Daily Rules, Proposed Rules, and Notices of the Federal Government
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This release is the Commission's initial response to the order of the United States District Court for the District of Columbia in
Real-Time Public Reporting of Swap Transactions Data
Swap Data Recordkeeping and Reporting Requirements
Registration of Swap Dealers and Major Swap Participants
Swap Dealer and Major Swap Participant Recordkeeping, Reporting, and Duties Rules; Futures Commission Merchant and Introducing Broker Conflict of Interest Rules; and Chief Compliance Officer Rules for Swap Dealers, Major Swap Participants, and Futures Commission Merchants
Further Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” “Major Security-Based Swap Participant,” and “Eligible Contract Participant”
Swap Data Recordkeeping and Reporting Requirements: Pre-Enactment and Transition Swaps
Confirmations, Portfolio Reconciliation, Portfolio Compression, and Swap Trading Relationship Documentation Requirements for Swap Dealers and Major Swap Participants
Core Principles and Other Requirements for Swap Execution Facilities
The court directed the Commission to address explicitly whether the costs and benefits the Commission identified in those rulemakings apply to activities outside the United States, and to address any differences that may exist. In this release, the Commission takes two actions:
On December 4, 2013, three trade associations sued the Commission in the United States District Court for the District of Columbia, challenging, on various grounds, the Commission's Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations
The court summarized the case by observing,
The majority of plaintiffs' claims fail because Congress has clearly indicated that the swaps provisions within Title VII of the Dodd-Frank Act—including any rules or regulations prescribed by the CFTC—apply extraterritorially whenever the jurisdictional nexus in 7 U.S.C. 2(i) is satisfied. In this regard, plaintiffs' challenges to the extraterritorial application of the Title VII Rules merely seek to delay the inevitable.
1. The Commission's Cross-Border Guidance is not subject to judicial review because it is in part a non-binding general statement of policy and in part an interpretive rule, neither of which is subject to judicial review under the Administrative Procedure Act.
2. Section 2(i) of the CEA is a self-effectuating provision that makes Commission swaps rules apply to business activities outside the United States to the extent they meet the test set forth in the statutory language.
Section 2(i)(2), regarding anti-evasion rules, was not at issue in the
3. Because Congress determined that the Commission's swaps rules apply to certain overseas activities and established the test for determining when the rules would apply to those activities, the Commission was not tasked with reconsidering the costs and benefits of those legislative decisions.
4. Because section 2(i) establishes the extraterritorial scope of the Commission's swaps rules, the Commission can enforce those rules overseas relying on that provision. However, to the extent that it may be useful to develop a more refined interpretation of how section 2(i) applies in particular circumstances, the Commission has discretion to address
Based on these principles, the court held that the rules challenged by the plaintiffs apply to swaps activities outside the United States to the extent specified by section 2(i).
On the other hand, the court further held that, in the preambles for ten of the challenged rules, promulgated as part of eight rulemakings,
The district court remanded the eight rulemakings “for further proceedings consistent with the Opinion issued this same day.”
1. The court held that, because Congress made the determination that the swaps rules apply overseas to the extent specified in section 2(i), CEA section 15(a) does not require the Commission to consider whether it is necessary or desirable for particular rules to apply to overseas activities as specified in section 2(i).
2. At the same time, the court held that, in considering costs and benefits of the substantive regulatory choices it makes when promulgating a swaps rule, the Commission is required to take into consideration the fact that the rule, by statute, will apply to certain overseas activity.
3. The court held that the Commission has discretion either to consider costs and benefits of the international application of swaps rules separately from domestic application or to evaluate them together, “so long as the cost-benefit analysis makes clear that the CFTC reasonably considered both.”
4. Finally, the court noted that “[p]laintiffs raise no complaints regarding the CFTC's evaluation of the general, often unquantifiable, benefits and costs of the domestic application of the Title VII Rules.”
The Commission hereby clarifies that it considered costs and benefits based on the understanding that the swaps market functions internationally, with many transactions involving U.S. firms taking place across international boundaries; with leading industry members typically conducting operations both within and outside the United States; and with industry members commonly following substantially similar business practices wherever located. The Commission considered all evidence in the record, and in the absence of evidence indicating differences in costs and benefits between foreign and domestic swaps activities, the Commission did not find occasion to characterize explicitly the identified costs and benefits as foreign or domestic. Thus, where the Commission did not specifically refer to matters of location, its discussion of costs and benefits referred to the effects of its rules on all business activity subject to its regulations, whether by virtue of the activity's physical location in the United States or by virtue of the activity's connection with or effect on U.S. commerce under section 2(i).
As noted above, the district court stated that, on remand, the Commission “would only need to make explicit” which of the costs and benefits identified in the rule preambles “similarly apply to the Rules' extraterritorial applications.”
1. Are there any benefits or costs that the Commission identified in any of the rule preambles that do not apply, or apply to a different extent, to the relevant rule's extraterritorial applications?
2. Are there any costs or benefits that are unique to one or more of the rules' extraterritorial applications? If so, please specify how.
3. Put another way, are the types of costs and benefits that arise from the extraterritorial application of any of the rules different from those that arise from the domestic application? If so, how and to what extent?
4. If significant differences exist in the costs and benefits of the extraterritorial and domestic application of one or more of the rules, what are the implications of those differences for the substantive requirements of the rule or rules?
Comments should specify, in the header of the comment, the particular rule or rules that they address. The Commission requests that comments focus on information and analysis specifically relevant to the inquiry specified by the district court's remand order. Consistent with the district court's holding that the Commission is not required to address the issue of what the geographical scope of its rules should be in the challenged rulemakings,
The following appendix will not appear in the Code of Federal Regulations.
On this matter, Chairman Massad and Commissioners Wetjen, Bowen, and Giancarlo voted in the affirmative. No Commissioner voted in the negative.