Several trade groups, including the Futures Industry Association (FIA), have asked the Commodity Futures Trading Commission (CFTC) for a six month extension of an Exemptive Order from the Dodd-Frank cross-border derivatives rules. The request points out three benefits of a possible extension.
First, the extension would give swap market participants more time to consider the SEC’s “recent proposals relating to its regulation of cross-border security-based swap activities.” Second, “failing to extend the Exemptive Order in the absence of final cross-border guidance could increase uncertainty for international market participants.” Third, an earlier expiration of the Exemptive Order “could jeopardize the productive and cooperative efforts underway towards meeting G20 commitments on an international basis.”
The first issue stems from the shared jurisdiction of the CFTC and the SEC under Title VII of Dodd-Frank. Congress gave both agencies regulatory jurisdiction over swaps and security-based swaps while requiring them to “consult and coordinate to the extent possible.” If the Exemptive Order is not extended, it will expire before the SEC’s comment period on their Cross-Border Proposal has ended, depriving the CFTC of valuable input.
The second issue is based on actions taken by foreign market participants when facing swaps market uncertainties last year. As the deadline for a different change in swap treatment approached, foreign market participants began ceasing trade with U.S. entities and overseas branches. If the Exemptive Order is not extended, it “likewise would lead to confusion and disruption of the international swaps market and the progress that has been made towards compliance with Title VII to date.”
The third issue is based on a belief that the “international nature of the swap markets makes international coordination, in addition to domestic coordination, critical to achieve an appropriate level of oversight of swaps activities.” Extending the Exemptive Order for six months provides “the necessary time for beneficial international conversations” on implementing the G20 worldwide commitments.