, reducing the
risk of collateral and legal disputes, and exposure of counterparties
to significant counterparty credit risk.
Based on the foregoing and the representations of the applicant,
the Commission finds the confirmation and valuation documentation
requirements of the EMIR standards specified above are comparable to
and as comprehensive as the swap trading relationship documentation
requirements of Commission regulations Sec. 23.504(b)(2) and (4).
For the avoidance of doubt the Commission notes that the foregoing
comparability determination only applies with regard to two provisions
of Sec. 23.504 (i.e., Sec. 23.504(b)(2) and (4)). No comparability
finding is made regarding the other provisions of Sec. 23.504, namely
Sec. 23.504(a)(2) and (c)(2), that SDs and MSPs establish policies and
procedures, approved in writing by senior management of the SD or MSP,
reasonably designed to ensure that they have entered into swap trading
relationship documentation with each counterparty prior to or
contemporaneously with entering into a swap transaction with such
counterparty.\67\
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\67\ See Commission regulation 23.504(a)(2), 17 CFR
23.504(c)(2).
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Moreover, the foregoing comparability determination does not extend
to the requirement that such documentation include terms addressing
payment obligations, netting of payments, events of default or other
termination events, calculation and netting of obligations upon
termination, transfer of rights and obligations, governing law, dispute
resolution, and credit support arrangements, as well as notice of the
status of the counterparty under the orderly liquidation procedures of
Title II of the Dodd-Frank Act, and the effect of clearing on swaps
executed bilaterally.\68\ Nor does this determination relieve an SD or
MSP from the documentation audit and recordkeeping requirements under
Sec. 23.504(c) and (d).
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\68\ See Sec. 23.504(b)(1), (3), (5), and (6).
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D. Daily Trading Records (Sec. 23.202)
Commission Requirement: Section 4s(g)(1) of the CEA and Commission
regulation 23.202 generally require that SDs and MSPs retain daily
trading records for swaps and related cash and forward transactions,
including:
Documents on which transaction information is originally
recorded;
All information necessary to conduct a comprehensive and
accurate trade reconstruction;
Pre-execution trade information including records of all
oral and written communications concerning quotes, solicitations, bids,
offers, instructions, trading, and prices that lead to the execution of
a swap or related cash and forward transactions, whether communicated
by phone, fax, instant messaging, chat rooms, email, mobile device, or
other digital or electronic media;
Reliable timing date for the initiation of a trade;
A record of the time, to the nearest minute using
Coordinated Universal Time (UTC), of each quotation provided or
received prior to trade execution;
Execution trade information including the terms of each
swap and related cash or forward transaction, terms regarding payment
or settlement, initial and variation margin requirements, option
premiums, and other cash flows;
The trade ticket for each swap and related cash or forward
transaction;
The date and time of execution of each swap and related
cash or forward transaction to the nearest minute using UTC;
The identity of the counterparty and the date and title of
the agreement to which each swap is subject, including any swap trading
relationship documentation and credit support arrangements;
The product name and identifier, the price at which the
swap was executed, and the fees, commissions and other expenses
applicable;
Post-execution trade information including records of
confirmation, termination, novation, amendment, assignment, netting,
compression, reconciliation, valuation, margining, collateralization,
and central clearing;
The time of confirmation to the nearest minute using UTC;
Ledgers of payments and interest received, moneys borrowed
and loaned, daily swap valuations, and daily calculation of current and
potential future exposure for each counterparty;
Daily calculation of initial and variation margin
requirements;
Daily calculation of the value of collateral, including
haircuts;
Transfers of collateral, including substitutions, and the
types of collateral transferred; and
Credits and debits for each counterparty's account.
Daily trading records must be maintained in a form and manner
identifiable and searchable by transaction and counterparty, and
records of swaps must be maintained for the duration of the swap plus
five years, and voice recordings for one year. Records must be
``readily accessible'' for the first two years of the five year
retention period (consistent with Sec. 1.31).
Regulatory Objective: Through Sec. 23.202, the Commission seeks to
ensure that an SD's or MSP's records include all information necessary
to conduct a comprehensive and accurate trade reconstruction for each
swap, which necessarily requires the records to be identifiable by
transaction and
[[Page 78888]]
counterparty. Complete and accurate trade reconstruction is critical
for both regulatory oversight and investigations of illegal activity
pursuant to the Commission's enforcement authority. The Commission
believes that a comprehensive and accurate trade reconstruction
requires records of pre-execution, execution, and post-execution trade
information.
Comparable EU Law and Regulations: The applicant has represented to
the Commission that the following provisions of law and regulations
applicable in the EU are in full force and effect in the EU, and
comparable to and as comprehensive as section 4s(g) of the CEA and
Commission regulation 23.202.
MiFID Article 13.6 and MiFID L2D Articles 5.1.f and 51: Firms are
required to maintain records of all services and transactions
undertaken by the firm that are sufficient to enable regulator
authorities to monitor compliance with MiFID and to ascertain whether
the firm has complied with all obligations with respect to clients or
potential clients.
Firms are required to keep detailed records in relation to every
client order and decision to deal, and every client order executed or
transmitted.
All required records must be retained in a medium available for
future reference by the regulator, and in a form/manner that:
Allows the regulator to access them readily and
reconstitute each key stage of processing each transaction;
Allows corrections or other amendments, and the contents
of the records prior to such corrections or amendments, to be easily
ascertained; and
Ensures that records are not manipulated or altered.
MiFID Article 25(2): Firms must keep at the disposal of the
regulator, for at least five years, the relevant data relating to all
transactions in financial instruments which they have carried out,
whether on their own account or on behalf of a client.
MiFID L2R Articles 9 to 16: Requires transaction reporting in order
to provide the competent authorities with the necessary information to
conduct proper market surveillance.
Investment firms are required to report details of all executed
transactions in any financial instruments admitted to trading on a
Regulated Market to the competent authority as quickly as possible and
no later than the close of the following working day.
The content of the transaction report is specified in L2 measures
(MiFID L2R Article 13).
The reporting obligation lies with investment firms. In a case
where all the required information with respect to derivatives
transactions has been transmitted to a TR that transmits this
information onwards to the competent authority the obligation on the
investment firm to report will be waived.
Commission Determination: The Commission finds that compliance with
MiFID would enable the relevant competent authority to conduct a
comprehensive and accurate trade reconstruction for each swap, which
the Commission finds generally meets the regulatory objective of Sec.
23.202. However, the request did not provide any basis on which the
Commission could determine that MiFID or EMIR are comparable to and as
comprehensive as Sec. 23.202(a)(1) or regulation 23.202(b)(1), which
require records of oral communications to be maintained for swap
transactions and related cash and forward transactions, respectively,
including telephone, voicemail, and mobile device recordings.\69\
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\69\ In the EU's request for a comparability determination
proposed regulations concerning the recording of oral communications
were submitted. These requirements are currently under negotiation.
The Commission may reconsider the EU's request when and if the
proposal is enacted.
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Based on the foregoing and the representations of the applicant,
the Commission hereby determines that the daily trading records
requirements of MiFID are comparable to and as comprehensive as Sec.
23.202, excepting Sec. 23.202(a)(1) and (b)(1). This determination is
limited to the content of the recordkeeping requirements of Sec.
23.202 (excepting subsections (a)(1) and (b)(1)) and does not extend to
the requirement that the Commission and any U.S. prudential regulator
of an SD or MSP have direct access to such records.\70\
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\70\ Unless the records required by MiFID are available to the
Commission and any U.S. prudential regulator under the foreign legal
regime, it would be impossible to meet the regulatory objective of
Sec. 23.202. As stated in the Guidance, the ability to rely on a
substituted compliance regime is dependent on direct access to the
books and records of a registrant. This is the case with respect to
any Transaction-Level Requirement, and not only the daily trading
records required by Sec. 23.202. See 78 FR 45344-45.
Issued in Washington, DC, on December 20, 2013, by the
Commission.
Christopher J. Kirkpatrick,
Deputy Secretary of the Commission.
Appendices to Comparability Determination for the European Union:
Certain Transaction-Level Requirements
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--Joint Statement of Chairman Gary Gensler and Commissioners
Bart Chilton and Mark Wetjen
We support the Commission's approval of broad comparability
determinations that will be used for substituted compliance
purposes. For each of the six jurisdictions that has registered swap
dealers, we carefully reviewed each regulatory provision of the
foreign jurisdictions submitted to us and compared the provision's
intended outcome to the Commission's own regulatory objectives. The
resulting comparability determinations for entity-level requirements
permit non-U.S. swap dealers to comply with regulations in their
home jurisdiction as a substitute for compliance with the relevant
Commission regulations.
These determinations reflect the Commission's commitment to
coordinating our efforts to bring transparency to the swaps market
and reduce its risks to the public. The comparability findings for
the entity-level requirements are a testament to the comparability
of these regulatory systems as we work together in building a strong
international regulatory framework.
In addition, we are pleased that the Commission was able to find
comparability with respect to swap-specific transaction-level
requirements in the European Union and Japan.
The Commission attained this benchmark by working cooperatively
with authorities in Australia, Canada, the European Union, Hong
Kong, Japan, and Switzerland to reach mutual agreement. The
Commission looks forward to continuing to collaborate with both
foreign authorities and market participants to build on this
progress in the months and years ahead.
Appendix 3--Statement of Dissent by Commissioner Scott D. O'Malia
I respectfully dissent from the Commodity Futures Trading
Commission's (``Commission'') approval of the Notices of
Comparability Determinations for Certain Requirements under the laws
of Australia, Canada, the European Union, Hong Kong, Japan, and
Switzerland (collectively, ``Notices''). While I support the narrow
comparability determinations that the Commission has made, moving
forward, the Commission must collaborate with foreign regulators to
harmonize our respective regimes consistent with the G-20 reforms.
[[Page 78889]]
However, I cannot support the Notices because they: (1) are
based on the legally unsound cross-border guidance
(``Guidance'');\1\ (2) are the result of a flawed substituted
compliance process; and (3) fail to provide a clear path moving
forward. If the Commission's objective for substituted compliance is
to develop a narrow rule-by-rule approach that leaves unanswered
major regulatory gaps between our regulatory framework and foreign
jurisdictions, then I believe that the Commission has successfully
achieved its goal today.
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\1\ Interpretive Guidance and Policy Statement Regarding
Compliance with Certain Swap Regulations, 78 FR 45292 (Jul. 26,
2013).
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Determinations Based on Legally Unsound Guidance
As I previously stated in my dissent, the Guidance fails to
articulate a valid statutory foundation for its overbroad scope and
inconsistently applies the statute to different activities.\2\ Section
2(i) of the Commodity Exchange Act (``CEA'') states that the Commission
does not have jurisdiction over foreign activities unless ``those
activities have a direct and significant connection with activities in,
or effect on, commerce of the United States . . .'' \3\ However, the
Commission never properly articulated how and when this limiting
standard on the Commission's extraterritorial reach is met, which would
trigger the application of Title VII of the Dodd-Frank Act \4\ and any
Commission regulations promulgated thereunder to swap activities that
are outside of the United States. Given this statutorily unsound
interpretation of the Commission's extraterritorial authority, the
Commission often applies CEA section 2(i) inconsistently and
arbitrarily to foreign activities.
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\2\ http://www.cftc.gov/PressRoom/SpeechesTestimony/omaliastatement071213b.
\3\ CEA section 2(i); 7 U.S.C. 2(i).
\4\ Title VII of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law 111-203, 124 Stat. 1376 (2010).
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Accordingly, because the Commission is relying on the legally
deficient Guidance to make its substituted compliance determinations,
and for the reasons discussed below, I cannot support the Notices. The
Commission should have collaborated with foreign regulators to agree on
and implement a workable regime of substituted compliance, and then
should have made determinations pursuant to that regime.
Flawed Substituted Compliance Process
Substituted compliance should not be a case of picking a set of
foreign rules identical to our rules, determining them to be
``comparable,'' but then making no determination regarding rules that
require extensive gap analysis to assess to what extent each
jurisdiction is, or is not, comparable based on overall outcomes of the
regulatory regimes. While I support the narrow comparability
determinations that the Commission has made, I am concerned that in a
rush to provide some relief, the Commission has made substituted
compliance determinations that only afford narrow relief and fail to
address major regulatory gaps between our domestic regulatory framework
and foreign jurisdictions. I will address a few examples below.
First, earlier this year, the OTC Derivatives Regulators Group
(``ODRG'') agreed to a number of substantive understandings to improve
the cross-border implementation of over-the-counter derivatives
reforms.\5\ The ODRG specifically agreed that a flexible, outcomes-
based approach, based on a broad category-by-category basis, should
form the basis of comparability determinations.\6\
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\5\ http://www.cftc.gov/PressRoom/PressReleases/pr6678-13.
\6\ http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/odrgreport.pdf. The ODRG agreed to six understandings.
Understanding number 2 states that ``[a] flexible, outcomes-based
approach should form the basis of final assessments regarding
equivalence or substituted compliance.''
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However, instead of following this approach, the Commission has
made its comparability determinations on a rule-by-rule basis. For
example, in Japan's Comparability Determination for Transaction-Level
Requirements, the Commission has made a positive comparability
determination for some of the detailed requirements under the swap
trading relationship documentation provisions, but not for other
requirements.\7\ This detailed approach clearly contravenes the ODRG's
understanding.
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\7\ The Commission made a positive comparability determination
for Commission regulations 23.504(a)(2), (b)(1), (b)(2), (b)(3),
(b)(4), (c), and (d), but not for Commission regulations
23.504(b)(5) and (b)(6).
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Second, in several areas, the Commission has declined to consider a
request for a comparability determination, and has also failed to
provide an analysis regarding the extent to which the other
jurisdiction is, or is not, comparable. For example, the Commission has
declined to address or provide any clarity regarding the European
Union's regulatory data reporting determination, even though the
European Union's reporting regime is set to begin on February 12, 2014.
Although the Commission has provided some limited relief with respect
to regulatory data reporting, the lack of clarity creates unnecessary
uncertainty, especially when the European Union's reporting regime is
set to begin in less than two months.
Similarly, Japan receives no consideration for its mandatory
clearing requirement, even though the Commission considers Japan's
legal framework to be comparable to the U.S. framework. While the
Commission has declined to provide even a partial comparability
determination, at least in this instance the Commission has provided a
reason: the differences in the scope of entities and products subject
to the clearing requirement.\8\ Such treatment creates uncertainty and
is contrary to increased global harmonization efforts.
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\8\ Yen-denominated interest rate swaps are subject to the
mandatory clearing requirement in both the U.S. and Japan.
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Third, in the Commission's rush to meet the artificial deadline of
December 21, 2013, as established in the Exemptive Order Regarding
Compliance with Certain Swap Regulations (``Exemptive Order''),\9\ the
Commission failed to complete an important piece of the cross-border
regime, namely, supervisory memoranda of understanding (``MOUs'')
between the Commission and fellow regulators.
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\9\ Exemptive Order Regarding Compliance With Certain Swap
Regulations, 78 FR 43785 (Jul. 22, 2013).
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I have previously stated that these MOUs, if done right, can be a
key part of the global harmonization effort because they provide
mutually agreed-upon solutions for differences in regulatory
regimes.\10\ Accordingly, I stated that the Commission should be able
to review MOUs alongside the respective comparability determinations
and vote on them at the same time. Without these MOUs, our fellow
regulators are left wondering whether and how any differences, such as
direct access to books and records, will be resolved.
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\10\ http://www.cftc.gov/PressRoom/SpeechesTestimony/opaomalia-29.
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Finally, as I have consistently maintained, the substituted
compliance process should allow other regulatory bodies to engage with
the full Commission.\11\ While I am pleased that the Notices are being
voted on by the Commission, the full Commission only gained access to
the comment letters from foreign regulators on the Commission's
comparability determination draft proposals a few days ago. This is
hardly a transparent process.
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\11\ http://www.cftc.gov/PressRoom/SpeechesTestimony/omaliastatement071213b.
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Unclear Path Forward
Looking forward to next steps, the Commission must provide answers
to
[[Page 78890]]
several outstanding questions regarding these comparability
determinations. In doing so, the Commission must collaborate with
foreign regulators to increase global harmonization.
First, there is uncertainty surrounding the timing and outcome of
the MOUs. Critical questions regarding information sharing,
cooperation, supervision, and enforcement will remain unanswered until
the Commission and our fellow regulators execute these MOUs.
Second, the Commission has issued time-limited no-action relief for
the swap data repository reporting requirements. These comparability
determinations will be done as separate notices. However, the timing
and process for these determinations remain uncertain.
Third, the Commission has failed to provide clarity on the process
for addressing the comparability determinations that it declined to
undertake at this time. The Notices only state that the Commission may
address these requests in a separate notice at a later date given
further developments in the law and regulations of other jurisdictions.
To promote certainty in the financial markets, the Commission must
provide a clear path forward for market participants and foreign
regulators.
The following steps would be a better approach: (1) the Commission
should extend the Exemptive Order to allow foreign regulators to
further implement their regulatory regimes and coordinate with them to
implement a harmonized substituted compliance process; (2) the
Commission should implement a flexible, outcomes-based approach to the
substituted compliance process and apply it similarly to all
jurisdictions; and (3) the Commission should work closely with our
fellow regulators to expeditiously implement MOUs that resolve
regulatory differences and address regulatory oversight issues.
Conclusion
While I support the narrow comparability determinations that the
Commission has made, it was my hope that the Commission would work with
foreign regulators to implement a substituted compliance process that
would increase the global harmonization effort. I am disappointed that
the Commission has failed to implement such a process.
I do believe that in the longer term, the swaps regulations of the
major jurisdictions will converge. At this time, however, the
Commission's comparability determinations have done little to alleviate
the burden of regulatory uncertainty and duplicative compliance with
both U.S. and foreign regulations.
The G-20 process delineated and put in place the swaps market
reforms in G-20 member nations. It is then no surprise that the
Commission must learn to coordinate with foreign regulators to minimize
confusion and disruption in bringing much needed clarity to the swaps
market. For all these shortcomings, I respectfully dissent from the
Commission's approval of the Notices.
[FR Doc. 2013-30981 Filed 12-26-13; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: December 27, 2013