June 29, 2012

CFTC Approves Proposed Interpretive Guidance on Cross-Border Application of the Swaps Provisions of the Dodd-Frank Act

Washington, DC – The Commodity Futures Trading Commission (Commission) today approved for public comment proposed interpretive guidance regarding the cross-border application of the swaps provisions of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and the Commission’s regulations. The proposed guidance interprets Section 2(i) of the Commodity Exchange Act (CEA), which states that the swaps provisions of the CEA shall not apply to activities outside the United States unless those activities have a direct and significant connection with activities in, or effect on, commerce of the United States. The vote was conducted via seriatim, which was approved by all five commissioners. The guidance will be open for public comment for 45days after publication in the Federal Register.

Under the proposed guidance, the Commission:

• Proposes an interpretation of the term “U.S. person”.
• Proposes guidance to determine: (1) whether a non-U.S. person’s swap dealing activities are sufficient to require registration as a “swap dealer”; (2) whether a non-U.S. person’s swap positions are sufficient to require registration as a “major swap participant”; and (3) the treatment for registration purposes of foreign branches, agencies, affiliates, and subsidiaries of U.S. swap dealers and of U.S. branches of non-U.S. swap dealers.
• Proposes to interpret section 2(i) of the CEA as it applies to the requirements under the Dodd-Frank Act and the Commission’s regulations by classifying requirements as entity-level or transaction-level.
• Proposes guidance to permit a non-U.S. swap dealer or non-U.S. major swap participant to comply with comparable and comprehensive foreign regulatory requirements, in order to satisfy applicable statutory and regulatory requirements under the Dodd-Frank Act.
• Generally describes a process by which a non-U.S. applicant for swap dealer or major swap participant registration may seek the Commission’s recognition of substituted compliance with a comparable and comprehensive foreign regulatory requirement and the general scope of Commission review in making the requisite comparability finding.
• Proposes to interpret the extent to which section 2(i) of the CEA applies to the clearing, trading, and certain reporting requirements under the Dodd-Frank Act with respect to swap transactions between counterparties that are not swap dealers or major swap participants.