Peace is at Hand -- EC and CFTC Announce Cross Border Accord

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Published Date : July 11, 2013

On the virtual eve of the scheduled expiration of the Cross Border Exemptive Order of the Commodity Futures Trading Commission, the CFTC and the European Commission announced this morning an accord in principle on the regulation of cross-border derivatives. In general, the accord potentially permits a great deal of substituted compliance even with transaction-based rules with guaranteed affiliates of US swap dealers, and provides a model for accords among other members of the G-20.
The highlights of this accord are as follows:

• The definition of "US person" will include hedge funds and collective investment vehicles that are majority owned by US persons or that have their principal place of business in the United States;
• For bilateral, uncleared swaps, market participants will be able to choose their choice of US or European rules where the rules are deemed equivalent. The CFTC's Division of Swap Dealer and Intermediary Oversight will issue no action relief to effectuate this;
• Where swap transactions involve a non-US swap dealer and US persons or guaranteed affiliates of US persons, or two guaranteed affiliates that are not swap dealers, compliance with transaction requirements can be satisfied through substituted compliance. Foreign branches of US swap dealers can also comply with CFTC rules through substituted compliance provided the foreign branch is bona fide and the swap is actually entered into by the branch;
• In connection with trade execution, foreign boards of trade that have received direct access no action relief previously in connection with futures and options on futures, will also be permitted to list swap contracts for direct access by US persons subject to certain conditions. The CFTC's Division of Market Oversight will issue no-actions letters to effectuate this. The Division will also issue no action relief to certain qualified EU-regulated multilateral trading facilities to permit them to offer trading in swaps at least through March 15, 2014;
• For regulatory requirements at the entity level, substituted compliance will be permitted for comparable regulations; and
• With respect to central counterparties, the CFTC's Division of Clearing and Risk will issue no action relief to ensure that designated clearing organizations/CCPs that have not yet been qualified by the CFTC are permitted to continue their business with US persons

In addition, the CFTC and EC commit to work together to coordinate approaches to straight-through processing and to harmonize rules on margins for uncleared swaps. The CFTC and EC will also work together to resolve remaining issues related  to trade repositories, such as consistent data fields, access to data and other issues related to privacy, blocking and secrecy laws.

As a result of this accord, the CFTC Open Meeting scheduled for July 12 is likely to include passage of Final Guidance encompassing this CFTC EC Accord, as well as a host of exemptive relief.

For more information, see:
http://www.cftc.gov/PressRoom/PressReleases/pr6640-13
 http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/jointdiscussionscftc_europeanu.pdf
http://europa.eu/rapid/press-release_MEMO-13-682_en.htm?locale=en--PR_metaPressRelease_bottom

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 July 11, 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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