Gary Gensler, Chairman, CFTC
"Our job ... is to protect the American public."
Washington DC - The chairman of the Commodity Futures Trading Commission (CFTC) outlined four critical elements that must be contained in final guidance on cross-border swap activity, while one of the regulator's five commissioners made a plea for more time to consider the best way forward.
The CFTC has given temporary relief from the cross-border application of Dodd-Frank rules for the multi-trillion-dollar swap market, but that relief expires on July 12.
"The Commission's cross-border interpretation undoubtedly will have a significant effect on global markets and market participants," said Commissioner Scott O'Malia, who called for an extension of the relief from cross-border rules.
"Given all that is at stake, and given the looming July 12 deadline, it is imperative for the Commission to have a viable backup plan; failing to do so would be utterly irresponsible."
CFTC Chairman Gary Gensler, who has long called for rules under Dodd-Frank to cover a wide array of activities beyond US shores, listed the key elements that he said needed to be in the final guidance. Those were:
- Dodd-Frank must cover swaps between non-US dealers and guaranteed affiliates of "US persons" or between two guaranteed affiliates;
- The US person definition must include offshore hedge funds and vehicles that are majority-owned by US persons or have principal place of business in the United States;
- While foreign branches of US firms can use local rules, CFTC's guidance must ensure the definition of a foreign branch is bona fide and that the swap is actually entered into by that branch;
- Swap dealers - foreign or US - transacting with US persons within the United States are to comply with Dodd-Frank.
Gensler's stance has so far come under a fair amount of beyond-the-scenes criticism from foreign regulators, who believe the practice of "substituted compliance" should be observed whereby comparative local regulation would govern activity outside the United States.