Statement of Chairman Timothy Massad on Proposed Rule Regarding the Application of Certain Swap Provisions in Cross-Border Transactions

October 11, 2016

I am pleased to support this proposal, which addresses several important aspects of the cross-border application of our swaps rules.

First, it seeks to enhance clarity and consistency in the application of our rules by proposing to define certain key terms, including the terms “U.S. person” and “Foreign Consolidated Subsidiary” (FCS), consistent with how they are defined in the Commission’s cross-border margin rule.

Second, the proposal provides a clear standard for determining whether a swap dealing transaction should be included in an entity’s calculation of whether it must register as a swap dealer. The proposal states that for U.S. persons, as well as those non-U.S. persons whose swaps are guaranteed by a U.S. person or that are a financially consolidated subsidiary of a U.S. ultimate parent (FCS), all swap dealing transactions must be included. All other persons would include swap dealing transactions with counterparties that are U.S. persons or FCSs, as well as swaps that have a U.S. guarantee, unless the swap is executed anonymously on a registered platform and cleared. The Proposed Rule provides a similar counting framework for the major swap participant registration threshold.

We are also proposing the application of external business conduct (EBC) standards for cross-border transactions, including those transactions that are arranged, negotiated, or executed by personnel in the U.S. Specifically, U.S. swap dealers would be required to comply with applicable standards, with the exception of their foreign branches. Non-U.S. swap dealers and foreign branches of U.S. swap dealers would be required to comply with applicable EBC standards for transactions with a U.S. counterparty—

other than the foreign branch of a U.S. entity. For all other transactions, these dealers would not be subject to EBC standards, unless they use personnel located in the United States to arrange, negotiate, or execute such transactions. In that case, they would be required to comply with those EBC standards prohibiting fraud and other abusive conduct.

This aspect of our proposal follows up on a staff advisory and a Commission request for comment relating to non-U.S. swap dealers using personnel located in the United States to arrange, negotiate, or execute swap transactions. We will address whether other requirements should apply to such transactions at a later date.

This is just the latest in a number of steps we have taken to address cross-border issues in swaps rules. We have harmonized clearinghouse regulation through our accord with the European Commission—as well as through our work to address recovery and resolution internationally. We have given exemptions from registration to several foreign clearinghouses, and granted “foreign board of trade” status to several exchanges. We are actively working on harmonizing data reporting standards, and we are looking at whether we can do the same regarding trading requirements. And we harmonized requirements on margin for uncleared swaps, adopted a cross-border approach to that rule, and recently issued our first comparability determination for margin.

I wish to express my appreciation for the hard work of the CFTC staff in putting together these important rules. I thank Commissioner Bowen and Giancarlo for their support. And I encourage market participants to give us their comments on this proposed rule.

Last Updated: October 11, 2016