December 21, 2012

CFTC Approves Exemptive Order on Cross-Border Application of the Swaps Provisions of Dodd-Frank

Washington, DC – The Commodity Futures Trading Commission (Commission) today approved an exemptive order providing time-limited relief from certain cross-border applications 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 purpose of the order is to foster an orderly phase in to the new swaps regulatory regime and to provide market participants greater certainty regarding their obligations with respect to cross-border swap activities. Under the exemptive order, a non-U.S. person that registers with the Commission as a swap dealer (SD) or major swap participant (MSP) may delay compliance with certain entity-level requirements adopted under the Dodd-Frank Act, and non-U.S. SDs and MSPs and foreign branches of U.S. SDs and MSPs may delay compliance with certain transaction-level requirements adopted under the Dodd-Frank Act (subject to specified conditions). The order also includes a definition of the term “U.S. person” which will apply for purposes of the order. The vote was conducted via seriatim, which was approved 4 to 1, with Chairman Gensler and Commissioners Chilton, O’Malia and Wetjen voting in favor and Commissioner Sommers voting against. The exemptive order expires on July 12, 2013.

The definition of the term “U.S. person” for purposes of the order is largely similar to criteria set out in a no-action letter from Commission staff issued on October 12, 2012, with modifications in response to comments received and the inclusion of certain entities with a principal place of business in the United States on a phased-in basis. The order provides that a non-U.S. person (regardless of whether the non-U.S. persons’ swap obligations are guaranteed by U.S. persons) does not need to include in its calculation of the aggregate gross notional amount of swaps connected with its swap dealing activity or in its calculation of whether it is an MSP, any swap where the counterparty is a non-U.S. person, or any swap where the counterparty is a foreign branch of a U.S. person that is registered (or intends to register) as an SD.

The order also provides relief from the requirement that a person include, in determining whether its swap dealing activities exceed the de minimis threshold, the aggregate notional value of swap dealing transactions entered by its affiliates under common control. Under the order, a non-U.S. person that is currently engaged in swap dealing activities with U.S. persons is not required to include, in its determination of whether it exceeds the de minimis threshold, the swap dealing transactions of any of its U.S. affiliates. Also, if the non-U.S. person is an affiliate of a person that is registered as an SD, it is not required to include the swap dealing transactions of any of its non-U.S. affiliates, so long as each such excluded affiliate is either currently engaged in swap dealing activities with U.S. persons or registered as an SD.

The order permits non-U.S. SDs and MSPs to delay compliance with certain entity-level requirements under the Dodd-Frank Act until expiration of the order.

With respect to certain transaction-level requirements under the Dodd-Frank Act, non-U.S. SDs, non-U.S. MSPs, and foreign branches of U.S. SDs or U.S. MSPs, may, until the order expires, comply with the transaction-level requirements of their local jurisdiction for swaps with non-U.S. counterparties, provided that they comply with all transaction-level requirements under the Dodd-Frank Act for swaps with U.S. counterparties.

The Commission also approved solicitation of further comments on cross-border issues related to the aggregation requirement in the swap dealer determination, the definition of U.S. person, and foreign branches. The comment period for these issues will be open for 30 days after publication in the Federal Register.

Last Updated: December 21, 2012