CFTC Cross-Border Jurisdiction and Comparability Determinations: CFTC Issues Substituted Compliance Comparability Determinations and Takes Other Actions Regarding the Cross-Border Applicability of Dodd-Frank Title VII

Sullivan & Cromwell LLP - January 7, 2014

The Commodity Futures Trading Commission (“CFTC”) has recently taken a number of actions related to the cross-border applicability of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). On December 20, 2013, the Commodity Futures Trading Commission (the “CFTC”) issued a series of comparability determinations to provide for substituted compliance, with respect to certain CFTC swaps rules, with the regulatory schemes of six jurisdictions. The comparability determinations coincided with the expiration of the CFTC’s previously issued cross-border exemptive order, which had delayed compliance with various CFTC swaps rules through December 21, 2013 for non-U.S. swap dealers, major swap participants and certain non-U.S. branches of U.S. swap dealers. The comparability determinations will permit substituted compliance with respect to several entity-level requirements by swap dealers in Australia, Canada, the European Union (“EU”), Hong Kong, Japan and Switzerland, and for selected transaction-level requirements in the EU and Japan. Notably, the comparability determinations do not address CFTC requirements related to reporting swap transactions to a swap data repository (“SDR”) (which the CFTC addressed separately through no-action relief), the CFTC’s requirement that certain trades must be executed on a designated contract market (“DCM”) or swap execution facility (“SEF”), or the CFTC’s requirement that certain swaps must be cleared. CFTC staff also issued limited no-action relief for non-U.S. swap dealers and major swap participants with respect to certain CFTC swaps rules that are outside the scope of the comparability determinations. In addition, the staff recently issued an advisory providing guidance on the applicability of its cross-border jurisdiction to transactions with non-U.S. counterparties by U.S.-based employees of non-U.S. swap dealers. That guidance, in conjunction with prior CFTC action related to the cross-border applicability of its swaps rules, produced strong adverse reactions from many non-U.S. swap dealers, regulators, and trade associations and has resulted in litigation challenging the entirety of the CFTC’s guidance on the cross-border applicability of its swaps rules. On January 3, 2014, the CFTC issued a request for comment on the staff advisory, and CFTC staff issued a related no-action letter applicable to non-U.S. swap dealers that will delay compliance with the majority of the provisions of the advisory until September 15, 2014.