The CFTC-proposed new cross-border rules governing registration requirements applicable to swap dealers and major swap participants were published in the Federal Register.

As previously covered, the CFTC voted to propose new cross-border rules addressing the registration thresholds and other requirements concerning swap dealers and major swap participants. According to the CFTC Commissioners' statements, the proposal would, among other things:

  • add a new definition of "U.S. person" intended to be harmonized with SEA Rule 3a71-3;

  • significantly change the counting requirements for non-U.S. subsidiaries of U.S. firms, including by adding a new category called "significant risk subsidiary";

  • provide "full relief" for transactions "arranged, negotiated or executed" in the United States by non-U.S. persons;

  • add a definition of "guarantee" that requires the "explicit recourse" of a counterparty to a U.S. person; and

  • revise the standards for substituted compliance determinations.

Commentary

As we previously commented, the cross-border proposal would be the CFTC's second attempt to implement rules to replace the ill-conceived cross-border guidance that has been in place for over six years. The Commissioners addressed issues that have long been controversial.

The CFTC appears to be moving in the direction of placing less emphasis on activities occurring and risk incurred overseas by non-U.S. entities. The changes could be significant for non-U.S. derivatives market participants - those currently registered may find registration to be unnecessary, and those not registered may find it easier to manage their trading books to stay under the de minimis thresholds. Entities not engaged in dealing may also find the changes significant. A modified definition of "U.S. person" could result in more customers that will not subject overseas dealers to U.S. regulatory requirements (e.g., margin), which requirements may then be indirectly imposed on such customers.