Key Points:

The Australian OTC derivatives market has welcomed the US Commodity Futures Trading Commission’s (CFTC) 20 December 2013 announcement that it has approved a series of broad comparability determinations with respect to regulatory frameworks for OTC derivatives enacted in Australia, Canada, the EU, Hong Kong, Japan and Switzerland.

The determinations mean that major Australian banks who are registered as swap dealers with the CFTC (ANZ, Commonwealth Bank, Macquarie Bank, National Australia Bank and Westpac) can comply with the Australian regulatory regime for OTC derivatives in a number of areas, instead of complying with the relevant provisions of the US Dodd-Frank Act. This decision is expected to significantly reduce the Dodd-Frank compliance burden for Australian swap dealers and result in cost savings. More detailed information in relation to the substituted compliance determinations is available here.

Notwithstanding this welcome development, the Dodd-Frank Act still raises complicated cross-border issues which Australian swap dealers need to be aware of. One of the most debated is the potential application of the Dodd-Frank transaction-level requirements to swaps entered into between a non-US swap dealer (with involvement of its personnel or agents located in the United States) and another non-US person.

There has been some movement on this front with the release of a CFTC Staff Advisory on 14 November 2013. This states that a non-US swap dealer would be required to comply with the transaction-level requirements for transactions "arranged, executed or negotiated by personnel or agents" of non-US swap dealers located in the United States with non-US persons (Covered Transactions). Subsequent to the Staff Advisory, the Commission provided non-US swap dealers with no-action relief from certain of the transaction-level requirements for Covered Transactions until 15 September 2014.

The CFTC has opened this issue up for comment until 10 March 2014 before finalising its policy on this point. In a dissenting statement of Commissioner Scott D. O'Malia, comments are also being sought on more fundamental jurisdictional issues relating to the CFTC's cross-border final guidance and on the applicability to non-US swap dealers of transactional-level requirements generally.