CFTC Proposes Rules on Cross-Border Application of Swap Provisions: CFTC Proposes Rules on the Cross-Border Application of Certain Aspects of Its Dodd-Frank Swaps Rules, Including Registration Thresholds and External Business Conduct Standards for Swap Dealers and Major Swap Participants

Sullivan & Cromwell LLP - October 19, 2016

On October 11, 2016, the Commodity Futures Trading Commission (the “CFTC” or “Commission”) voted unanimously to propose rules and interpretations (together, the “Proposal”) addressing the cross-border application of certain swaps provisions of the Commodity Exchange Act (the “CEA”), as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank” or the “Dodd-Frank Act”), and Commission regulations thereunder.  The Proposal is specifically addressed to “cross-border” swap transactions and/or positions wherein at least one counterparty is either a non-U.S. person (including affiliates of U.S. persons) or, in some instances, a foreign branch of a U.S. person.  The Proposal specifically includes proposed definitions for the terms “U.S. person” and “Foreign Consolidated Subsidiary,” as well as a proposed interpretation that would be used to determine whether a transaction involving U.S.-based personnel of a non-U.S. swap dealer was arranged, negotiated or executed in the United States (each such transaction referred to herein as an “ANE Transaction”) and should be subject to the CFTC’s transaction-level rules.  Building in part on the proposed definitions and interpretation, the Proposal also includes proposed rules that would specifically address the circumstances under and the extent to which (i) market participants must include a cross-border swap dealing transaction or swap position in their calculations of the level of activity subject to CFTC jurisdiction, for purposes of determining whether they are required to register as either a swap dealer (“SD”) or major swap participant (“MSP”), and (ii) SDs and MSPs must comply with external business conduct standards in connection with a cross-border swap.  The Proposal also indicates that the CFTC intends to use or reference the proposed definitions and interpretation in subsequent rulemakings addressing the cross-border application of other swap requirements and provisions of the Dodd-Frank Act.