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International Aspects of Capital Market Regulation
Cross-border Application and Scope: Treasury recommends that the CFTC and the SEC provide clarity around the cross-border scope of their regulations and make their rules compatible with non-U.S. jurisdictions where possible to avoid market fragmentation, redundancies, undue complexity, and conflicts of law. Examples of areas that merit reconsideration include:
- whether swap counterparties, trading platforms, and CCPs in jurisdictions compliant with international standards should be required to register with the CFTC or the SEC as a result of doing business with a U.S. firm’s foreign branch or affiliate;
- whether swap dealer registration should apply to a U.S. firm’s non-U.S. affiliate on the basis of trading with non-U.S. counterparties if the U.S. firm’s non-U.S. affiliate is effectively regulated as part of an appropriately robust regulatory regime or otherwise subject to Basel-compliant capital standards, regardless of whether the affiliate is guaranteed by its U.S. parent;
- whether U.S. firms’ foreign branches and affiliates, guaranteed or not, should be subject to Title VII’s mandatory clearing, mandatory trading, margin, or reporting rules when they trade with non-U.S. firms in jurisdictions compliant with international standards; and
- providing alternative ways for regulated entities to comply with requirements that may conflict with local privacy, blocking, and secrecy laws.
Substituted Compliance: Treasury recommends that effective cross-border cooperation include meaningful substituted compliance programs to minimize redundancies and conflicts.
- The CFTC and SEC should be judicious when applying their swaps rules to activities outside the United States and should permit entities, to the maximum extent practicable, to comply with comparable non-U.S. derivatives regulations, in lieu of complying with U.S. regulations.
- The CFTC and the SEC should adopt substituted compliance regimes that consider the rules of other jurisdictions, in an outcomes-based approach, in their entirety, rather than relying on rule-by-rule analysis. They should work toward achieving timely recognition of their regimes by non-U.S. regulatory authorities.
- The CFTC should undertake truly outcomes-based comparability determinations, using either a category-by-category comparison or a comparison of the CFTC regime to the foreign regime as a whole.
- Meaningful substituted compliance could also include consideration of recognition regimes for non-U.S. CCPs clearing derivatives for certain U.S. persons and for non-U.S. platforms for swaps trading.
ANE Transactions: Treasury recommends that the CFTC and the SEC reconsider any U.S. personnel test for applying the transaction-level requirements of their swaps rules.
- The CFTC should provide certainty to market participants regarding the guidance in the CFTC arrange, negotiate, execute (ANE) staff advisory (CFTC Letter No. 13-69), which has been subject to extended no-action relief, either by retracting the advisory or proceeding with a rulemaking.
- In particular, the CFTC and the SEC should reconsider the implications of applying their Title VII rules to transactions between non-U.S. firms or between a non-U.S. firm and a foreign branch or affiliate of a U.S. firm merely on the basis that U.S.-located personnel arrange, negotiate, or execute the swap, especially for entities in comparably regulated jurisdictions.
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