5 March, 2014
Melissa D. Jurgens
Secretary of the Commission
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street NW
Washington, DC 20581
Submitted by website: http://comments.cftc.gov
Dear Ms. Jurgens
Request for Comment on Application of Commission Regulations to Swaps
Between Non-U.S. Swap Dealers and Non-U.S. Counterparties Involving
Personnel or Agents of the Non-U.S. Swap Dealers Located in the United States
1. Introduction
The Japan Financial Markets Council (JFMC)1 is grateful for the opportunity tocomment on the Commodity Futures Trading Commission (CFTC) request forviews on the application of CFTC regulations to swaps between non-U.S. swap
dealers and non-U.S. counterparties involving personnel or agents of non-U.S.
swap dealers located in the United States.
2. Overall position
The JFMC believes the approach set out in the CFTC’s ‘Staff Advisory’ will lead toa significant administrative and inappropriate regulatory burden on non-U.S.
firms, such as those based in Japan. We believe the CFTC’s ‘personnel-based test’(i.e. whether a non-U.S. firm regularly uses personnel or agents located in the U.S.
to arrange, negotiate, or execute a swap with a non-U.S. person) for determining
the cross-border application of Transaction-Level Requirements to Non-U.S.
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The JFMC is an association which includes representatives from five Japan-based institutions and five internationalfirms active in Japanese capital markets. Its aim is to ensure that authorities deciding on regulatory initiatives that have aglobal impact are aware of and take into account the effect of new regulations on Japanese capital markets. The current
JFMC members are: Bank of Tokyo-Mitsubishi UFJ, Daiwa Securities Group, Mizuho Securities, Nomura Holdings, SMBC
Nikko Securities Inc, BNP Paribas, Citigroup Japan Holdings Corp, Deutsche Bank Group, JPMorgan Securities Japan Co.,
Ltd. and Morgan Stanley Japan Holdings. The co-chairs of the JFMC are the representatives from Morgan Stanley andNomura.

Swap Dealers is problematic and would ask the CFTC to reconsider its position.
Our overall rationale is as follows:a. Time zone and unfair impact: The approach unfairly precludes options open
to Asia-based Swap Dealers to cover U.S. market hours and service theirnon-U.S. based clients by using U.S. based personnel or agents.
b. Non-recognition of an equivalent regime: The approach is unreasonably‘extra-territorial’. It does not take account of the features of the Japanese
regulatory regime which, like the U.S. regime, is compliant with G20
objectives.
c. Creates uncertainty and disrupts firms’ business planning: The suddenchange of approach set out in the Staff Advisory, which appears toundermine the generally accepted core principle of providing cross-border
guidance, makes it difficult for firms (including Japan-based Swap Dealersand Non-U.S. Swap Dealer entities affiliated with Japanese Dealers) toplan for the future.

3. Detailed explanationa. Time zone and unfair impact
The time difference between the U.S. and Asia makes it difficult for Asia-based
Swap Dealers to avoid involving personnel or agents located in the U.S. evenwhen the trades are not booked in the U.S.
For example, a swap transaction between an Asian-based Swap Dealer and aEuropean counterparty which takes place after the close of European businesshours is in some cases booked in the Swap Dealer’s office in either Asia orEurope. But sometimes, because of the time difference, these transactions
may have to be arranged, negotiated or executed by personnel or agents of
the Asian-based Swap Dealer based in the U.S.

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The ‘personnel based test’ approach is therefore unfairly burdensome for
Asia-based Swap Dealers. It effectively forces them to consider:·transferring their traders and salespeople in New York to outside of
the U.S. (e.g. to establish a night desk in London or an early morning
desk in Sydney, so that they can cover the client services during theNew York market hours); and/or·terminating the agency contract with the U.S.-based agents.

b. Unreasonable extra-territorial impact
The JFMC believes these regulations are not in line with the limitations
imposed on the Dodd-Frank Wall Street Reform and Consumer Protection Act: toregulate activities outside the U.S. only if the activities have a direct andsignificant connection with activities in, or effect on, U.S. commerce or raiseevasion concerns. Capturing administrative and immaterial activities,
necessitated by time differences, and using that as the basis to regulatetransactions booked outside the U.S. which have no impact on the U.S.
economy, not only seems to exceed the legislative limitations set out in the Act
but also appears inherently unfair to firms from other jurisdictions.
More importantly, the ‘personnel-based’ test results in unreasonable
extra-territorial reach. If all jurisdictions employed a similar approach there
would be a serious breakdown in cross-border business. The approach also
does not take account of the regulatory conditions put in place by Japaneseregulators, which are in line with G20 objectives. The JFMC urges the CFTC to
accept international comity as the core regulatory principle that should
govern cross-border transactions.

c. Creating Uncertainty
The production of the criteria in the Staff Advisory - which was not subject toconsultation – has significant wider global regulatory implications. First, themarket can be confused if a regulatory agency’s guidance does not appear to
be in line with the underlying regulation - in this case the general principles of3

Title VII of the Dodd-Frank Act, whose overall goal is to reduce risks of the U.S.
financial system. Second, the production of criteria by a government agency of
one single country that arbitrarily define its authority to regulate certain
types of business activities between third countries (and not take account of
the usual cross-border regulatory principles) causes a level of unpredictability
which will result in confusion. It is likely to impede firms’ ability to develop
global long-term business strategies, as capricious changes in a regulatory
regime are difficult to plan for.
In order to reduce the unstable factors in developing global businessstrategies, firms may decide to avoid countries that introduce unpredictable
regulatory liabilities. In the case of the Dodd-Frank Act we do not believe thiswas the original intention of the legislation.
4. Conclusion
We are grateful that the CFTC has opened up the criteria set out in the Staff
Advisory for public consultation. We strongly urge the Commission to review
the criteria and adopt a more risk-based approach that is sensitive tointernational business requirements from Asian market players and in linewith cross-border regulatory co-operation principles.
If you have any queries about any of the comments outlined in this letter
please do not hesitate to contact us for more information.
Yours faithfully,Jonathan B. Kindred
Shigesuke Kashiwagi
Co-chairs of the Japan Financial Markets Council

Contact: International Bankers Association of Japan (IBA Japan): Paul Hunter
Telephone +81 (0)3-6205-7531

E-mail g-info@ibajapan.org

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