My View: Coordinating with Foreign Regulators -- It's not Optional; it's the Law!

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Published Date : June 07, 2013

Gary Gensler, Chairman of the of the CFTC, appears to imply that when July 12 comes and go, the CFTC unilaterally among the G-20 jurisdictions will institute final guidance on cross border swaps. For this he has been roundly criticized both by industry groups (see SIFMA response below to the Chairman's latest statements regarding such cross border transactions on June 6, 2013 at the annual Sandler O'Neill international exchange forum), as well as his international regulatory colleagues. On 28 May 2013 the European Commission formally implored the Chairman to delay the CFTC"s issuance of final guidance, while yesterday (June 6) an industry consortium composed of the Futures Industry Association, SIFMA and ISDA, among others, also formally asked Chairman Gensler in writing to extend the relief currently in place under the Commission's  December 21, 2012 Final Exemptive Order Regarding Compliance With Certain Swap Regulations.  Apparently, even three of the Chairman's colleagues at the CFTC are concerned about the impact of not delaying the guidance (eg, see statement below of Commissioner Scott O'Malia also issued on June 6).

In justifying his inclination to move unilaterally, the Chairman often cites Sec 722 of Title VII that states:

"The provisions of this Act relating to swaps that were enacted by the Wall Street Transparency and Account- ability Act of 2010 (including any rule prescribed or regulation promulgated under that Act), shall not apply to activities outside the United States unless those activities—

(1) have a direct and significant connection with activities in, or effect on, commerce of the United States."

This provision simply says the provisions of Dodd Frank and CFTC rules will not apply under limited circumstances. No one disputes this. However, Section 752 of Title VII provides far more relevant and specific guidance that the Chairman does not cite so often:

"In order to promote effective and consistent global regulation of swaps and security-based swaps, the Commodity Futures Trading Commission... as appropriate, shall consult and coordinate with foreign regulatory authorities on the establishment of consistent international standards with respect to the regulation (including fees) of swaps, security-based swaps, swap entities, and security-based swap entities and may agree to such information-sharing arrangements as may be deemed to be necessary or appropriate in the public interest or for the protection of investors, swap counterparties, and security-based swap counterparties."

(Emphasis added.)

Although there is little doubt about the Chairman's sincerity and commitment to ensure that OTC transactions whether transacted domestically or abroad do not ever again cause bailouts by US taxpayers, the plain language of Title VII requires coordination with foreign regulators to ensure that all the objectives of the G-20 made in Pittsburgh, Pennsylvania in September 2009 are rationally instituted. The CFTC can't go at it alone.

Accordingly, in order to coordinate with international regulators, as they have requested, the CFTC should as soon as practical grant a six month extension to the Final Exemptive Order. To me this is not a choice, this is the law.

For more information, see:

See also industry request for postponement:

The information contained in this article is not legal advice. For legal advice, please consult with your attorney. The information in this article is derived from sources believed to be reliable as of June 7, 2013, but no representation or warranty is made regarding the accuracy of any statement. To ensure compliance with requirements imposed by U.S. Treasury Regulations, Gary DeWaal and Associates LLC informs you that any U.S. tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Gary DeWaal and Associates may represent one or more entities mentioned in this article.

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