78890 Federal Register / Vol. 78, No. 249 / Friday, December 27, 2013 / Notices 

1 78 FR 45292 (July 26, 2013). The Commission 

originally published proposed and further proposed 

guidance on July 12, 2012 and January 7, 2013, 

respectively. See Cross-Border Application of 

Certain Swaps Provisions of the Commodity 

Exchange Act, 77 FR 41214 (July 12, 2012) and 

Further Proposed Guidance Regarding Compliance 

with Certain Swap Regulations,78 FR 909 (Jan. 7, 

2013). 

2 78 FR 43785 (July 22, 2013). 

3The Transaction-Level Requirements under the 

Exemptive Order consist of 17 CFR 37.12, 38.11, 

23.202, 23.205, 23.400–451, 23.501, 23.502, 23.503, 

23.504, 23.505, 23.506, 23.610, and parts 43 and 50 

of the Commission’s regulations. 

several outstanding questions regarding 

these comparability determinations. In 

doing so, the Commission must 

collaborate with foreign regulators to 

increase global harmonization. 

First, there is uncertainty surrounding 

the timing and outcome of the MOUs. 

Critical questions regarding information 

sharing, cooperation, supervision, and 

enforcement will remain unanswered 

until the Commission and our fellow 

regulators execute these MOUs. 

Second, the Commission has issued 

time-limited no-action relief for the 

swap data repository reporting 

requirements. These comparability 

determinations will be done as separate 

notices. However, the timing and 

process for these determinations remain 

uncertain. 

Third, the Commission has failed to 

provide clarity on the process for 

addressing the comparability 

determinations that it declined to 

undertake at this time. The Notices only 

state that the Commission may address 

these requests in a separate notice at a 

later date given further developments in 

the law and regulations of other 

jurisdictions. To promote certainty in 

the financial markets, the Commission 

must provide a clear path forward for 

market participants and foreign 

regulators. 

The following steps would be a better 

approach: (1) the Commission should 

extend the Exemptive Order to allow 

foreign regulators to further implement 

their regulatory regimes and coordinate 

with them to implement a harmonized 

substituted compliance process; (2) the 

Commission should implement a 

flexible, outcomes-based approach to 

the substituted compliance process and 

apply it similarly to all jurisdictions; 

and (3) the Commission should work 

closely with our fellow regulators to 

expeditiously implement MOUs that 

resolve regulatory differences and 

address regulatory oversight issues. 

Conclusion 

While I support the narrow 

comparability determinations that the 

Commission has made, it was my hope 

that the Commission would work with 

foreign regulators to implement a 

substituted compliance process that 

would increase the global 

harmonization effort. I am disappointed 

that the Commission has failed to 

implement such a process. 

I do believe that in the longer term, 

the swaps regulations of the major 

jurisdictions will converge. At this time, 

however, the Commission’s 

comparability determinations have done 

little to alleviate the burden of 

regulatory uncertainty and duplicative 

compliance with both U.S. and foreign 

regulations. 

The G–20 process delineated and put 

in place the swaps market reforms in G– 

20 member nations. It is then no 

surprise that the Commission must learn 

to coordinate with foreign regulators to 

minimize confusion and disruption in 

bringing much needed clarity to the 

swaps market. For all these 

shortcomings, I respectfully dissent 

from the Commission’s approval of the 

Notices. 

[FR Doc. 2013–30981 Filed 12–26–13; 8:45 am] 

BILLING CODE 6351–01–P 

COMMODITY FUTURES TRADING 

COMMISSION 

Comparability Determination for 

Japan: Certain Transaction-Level 

Requirements 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of Comparability 

Determination for Certain Requirements 

under the Japanese Laws and 

Regulations. 

SUMMARY: The following is the analysis 

and determination of the Commodity 

Futures Trading Commission 

(‘‘Commission’’) regarding certain parts 

of a request by the Bank of TokyoMitsubishi UFJ, Ltd (‘‘BTMU’’) that the 

Commission determine that laws and 

regulations applicable in the Japan 

provide a sufficient basis for an 

affirmative finding of comparability 

with respect to the following regulatory 

obligations applicable to swap dealers 

(‘‘SDs’’) and major swap participants 

(‘‘MSPs’’) registered with the 

Commission: (i) Swap trading 

relationship documentation and (ii) 

daily trading records (collectively, the 

‘‘Business Conduct Requirements’’). 

DATES: 

Effective Date: This determination 

will become effective immediately upon 

publication in the Federal Register. 

FOR FURTHER INFORMATION CONTACT: Gary 

Barnett, Director, 202–418–5977, 

gbarnett@cftc.gov, Frank Fisanich, Chief 

Counsel, 202–418–5949, ffisanich@

cftc.gov, and Jason Shafer, Special 

Counsel, 202–418–5097, jshafer@

cftc.gov, Division of Swap Dealer and 

Intermediary Oversight, Commodity 

Futures Trading Commission, Three 

Lafayette Centre, 1155 21st Street, NW., 

Washington, DC 20581. 

SUPPLEMENTARY INFORMATION: 

I. Introduction 

On July 26, 2013, the Commission 

published in the Federal Register its 

‘‘Interpretive Guidance and Policy 

Statement Regarding Compliance with 

Certain Swap Regulations’’ 

(‘‘Guidance’’).1 In the Guidance, the 

Commission set forth its interpretation 

of the manner in which it believes that 

section 2(i) of the Commodity Exchange 

Act (‘‘CEA’’) applies Title VII’s swap 

provisions to activities outside the U.S. 

and informed the public of some of the 

policies that it expects to follow, 

generally speaking, in applying Title VII 

and certain Commission regulations in 

contexts covered by section 2(i). Among 

other matters, the Guidance generally 

described the policy and procedural 

framework under which the 

Commission would consider a 

substituted compliance program with 

respect to Commission regulations 

applicable to entities located outside the 

U.S. Specifically, the Commission 

addressed a recognition program where 

compliance with a comparable 

regulatory requirement of a foreign 

jurisdiction would serve as a reasonable 

substitute for compliance with the 

attendant requirements of the CEA and 

the Commission’s regulations 

promulgated thereunder. 

In addition to the Guidance, on July 

22, 2013, the Commission issued the 

Exemptive Order Regarding Compliance 

with Certain Swap Regulations (the 

‘‘Exemptive Order’’).2 Among other 

things, the Exemptive Order provided 

time for the Commission to consider 

substituted compliance with respect to 

six jurisdictions where non-U.S. SDs are 

currently organized. In this regard, the 

Exemptive Order generally provided 

non-U.S. SDs and MSPs (and foreign 

branches of U.S. SDs and MSPs) in the 

six jurisdictions with conditional relief 

from certain requirements of 

Commission regulations (those referred 

to as ‘‘Transaction-Level Requirements’’ 

in the Guidance) until the earlier of 

December 21, 2013, or 30 days following 

the issuance of a substituted compliance 

determination.3 However, the 

Commission provided only transitional 

relief from the real-time public reporting 

requirements under part 43 of the 

Commission’s regulations until 


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4See id. at 43789. 

5See id. at 43790. 

6For purposes of this notice, the Business 

Conduct Requirements consist of 17 CFR 23.202 

and 23.504. 

7 In 2009, leaders of the Group of 20 (‘‘G20’’)— 

whose membership includes Japan, the United 

States, and 18 other countries—agreed that: (i) OTC 

derivatives contracts should be reported to trade 

repositories; (ii) all standardized OTC derivatives 

contracts should be cleared through central 

counterparties and traded on exchanges or 

electronic trading platforms, where appropriate, by 

the end of 2012; and (iii) non-centrally cleared 

contracts should be subject to higher capital 

requirements. 

8 Japan Securities Clearing Corporation (‘‘JSCC’’) 

is currently the only licensed clearing organization 

under the FIEA in Japan. 

9Public Law 111–203, 124 Stat. 1376 (2010). 

10 7 U.S.C. 2(i). 

11The compliance dates are summarized on the 

Compliance Dates page of the Commission’s Web 

site. (http://www.cftc.gov/LawRegulation/

DoddFrankAct/ComplianceDates/index.htm.) 

September 30, 2013, stating that ‘‘it 

would not be in the public interest to 

further delay reporting under part 43 . 

. . .’’ 4 Similarly, the Commission 

provided transitional relief only until 

October 10, 2013, from the clearing and 

swap processing requirements (as 

described in the Guidance), stating that, 

‘‘[b]ecause SDs and MSPs have been 

committed to clearing their [credit 

default swaps] and interest rate swaps 

for many years, and indeed have been 

voluntarily clearing for many years, any 

further delay of the Commission’s 

clearing requirement is unwarranted.’’ 5

The Commission did not make any 

comparability determination with 

respect to clearing and swap processing 

prior to October 10, 2013, or real-time 

public reporting prior to September 30, 

2013. 

On September 20, 2013, BTMU 

submitted a request that the 

Commission determine that laws and 

regulations applicable in Japan provide 

a sufficient basis for an affirmative 

finding of comparability with respect to 

certain Transaction-Level Requirements, 

including the Business Conduct 

Requirements.6 (BTMU is referred to 

herein as the ‘‘applicant’’). On 

December 16, 2013, the application was 

further supplemented with corrections 

and additional materials. The following 

is the Commission’s analysis and 

determination regarding the Business 

Conduct Requirements, as detailed 

below. 

In addition to the Business Conduct 

Requirements described below, the 

applicant also requested a comparability 

determination with respect to law and 

regulations applicable in Japan 

governing trade execution, real-time 

public reporting, clearing, and swap 

processing. 

With respect to trade execution and 

real-time reporting, the Commission has 

not made a comparability determination 

at this time due to the Commission’s 

view that although a legislative 

framework for such requirements exists 

in Japan, detailed regulations with 

which to compare the requirements of 

the Commission’s regulations on trade 

execution and real-time public reporting 

under such framework are still under 

consideration in Japan. The Commission 

may address these requests in a separate 

notice at a later date, taking into account 

further developments in the U.S. and 

Japan. 

With respect to clearing and swap 

processing, this notice does not address 

§ 50.2 (Treatment of swaps subject to a 

clearing requirement), § 50.4 (Classes of 

swaps required to be cleared), § 23.506 

(Swap processing and clearing), or 

§ 23.610 (Clearing member acceptance 

for clearing). 

The mandatory clearing requirement 

in Japan, which is consistent with the 

G20 commitments 7 and objectives, was 

implemented in November 2012, ahead 

of other G20 jurisdictions. Japan’s 

clearing requirement, at its initial stage, 

is applied to transactions between large 

domestic financial institutions 

registered under the Financial 

Instruments and Exchange Act, No. 25 

of 1948 (‘‘FIEA’’), who are members of 

licensed clearing organizations 8, for (i) 

certain credit default swaps (i.e., those 

referencing iTraxx Japan—an 

investment-grade index CDS from 50 

Japanese firms); and (ii) certain interest 

rate swaps (i.e., three month or six 

month Japanese yen LIBOR interest rate 

swaps). According to Japanese 

authorities, the scope of entities and 

products subject to the clearing 

requirement in Japan will be expanded 

over the next two years in a phased 

manner. 

While the Commission considers that 

the legal framework in respect of 

clearing and swap processing in Japan is 

comparable to the U.S framework, it 

also recognizes that there are differences 

in the scope of entities and products 

between its clearing requirement under 

section 2(h)(1)(A) of the CEA and § 50.2 

(‘‘the CEA clearing requirement’’) and 

the Japanese FIEA clearing requirement, 

due to differences in market structures 

and conditions. Due to such differences, 

the Commission has not made a 

comparability determination with 

respect to §§ 50.2, 50.4, 23.506, or 

23.610 at this time. The Commission 

may address these requests in a separate 

notice at a later date, taking into account 

further developments in the U.S. and 

Japan. 

The Commission notes that its 

Division of Clearing and Risk has 

granted certain no-action relief from the 

CEA clearing requirement to qualified 

clearing participants of JSCC. Pursuant 

to such no-action relief, clearing 

participants of JSCC that are subject to 

Commission regulation 50.2, as well as 

parents and affiliates of such 

participants, may continue clearing yendenominated interest rate swaps at JSCC 

instead of at a Commission-registered 

derivatives clearing organization 

(‘‘DCO’’). Further, JSCC is in the process 

of registering with the Commission as a 

DCO. Upon JSCC’s registration, a 

Japanese SD could comply with both the 

CEA and FIEA clearing requirements by 

clearing relevant swaps at JSCC. 

II. Background 

On July 21, 2010, President Obama 

signed the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 9

(‘‘Dodd-Frank Act’’ or ‘‘Dodd-Frank’’), 

which, in Title VII, established a new 

regulatory framework for swaps. 

Section 722(d) of the Dodd-Frank Act 

amended the CEA by adding section 

2(i), which provides that the swap 

provisions of the CEA (including any 

CEA rules or regulations) apply to crossborder activities when certain 

conditions are met, namely, when such 

activities have a ‘‘direct and significant 

connection with activities in, or effect 

on, commerce of the United States’’ or 

when they contravene Commission 

rules or regulations as are necessary or 

appropriate to prevent evasion of the 

swap provisions of the CEA enacted 

under Title VII of the Dodd-Frank Act.10

In the three years since its enactment, 

the Commission has finalized 68 rules 

and orders to implement Title VII of the 

Dodd-Frank Act. The finalized rules 

include those promulgated under 

section 4s of the CEA, which address 

registration of SDs and MSPs and other 

substantive requirements applicable to 

SDs and MSPs. With few exceptions, the 

delayed compliance dates for the 

Commission’s regulations implementing 

such section 4s requirements applicable 

to SDs and MSPs have passed and new 

SDs and MSPs are now required to be 

in full compliance with such regulations 

upon registration with the 

Commission.11 Notably, the 

requirements under Title VII of the 

Dodd-Frank Act related to SDs and 

MSPs by their terms apply to all 

registered SDs and MSPs, irrespective of 

where they are located, albeit subject to 

the limitations of CEA section 2(i). 

To provide guidance as to the 

Commission’s views regarding the scope 


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12 78 FR 45342–45345. 

13See the Guidance, 78 FR 45342–44. 

14Under §§ 23.203 and 23.606, all records 

required by the CEA and the Commission’s 

regulations to be maintained by a registered SD or 

MSP shall be maintained in accordance with 

Commission regulation 1.31 and shall be open for 

inspection by representatives of the Commission, 

the United States Department of Justice, or any 

applicable prudential regulator. 

In its Final Exemptive Order Regarding 

Compliance with Certain Swap Regulations, 78 FR 

858 (Jan. 7, 2013), the Commission noted that an 

applicant for registration as a SD or MSP must file 

a Form 7–R with the National Futures Association 

and that Form 7–R was being modified at that time 

to address existing blocking, privacy, or secrecy 

laws of foreign jurisdictions that applied to the 

books and records of SDs and MSPs acting in those 

jurisdictions. See id. at 871–72 n. 107. The 

modifications to Form 7–R were a temporary 

measure intended to allow SDs and MSPs to apply 

for registration in a timely manner in recognition 

of the existence of the blocking, privacy, and 

secrecy laws. In the Guidance, the Commission 

clarified that the change to Form 7–R impacts the 

registration application only and does not modify 

the Commission’s authority under the CEA and its 

regulations to access records held by registered SDs 

and MSPs. Commission access to a registrant’s 

books and records is a fundamental regulatory tool 

necessary to properly monitor and examine each 

registrant’s compliance with the CEA and the 

regulations adopted pursuant thereto. The 

Commission has maintained an ongoing dialogue 

on a bilateral and multilateral basis with foreign 

regulators and with registrants to address books and 

records access issues and may consider appropriate 

measures where requested to do so. 

15See e.g., sections 4s(f)(1)(C), 4s(j)(3) and (4) of 

the CEA. 

16See e.g., §§ 23.203(b) and 23.606. 

17See supra note 13. 

18Order for Enforcement of the Banking Act and 

Order for Enforcement of the Financial Instruments 

and Exchange Act. 

19Cabinet Office Ordinance on Financial 

Instruments Business (‘‘FIB Ordinance’’) and 

Cabinet Office Ordinance on Regulation of OTC 

Derivatives Transaction. 

20Comprehensive Guideline for Supervision of 

Major Banks, etc.(‘‘Supervisory Guideline for 

banks’’) and Comprehensive Guideline for 

Supervision of Financial Instruments Business 

Operators, etc.(‘‘Supervisory Guideline for FIBOs’’). 

21 Inspection Manual for Deposit Taking 

Institutions (‘‘Inspection Manual for banks’’), 

consisting of the Checklist for Business 

Management (Governance), Checklist for Legal 

Compliance, Checklist for Customer Protection 

Management, Checklist for Credit Risk 

Management, Checklist for Market Risk 

Management, Checklist for Liquidity Risk 

Management, Checklist for Operational Risk 

Management, etc. 

22See Article 2(8)(iv) of the FIEA. 

of the cross-border application of Title 

VII of the Dodd-Frank Act, the 

Commission set forth in the Guidance 

its interpretation of the manner in 

which it believes that Title VII’s swap 

provisions apply to activities outside 

the U.S. pursuant to section 2(i) of the 

CEA. Among other matters, the 

Guidance generally describes the policy 

and procedural framework under which 

the Commission would consider a 

substituted compliance program with 

respect to Commission regulations 

applicable to entities located outside the 

U.S. Specifically, the Commission 

established a recognition program where 

compliance with a comparable 

regulatory requirement of a foreign 

jurisdiction would serve as a reasonable 

substitute for compliance with the 

attendant requirements of the CEA and 

the Commission’s regulations. With 

respect to the standards forming the 

basis for any determination of 

comparability (‘‘comparability 

determination’’ or ‘‘comparability 

finding’’), the Commission stated: 

In evaluating whether a particular category 

of foreign regulatory requirement(s) is 

comparable and comprehensive to the 

applicable requirement(s) under the CEA and 

Commission regulations, the Commission 

will take into consideration all relevant 

factors, including but not limited to, the 

comprehensiveness of those requirement(s), 

the scope and objectives of the relevant 

regulatory requirement(s), the 

comprehensiveness of the foreign regulator’s 

supervisory compliance program, as well as 

the home jurisdiction’s authority to support 

and enforce its oversight of the registrant. In 

this context, comparable does not necessarily 

mean identical. Rather, the Commission 

would evaluate whether the home 

jurisdiction’s regulatory requirement is 

comparable to and as comprehensive as the 

corresponding U.S. regulatory 

requirement(s).12

Upon a comparability finding, 

consistent with CEA section 2(i) and 

comity principles, the Commission’s 

policy generally is that eligible entities 

may comply with a substituted 

compliance regime, subject to any 

conditions the Commission places on its 

finding, and subject to the 

Commission’s retention of its 

examination authority and its 

enforcement authority.13

In this regard, the Commission notes 

that a comparability determination 

cannot be premised on whether an SD 

or MSP must disclose comprehensive 

information to its regulator in its home 

jurisdiction, but rather on whether 

information relevant to the 

Commission’s oversight of an SD or 

MSP would be directly available to the 

Commission and any U.S. prudential 

regulator of the SD or MSP.14 The 

Commission’s direct access to the books 

and records required to be maintained 

by SD or MSP registered with the 

Commission is a core requirement of the 

CEA 15 and the Commission’s 

regulations,16 and is a condition to 

registration.17

III. Regulation of SDs and MSPs in 

Japan 

As represented to the Commission by 

the applicant, swap activities in Japan 

may be governed by the Banking Act of 

Japan, No. 59 of 1981 (‘‘Banking Act’’), 

covering banks and bank holding 

companies, and the FIEA, covering, 

among others, Financial Instrument 

Business Operators (‘‘FIBOs’’) and 

Registered Financial Institutions 

(‘‘RFIs’’). The Japanese Prime Minister 

delegated broad authority to implement 

these laws to the Japanese Financial 

Services Agency (‘‘JFSA’’). Pursuant to 

this authority, the JFSA has 

promulgated the Order for 

Enforcement,18 Cabinet Office 

Ordinance,19 Supervisory Guidelines 20

and Inspection Manuals.21 The 

Securities and Exchange Surveillance 

Commission (‘‘SESC’’) is within the 

JFSA and has promulgated, among other 

things, the Inspection Manual for FIBOs. 

These requirements supplement the 

requirements of the Banking Act and 

FIEA with a more proscriptive direction 

as to the particular structural features or 

responsibilities that internal compliance 

functions must maintain. 

In general, banks are subject to the 

Banking Act, relevant laws and 

regulations for banks, the Supervisory 

Guideline for banks, and the Inspection 

Manual for banks, while FIBOs are 

subject to the FIEA, relevant laws and 

regulations for FIBOs, Supervisory 

Guideline for FIBOs, and Inspection 

Manual for FIBOs. 

Pursuant to Article 29 of the FIEA, 

any person that engages in trade 

activities that constitute ‘‘Financial 

Instruments Business’’—which, among 

other things, includes over-the-counter 

transactions in derivatives (‘‘OTC 

derivatives’’) or intermediary, brokerage 

(excluding brokerage for clearing of 

securities) or agency services 

therefor 22—must register under the 

FIEA as a FIBO. Banks that conduct 

specified activities in the course of 

trade, including OTC derivatives, must 

register under the FIEA as RFIs pursuant 

to Article 33–2 of the FIEA. Banks 

registered as RFIs are required to 

comply with relevant laws and 

regulations for FIBOs regarding 

specified activities. Failure to comply 

with any relevant laws and regulations, 

Supervisory Guidelines or Inspection 

Manuals would subject the applicant to 

potential sanctions or corrective 

measures. 

The applicant is a licensed bank in 

Japan that is also registered as an RFI 

under the supervision of the JFSA. In 

addition, the applicant is a member of 

several self-regulatory organizations, 

including the Japanese Securities 


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23Because the applicant’s request and the 

Commission’s determinations herein are based on 

the comparability of Japanese requirements 

applicable to banks, FIBOs, and RFIs, an SD or MSP 

that is not a bank, FIBO, or RFI, or is otherwise not 

subject to the requirements applicable to banks, 

FIBOs, and RFIs upon which the Commission bases 

its determinations, may not be able to rely on the 

Commission’s comparability determinations herein. 

24 78 FR 45343. 

25 78 FR 45343. 

26 78 FR 45343. 

27 78 FR 45343. 

28A finding of comparability may not be possible 

for a number of reasons, including the fact that the 

foreign jurisdiction has not yet implemented or 

finalized particular requirements. 

29 78 FR 45343. 

30As explained in the Guidance, such 

‘‘approaches used will vary depending on the 

circumstances relevant to each jurisdiction. One 

example would include coordinating with the 

foreign regulators in developing appropriate 

regulatory changes or new regulations, particularly 

where changes or new regulations already are being 

considered or proposed by the foreign regulators or 

legislative bodies. As another example, the 

Commission may, after consultation with the 

appropriate regulators and market participants, 

include in its substituted compliance determination 

a description of the means by which certain swaps 

market participants can achieve substituted 

compliance within the construct of the foreign 

regulatory regime. The identification of the means 

by which substituted compliance is achieved would 

be designed to address the regulatory objectives and 

outcomes of the relevant Dodd-Frank Act 

requirements in a manner that does not conflict 

with a foreign regulatory regime and reduces the 

likelihood of inconsistent regulatory obligations. 

For example, the Commission may specify that 

[SDs] and MSPs in the jurisdiction undertake 

certain recordkeeping and documentation for swap 

activities that otherwise is only addressed by the 

foreign regulatory regime with respect to financial 

activities generally. In addition, the substituted 

compliance determination may include provisions 

for summary compliance and risk reporting to the 

Commission to allow the Commission to monitor 

whether the regulatory outcomes are being 

achieved. By using these approaches, in the interest 

of comity, the Commission would seek to achieve 

its regulatory objectives with respect to the 

Commission’s registrants that are operating in 

foreign jurisdictions in a manner that works in 

harmony with the regulatory interests of those 

jurisdictions.’’ 78 FR 45343–44. 

31 ‘‘Swaps activities’’ is defined in Commission 

regulation 23.600(a)(7) to mean, ‘‘with respect to a 

registrant, such registrant’s activities related to 

swaps and any product used to hedge such swaps, 

including, but not limited to, futures, options, other 

swaps or security-based swaps, debt or equity 

securities, foreign currency, physical commodities, 

and other derivatives.’’ The Commission’s 

regulations under Part 23 (17 CFR Part 23) are 

limited in scope to the swaps activities of SDs and 

MSPs. 

32No SD or MSP that is not legally required to 

comply with a law or regulation determined to be 

comparable may voluntarily comply with such law 

or regulation in lieu of compliance with the CEA 

and the relevant Commission regulation. Each SD 

or MSP that seeks to rely on a comparability 

determination is solely responsible for determining 

whether it is legally required to comply with the 

laws and regulations found comparable. Currently, 

there are no MSPs organized outside the U.S. and 

the Commission therefore cautions any nonfinancial entity organized outside the U.S. and 

applying for registration as an MSP to carefully 

consider whether the laws and regulations 

determined to be comparable herein are applicable 

to such entity. 

33The Commission has provided the relevant 

foreign regulator(s) with opportunities to review 

and correct the applicant’s description of such laws 

and regulations on which the Commission will base 

its comparability determination. The Commission 

relies on the accuracy and completeness of such 

review and any corrections received in making its 

comparability determinations. A comparability 

determination based on an inaccurate description of 

foreign laws and regulations may not be valid. 

Dealers Association (‘‘JSDA’’). The JSDA 

is a ‘‘Financial Instruments Firms 

Association’’ authorized under FIEA by 

the Prime Minister of Japan.23

IV. Comparable and 

Comprehensiveness Standard 

The Commission’s comparability 

analysis will be based on a comparison 

of specific foreign requirements against 

the specific related CEA provisions and 

Commission regulations as categorized 

and described in the Guidance. As 

explained in the Guidance, within the 

framework of CEA section 2(i) and 

principles of international comity, the 

Commission may make a comparability 

determination on a requirement-byrequirement basis, rather than on the 

basis of the foreign regime as a whole.24

In making its comparability 

determinations, the Commission may 

include conditions that take into 

account timing and other issues related 

to coordinating the implementation of 

reform efforts across jurisdictions.25

In evaluating whether a particular 

category of foreign regulatory 

requirement(s) is comparable and 

comprehensive to the corollary 

requirement(s) under the CEA and 

Commission regulations, the 

Commission will take into consideration 

all relevant factors, including, but not 

limited to: 

• The comprehensiveness of those 

requirement(s), 

• The scope and objectives of the 

relevant regulatory requirement(s), 

• The comprehensiveness of the 

foreign regulator’s supervisory 

compliance program, and 

• The home jurisdiction’s authority to 

support and enforce its oversight of the 

registrant.26

In making a comparability 

determination, the Commission takes an 

‘‘outcome-based’’ approach. An 

‘‘outcome-based’’ approach means that 

when evaluating whether a foreign 

jurisdiction’s regulatory requirements 

are comparable to, and as 

comprehensive as, the corollary areas of 

the CEA and Commission regulations, 

the Commission ultimately focuses on 

regulatory outcomes (i.e., the home 

jurisdiction’s requirements do not have 

to be identical).27 This approach 

recognizes that foreign regulatory 

systems differ and their approaches vary 

and may differ from how the 

Commission chose to address an issue, 

but that the foreign jurisdiction’s 

regulatory requirements nonetheless 

achieve the regulatory outcome sought 

to be achieved by a certain provision of 

the CEA or Commission regulation. 

In doing its comparability analysis the 

Commission may determine that no 

comparability determination can be 

made 28 and that the non-U.S. SD or 

non-U.S. MSP, U.S. bank that is a SD or 

MSP with respect to its foreign 

branches, or non-registrant, to the extent 

applicable under the Guidance, may be 

required to comply with the CEA and 

Commission regulations. 

The starting point in the 

Commission’s analysis is a 

consideration of the regulatory 

objectives of the foreign jurisdiction’s 

regulation of swaps and swap market 

participants. As stated in the Guidance, 

jurisdictions may not have swap 

specific regulations in some areas, and 

instead have regulatory or supervisory 

regimes that achieve comparable and 

comprehensive regulation to the DoddFrank Act requirements, but on a more 

general, entity-wide, or prudential, 

basis.29 In addition, portions of a foreign 

regulatory regime may have similar 

regulatory objectives, but the means by 

which these objectives are achieved 

with respect to swap market activities 

may not be clearly defined, or may not 

expressly include specific regulatory 

elements that the Commission 

concludes are critical to achieving the 

regulatory objectives or outcomes 

required under the CEA and the 

Commission’s regulations. In these 

circumstances, the Commission will 

work with the regulators and registrants 

in these jurisdictions to consider 

alternative approaches that may result 

in a determination that substituted 

compliance applies.30

Finally, the Commission generally 

will rely on an applicant’s description 

of the laws and regulations of the 

foreign jurisdiction in making its 

comparability determination. The 

Commission considers an application to 

be a representation by the applicant that 

the laws and regulations submitted are 

in full force and effect, that the 

description of such laws and regulations 

is accurate and complete, and that, 

unless otherwise noted, the scope of 

such laws and regulations encompasses 

the swaps activities 31 of SDs and 

MSPs 32 in the relevant jurisdictions.33

Further, as stated in the Guidance, the 

Commission expects that an applicant 

would notify the Commission of any 


tkelley on DSK3SPTVN1PROD with NOTICES
78894 Federal Register / Vol. 78, No. 249 / Friday, December 27, 2013 / Notices 

34 78 FR 45345. 

35See 78 FR 45348–50. The Commission notes 

that registrants and other market participants are 

responsible for determining whether substituted 

compliance is available pursuant to the Guidance 

based on the comparability determination 

contained herein (including any conditions or 

exceptions), and its particular status and 

circumstances. 

36An MOU is one type of arrangement between 

or among regulators. Supervisory arrangements 

could include, as appropriate, cooperative 

arrangements that are memorialized and executed 

as addenda to existing MOUs or, for example, as 

independent bilateral arrangements, statements of 

intent, declarations, or letters. 

37 78 FR 45344. 

38Section 4s(j)(3) and (4) of the CEA and 

Commission regulation 23.606 require a registered 

SD or MSP to make all records required to be 

maintained in accordance with Commission 

regulation 1.31 available promptly upon request to, 

among others, representatives of the Commission. 

See also 7 U.S.C. § 6s(f); 17 CFR 23.203. In the 

Guidance, the Commission states that it ‘‘reserves 

this right to access records held by registered [SDs] 

and MSPs, including those that are non-U.S. 

persons who may comply with the Dodd-Frank 

recordkeeping requirement through substituted 

compliance.’’ 78 FR 45345 n. 472; see also id. at 

45342 n. 461 (affirming the Commission’s authority 

under the CEA and its regulations to access books 

and records held by registered SDs and MSPs as ‘‘a 

fundamental regulatory tool necessary to properly 

monitor and examine each registrant’s compliance 

with the CEA and the regulations adopted pursuant 

thereto’’). 

39The Commission retains its examination 

authority, both during the application process as 

well as upon and after registration of an SD or MSP. 

See 78 FR 45342 (stating Commission policy that 

‘‘eligible entities may comply with a substituted 

compliance regime under certain circumstances, 

subject, however, to the Commission’s retention of 

its examination authority’’) and 45344 n. 471 

(stating that the ‘‘Commission may, as it deems 

appropriate and necessary, conduct an on-site 

examination of the applicant’’). 40See 7 U.S.C. § 6s(i). 

material changes to information 

submitted in support of a comparability 

determination (including, but not 

limited to, changes in the relevant 

supervisory or regulatory regime) as, 

depending on the nature of the change, 

the Commission’s comparability 

determination may no longer be valid.34

The Guidance provided a detailed 

discussion of the Commission’s policy 

regarding the availability of substituted 

compliance 35 for the Business Conduct 

Requirements. 

V. Supervisory Arrangement 

In the Guidance, the Commission 

stated that, in connection with a 

determination that substituted 

compliance is appropriate, it would 

expect to enter into an appropriate 

memorandum of understanding 

(‘‘MOU’’) or similar arrangement 36 with 

the relevant foreign regulator(s). 

Although existing arrangements would 

indicate a foreign regulator’s ability to 

cooperate and share information, ‘‘going 

forward, the Commission and relevant 

foreign supervisor(s) would need to 

establish supervisory MOUs or other 

arrangements that provide for 

information sharing and cooperation in 

the context of supervising SDs and 

MSPs.’’37

The Commission is in the process of 

developing its registration and 

supervision regime for provisionallyregistered SDs and MSPs. This new 

initiative includes setting forth 

supervisory arrangements with 

authorities that have joint jurisdiction 

over SDs and MSPs that are registered 

with the Commission and subject to 

U.S. law. Given the developing nature of 

the Commission’s regime and the fact 

that the Commission has not negotiated 

prior supervisory arrangements with 

certain authorities, the negotiation of 

supervisory arrangements presents a 

unique opportunity to develop close 

working relationships between and 

among authorities, as well as highlight 

any potential issues related to 

cooperation and information sharing. 

Accordingly, the Commission is 

negotiating such a supervisory 

arrangement with each applicable 

foreign regulator of an SD or MSP. The 

Commission expects that the 

arrangement will establish expectations 

for ongoing cooperation, address direct 

access to information,38 provide for 

notification upon the occurrence of 

specified events, memorialize 

understandings related to on-site 

visits,39 and include protections related 

to the use and confidentiality of nonpublic information shared pursuant to 

the arrangement. 

These arrangements will establish a 

roadmap for how authorities will 

consult, cooperate, and share 

information. As with any such 

arrangement, however, nothing in these 

arrangements will supersede domestic 

laws or resolve potential conflicts of 

law, such as the application of domestic 

secrecy or blocking laws to regulated 

entities. 

VI. Comparability Determination and 

Analysis 

The following section describes the 

requirements imposed by specific 

sections of the CEA and the 

Commission’s regulations for the 

Business Conduct Requirements in the 

‘‘risk mitigation and transparency’’ 

category that are the subject of this 

comparability determination and the 

Commission’s regulatory objectives with 

respect to such requirements. 

Immediately following a description of 

the requirement(s) and regulatory 

objective(s) of the specific Business 

Conduct Requirements that the 

applicant submitted for a comparability 

determination, the Commission 

provides a description of the foreign 

jurisdiction’s comparable laws, 

regulations, or rules and whether such 

laws, regulations, or rules meet the 

applicable regulatory objective. 

The Commission’s determinations in 

this regard and the discussion in this 

section are intended to inform the 

public of the Commission’s views 

regarding whether the foreign 

jurisdiction’s laws, regulations, or rules 

may be comparable to and as 

comprehensive as those requirements in 

the Dodd-Frank Act (and Commission 

regulations promulgated thereunder) 

and therefore, may form the basis of 

substituted compliance. In turn, the 

public (in the foreign jurisdiction, in the 

United States, and elsewhere) retains its 

ability to present facts and 

circumstances that would inform the 

determinations set forth in this release. 

As was stated in the Guidance, the 

Commission understands the complex 

and dynamic nature of the global swap 

market and the need to take an 

adaptable approach to cross-border 

issues, particularly as it continues to 

work closely with foreign regulators to 

address potential conflicts with respect 

to each country’s respective regulatory 

regime. In this regard, the Commission 

may review, modify, or expand the 

determinations herein in light of 

comments received and future 

developments. 

A. Swap Trading Relationship 

Documentation (§ 23.504) 

Commission Requirement: Section 

4s(i) of the CEA requires each SD and 

MSP to conform to Commission 

standards for the timely and accurate 

confirmation, processing, netting, 

documentation, and valuation of 

swaps.40 Pursuant to this requirement, 

the Commission adopted § 23.504. 

Pursuant to § 23.504(a), SDs and 

MSPs must have policies and 

procedures reasonably designed to 

ensure that the SD or MSP enters into 

swap trading relationship 

documentation with each counterparty 

prior to executing any swap with such 

counterparty. Such requirement does 

not apply to cleared swaps. 

Pursuant to § 23.504(b), SDs and 

MSPs must, at a minimum, document 

terms relating to: 

• Payment obligations; 

• Netting of payments; 

• Events of default or other 

termination events; 

• Netting of obligations upon 

termination; 

• Transfer of rights/obligations; 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 78, No. 249 / Friday, December 27, 2013 / Notices 78895 

41See § 23.504(b)(5) and (6). 

• Governing law; 

• Valuation—must be able to value 

swaps in a predictable and objective 

manner—complete and independently 

verifiable methodology for valuation; 

• Dispute resolution procedures; and 

• Credit support arrangements with 

initial/variation margin at least as high 

as set for SD/MSPs or prudential 

regulator (identifying haircuts and class 

of eligible assets). 

Regulatory Objective: Through 

Commission regulation 23.504, the 

Commission seeks to reduce the legal, 

operational, counterparty credit, and 

market risk that can arise from 

undocumented swaps or undocumented 

terms of swaps. Inadequate 

documentation of swap transactions is 

more likely to result in collateral and 

legal disputes, thereby exposing 

counterparties to significant 

counterparty credit risk. 

In particular, documenting 

agreements regarding valuation is 

critical because, as the Commission has 

noted, the ability to determine 

definitively the value of a swap at any 

given time lies at the center of many of 

the OTC derivatives market reforms 

contained in the Dodd-Frank Act and is 

a cornerstone of risk management. With 

respect to other SDs/MSPs and financial 

entities, or upon request of any other 

counterparty, the regulation requires 

agreement on the process (including 

alternatives and dispute resolution 

procedures) for determining the value of 

each swap for the duration of such swap 

for purposes of complying with the 

Commission’s margin and risk 

management requirements, with such 

valuations based on objective criteria to 

the extent practicable. 

Comparable Japanese Law and 

Regulations: The applicant has 

represented to the Commission that the 

following provisions of law and 

regulations applicable in Japan are in 

full force and effect in Japan, and 

comparable to and as comprehensive as 

section 4s(i) of the CEA and 

Commission regulation 23.504. 

Article 37–3 of the FIEA and Article 

99 of the FIB Ordinance requires RFIs/ 

FIBOs that intend to conclude a swap 

transaction to deliver to their customer 

documentation that outlines all relevant 

terms of the swap transaction. Such 

documentation must be delivered prior 

to execution in order to ‘‘ensure that the 

customer can make a decision on 

whether to conclude the contract with a 

full understanding on the content...of 

the contract.’’ In addition to describing 

all relevant terms of the transactions, 

the pre-execution documentation must 

identify: 

• How the obligations arising from 

the swap transactions will be 

performed; 

• Settlement terms; 

• Events on default or termination; 

• The name or trade name of the 

designated dispute resolution 

organization (if any), or the details of 

the grievances settlement procedures 

and dispute resolution measures; and 

• The types of and computation 

method of the amount of customer 

margins or other guarantee money 

which a customer is required to deposit 

regarding the swap transactions, the 

types of an prices applicable to 

properties, etc. which may be deposited 

as customer margins or other guarantee 

money and matters equivalent thereto, 

and how customer margins or other 

guarantee money will be deposited by or 

returned to the customer. 

II–1–2.1(5)(i) and (ii) of the Inspection 

Manual for FIBOs requires RFIs/FIBOs 

to develop internal controls to verify 

compliance with these documentation 

requirements, including a system to 

verify that the written documents were 

issued before the agreements were 

concluded. Such internal controls must 

be approved by the RFI’s/FIBO’s board 

of directors. In addition, pursuant to 

IV(1) of the Checklist for Business Risk 

Management (Governance) of the 

Inspection Manual for banks, banks are 

required to develop an external audit 

system to review the effectiveness of 

these internal controls on at least an 

annual basis. II–1–1.4(1) of the 

Inspection Manual for FIBOs requires a 

RFI/FIBO’s board of directors to 

establish an internal audit system to 

verify the appropriateness and 

effectiveness of these internal controls 

by setting up a highly independent 

internal audit division. 

Commission Determination: The 

Japanese standards specified above 

require OTC derivative contracts 

entered into between RFIs/FIBOs and 

their customers to be confirmed in 

writing, which corresponds to the 

requirements of Commission regulation 

23.504(b)(2). 

Pursuant to the FIEA, RFIs and FIBOs 

are required to document the 

computation method of the customer 

margins or other guarantee money that 

the customer is required to deposit 

regarding the swap transactions. This 

corresponds with Commission 

regulation 23.504(b)(3) and (b)(4)(i), 

which requires SDs and MSPs to engage 

in daily valuation with other SDs and 

MSPs, and financial entities. 

Under the Japanese standards, when 

concluding OTC derivative contracts 

with each other, counterparties must 

have agreed detailed procedures and 

processes in relation to: (a) 

identification, recording, and 

monitoring of disputes relating to the 

recognition or valuation of the contracts 

and to the exchange of collateral 

between counterparties, and (b) the 

resolution of disputes in a timely 

manner. These aspects of the Japanese 

standards correspond to the valuation 

documentation requirements under 

Commission regulation 23.504(b)(4), 

which also require use of market 

transactions for valuations to the extent 

practicable, or other objective criteria, 

and an agreement on detailed processes 

for valuation dispute resolution for 

purposes of complying with margin 

requirements. 

Generally identical in intent to 

§ 23.504(b)(2), (3), and (4), the Japanese 

confirmation and valuation 

documentation requirements are 

designed to reduce the legal, 

operational, counterparty credit, and 

market risk that can arise from 

undocumented transactions or terms, 

reducing the risk of collateral and legal 

disputes, and exposure of counterparties 

to significant counterparty credit risk. 

Moreover, generally identical in 

intent to § 23.504(a)(2), (b)(1), (c), and 

(d), the Japanese standards require that 

SDs and MSPs establish policies and 

procedures, including audit procedures, 

approved in writing by senior 

management of the SD or MSP, 

reasonably designed to ensure that they 

have entered into swap trading 

relationship documentation in 

compliance with appropriate standards 

with each counterparty prior to or 

contemporaneously with entering into a 

swap transaction with such 

counterparty. 

Based on the foregoing and the 

representations of the applicant, the 

Commission finds the confirmation and 

valuation documentation requirements 

of the Japanese standards specified 

above are comparable to and as 

comprehensive as the swap trading 

relationship documentation 

requirements of Commission regulations 

23.504(a)(2), (b)(1), (2), (3), and (4), (c), 

and (d). 

The foregoing comparability 

determination does not extend to the 

requirement that such documentation 

include notice of the status of the 

counterparty under the orderly 

liquidation procedures of Title II of the 

Dodd-Frank Act, and the effect of 

clearing on swaps executed 

bilaterally.41


tkelley on DSK3SPTVN1PROD with NOTICES
78896 Federal Register / Vol. 78, No. 249 / Friday, December 27, 2013 / Notices 

B. Daily Trading Records (§ 23.202) 

Commission Requirement: Section 

4s(g)(1) of the CEA and Commission 

regulation 23.202 generally require that 

SDs and MSPs retain daily trading 

records for swaps and related cash and 

forward transactions, including: 

• Documents on which transaction 

information is originally recorded; 

• All information necessary to 

conduct a comprehensive and accurate 

trade reconstruction; 

• Pre-execution trade information 

including records of all oral and written 

communications concerning quotes, 

solicitations, bids, offers, instructions, 

trading, and prices that lead to the 

execution of a swap or related cash and 

forward transactions, whether 

communicated by phone, fax, instant 

messaging, chat rooms, email, mobile 

device, or other digital or electronic 

media; 

• Reliable timing date for the 

initiation of a trade; 

• A record of the time, to the nearest 

minute using Coordinated Universal 

Time (UTC), of each quotation provided 

or received prior to trade execution; 

• Execution trade information 

including the terms of each swap and 

related cash or forward transaction, 

terms regarding payment or settlement, 

initial and variation margin 

requirements, option premiums, and 

other cash flows; 

• The trade ticket for each swap and 

related cash or forward transaction; 

• The date and time of execution of 

each swap and related cash or forward 

transaction to the nearest minute using 

UTC; 

• The identity of the counterparty 

and the date and title of the agreement 

to which each swap is subject, including 

any swap trading relationship 

documentation and credit support 

arrangements; 

• The product name and identifier, 

the price at which the swap was 

executed, and the fees, commissions 

and other expenses applicable; 

• Post-execution trade information 

including records of confirmation, 

termination, novation, amendment, 

assignment, netting, compression, 

reconciliation, valuation, margining, 

collateralization, and central clearing; 

• The time of confirmation to the 

nearest minute using UTC; 

• Ledgers of payments and interest 

received, moneys borrowed and loaned, 

daily swap valuations, and daily 

calculation of current and potential 

future exposure for each counterparty; 

• Daily calculation of initial and 

variation margin requirements; 

• Daily calculation of the value of 

collateral, including haircuts; 

• Transfers of collateral, including 

substitutions, and the types of collateral 

transferred; and 

• Credits and debits for each 

counterparty’s account. 

Daily trading records must be 

maintained in a form and manner 

identifiable and searchable by 

transaction and counterparty, and 

records of swaps must be maintained for 

the duration of the swap plus five years, 

and voice recordings for one year. 

Records must be ‘‘readily accessible’’ for 

the first two years of the five year 

retention period (consistent with § 1.31). 

Regulatory Objective: Through 

§ 23.202, the Commission seeks to 

ensure that an SD’s or MSP’s records 

include all information necessary to 

conduct a comprehensive and accurate 

trade reconstruction for each swap, 

which necessarily requires the records 

to be identifiable by transaction and 

counterparty. Complete and accurate 

trade reconstruction is critical for both 

regulatory oversight and investigations 

of illegal activity pursuant to the 

Commission’s enforcement authority. 

The Commission believes that a 

comprehensive and accurate trade 

reconstruction requires records of preexecution, execution, and postexecution trade information. 

Comparable Japanese Law and 

Regulations: The applicant has 

represented to the Commission that the 

following provisions of law and 

regulations applicable in Japan are in 

full force and effect in Japan, and 

comparable to and as comprehensive as 

section 4s(g) of the CEA and 

Commission regulation 23.202. 

Article 156–64(1) and (2) of the FIEA, 

II–2–1 2.(1)(iv) of the FIBO Inspection 

Manual, and II.1.1(3)(iii) of the 

Checklist for Customer Protection 

Management, requires a RFI/FIBO to 

retain records for swaps and related 

cash and forward transactions, 

including: 

• Documents prior to the conclusion 

of a contract that outline the terms of a 

swap transaction; 

• 24-hour audio recordings of trading 

by dealers; 

• Order tickets for each swap and 

related cash or forward transactions; 

• The date and time the order was 

accepted and the date and time the 

order was filled, both of which must be 

recorded by time of day, of each swap 

and related cash or forward transaction; 

• Product name (items to be listed in 

the books and documents may be 

entered using codes, brevity codes or 

any other symbols that have been 

standardized by the relevant RFI/FIBO); 

• Price at which the swap was 

executed, and the fees, commissions 

and other expenses applicable; 

• Documents upon conclusion of a 

contract that contain an outline of swap 

transactions, the name of the customer, 

as well as trading daily books and 

customer account ledgers that contain 

transaction histories; 

• Ledgers of the customer fees, 

margin transaction payment interest, 

margin transactions receipt interest, 

security borrowing fee or security 

lending fee; 

• Guarantee money on deposit, 

customer margin, trade margin or other 

matters regarding collateral property 

(the distinction between cash or 

security, etc. deposited as margin, date 

of receipt or date of return, issue name, 

volume or amount of money); and 

• Debit or credit of money and 

balances of all accounts. 

Pursuant to the OTC Derivative 

Ordinance, FIEA Enforcement Order, 

FIB Ordinance, and the Supervisory 

Guideline for FIBOs, records of swaps of 

RFIs/FIBOs must be in writing and 

maintained for a period from 5 to 10 

years, depending on the specific record 

at issue. III–16(iv) of the Checklist for 

Market Risk Management of the 

Inspection Manual for banks assesses 

whether voice recordings are 

maintained for all traders on a 24-hour 

basis, recorded tapes are stored for a 

prescribed period of time, and retained 

‘‘under the control of an organization 

segregated from the market and backoffice divisions.’’. 

III–2-(1)(viii) in Exhibit 1 of the 

Checklist for Operational Risk 

Management of the Inspection Manual 

for banks and II–2–1.2(1) of the 

Inspection Manual for FIBOs assesses 

whether documentary evidence such as 

transaction data are stored for a period 

specified by the internal rules and 

operational procedures, etc., but at least 

one year. 

In addition, III–3–10–2(3) (iv) of 

Supervisory Guideline for banks 

specifically requires banks to have the 

personnel and systems to respond in a 

timely and appropriate manner to 

inspections and supervision provided 

by overseas regulatory authorities. In 

view of maintaining direct dialog and 

smooth communications with the 

relevant overseas regulatory authorities, 

this provision ensures the establishment 

of a reporting system which enables 

timely and appropriate reporting. 

Similarly, IV–5–2(i) of Supervisory 

Guideline for FIBOs would ensure the 

availability of information to a regulator 

promptly upon request. Under this 

provision, the JFSA assesses whether a 

designated parent company of a FIBO 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 78, No. 249 / Friday, December 27, 2013 / Notices 78897 

1 Interpretive Guidance and Policy Statement 

Regarding Compliance with Certain Swap 

Regulations, 78 FR 45292 (Jul. 26, 2013). 

2http://www.cftc.gov/PressRoom/ 

SpeechesTestimony/omaliastatement071213b. 

3CEA section 2(i); 7 U.S.C. 2(i). 

4Title VII of the Dodd-Frank Wall Street Reform 

and Consumer Protection Act, Public Law 111–203, 

124 Stat. 1376 (2010). 

5http://www.cftc.gov/PressRoom/PressReleases/

pr6678–13. 

ensures group-wide compliance with 

the relevant laws, regulations and rules 

of each country in which it does 

business by establishing an appropriate 

control environment for legal 

compliance in accordance with the size 

of its overseas bases and the 

characteristics of its business 

operations. 

The JFSA has informed the 

Commission that, in the process of its 

oversight and enforcement of the 

foregoing Japanese standards for FIBOs 

and RFIs, any SD or MSP would be 

subject to such standards and required 

to record pre-execution trade 

information, communicated by not only 

telephone but also other forms of 

communication comparable to those 

listed in § 23.202(a)(1) and (b)(1). 

Commission Determination: The 

Commission finds that compliance with 

Japanese standards would enable the 

relevant competent authority to conduct 

a comprehensive and accurate trade 

reconstruction for each swap, which the 

Commission finds generally meets the 

regulatory objective of § 23.202. 

In addition, the Commission finds 

that the Japanese standards specified 

above would ensure Commission access 

to the required books and records of SDs 

and MSPs by requiring personnel and 

systems necessary to respond in a 

timely and appropriate manner to 

inspections and supervision provided 

by overseas regulatory authorities. 

Based on the foregoing and the 

representations of the applicant, the 

Commission hereby determines that the 

daily trading records requirements of 

Japan’s standards are comparable to and 

as comprehensive as § 23.202. 

Issued in Washington, DC on December 20, 

2013, by the Commission. 

Melissa D. Jurgens, 

Secretary of the Commission. 

Appendices to Comparability 

Determination for Japan: Certain 

Transaction-Level Requirements 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Gensler and 

Commissioners Chilton and Wetjen 

voted in the affirmative. Commissioner 

O’Malia voted in the negative. 

Appendix 2—Statement of Chairman 

Gary Gensler and Commissioners 

Chilton and Wetjen 

We support the Commission’s approval of 

broad comparability determinations that will 

be used for substituted compliance purposes. 

For each of the six jurisdictions that has 

registered swap dealers, we carefully 

reviewed each regulatory provision of the 

foreign jurisdictions submitted to us and 

compared the provision’s intended outcome 

to the Commission’s own regulatory 

objectives. The resulting comparability 

determinations for entity-level requirements 

permit non-U.S. swap dealers to comply with 

regulations in their home jurisdiction as a 

substitute for compliance with the relevant 

Commission regulations. 

These determinations reflect the 

Commission’s commitment to coordinating 

our efforts to bring transparency to the swaps 

market and reduce its risks to the public. The 

comparability findings for the entity-level 

requirements are a testament to the 

comparability of these regulatory systems as 

we work together in building a strong 

international regulatory framework. 

In addition, we are pleased that the 

Commission was able to find comparability 

with respect to swap-specific transactionlevel requirements in the European Union 

and Japan. 

The Commission attained this benchmark 

by working cooperatively with authorities in 

Australia, Canada, the European Union, Hong 

Kong, Japan, and Switzerland to reach 

mutual agreement. The Commission looks 

forward to continuing to collaborate with 

both foreign authorities and market 

participants to build on this progress in the 

months and years ahead. 

Appendix 3—Dissenting Statement of 

Commissioner Scott D. O’Malia 

I respectfully dissent from the Commodity 

Futures Trading Commission’s 

(‘‘Commission’’) approval of the Notices of 

Comparability Determinations for Certain 

Requirements under the laws of Australia, 

Canada, the European Union, Hong Kong, 

Japan, and Switzerland (collectively, 

‘‘Notices’’). While I support the narrow 

comparability determinations that the 

Commission has made, moving forward, the 

Commission must collaborate with foreign 

regulators to harmonize our respective 

regimes consistent with the G–20 reforms. 

However, I cannot support the Notices 

because they: (1) Are based on the legally 

unsound cross-border guidance 

(‘‘Guidance’’);1 (2) are the result of a flawed 

substituted compliance process; and (3) fail 

to provide a clear path moving forward. If the 

Commission’s objective for substituted 

compliance is to develop a narrow rule-byrule approach that leaves unanswered major 

regulatory gaps between our regulatory 

framework and foreign jurisdictions, then I 

believe that the Commission has successfully 

achieved its goal today. 

Determinations Based on Legally 

Unsound Guidance 

As I previously stated in my dissent, 

the Guidance fails to articulate a valid 

statutory foundation for its overbroad 

scope and inconsistently applies the 

statute to different activities.2 Section 

2(i) of the Commodity Exchange Act 

(‘‘CEA’’) states that the Commission 

does not have jurisdiction over foreign 

activities unless ‘‘those activities have a 

direct and significant connection with 

activities in, or effect on, commerce of 

the United States . . .’’ 3 However, the 

Commission never properly articulated 

how and when this limiting standard on 

the Commission’s extraterritorial reach 

is met, which would trigger the 

application of Title VII of the DoddFrank Act4 and any Commission 

regulations promulgated thereunder to 

swap activities that are outside of the 

United States. Given this statutorily 

unsound interpretation of the 

Commission’s extraterritorial authority, 

the Commission often applies CEA 

section 2(i) inconsistently and 

arbitrarily to foreign activities. 

Accordingly, because the Commission 

is relying on the legally deficient 

Guidance to make its substituted 

compliance determinations, and for the 

reasons discussed below, I cannot 

support the Notices. The Commission 

should have collaborated with foreign 

regulators to agree on and implement a 

workable regime of substituted 

compliance, and then should have made 

determinations pursuant to that regime. 

Flawed Substituted Compliance Process 

Substituted compliance should not be 

a case of picking a set of foreign rules 

identical to our rules, determining them 

to be ‘‘comparable,’’ but then making no 

determination regarding rules that 

require extensive gap analysis to assess 

to what extent each jurisdiction is, or is 

not, comparable based on overall 

outcomes of the regulatory regimes. 

While I support the narrow 

comparability determinations that the 

Commission has made, I am concerned 

that in a rush to provide some relief, the 

Commission has made substituted 

compliance determinations that only 

afford narrow relief and fail to address 

major regulatory gaps between our 

domestic regulatory framework and 

foreign jurisdictions. I will address a 

few examples below. 

First, earlier this year, the OTC 

Derivatives Regulators Group (‘‘ODRG’’) 

agreed to a number of substantive 

understandings to improve the crossborder implementation of over-thecounter derivatives reforms.5 The ODRG 

specifically agreed that a flexible, 

outcomes-based approach, based on a 

broad category-by-category basis, should 


tkelley on DSK3SPTVN1PROD with NOTICES
78898 Federal Register / Vol. 78, No. 249 / Friday, December 27, 2013 / Notices 

6http://www.cftc.gov/ucm/groups/public/@

newsroom/documents/file/odrgreport.pdf. The 

ODRG agreed to six understandings. Understanding 

number 2 states that ‘‘[a] flexible, outcomes-based 

approach should form the basis of final assessments 

regarding equivalence or substituted compliance.’’ 

7The Commission made a positive comparability 

determination for Commission regulations 

23.504(a)(2), (b)(1), (b)(2), (b)(3), (b)(4), (c), and (d), 

but not for Commission regulations 23.504(b)(5) and 

(b)(6). 

8 Yen-denominated interest rate swaps are subject 

to the mandatory clearing requirement in both the 

U.S. and Japan. 

9Exemptive Order Regarding Compliance With 

Certain Swap Regulations, 78 FR 43785 (Jul. 22, 

2013). 

10http://www.cftc.gov/PressRoom/Speeches

Testimony/opaomalia-29. 

11http://www.cftc.gov/PressRoom/

SpeechesTestimony/omaliastatement071213b. 

form the basis of comparability 

determinations.6

However, instead of following this 

approach, the Commission has made its 

comparability determinations on a ruleby-rule basis. For example, in Japan’s 

Comparability Determination for 

Transaction-Level Requirements, the 

Commission has made a positive 

comparability determination for some of 

the detailed requirements under the 

swap trading relationship 

documentation provisions, but not for 

other requirements.7 This detailed 

approach clearly contravenes the 

ODRG’s understanding. 

Second, in several areas, the 

Commission has declined to consider a 

request for a comparability 

determination, and has also failed to 

provide an analysis regarding the extent 

to which the other jurisdiction is, or is 

not, comparable. For example, the 

Commission has declined to address or 

provide any clarity regarding the 

European Union’s regulatory data 

reporting determination, even though 

the European Union’s reporting regime 

is set to begin on February 12, 2014. 

Although the Commission has provided 

some limited relief with respect to 

regulatory data reporting, the lack of 

clarity creates unnecessary uncertainty, 

especially when the European Union’s 

reporting regime is set to begin in less 

than two months. 

Similarly, Japan receives no 

consideration for its mandatory clearing 

requirement, even though the 

Commission considers Japan’s legal 

framework to be comparable to the U.S. 

framework. While the Commission has 

declined to provide even a partial 

comparability determination, at least in 

this instance the Commission has 

provided a reason: the differences in the 

scope of entities and products subject to 

the clearing requirement.8 Such 

treatment creates uncertainty and is 

contrary to increased global 

harmonization efforts. 

Third, in the Commission’s rush to 

meet the artificial deadline of December 

21, 2013, as established in the 

Exemptive Order Regarding Compliance 

with Certain Swap Regulations 

(‘‘Exemptive Order’’),9 the Commission 

failed to complete an important piece of 

the cross-border regime, namely, 

supervisory memoranda of 

understanding (‘‘MOUs’’) between the 

Commission and fellow regulators. 

I have previously stated that these 

MOUs, if done right, can be a key part 

of the global harmonization effort 

because they provide mutually agreedupon solutions for differences in 

regulatory regimes.10 Accordingly, I 

stated that the Commission should be 

able to review MOUs alongside the 

respective comparability determinations 

and vote on them at the same time. 

Without these MOUs, our fellow 

regulators are left wondering whether 

and how any differences, such as direct 

access to books and records, will be 

resolved. 

Finally, as I have consistently 

maintained, the substituted compliance 

process should allow other regulatory 

bodies to engage with the full 

Commission.11 While I am pleased that 

the Notices are being voted on by the 

Commission, the full Commission only 

gained access to the comment letters 

from foreign regulators on the 

Commission’s comparability 

determination draft proposals a few 

days ago. This is hardly a transparent 

process. 

Unclear Path Forward 

Looking forward to next steps, the 

Commission must provide answers to 

several outstanding questions regarding 

these comparability determinations. In 

doing so, the Commission must 

collaborate with foreign regulators to 

increase global harmonization. 

First, there is uncertainty surrounding 

the timing and outcome of the MOUs. 

Critical questions regarding information 

sharing, cooperation, supervision, and 

enforcement will remain unanswered 

until the Commission and our fellow 

regulators execute these MOUs. 

Second, the Commission has issued 

time-limited no-action relief for the 

swap data repository reporting 

requirements. These comparability 

determinations will be done as separate 

notices. However, the timing and 

process for these determinations remain 

uncertain. 

Third, the Commission has failed to 

provide clarity on the process for 

addressing the comparability 

determinations that it declined to 

undertake at this time. The Notices only 

state that the Commission may address 

these requests in a separate notice at a 

later date given further developments in 

the law and regulations of other 

jurisdictions. To promote certainty in 

the financial markets, the Commission 

must provide a clear path forward for 

market participants and foreign 

regulators. 

The following steps would be a better 

approach: (1) The Commission should 

extend the Exemptive Order to allow 

foreign regulators to further implement 

their regulatory regimes and coordinate 

with them to implement a harmonized 

substituted compliance process; (2) the 

Commission should implement a 

flexible, outcomes-based approach to 

the substituted compliance process and 

apply it similarly to all jurisdictions; 

and (3) the Commission should work 

closely with our fellow regulators to 

expeditiously implement MOUs that 

resolve regulatory differences and 

address regulatory oversight issues. 

Conclusion 

While I support the narrow 

comparability determinations that the 

Commission has made, it was my hope 

that the Commission would work with 

foreign regulators to implement a 

substituted compliance process that 

would increase the global 

harmonization effort. I am disappointed 

that the Commission has failed to 

implement such a process. 

I do believe that in the longer term, 

the swaps regulations of the major 

jurisdictions will converge. At this time, 

however, the Commission’s 

comparability determinations have done 

little to alleviate the burden of 

regulatory uncertainty and duplicative 

compliance with both U.S. and foreign 

regulations. 

The G–20 process delineated and put 

in place the swaps market reforms in G– 

20 member nations. It is then no 

surprise that the Commission must learn 

to coordinate with foreign regulators to 

minimize confusion and disruption in 

bringing much needed clarity to the 

swaps market. For all these 

shortcomings, I respectfully dissent 

from the Commission’s approval of the 

Notices. 

[FR Doc. 2013–30977 Filed 12–26–13; 8:45 am] 

BILLING CODE 6351–01–P 


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