Investment Operations

CFTC Approves Final Cross-Border Swaps Rule, Exempt SEF Amendment Order

Commodity Futures Trading Commission

The Commodity Futures Trading Commission at its open meeting last week approved a final rule on the cross-border application of certain swap provisions under the Commodity Exchange Act (CEA). This completes another principal rulemaking implementing the Dodd-Frank Act, which was enacted exactly 10 years ago. JAlso last week, the Commission approved a final rule on capital requirements for swap dealers and major swap participants, closing out all required rulemakings under Section 731 of the Act. [See CFTC Press Release No. 8210-20] The Commission also approved an Amendment Order regarding European Union trading facilities.

Final Rule: Cross-Border Application of the Registration Thresholds and Certain Requirements Applicable to Swap Dealers and Major Swap Participants

On a 3-2 vote, the Commission adopted a final rule that addresses the cross-border application of the swap dealer (SD) and major swap participant (MSP) registration thresholds and certain requirements applicable to SDs and MSPs; establishes a formal process for requesting comparability determinations for the requirements from the CFTC; and defines key terms for the purpose of applying the CEA’s swaps provisions to cross-border transactions. The final rule includes a risk-based approach that advances the goals of Title VII of Dodd-Frank’s swap reforms, while fostering greater liquidity and competitive markets, promoting enhanced regulatory cooperation, and improving the global harmonization of swap regulation. This approach also considers international comity principles and the CFTC’s interest in focusing its authority on potential significant risks to the U.S. financial system. This final rule supersedes the CFTC’s 2013 cross-border guidance with respect to the CFTC requirements covered by the final rule.

This final rule is effective 60 days after publication in the Federal Register.

Amendment Order: Exempting Certain Multilateral Trading Facilities and Organized Trading Facilities Authorized Within the European Union from the Requirement to Register with the CFTC as Swap Execution Facilities

The Commission unanimously approved an amended order that: (i) exempted sixteen additional multilateral trading facilities (MTFs) and organized trading facilities (OTFs) authorized within the European Union from the requirement to register as swap execution facilities; and (ii) clarified the application of the existing order to United Kingdom (UK) based MTFs and OTFs during the UK’s Brexit transition period.

Under the existing order, the CFTC allowed the European Commission to request that additional MTFs and OTFs, which satisfy certain legal requirements, be added to the list of MTFs and OTFs that were granted exempt SEF status under the order. Entities covered by the exemption are subject to certain continuing statutory standards and other requirements under the CEA and CFTC regulations.

CEA section 5h(g) provides that the CFTC may grant an exemption from SEF registration if it determines that a foreign facility is subject to comparable supervision and regulation by the appropriate governmental authorities in the facility’s home country. 

The amended order was effective July 23.

Additional information on this rulemaking and order, including statements by the Chairman and Commissioners, can be found here.