Last week a US federal court mostly tossed out all legal challenges brought by three industry groups to the cross-border guidance and policy statement initially issued by the Commodity Futures Trading Commission on July 12, 2013, and made effective on July 26, 2013. This guidance sought to explain how the CFTC would apply the Dodd-Frank Act’s provisions related to swaps—Title VII—and its newly implemented swaps rules in the cross-border context.

Three industry associations had challenged the CFTC’s guidance: the Securities Industry and Financial Markets Association, the International Swaps and Derivatives Association and the Institute of International Bankers.

In ruling generally against the plaintiffs, the court adopted the CFTC’s principal argument, mainly that the provision of Title VII extending the law’s reach extraterritorially when swaps activity outside the United States has a “direct and significant connection” with US commerce stands independently “without the need for implementing regulations.” As a result, the court said,

The CFTC was not required to issue any guidance (let alone binding rule) regarding its intended enforcement policies. …Indeed, the CFTC’s decision to provide such a non-binding policy statement benefits market participants and cannot now, all other things being equal, be turned against it.

As part of its decision in favor of the plaintiffs, the court ordered the CFTC to conduct a cost-benefit analysis in connection with the extraterritorial application of many of the CFTC’s rules addressed in its cross-border guidance. However, the court suggested that this review could be cursory. The court did not require the CFTC to cease applying any of its swaps rules extraterritorially in the interim.

(Click here to see more information on this decision in an article entitled “Federal Court Tosses Out Challenges to CFTC Cross-Border Guidance and Policy Statement” in the September 16, 2014 edition of Between Bridges.)

Totally Irrelevant (But Is It?): Footnote 35 in the court’s decision reads: “Indeed, one thing is certain: the CFTC may not conclude on remand that the costs of extraterritorial application of a given Title VII Rule so outweigh the benefits that the Rule is flatly inapplicable abroad.” (Emphasis in the original text.) The syntax of this sentence is ambiguous. Is the judge telling the CFTC what it cannot do or is the court speculating regarding a possible outcome of CFTC action? If only there was a footnote to the footnote!