858 Federal Register / Vol. 78, No. 4 / Monday, January 7, 2013 / Rules and Regulations 

• Required parts will cost about 

$21,775 for the left container assembly 

and $26,690 for the right container 

assembly per helicopter. 

Based on these figures, we estimate 

the AD’s total cost impact on U.S. 

operators to be $485,075, assuming 10 

helicopters require replacement of the 

right and left container assemblies. 

Authority for This Rulemaking 

Title 49 of the United States Code 

specifies the FAA’s authority to issue 

rules on aviation safety. Subtitle I, 

section 106, describes the authority of 

the FAA Administrator. Subtitle VII: 

Aviation Programs, describes in more 

detail the scope of the Agency’s 

authority. 

We are issuing this rulemaking under 

the authority described in Subtitle VII, 

Part A, Subpart III, Section 44701: 

‘‘General requirements.’’ Under that 

section, Congress charges the FAA with 

promoting safe flight of civil aircraft in 

air commerce by prescribing regulations 

for practices, methods, and procedures 

the Administrator finds necessary for 

safety in air commerce. This regulation 

is within the scope of that authority 

because it addresses an unsafe condition 

that is likely to exist or develop on 

helicopters identified in this rulemaking 

action. 

Regulatory Findings 

This AD will not have federalism 

implications under Executive Order 

13132. This AD will not have a 

substantial direct effect on the States, on 

the relationship between the national 

government and the States, or on the 

distribution of power and 

responsibilities among the various 

levels of government. 

For the reasons discussed above, I 

certify that this AD: 

(1) Is not a ‘‘significant regulatory 

action’’ under Executive Order 12866; 

(2) Is not a ‘‘significant rule’’ under 

DOT Regulatory Policies and Procedures 

(44 FR 11034, February 26, 1979); 

(3) Will not affect intrastate aviation 

in Alaska to the extent that it justifies 

making a regulatory distinction; and 

(4) Will not have a significant 

economic impact, positive or negative, 

on a substantial number of small entities 

under the criteria of the Regulatory 

Flexibility Act. 

We prepared an economic evaluation 

of the estimated costs to comply with 

this AD and placed it in the AD docket. 

List of Subjects in 14 CFR Part 39 

Air transportation, Aircraft, Aviation 

safety, Incorporation by reference, 

Safety. 

Adoption of the Amendment 

Accordingly, under the authority 

delegated to me by the Administrator, 

the FAA amends 14 CFR part 39 as 

follows: 

PART 39—AIRWORTHINESS 

DIRECTIVES 

■ 1. The authority citation for part 39 

continues to read as follows: 

Authority: 49 U.S.C. 106(g), 40113, 44701. 

§ 39.13 [Amended] 

■ 2. The FAA amends § 39.13 by adding 

the following new airworthiness 

directive (AD): 

2012–26–07 Eurocopter France Helicopters: 

Amendment 39–17302; Docket No. 

FAA–2012–0774; Directorate Identifier 

2010–SW–057–AD. 

(a) Applicability 

This AD applies to Model AS350BA 

helicopters with AERAZUR left-hand 

emergency flotation gear container assembly 

(container assembly), part number (P/N) 

158170 or 158210–1, or right-hand container 

assembly, P/N 158171 or 158215–1, installed, 

certificated in any category. 

(b) Unsafe Condition 

This AD defines the unsafe condition as 

failure of the container assembly because of 

age. This condition could result in damage to 

the helicopter and injury to the occupants 

after an emergency water landing. 

(c) Effective Date 

This AD becomes effective February 11, 

2013. 

(d) Compliance 

You are responsible for performing each 

action required by this AD within the 

specified compliance time unless it has 

already been accomplished prior to that time. 

(e) Required Actions 

(1) Determine the manufacturing date of 

each part-numbered container assembly 

stamped on the cover of the identification 

plate. 

(2) Replace each container assembly with 

an airworthy container assembly as follows: 

(i) For a container assembly with a date of 

manufacture 12 or more years before the 

effective date of this AD, replace within 30 

days. 

(ii) For a container assembly with a date of 

manufacture 10 or more years and less than 

12 years before the effective date of this AD, 

replace within 60 days. 

(iii) For a container assembly with a date 

of manufacture 9 or more years and less than 

10 years before the effective date of this AD, 

replace before reaching 10 years and 60 days. 

(iv) For a container assembly with a date 

of manufacture less than 9 years before the 

effective date of this AD, replace before 

reaching 10 years. 

(f) Alternative Methods of Compliance 

(AMOCs) 

(1) The Manager, Aviation Safety Group, 

FAA, may approve AMOCs for this AD. Send 

your proposal to: Gary Roach, Aviation 

Safety Engineer, Regulations and Policy 

Group, Rotorcraft Directorate, FAA, 2601 

Meacham Blvd., Fort Worth, Texas 76137; 

telephone (817) 222–5110; email 

gary.b.roach@faa.gov. 

(2) For operations conducted under a 14 

CFR part 119 operating certificate or under 

14 CFR part 91, subpart K, we suggest that 

you notify your principal inspector, or 

lacking a principal inspector, the manager of 

the local flight standards district office or 

certificate holding district office, before 

operating any aircraft complying with this 

AD through an AMOC. 

(g) Additional Information 

(1) Eurocopter Alert Service Bulletin No. 

25.01.02, dated September 24, 2008, which is 

not incorporated by reference, contains 

additional information about the subject of 

this AD. For service information identified in 

this AD, contact American Eurocopter 

Corporation, 2701 Forum Drive, Grand 

Prairie, TX 75053–4005, telephone (800) 

232–0323, fax (972) 641–3710, or at http:// 

www.eurocopter.com. You may review a 

copy of the service information at the FAA, 

Office of the Regional Counsel, Southwest 

Region, 2601 Meacham Blvd., Room 663, Fort 

Worth, Texas 76137. 

(2) The subject of this AD is addressed in 

European Aviation Safety (EASA) AD No. 

2008–0189, dated October 10, 2008. 

(h) Subject 

Joint Aircraft Service Component (JASC) 

Code: 3212 Emergency Flotation Section. 

Issued in Fort Worth, Texas, on December 

20, 2012. 

Kim Smith, 

Directorate Manager, Rotorcraft Directorate, 

Aircraft Certification Service. 

[FR Doc. 2012–31584 Filed 1–4–13; 8:45 am] 

BILLING CODE 4910–13–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Chapter I 

RIN 3038–AD85 

Final Exemptive Order Regarding 

Compliance With Certain Swap 

Regulations 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final order. 

SUMMARY: On July 12, 2012, the 

Commodity Futures Trading 

Commission (‘‘Commission’’ or 

‘‘CFTC’’) published for public comment, 

pursuant to section 4(c) of the 

Commodity Exchange Act (‘‘CEA’’), a 

proposed order (‘‘Proposed Order’’) that 


TKELLEY on DSK3SPTVN1PROD with 
Federal Register / Vol. 78, No. 4 / Monday, January 7, 2013 / Rules and Regulations 859 

1See Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Law 111–203, 124 

Stat. 1376 (July 21, 2010). 

2 7 U.S.C. 1 et seq. (amended 2010). 

3 7 U.S.C. 2(i) 

4 7 U.S.C 6s. 

5Examples of section 4s implementing rules that 

become effective for SDs and MSPs at the time of 

their registration include requirements relating to 

swap data reporting (Commission regulation 

23.204) and conflicts of interest (Commission 

regulation 23.605(c)–(d)). The chief compliance 

officer requirement (Commission regulations 3.1 

and 3.3) is an example of those rules that have 

specific compliance dates. The compliance dates 

are summarized on the Compliance Dates page of 

the Commission’s Web site. (http://www.cftc.gov/ 

LawRegulation/DoddFrankAct/ComplianceDates/ 

index.htm). 

6These include rules under CEA section 4s(e), 7 

U.S.C. 6s(e) (governing capital and margin 

requirements for SDs and MSPs). 

7 ‘‘Cross-Border Application of Certain Swaps 

Provisions of the Commodity Exchange Act,’’ 77 FR 

41214, Jul. 12, 2012. 

8 7 U.S.C. 1a(49). 

9See ‘‘Further Definition of ‘Swap Dealer,’ 

‘Security-Based Swap Dealer,’ ‘Major Swap 

Participant,’ ‘Major Security-Based Swap 

Participant’ and ‘Eligible Contract Participant,’ ’’ 77 

FR 30596, May 23, 2012 (‘‘Final Entities Rules’’). 

10 7 U.S.C. 1a(33). 

11 ‘‘Exemptive Order Regarding Compliance With 

Certain Swap Regulations,’’ 77 FR 41110 Jul. 12, 

2012. 

would grant market participants 

temporary conditional relief from 

certain provisions of the CEA, as 

amended by Title VII of the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act (‘‘Dodd-Frank Act’’ or 

‘‘Dodd-Frank’’), and the Commission 

also published its proposed interpretive 

guidance and policy statement 

(‘‘Proposed Guidance’’) regarding the 

cross-border application of the swap 

provisions of the CEA as added by Title 

VII of the Dodd-Frank Act. The 

Commission has determined to finalize 

the Proposed Order, with certain 

modifications and clarifications to 

address public comments. Under this 

final order (‘‘Final Order’’), a non-U.S. 

person that registers as a swap dealer 

(‘‘SD’’) or major swap participant 

(‘‘MSP’’) may delay compliance with 

certain entity-level requirements of the 

CEA (and Commission regulations 

promulgated thereunder), and non-U.S. 

SDs and MSPs and foreign branches of 

U.S. SDs and MSPs may delay 

compliance with certain transactionlevel requirements of the CEA (and 

Commission regulations promulgated 

thereunder), subject to specified 

conditions. In addition, the Commission 

is separately proposing further guidance 

on certain specific aspects of the 

Proposed Guidance (‘‘Further Proposed 

Guidance’’). 

DATES: The Final Order is effective on 

December 21, 2012 and will expire on 

July 12, 2013. 

FOR FURTHER INFORMATION CONTACT: 

Carlene S. Kim, Deputy General 

Counsel, (202) 418–5613, 

ckim@cftc.gov, Terry Arbit, Deputy 

General Counsel, (202) 418–5357, 

tarbit@cftc.gov, Mark Fajfar, Assistant 

General Counsel, (202) 418–6636, 

mfajfar@cftc.gov, Office of General 

Counsel; Gary Barnett, Director, 

Division of Swap Dealer and 

Intermediary Oversight, (202) 418–5977, 

gbarnett@cftc.gov; Jacqueline H. Mesa, 

Director, Office of International Affairs, 

(202) 418–5386, jmesa@cftc.gov; 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On July 21, 2010, President Obama 

signed the Dodd-Frank Act,1 which 

amended the CEA 2 to establish a new 

regulatory framework for swaps. The 

legislation was enacted to reduce 

systemic risk, increase transparency, 

and promote market integrity within the 

financial system by, among other things: 

(1) Providing for the registration and 

comprehensive regulation of SDs and 

MSPs; (2) imposing clearing and trade 

execution requirements on standardized 

derivative products; (3) creating 

rigorous recordkeeping and data 

reporting regimes with respect to swaps, 

including real-time public reporting; 

and (4) enhancing the Commission’s 

rulemaking and enforcement authorities 

over all registered entities, 

intermediaries, and swap counterparties 

subject to the Commission’s oversight. 

Section 722(d) of the Dodd-Frank Act 

also amended the CEA to add section 

2(i), which provides that the swap 

provisions of the CEA 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 

rulemaking.3

In the two years since its enactment, 

the Commission has finalized 41 rules 

to implement Title VII of the DoddFrank Act. The finalized rules include 

those promulgated under CEA section 

4s,4 which address registration of SDs 

and MSPs and other substantive 

requirements applicable to SDs and 

MSPs. Notably, many section 4s 

requirements applicable to SDs and 

MSPs are tied to the date on which a 

person is required to register, unless a 

later compliance date is specified.5 A 

number of other rules specifically 

applicable to SDs and MSPs have been 

proposed but not finalized.6

Further, the Commission published 

for public comment the Proposed 

Guidance,7 which set forth the manner 

in which it proposed to interpret section 

2(i) of the CEA as it applies to the 

requirements under the Dodd-Frank Act 

and the Commission’s regulations 

promulgated thereunder regarding 

cross-border swap activities. 

Specifically, in the Proposed Guidance, 

the Commission described the general 

manner in which it proposed to 

consider: (1) Whether a non-U.S. 

person’s swap dealing activities are 

sufficient to require registration as a 

‘‘swap dealer’’,8 as further defined in a 

joint release adopted by the Commission 

and the Securities and Exchange 

Commission (‘‘SEC’’) (collectively, the 

‘‘Commissions’’); 9 (2) whether a nonU.S. person’s swap positions are 

sufficient to require registration as a 

‘‘major swap participant,’’ 10 as further 

defined in the Final Entities Rules; and 

(3) the treatment of foreign branches, 

agencies, affiliates, and subsidiaries of 

U.S. SDs and of U.S. branches of nonU.S. SDs. The Proposed Guidance also 

generally described the policy and 

procedural framework under which the 

Commission may permit compliance 

with a comparable regulatory 

requirement of a foreign jurisdiction to 

substitute for compliance with the 

requirements of the CEA. Last, the 

Proposed Guidance set forth the manner 

in which the Commission proposed to 

interpret section 2(i) of the CEA as it 

applies to the clearing, trading, and 

certain reporting requirements under 

the Dodd-Frank Act with respect to 

swaps between counterparties that are 

not SDs or MSPs. 

Contemporaneously with the 

Proposed Guidance, the Commission 

published the Proposed Order pursuant 

to section 4(c) of the CEA,11 in order to 

foster an orderly transition to the new 

swaps regulatory regime and to provide 

market participants greater certainty 

regarding their obligations with respect 

to cross-border swap activities during 

the pendency of the Proposed Order. 

The Proposed Order would grant 

temporary relief from certain swap 

provisions of Title VII of the DoddFrank Act. 

The public comment periods on the 

Proposed Order and the Proposed 

Guidance ended on August 13, 2012 and 

August 27, 2012, respectively. The 

Commission received approximately 26 

letters on the Proposed Order and 

approximately 288 letters on the 

Proposed Guidance from a variety of 

market participants and other interested 


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860 Federal Register / Vol. 78, No. 4 / Monday, January 7, 2013 / Rules and Regulations 

12Some of the commenters submitted a single 

comment letter addressing both the Proposed Order 

and the Proposed Guidance. The comment letters 

submitted in response to the Proposed Order and 

Proposed Guidance may be found on the 

Commission’s Web site at http://comments.cftc.gov/ 

PublicComments/CommentList.aspx?id=1234. 

Approximately 200 individuals submitted 

substantially identical letters to the effect that 

oversight of the $700 trillion global derivatives 

market is the key to meaningful reform. The letters 

stated that because the market is inherently global, 

risks can be transferred around the world with the 

touch of a button. Further, according to these 

letters, loopholes in the Proposed Guidance could 

allow foreign affiliates of Wall Street banks to 

escape regulation. Lastly, the letters requested that 

the Proposed Guidance be strengthened to ensure 

that the Dodd-Frank derivatives protections will 

directly apply to the full global activities of all 

important participants in the U.S. derivatives 

markets. 

13The records of these meetings and 

communications can be found on the Commission’s 

Web site at: http://cftc.gov/LawRegulation/ 

DoddFrankAct/ExternalMeetings/index.htm. 

14 In addition to differences in the applicable 

statutory provisions, there are also differences in 

the markets and products overseen by each agency, 

which may lead to divergent approaches to crossborder activities. 

15This is one aspect of the Commission’s ongoing bilateral and multilateral efforts to promote 

international coordination of regulatory reform. The 

Commission staff is engaged in consultations with 

Europe, Japan, Hong Kong, Singapore, Switzerland, 

Canada, Australia, Brazil, and Mexico on 

derivatives reform. In addition, the Commission 

staff is participating in several standard-setting 

initiatives, co-chairs the IOSCO Task Force on OTC 

Derivatives, and has created an informal working 

group of derivatives regulators to discuss 

implementation of derivatives reform. See also Joint 

Press Statement of Leaders on Operating Principles 

and Areas of Exploration in the Regulation of the 

Cross-border OTC Derivatives Market, included in 

CFTC Press Release 6439–12, Dec. 4, 2012. 

16See CFTC Division of Swap Dealer and 

Intermediary Oversight, Re: Time-Limited NoAction Relief: Swaps Only With Certain Persons to 

be Included in Calculation of Aggregate Gross 

Notional Amount for Purposes of Swap Dealer De 

Minimis Exception and Calculation of Whether a 

Person is a Major Swap Participant, No-Action 

Letter No. 12–22, Oct. 12, 2012 (‘‘CFTC Letter No. 

12–22’’). 

17The Commission intends that the Final Order 

is in addition to any no-action relief issued or to 

be issued by the Commission staff. Unless 

specifically provided in any letter providing noaction relief, the Final Order does not limit the 

availability of any no-action relief. 

18CEA section 4(c)(1), 7 U.S.C. 6(c)(1). 

parties, including major U.S. and nonU.S. banks and financial institutions 

that conduct global swaps business, 

trade associations, clearing 

organizations, law firms (representing 

international banks and dealers), 

individual citizens, and foreign 

regulators.12 The Commission staff also 

held numerous meetings and 

discussions with various market 

participants, domestic bank regulators, 

and other interested parties to discuss 

the Proposed Order and the Proposed 

Guidance.13

Further, the Commission staff closely 

consulted with the staff of the SEC in an 

effort to increase understanding of each 

other’s regulatory approaches and to 

harmonize the cross-border approaches 

of the two agencies to the greatest extent 

possible, consistent with their 

respective statutory mandates.14 The 

Commission expects that this 

consultative process will continue as 

each agency works towards 

implementing its respective crossborder policy. 

The Commission also recognizes the 

critical role of international cooperation 

and coordination in the regulation of 

derivatives in the highly interconnected 

global market, where risks are 

transmitted across national borders and 

market participants operate in multiple 

jurisdictions. Close cooperative 

relationships and coordination with 

other jurisdictions take on even greater 

importance given that, prior to the 

recent reforms, the swaps market has 

largely operated without regulatory 

oversight and many jurisdictions are in 

differing stages of implementing their 

regulatory reform. To this end, the 

Commission staff has actively engaged 

in discussions with their foreign 

counterparts in an effort to better 

understand and develop a more 

harmonized cross-border regulatory 

framework. The Commission expects 

that these discussions will continue as 

it finalizes the cross-border interpretive 

guidance and as other jurisdictions 

develop their own regulatory 

requirements for derivatives.15

The Commission has determined not 

to take further action on the Proposed 

Guidance at this time. The Commission 

believes it will be beneficial to have 

further consultations with other 

domestic and international regulators in 

an effort to harmonize cross-border 

regulatory approaches prior to taking 

action with respect to the Proposed 

Guidance. The Commission also 

believes that further consideration of 

public comments, including the 

comments that may be received on the 

Further Proposed Guidance regarding 

the Commission’s interpretation of the 

term ‘‘U.S. person,’’ and its guidance 

regarding aggregation for purposes of SD 

registration, will be helpful to the 

Commission in issuing final interpretive 

guidance. 

Nonetheless, the Commission has 

determined to issue the Final Order as 

a time-limited exemptive order that is 

substantially similar to the Proposed 

Order, except for the addition of 

provisions regarding registration and 

certain modifications and clarifications 

addressing public comments. Recently, 

the Commission staff granted timelimited, no-action relief to promote 

continuity in the application of DoddFrank requirements and facilitate the 

transition to those requirements by 

enabling swap market participants to 

apply a uniform and readily 

ascertainable standard regarding which 

swaps must be included in the 

calculations under the SD and MSP 

definitions.16 The Final Order continues 

that process and furthers the same 

purposes.17

In preparing the Final Order, the 

Commission has attempted to be 

responsive to commenters’ concerns and 

recommendations, so that market 

practices will not be unnecessarily 

disrupted during the transition to the 

new swap regulatory regime. At the 

same time, the Commission also 

recognizes the importance of the new 

SD and MSP regulatory scheme to the 

Dodd-Frank swap reforms and, 

therefore, is mindful that its 

implementation should not be subject to 

undue delay. The Commission believes 

that the Final Order strikes the proper 

balance between promoting an orderly 

transition to the new regulatory regime, 

while appropriately tailoring relief to 

ensure that the Commission can 

responsibly discharge its statutory 

duties. 

This release is organized in seven 

sections. Section II provides a brief 

overview of the Commission’s 

exemptive authority under section 4(c) 

of the CEA and the Proposed Order; 

Section III provides a summary of the 

comments received on the Proposed 

Order and the Commission 

determinations regarding the Final 

Order; Section IV provides the 

Commission’s findings pursuant to CEA 

section 4(c); Section V addresses the 

Paperwork Reduction Act; Section VI 

discusses cost benefit considerations; 

and Section VII contains the Final 

Order. 

II. Commission’s Exemptive Authority 

and Proposed Order 

A. Section 4(c) of the CEA 

Section 4(c)(1) of the CEA authorizes 

the Commission to ‘‘promote 

responsible economic or financial 

innovation and fair competition’’ by 

exempting any transaction or class of 

transaction from any of the provisions of 

the CEA (subject to certain exceptions) 

where the Commission determines that 

the exemption would be consistent with 

the public interest and the purposes of 

the CEA.18 Under section 4(c)(2) of the 

CEA, the Commission may not grant 

exemptive relief unless it determines 

that: (1) The exemption is appropriate 


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19CEA section 4(c)(2), 7 U.S.C. 6(c)(2). 20House Conf. Report No. 102–978, 1992 

U.S.C.C.A.N. 3179, 3213. 

21The ‘‘Entity-Level Requirements’’ and 

‘‘Transaction-Level Requirements’’ for purposes of 

the Proposed Order were the same as those defined 

for purposes of the Final Order. See section II.D.1., 

below. 

22See 7 U.S.C. 2(a)(13)(G). The Commission 

believes that the data reported to, and collected by, 

SDRs will be important to its ability to effectively 

monitor and address the risk exposures of 

individual market participants (including SDs and 

MSPs) and the concentration of risk within the 

swaps market more generally. 

23For purposes of the Final Order, the term 

‘‘registrant’’ means a registered SD or MSP. 

24Under the Proposed Guidance, a foreign branch 

of a U.S. person would be deemed a U.S. person. 

Accordingly, swaps entered into between a foreign 

branch of a U.S. person and another foreign branch 

of a U.S. person would be subject to the 

Transaction-Level Requirements. 

25See e.g., Letters from Security Industry and 

Financial Markets Association (‘‘SIFMA’’) (Aug. 13, 

2012); Institute of International Bankers (‘‘IIB’’) 

(Aug. 9, 2012); Cleary Gottlieb Steen & Hamilton 

LLP (‘‘Cleary’’) (Aug. 16, 2012); and Futures 

Options Association (‘‘FOA’’) (Aug. 13, 2012). Some 

of the commenters expressly stated that the 

Commission should finalize the exemptive relief as 

promptly as possible. See e.g., IIB Letter at 1 and 

Cleary Letter at 3. For example, IIB stated that the 

proposed relief should be modified to address 

‘‘unrealistic and unwarranted’’ compliance burdens 

related to the Proposed Guidance and certain 

aspects of the Commission regulations adopted to 

date. IIB Letter (Aug. 9, 2012) at 2. Accordingly, IIB 

requested limited interim relief from certain aspects 

of the Commission’s registration and definitional 

rules (in particular, the aggregation requirement for 

purposes of the de minimis calculation). Id. at 3– 

7. Similarly, The Clearing House Association LLC 

(‘‘The Clearing House’’) expressed concerns that the 

proposed relief will be ‘‘ultimately ineffective’’ in 

accomplishing its objectives if concepts from the 

Proposed Guidance are required to be applied 

before they are finalized, and requested exemption 

from those rules or concepts that are not yet 

finalized. The Clearing House (Aug. 13, 2012) at 2. 

26See, e.g., SIFMA (Aug. 13, 2012), at 3, 5–6, 10– 

13, A–50; Lloyds Banking Group (‘‘Lloyds’’) (Aug. 

13, 2012) at 1–2; IIB (Aug. 9, 2012), at 5; Canadian 

Bankers Association (Aug. 13, 2012), at 2; Credit 

Suisse (Aug. 27, 2012), at 7; Cleary (Aug. 16, 2012), 

at 4; Deutsche Bank AG (‘‘Deutsche Bank’’) (Aug. 

13, 2012), at 3, 7; Societe Generale (Aug. 8, 2012), 

at 2. 

for the transaction and consistent with 

the public interest; (2) the exemption is 

consistent with the purposes of the 

CEA; (3) the transaction will be entered 

into solely between ‘‘appropriate 

persons’’; and (4) the exemption will not 

have a material adverse effect on the 

ability of the Commission or any 

contract market to discharge its 

regulatory or self-regulatory 

responsibilities under the CEA.19 In 

enacting section 4(c), Congress noted 

that the purpose of the provision is to 

give the Commission a means of 

providing certainty and stability to 

existing and emerging markets so that 

financial innovation and market 

development can proceed in an effective 

and competitive manner.20

B. Proposed Order 

Under the Proposed Order, the 

Commission would allow non-U.S. SDs 

and MSPs to delay compliance with 

certain Entity-Level Requirements of the 

Dodd-Frank Act (and the Commission’s 

regulations thereunder), subject to 

specified conditions described 

therein.21 An exception to the foregoing 

relief from the Entity-Level 

Requirements related to the swap data 

repository (‘‘SDR’’) reporting 

requirement 22 and part 20 of the 

Commission’s regulations relating to 

large-trader reporting (‘‘LTR’’). 

Specifically, non-U.S. SDs and MSPs 

would be required to comply with the 

SDR reporting and LTR requirements for 

all swaps with U.S. counterparties upon 

their compliance date. Further, for 

swaps with non-U.S. counterparties, the 

Commission proposed that only those 

non-U.S. SDs and MSPs that are not 

affiliates or subsidiaries of a U.S.-based 

SD would be permitted to delay 

compliance with the SDR reporting and 

LTR requirements. 

With respect to U.S. SDs and MSPs, 

the Commission proposed to permit 

such registrants 23 to delay compliance 

with certain Entity-Level Requirements 

through January 1, 2013. This relief with 

respect to Entity-Level Requirements, 

however, would not extend to swap data 

recordkeeping, SDR reporting or LTR 

requirements. That is, U.S. SDs and 

MSPs would be required to comply with 

the swap data recordkeeping, SDR 

reporting and LTR requirements for all 

swaps. 

The Commission also proposed to 

grant, with respect to certain 

Transaction-Level Requirements of the 

Dodd-Frank Act (and the Commission’s 

regulations thereunder), temporary 

relief to non-U.S. SDs and MSPs, as well 

as foreign branches of U.S. SDs and 

MSPs, for swaps with a non-U.S. 

counterparty so that they may comply 

only with the regulations as may be 

required in the home jurisdiction of the 

non-U.S. registrant (or in the case of a 

foreign branch of a U.S. registrant, the 

foreign location of the branch).24 With 

respect to swaps with any U.S. 

counterparty, however, these registrants 

(as well as foreign branches of U.S. SDs 

and MSPs) would be required to comply 

with all applicable Transaction-Level 

Requirements that are in effect. Finally, 

the Commission did not propose 

exemptive relief for swaps between 

market participants that are neither SDs 

nor MSPs. 

The proposed temporary exemptive 

relief for non-U.S. registrants (and 

foreign branches of U.S. registrants with 

respect to Transaction-Level 

Requirements) would become effective 

on the compliance date for registration 

and expire 12 months following the 

publication of the Proposed Order in the 

Federal Register (i.e., July 12, 2013). In 

the Proposed Order, the Commission 

also stated that, in the interest of 

promoting an orderly transition to the 

new swap regulatory regime, it intends 

to consider extending the effectiveness 

of the exemptive relief at its expiration 

based on, among other things, whether 

and when substituted compliance with 

foreign regulatory requirements for nonU.S. persons is available. 

A non-U.S. registrant seeking relief 

under the Proposed Order would have 

to satisfy certain conditions. First, a 

non-U.S. person that is required to 

register as an SD or MSP would have to 

apply to become registered as such 

when registration is required. Second, 

within 60 days of applying for 

registration, a non-U.S. registrant would 

have to submit to the National Futures 

Association (‘‘NFA’’) a compliance plan 

addressing how it plans to comply, in 

good faith, with all applicable 

requirements under the CEA and related 

rules and regulations upon the effective 

date of final cross-border interpretive 

guidance. 

The Commission further noted that 

the proposed relief would neither: (1) 

Limit the applicability of any CEA 

provision or Commission regulation to 

any person, entity or transaction except 

as provided in the Proposed Order; nor 

(2) affect any effective date or 

compliance date set out in any specific 

Dodd-Frank Act rulemaking by the 

Commission. 

III. Comments on the Proposed Order 

and Commission Determinations 

A. Comments Generally 

Many commenters expressed general 

support for the Proposed Order but 

urged the Commission to broaden the 

scope of the relief to give market 

participants adequate time to implement 

necessary operational and compliance 

changes and to reflect the fact that 

certain key aspects of the Proposed 

Guidance (particularly those relating to 

registration determinations) were not 

yet final as of the date of the 

comments.25 Many of the commenters 

supporting temporary exemptive relief 

also suggested specific modifications or 

clarifications of the Proposed Order 

concerning the scope and/or timing of 

the exemptive relief.26

On the other hand, other 

commenters—namely, public interest 

groups such as Americans for Financial 

Reform (‘‘AFR’’) and Public Citizen’s 

Congress Watch—expressed concerns 


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27See AFR (Aug. 13, 2012), at 1–4. AFR stated 

that, while it recognized the complexities and 

challenges the industry faces, ‘‘the large swap 

entities designated under the Dodd-Frank Act have 

been aware of the general contours of these 

requirements for several years, and there have 

already been significant delays in implementation.’’ 

AFR Letter at 2. Public Citizen’s Congress Watch 

expressed concerns that delayed compliance would 

unnecessarily prolong American taxpayers’ 

exposure to the systemic risks of U.S. institutions 

and interests. See Public Citizen’s Congress Watch 

(submitted by Professor I. Michael Greenberger) 

(‘‘Public Citizen’s Congress Watch’’) (Aug. 14, 2012) 

at 1–13. 

28AFR (Aug. 13, 2012) at 2. 

29See Public Citizen’s Congress Watch (Aug. 14, 

2012) at 1–2. 

30A number of commenters voiced concerns 

regarding potential expansion of the term ‘‘U.S. 

person’’ that they thought could result from the 

prefatory phrase ‘‘includes, but is not limited to’’ 

that appeared in the Proposed Guidance. These 

commenters requested that the Commission 

affirmatively state that non-U.S. persons are any 

persons that do not meet the definition of ‘‘U.S. 

person.’’ See SIFMA (Aug. 27, 2012) at A–15; IIB 

(Aug. 27, 2012) at 11–12; European Commission 

(‘‘EC’’) (Aug. 24, 2012) at 1–2; and Australian 

Bankers Association Inc. (‘‘Australian Bankers’’) 

(Aug. 27, 2012) at 4. 

31See Proposed Guidance, 77 FR at 41218. 

32Specifically, as set forth in the Proposed 

Guidance, the definition of the term ‘‘U.S. person’’ 

would include, but not be limited to: 

(i) Any natural person who is a resident of the 

United States; 

(ii) Any corporation, partnership, limited liability 

company, business or other trust, association, jointstock company, fund or any form of enterprise 

similar to any of the foregoing, in each case that is 

either (A) organized or incorporated under the laws 

of the United States or having its principal place of 

business in the United States (legal entity) or (B) in 

which the direct or indirect owners thereof are 

responsible for the liabilities of such entity and one 

or more of such owners is a U.S. person; 

(iii) Any individual account (discretionary or not) 

where the beneficial owner is a U.S. person; 

(iv) Any commodity pool, pooled account or 

collective investment vehicle (whether or not it is 

organized or incorporated in the United States) of 

which a majority ownership is held, directly or 

indirectly, by a U.S. person(s); 

(v) Any commodity pool, pooled account or 

collective investment vehicle the operator of which 

would be required to register as a commodity pool 

operator under the CEA; 

(vi) A pension plan for the employees, officers or 

principals of a legal entity with its principal place 

of business inside the United States; and 

(vii) An estate or trust, the income of which is 

subject to U.S. income tax regardless of source. 

Under the proposal, a ‘‘U.S. person’’ would 

include a foreign branch of a U.S. person; on the 

other hand, a non-U.S. affiliate or subsidiary 

guaranteed by a U.S. person would not be deemed 

a ‘‘U.S. person.’’ 

33See SIFMA (Aug. 27, 2012) at 5; Societe 

Generale (Aug. 8, 2012) at 4; IIB (Aug. 27, 2012), 

at 4–14; Deutsche Bank (Aug. 27, 2012), at 1–4; 

Goldman Sachs Group, Inc. (‘‘Goldman’’) (Aug. 27, 

2012), at 3; The Hong Kong Association of Banks 

(‘‘Hong Kong Banks’’) (Aug. 27, 2012), at 4; 

Australian Bankers (Aug. 27, 2012) at 4. 

34See SIFMA (August 27, 2012) at A–10. 

35See e.g., Cleary (Aug. 16, 2012) at 6; SIFMA 

(Aug. 27, 2012) at A–8–A9; IIB (Aug. 9, 2012) at 4; 

Deutsche Bank (Aug. 13, 2012) at 2; State Street 

Corporation (‘‘State Street’’) (Aug. 27, 2012) at 2; 

and Goldman (Aug. 27. 2012) at 3. 

36See IIB (Aug. 9, 2012) at 4. 

about delaying the implementation of 

the Dodd-Frank Act to overseas 

activities.27 AFR stated that the 

Proposed Order would significantly 

extend the period where markets lack 

critical protections against derivatives 

risks and expressed concern about 

taxpayer exposure to foreign banks, 

particularly ‘‘foreign affiliates of U.S. 

banks whose liabilities are guaranteed 

(implicitly or explicitly) by the parent 

company.’’ 28 Similarly, Public Citizen’s 

Congress Watch expressed the concern 

that the Proposed Order would 

unnecessarily delay compliance with 

most entity requirements and 

transaction requirements for foreign 

subsidiaries and affiliates of U.S. 

financial institutions and for U.S. 

subsidiaries and affiliates of foreign 

banks, further prolonging exposure of 

U.S. taxpayers to unnecessary systemic 

risks.29

B. Definition of ‘‘U.S. Person’’ 

Although at this time the Commission 

is not making any determinations as to 

the scope of the final interpretive 

guidance, the Commission believes that 

the comments received on the definition 

of U.S. person set forth in the Proposed 

Guidance are nonetheless relevant and 

helpful in determining the appropriate 

scope of exemptive relief in the Final 

Order. Taken together, these comments 

generally support, as an interim 

measure, the approach taken by the 

Commission staff in CFTC Letter No. 

12–22 regarding the initial scope of the 

application of the CEA to swaps 

activities. Accordingly, in light of the 

Commission’s experience to date with 

CFTC Letter No. 12–22 and these 

comments, it is taking a similar 

approach to the definition of U.S. 

person to that set forth in the staff noaction letter and supported by many 

commenters. 

To be clear, the Commission wishes to 

emphasize that the discussion here is 

not, and should not be construed as, an 

indication of, or a limitation on, the 

definition of the term ‘‘U.S. person’’ that 

the Commission may adopt in final 

cross-border interpretive guidance. As 

discussed further below, the 

Commission is seeking further comment 

on this issue. However, the Commission 

is aware that the terms ‘‘U.S. person’’ 

and ‘‘non-U.S. person’’ are commonly 

used in the discussion of these issues. 

For ease of reference, therefore, this 

release and the Final Order use the term 

‘‘U.S. person’’ to refer to a person that 

is described by the criteria discussed 

below, and the term ‘‘non-U.S. person’’ 

to refer to any other person.30

1. Proposed Definition in the Proposed 

Guidance 

Under the Proposed Guidance, the 

term ‘‘U.S. person’’ would be defined by 

reference to the extent to which swap 

activities or transactions involving one 

or more such persons have the relevant 

connection with activities in, or effect 

on, U.S. commerce.31 As proposed, the 

term ‘‘U.S. person’’ would encompass 

both: (1) Persons (or classes of persons) 

located within the United States; as well 

as (2) persons that may be domiciled or 

operating outside the United States, but 

whose swap activities have a ‘‘direct 

and significant connection with 

activities in, or effect on, commerce of 

the United States’’ within the meaning 

of CEA section 2(i).32 That is, the term 

‘‘U.S. person’’ identifies those persons 

whose swap activities—either 

individually or in the aggregate—satisfy 

the jurisdictional nexus under section 

2(i) of the CEA. 

2. Comments 

In general, commenters stated that the 

proposed ‘‘U.S. person’’ definition 

presented significant interpretive issues 

and implementation challenges.33 The 

commenters contended that it would be 

difficult to determine U.S. person status 

because the proposed definition was, 

they said, overly broad, contained 

ambiguities, and would require 

collection of information not readily 

accessible at this time. The commenters, 

therefore, urged the Commission to 

provide market participants with 

sufficient time to implement a final 

definition of the term ‘‘U.S. person’’ and 

to reconsider the proposed definition in 

favor of ‘‘a simpler, more easily 

applied’’ definition of ‘‘U.S. person.’’ 34

A number of commenters requested 

that the Commission adopt an interim 

definition of ‘‘U.S. person’’ that would 

allow firms to rely on their existing 

systems and classifications and avoid 

the need to develop systems to achieve 

temporary compliance with standards 

that may change when a definition of 

the term ‘‘U.S. person’’ is finalized.35 IIB 

explained that applying any definition 

of ‘‘U.S. person’’ that departs from 

status based on residence or jurisdiction 

of organization, and in some cases 

principal place of business, will require 

time to implement relevant 

documentation conventions and 

diligence procedures.36 IIB, therefore, 

requested that the Commission 

implement a phased-in interim 

approach to the ‘‘U.S. person’’ 

definition that would encompass, in 

general, (1) a natural person who is a 

U.S. resident; and (2) a corporate entity 


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37 Id. For purposes of IIB’s suggested definition, 

a foreign branch of a U.S. SD would be considered 

a non-U.S. person. IIB added that it believed that 

the Commission should adopt a final definition of 

‘‘U.S. person’’ that is consistent with IIB’s proposed 

interim definition. 

38See SIFMA (Aug. 25, 2012) at A–8. 

39The counterparty criteria set forth in CFTC 

Letter No. 12–22 are: 

(i) A natural person who is a resident of the 

United States; 

(ii) A corporation, partnership, limited liability 

company, business or other trust, association, jointstock company, fund or any form of enterprise 

similar to any of the foregoing, in each case that is 

organized or incorporated under the laws of the 

United States; 

(iii) A pension plan for the employees, officers, 

or principals of a legal entity described in (ii) above, 

unless the pension plan is exclusively for foreign 

employees of such entity; 

(iv) An estate or trust, the income of which is 

subject to U.S. income tax, regardless of source; or 

(v) An individual account (discretionary or not) 

where the beneficial owner is a person described in 

(i) through (iv) above. 

40The Commission understands that persons may 

currently be relying upon the counterparty criteria 

set forth in CFTC Letter No. 12–22. Thus, until 

December 31, 2012, persons may continue to apply 

those criteria for purposes of the Final Order. In 

effect, until December 31, 2012, a person may apply 

either the counterparty criteria in CFTC Letter No. 

12–22, or the definition set forth herein for 

purposes of the Final Order. Beginning on January 

1, 2013 (i.e., following the expiration of CFTC Letter 

No. 12–22), a person must apply the definition set 

forth in the Final Order for purposes of swaps 

entered into on or after that date. 

41Also, the Commission is clarifying that 

language in the second counterparty criterion in 

CFTC Letter No. 12–22 referring to an entity 

‘‘incorporated under the laws of the United States’’ 

includes an entity incorporated under the laws of 

a state or other jurisdiction in the United States. 

42For purposes of the Final Order, the 

Commission will construe the term ‘‘principal place 

of business’’ as referring to the single place where 

a corporation’s officers direct, control, and 

coordinate the corporation’s activities. Typically, 

the principal place of business will be where the 

corporation maintains its headquarters. See Hertz v 

Friend, 559 U.S. ll, 130 S.Ct. 1181, 1192, 175 

L.Ed. 2d 1029 (2010) (‘‘[I]n practice [a company’s 

principal place of business] should normally be the 

place where the corporation maintains its 

headquarters—provided that the headquarters is the 

actual center of direction, control and coordination, 

i.e., the ‘nerve center’ ’’). 

43Commenters supported inclusion of the 

principal place of business element in the interim 

definition. See Cleary (Aug. 16, 2012) at 6 (‘‘the 

Firms respectfully request that the Commission 

adopt an interim ‘U.S. person’ definition based on 

factors such as residence, place of organization or 

incorporation and principal place of business’’); see 

also IIB (Aug. 27, 2012) at 13 (suggested definition 

of ‘‘U.S. person’’ that includes ‘‘Any corporation, 

partnership, limited liability company, business or 

other trust, association, joint stock company or any 

form of enterprise similar to the foregoing (other 

than a collective investment vehicle, employee 

benefit plan, estate or trust) that is organized or 

incorporated under the laws of the United States or 

having its principal place of business in the United 

States.’’); SIFMA (Aug. 13, 2012) at 4 (‘‘The 

Commission should include as part of the Final 

Exemptive Order a workable, uniform definition of 

U.S. person for this transitional time period* * *. 

For most [of our members] this would consist of 

Any natural person who is a resident of the U.S.; 

and Any corporation, partnership, LLC, business or 

other trust, association, joint-stock company, fund, 

or any form of enterprise similar to any of the 

foregoing that is organized or incorporated under 

the laws of the United States or has its principal 

place of business in the United States* * *. [S]uch 

a definition would allow most of our members to 

identify those counterparties that are U.S. persons 

during the Interim Period without the necessity of 

building new, interim systems that might have to 

be changed when a Final Definition is adopted.’’). 

44See, e.g., SIFMA (Aug. 25, 2012) at A–8 

(suggesting 90-day period to transition to definition 

including principal place of business element). 

that is organized or incorporated under 

the laws of the United States or has its 

place of business in the United States.37

SIFMA also urged the Commission to 

phase in the ‘‘U.S. person’’ definition, 

citing the implementation difficulties 

identified by IIB. Specifically, SIFMA 

recommended that the Commission 

allow market participants to apply an 

interim definition of ‘‘U.S. person’’ until 

90 days after the final definition of 

‘‘U.S. person’’ is published.38 SIFMA 

stated that its interim definition—which 

was identical to IIB’s interim 

definition—should identify ‘‘core’’ U.S. 

persons and allow its members to phase 

in compliance with the Dodd-Frank 

requirements without building new 

systems that might have to be changed 

when a final definition is adopted. 

3. Commission Determination on 

Definition of ‘‘U.S. Person’’ 

The Commission finds merit in the 

comments suggesting that it should 

adopt a phased approach to cross-border 

activities. The Commission 

understands, from the comments, that 

market participants may need additional 

time to assess their businesses in light 

of the Final Order and to institute 

necessary changes to their systems and 

operations. Therefore, for purposes of 

the Final Order, the Commission will 

apply a definition of the term ‘‘U.S. 

person’’ based upon the counterparty 

criteria set forth in CFTC Letter No. 12– 

22 39 with certain modifications as 

described below. With respect to the 

other issues raised by commenters 

regarding the definition of ‘‘U.S. 

person,’’ the Commission believes that 

further public comment and 

consideration during the effectiveness of 

the Final Order will be helpful. 

For purposes of the Final Order, the 

Commission will treat as a ‘‘U.S. 

person’’ any person identified by the 

following five criteria: 40

(i) A natural person who is a resident 

of the United States; 

(ii) A corporation, partnership, 

limited liability company, business or 

other trust, association, joint-stock 

company, fund or any form of enterprise 

similar to any of the foregoing, in each 

case that is (A) organized or 

incorporated under the laws of a state or 

other jurisdiction in the United States or 

(B) effective as of April 1, 2013 for all 

such entities other than funds or 

collective investment vehicles, having 

its principal place of business in the 

United States; 

(iii) A pension plan for the 

employees, officers or principals of a 

legal entity described in (ii) above, 

unless the pension plan is primarily for 

foreign employees of such entity; 

(iv) An estate of a decedent who was 

a resident of the United States at the 

time of death, or a trust governed by the 

laws of a state or other jurisdiction in 

the United States if a court within the 

United States is able to exercise primary 

supervision over the administration of 

the trust; or 

(v) An individual account or joint 

account (discretionary or not) where the 

beneficial owner (or one of the 

beneficial owners in the case of a joint 

account) is a person described in (i) 

through (iv) above. 

The modifications made by the 

Commission to the counterparty criteria 

set forth in CFTC Letter No. 12–22 relate 

to (1) the location of an entity’s 

principal place of business, (2) the 

treatment of pension plans for foreign 

employees, (3) the treatment of estates 

and trusts, and (4) the treatment of joint 

accounts.41

First, regarding the location of an 

entity’s principal place of business, the 

Commission considered that the second 

counterparty criterion in CFTC Letter 

No. 12–22 is generally intended to cover 

legal entities that are physically located 

or incorporated within U.S. territory. 

For purposes of the Final Order, the 

Commission believes it is appropriate to 

treat as a ‘‘U.S. person’’ a legal entity 

that is not incorporated in the United 

States but that nonetheless has its 

‘‘principal place of business’’ in the 

United States.42 The Commission 

believes that it is appropriate to 

consider an entity that is organized 

outside the United States but 

nonetheless has its ‘‘principal place of 

business’’ within the United States in 

the same manner as an entity organized 

or incorporated under the laws of the 

United States, because the center of 

direction, control and coordination of 

its business activities is located in the 

United States.43 However, the 

Commission understands from 

commenters that market participants 

will need a short period of time to 

implement the treatment of entities with 

a principal place of business in the 

United States as ‘‘U.S. persons.’’ 44

Therefore, the Commission will not treat 


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45See, e.g., Cleary (Aug. 16, 2012) at 7; IIB (Aug. 

27, 2012 at 6–7. The Commission is separately 

proposing further guidance regarding the treatment 

of funds and other collective investment vehicles 

for purposes of the definition of the term ‘‘U.S. 

person.’’ 

46 In a letter to the Commissioners dated 

November 30, 2012 requesting transition relief 

under Title VII of the Dodd-Frank Act, the Futures 

Industry Association (‘‘FIA’’), IIB and SIFMA 

suggested that this criterion be modified to replace 

the word ‘‘exclusively’’ with ‘‘primarily.’’ See joint 

letter from FIA, IIB and SIFMA (Nov. 30, 2012) at 

14, fn. 14. 

47See, e.g., IIB Letter (Aug. 27, 2012) at 12 

(market participants do not typically identify an 

estate’s or trust’s regulatory status on the basis of 

its tax status); see also joint letter from FIA, IIB and 

SIFMA at 14, fn. 14 (suggesting that the fourth 

criterion from CFTC Letter No. 12–22 be limited to 

estates and trusts organized under the laws of the 

United States). 

48The Commission is aware that one element of 

the test applied by the Internal Revenue Service to 

determine if a trust is a U.S. person for tax purposes 

depends on whether a court within the United 

States is able to exercise primary supervision over 

the administration of the trust. See 26 CFR 

301.7701–7(a)(1)(ii). However, the Commission 

does not intend to formally adopt the Internal 

Revenue Service test for this purpose. 

49For example, SIFMA stated that a swap 

counterparty should be responsible for determining 

its own U.S.-person status but in the alternative, 

recommended that the Commission allow for 

reasonable reliance on counterparty 

representations. See SIFMA (Aug. 27, 2012) at A– 

16–18. SIFMA and Cleary further pointed out that 

the Commission has accepted reasonable reliance 

on counterparty representations in the context of 

the external business conduct rules. See SIFMA/ 

AMG (Aug. 27, 2012) at 4–5; and Cleary (Aug. 16, 

2012) at 6. 

50See 77 FR 9734, Feb. 17, 2012. Consistent with 

the ‘‘reasonable reliance’’ standard in the external 

business conduct rules, an SD or MSP may rely on 

the written representations of a counterparty in 

performing its due diligence. However, an SD or 

MSP cannot rely on a written representation and 

continue to claim the exemptive relief if it has 

information that would cause a reasonable person 

to question the accuracy of the representation. In 

other words, an SD or MSP cannot ignore red flags 

when relying on written representations in 

performing its due diligence. Further, if agreed to 

by the counterparty, the written representations 

may be included in counterparty relationship 

documentation. However, an SD or MSP may only 

rely on such representations in the counterparty 

relationship documentation if the counterparty 

agrees to timely update any material changes to the 

representations. In addition, the Commission 

expects SDs and MSPs to review the written 

representations on a periodic basis to ensure that 

they remain appropriate for their intended purpose. 

entities incorporated or organized 

outside the United States and with a 

principal place of business in the 

United States as U.S. persons until April 

1, 2013 (i.e., approximately 90 days after 

effectiveness of the Final Order). The 

Commission also understands from 

commenters that the application of the 

principal place of business element may 

be complex for funds and collective 

investment vehicles and require further 

guidance in this regard; therefore, at this 

time for purposes of the Final Order, the 

Commission has determined that this 

element will not apply to funds or 

collective investment vehicles.45

Second, regarding the treatment of 

pension plans, the Commission is 

refining the third counterparty criterion 

in CFTC Letter No. 12–22 to indicate 

that a pension plan that is ‘‘primarily’’ 

(rather than exclusively) for the foreign 

employees of an entity is also a ‘‘U.S. 

person’’ for purposes of the Final 

Order.46

Third, regarding the treatment of 

estates and trusts, the Commission is 

refining the fourth counterparty 

criterion in CFTC Letter No. 12–22 so 

that the treatment of an estate or trust 

for purposes of this relief does not 

depend on whether the income of the 

estate or trust is subject to U.S. income 

tax.47 The Commission understands that 

whether income is subject to U.S. tax 

can depend on a variety of factors, 

including the source of the income, 

which may not be relevant for purposes 

of the Dodd-Frank Act. Accordingly, for 

purposes of the Final Order, the 

Commission is of the view that an estate 

should be treated as a ‘‘U.S. person’’ if 

the decedent was a resident of the 

United States at the time of death, and 

a trust should be treated as a ‘‘U.S. 

person’’ if it is governed by the law of 

a state or other jurisdiction in the 

United States and a court within the 

United States is able to exercise primary 

supervision over the administration of 

the trust. 

The Commission believes that this 

approach is appropriate in view of how 

estates and trusts use swaps, and is 

consistent with how they are treated for 

other purposes under law. For estates, if 

the decedent was a party to any swaps 

at the time of death, then those swaps 

would continue to be treated in the 

same way after the decedent’s death, 

when the swaps would most likely pass 

to the decedent’s estate. Also, this test 

will be predictable and easy to apply for 

natural persons planning for how their 

swaps will be treated after death, for 

executors and administrators of estates, 

and for the swap counterparties to 

natural persons and estates. 

With respect to trusts, the 

Commission considered that each trust 

is governed by the laws of a particular 

jurisdiction, which may depend on 

steps taken when the trust was created 

or other circumstances surrounding the 

trust. The Commission believes that if a 

trust is governed by U.S. law (i.e., the 

law of a state or other jurisdiction in the 

United States), then it is reasonable to 

treat the trust as a U.S. person for 

purposes of the Final Order. The 

definition also requires that a court 

within the United States be able to 

exercise primary supervision over the 

administration of the trust.48 Including 

this element of the definition will 

ensure that the treatment of the trust for 

purposes of the Final Order will be in 

line with how the trust is treated for 

other legal purposes. 

Finally, regarding the treatment of 

joint accounts, the Commission is 

refining the fifth counterparty criterion 

in CFTC Letter No. 12–22 to include not 

only individual accounts where the 

beneficial owner is a person described 

in the preceding counterparty criteria, 

but also joint accounts where any of the 

beneficial owners is such a person. 

Due Diligence. As described above, 

many commenters said that the 

information necessary to accurately 

assess the status of their counterparties 

as U.S. persons may not be available, or 

may be available only through overly 

burdensome due diligence. For this 

reason, these commenters requested that 

the Commission allow for reasonable 

reliance on counterparty representations 

as to their ‘‘U.S. person’’ status.49

The Commission agrees with the 

commenters that a party to a swap, in 

order to rely upon the exemptive relief 

provided in the Final Order, should be 

able to reasonably rely on its 

counterparty’s representation in 

determining whether the counterparty is 

a ‘‘U.S. person.’’ In this context, the 

Commission interprets the ‘‘reasonable’’ 

standard to mean that a party to a swap 

should conduct reasonable due 

diligence on its counterparties, with 

what is reasonable in a particular 

situation to depend on the relevant facts 

and circumstances. The Commission 

notes that under its external business 

conduct rules, an SD or MSP generally 

meets its due diligence obligations if it 

reasonably relies on counterparty 

representations, absent indications to 

the contrary.50 Similarly here, the 

Commission believes that allowing for 

reasonable reliance on counterparty 

representations provides for an objective 

standard and avoids subjective 

evaluations. This, in turn, facilitates a 

more consistent and foreseeable 

determination of whether a person is a 

‘‘U.S. person’’ for purposes of relying on 

temporary exemptive relief. 

Finally, the Commission confirms that 

this definition of ‘‘U.S. person’’ applies 

only for purposes of the Final Order. 

Further, the Commission confirms that 

the definition of ‘‘U.S. person’’ applies 

only to Commission regulations 

promulgated under Title VII’s swap 

provisions. Thus, for example, it would 


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51 In the Proposed Guidance, the Commission 

asked whether a foreign branch of a U.S. SD should 

be defined as a ‘‘U.S. person.’’ Some commenters 

recommended that a foreign branch of a U.S. SD be 

excluded from the definition of ‘‘U.S. person.’’ 

Sullivan & Cromwell on behalf of Bank of America, 

Citigroup, and J.P. Morgan (‘‘S&C’’) argued that a 

foreign branch should not be considered a U.S. 

person solely on the basis that it is a part of a U.S. 

bank. See S&C (Aug. 13, 2012) at 6–7. Citigroup Inc. 

(‘‘Citi’’) recommended that the Commission define 

a foreign branch of a U.S. SD as a non-U.S. person, 

so long as the branch remains subject to EntityLevel Requirements and obtains substituted 

compliance for Transaction-Level Requirements for 

transactions with non-U.S. persons. See Citi (Aug. 

27, 2012) at 2–4. In Citi’s view, this would address 

comments by the foreign branch’s non-U.S. clients 

that they would have to register as SDs or MSPs, 

while assuring that such non-U.S. clients’ swaps 

with the foreign branch are covered by the 

Transaction-Level Requirements or substituted 

compliance. See also State Street (Aug. 27, 2012) at 

3; and IIB (Aug. 27, 2012) at 8. 

52See e.g., SIFMA (Aug. 13, 2012) at 3, 5; IIB 

(Aug. 9, 2012) at 5; Societe Generale (Aug. 9, 2012) 

at 2, Citi (Aug. 13, 2012) at 2; Goldman (Aug. 27, 

2012) at 8–9; and Lloyds (Aug. 13, 2012) at 1–2. 

53See e.g., Goldman (Aug. 27, 2012) at 9 (citing 

the Commission’s proposed rule on the treatment of 

inter-affiliate transactions for purposes of 

mandatory clearing and the anticipated 

Commission action on the status of guarantees of 

swaps); Societe Generale (Aug. 9, 2012) at 2; and 

IIB (Aug. 9, 2012) at 2. 

54Without such relief, commenters are concerned 

that they will be required to register based on 

requirements that are subject to change at a later 

date. See Cleary (Aug. 16, 2012) at 6; SIFMA (Aug. 

27, 2012) at A1–8; IIB (Aug. 9, 2012) at 4–5). 

55See also Goldman (Aug. 27, 2012) at 9. 

56See Societe Generale (Aug. 9, 2012) at 2. 

57See Cleary (Aug. 16, 2012) at 4. IIB suggested 

a delay until a ‘‘reasonable’’ period after the final 

exemptive order is issued. See IIB (Aug. 9, 2012) at 

9. IIB also noted that this is particularly important 

for non-U.S. firms that are required to coordinate 

their registration plans with their home country 

regulators. 

58See Lloyds (Aug. 13, 2012) at 1–2. 

not apply to the CEA provisions (and 

Commission regulations promulgated 

thereunder) relating to the futures 

markets. 

Foreign Branch of U.S. Person. The 

Commission views as a ‘‘U.S. person’’ 

the foreign branch of a U.S. person. As 

the Commission explained in the 

Proposed Guidance, a branch does not 

have a legal identity separate from that 

of its principal entity. In this respect, 

the Commission notes that branches are 

neither separately incorporated nor 

separately capitalized and, more 

generally, the rights and obligations of 

a branch are the rights and obligations 

of its principal entity (and vice versa). 

Under these circumstances, the 

Commission views the activities of a 

foreign branch as the activities of the 

principal entity. 51

Accordingly, the Commission 

declines to recognize foreign branches 

of U.S. persons separately from their 

U.S. principals for purposes of the 

Dodd-Frank swap provisions, including 

registration and Entity-Level and 

Transaction-Level Requirements. 

Therefore, if a foreign branch were to be 

an SD or MSP, as discussed further 

below, its U.S. principal would be 

required to register, and that registration 

would encompass the foreign branch. 

Based on the same rationale, the DoddFrank Act fully applies to a swap 

between a foreign branch of a U.S. 

person and a foreign branch of another 

U.S. person. Nevertheless, for purposes 

of the Final Order, as discussed further 

below, foreign branches of U.S. persons 

may comply only with transaction-level 

requirements as may be required in the 

location of the foreign branch with 

respect to swaps with foreign 

counterparties. Further, non-U.S. 

persons may exclude swaps with foreign 

branches of registered SDs for purposes 

of determining whether they have 

exceeded the de minimis level of swap 

dealing activity under the SD definition. 

Finally, for purposes of the Final Order, 

as further discussed below, the 

Transaction-Level Requirements will 

not apply to a swap transaction between 

foreign branches of U.S. SDs or foreign 

branches of U.S. MSPs. The 

Commission believes that it is 

appropriate to extend the foregoing 

relief on a temporary basis while the 

Commission continues to consider, and 

works with foreign regulators regarding, 

the treatment of foreign branches of U.S. 

registrants. 

C. Registration 

1. Timing of Registration for All 

Prospective SDs and MSPs 

i. Comments 

The Proposed Order did not include 

any delay in the timing of the 

registration requirement for either U.S. 

or non-U.S. prospective registrants. A 

number of commenters urged the 

Commission to delay registration of SDs 

and MSPs.52 Some of these commenters 

noted that final regulatory 

determinations essential to the 

implementation of Commission 

regulations are either still in proposed 

form or have only recently been 

finalized.53 As a result, commenters 

said, firms will need additional time to 

assess whether they will be required to 

register as an SD or MSP and the 

consequences of doing so.54

SIFMA recommended a delay of at 

least 90 days following the publication 

of final interpretive guidance; 55 Societe 

Generale recommended delaying 

registration at least until the Proposed 

Guidance has been finalized.56 Cleary 

recommended a delay of at least 90 days 

after a final exemptive order is issued, 

explaining that firms will need 

additional time to assess and comply 

with the determinations therein.57

Lloyds suggested that registration be 

delayed for non-U.S. SDs for at least 12 

months after the publication of final 

guidance, with computation of the de 

minimis threshold starting from that 

date.58

ii. Commission Determination on 

Timing of Registration 

Throughout the Dodd-Frank 

rulemaking process, the Commission 

consistently has strived to strike the 

proper balance between the need to 

implement the new regulatory 

framework for swaps without undue 

delay, and the need to minimize 

disruption and hardships for market 

participants. Consistent with that goal, 

the Commission has taken steps to 

provide greater certainty to market 

participants regarding registration 

determinations and their compliance 

obligations. The Commission is also 

mindful that more than two years have 

passed since the Dodd-Frank Act—a 

comprehensive reform of the swaps 

market—was enacted as a direct 

response to the financial crisis of 2008. 

A central element of this reform is the 

registration and regulation of SDs and 

MSPs. For example, registered SDs and 

MSPs are required to clear swaps with 

certain counterparties, are subject to 

detailed reporting and recordkeeping 

requirements and must comply (when 

final) with new capital and margin 

requirements—all of which are designed 

to enhance market transparency and 

protections against systemic risk. 

In the Commission’s view, any further 

delay in the registration of SDs and 

MSPs would effectively postpone DoddFrank’s comprehensive new regulatory 

regime for swaps, frustrating the 

congressional mandate embodied in the 

Dodd-Frank Act. Further, given the 

global nature of the swaps market, an 

SD or MSP—whether operating in or 

outside the United States—plays an 

important role in the U.S. swaps market. 

Under these circumstances, the 

Commission believes that a further 

delay in the compliance date for 

registration as an SD or MSP would 

adversely affect the Commission’s 

ability to discharge its responsibilities 

under the CEA and would be contrary 

to the public interest. Therefore, the 

Commission declines to delay the 

registration requirement for non-U.S. 

SDs and MSPs. 

However, the Commission believes it 

is appropriate to provide targeted, timelimited exemptive relief with respect to 

the swap dealing transactions to be 


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866 Federal Register / Vol. 78, No. 4 / Monday, January 7, 2013 / Rules and Regulations 

59 7 U.S.C. 1a(49) and 1a(33). See Final Entities 

Rules. 

60Section 1a(49)(D) of the CEA (7 U.S.C. 

1a(49)(D)) provides that ‘‘[t]he Commission shall 

exempt from designation as a swap dealer an entity 

that engages in a de minimis quantity of swap 

dealing in connection with transactions with or on 

behalf of its customers. The Commission shall 

promulgate regulations to establish factors with 

respect to the making of this determination to 

exempt.’’ This provision is implemented in 

Commission regulation 1.3(ggg)(4). 

61As used in this release, the meaning of the term 

‘‘swap dealing’’ is consistent with that used in the 

Final Entities Rules. 

62Under Commission regulation 3.10(a)(1)(v)(C) 

and Commission regulation 23.21, a person is 

required to register as an SD when, on or after 

October 12, 2012, the person falls within the 

definition of an SD. However, the rule defining 

‘‘swap dealer’’ includes a de minimis threshold so 

that an entity is not an SD if it, together with the 

entities controlling, controlled by, and under 

common control with it, engages in swap dealing 

activity during the prior 12 months in an aggregate 

gross notional amount of less than the specified 

thresholds. The rule further specifies that swap 

dealing activity engaged in before the effective date 

of both the ‘‘swap dealer’’ and ‘‘swap’’ definition 

rules (i.e., before October 12, 2012) does not count 

toward the de minimis threshold. The rule also 

provides that an entity that exceeds the de minimis 

threshold must register as an SD two months after 

the end of the month in which it exceeds the 

threshold. See Commission regulation 1.3(ggg)(4). 

63See Proposed Guidance, 77 FR at 41218–41219. 

64 Id. CFTC Letter 12–22 applied a similar 

approach for both SD and MSP purposes. 

65Proposed Guidance, 77 FR at 41218–41220. 

Further, where the potential non-U.S. SD’s swap 

obligations are guaranteed by a U.S. person, the 

non-U.S. person would be required to register with 

the Commission as an SD when the aggregate 

notional value of its swap dealing activities (along 

with the swap dealing activities of its non-U.S. 

affiliates that are under common control and also 

guaranteed by a U.S. person) with U.S. persons and 

non-U.S. persons exceeds the de minimis threshold. 

Additionally, the Proposed Guidance clarified that 

a non-U.S. person without a guarantee from a U.S. 

person would not be required to register as an SD 

if it does not engage in swap dealing with U.S. 

persons as part of ‘‘a regular business’’ with U.S. 

persons, even if the non-U.S. person engages in 

dealing with non-U.S. persons. 

66 Id. at 41221. The Proposed Guidance also 

provided that if the non-U.S. person’s swaps are 

guaranteed by a U.S. person, then such swaps will 

be attributed to the U.S. guarantor and not the 

potential non-U.S. MSP. Further, the non-U.S. 

person would be required to include in its MSP 

calculation any swaps between another non-U.S. 

person and a U.S. person if the potential non-U.S. 

MSP guarantees the obligations of the other nonU.S. person thereunder. 

67One commenter, Japanese Bankers Association, 

stated that the cross-border application of DoddFrank is overbroad because it would capture even 

hedging transactions of a non-U.S. SD with a U.S. 

SD that is making a market. The definition of 

‘‘dealing activity’’ is ambiguous, this commenter 

asserted, and might require the non-U.S. SD to 

register. See Japanese Bankers Association 

(‘‘Japanese Banks’’) (Aug. 27, 2012) at 1. 

68See e.g., Goldman (Aug. 27, 2012) at 5; ISDA 

(Aug. 10, 2012) at 12 (in the typical case, an intragroup guarantee allocates risks and activities within 

the corporate group and is not a dealing activity of 

the non-U.S. person); Commercial Energy Working 

Group (‘‘CEWG’’) (submitted by Sutherland Asbill) 

(Aug. 27, 2012), at 6–7 (Proposed Guidance should 

not include swap guarantees for aggregation 

purposes because it is contrary to the Final Entities 

Rules; jurisdiction should not be extended to 

transactions between two non-U.S. persons if the 

swap obligations of one party are guaranteed by a 

U.S. person because U.S. jurisdiction in these 

circumstances is not supported by law or existing 

international conventions). 

69See SIFMA (Aug. 27, 2012) at A–29. As an 

alternative, SIFMA posited that only guarantees by 

a U.S. person for which there is a material 

likelihood of payment by the U.S. guarantor should 

be counted towards the de minimis calculation. To 

implement this recommendation, SIFMA suggested 

that the Commission establish a standard for 

determining that the likelihood of payment is 

remote, such as a comparison of the aggregate 

contingent liability of the U.S. person guarantor to 

the net equity of that guarantor. Id. at A–29—A–30. 

70See Goldman (Aug 27, 2012) at 5 (inconsistent 

to require SD registration solely on the basis of 

guarantees by a U.S. parent, absent any showing of 

a ‘‘direct and significant’’ jurisdictional nexus; 

concerns can be addressed through anti-evasion 

authority). See also CEWG (Aug. 27, 2012) at 7 

(because there is no legal basis under CEA section 

2(i) for asserting jurisdiction based on a guaranty, 

Commission should clarify that a non-U.S. person 

is not subject to Commission regulation, even where 

a U.S. person guarantees either counterparty); The 

Hong Kong Association of Banks (‘‘HKAB’’) (Aug. 

27, 2012) at 8 (swaps between non-U.S. persons 

should be excluded from the de minimis 

determination regardless of whether a counterparty 

is guaranteed); ISDA (Aug. 10, 2012) at 12 (focus 

should be on whether a U.S. guarantor of a non-U.S. 

person should register); Investment Industry 

Association of Canada (‘‘IIAC’’) (Aug. 27, 2012) at 

6 (seeking confirmation that indirect holding 

company ownership alone does not constitute a 

guarantee); and JP Morgan (Aug. 27, 2012) at 10 

(term ‘‘guarantee’’ should not include keepwells 

and liquidity puts that do not create the same thirdparty rights and may be unenforceable by third 

parties). But see contra AFR (June 14, 2012) at 2 

(failure to include guaranteed affiliates as U.S. 

persons and to capture the ‘‘large grey area’’ 

between explicit and informal guarantees creates 

opportunities to escape Dodd-Frank regulations by 

included in the de minimis threshold 

calculation that applies for purposes of 

the SD definition. The Commission 

expects that this step, and the other 

relief provided in the Final Order, will 

substantially address commenters’ 

concerns regarding the complexity of 

implementing the swap requirements 

for the interim period during which the 

Final Order is in effect. 

2. Scope of Transactions To Be Included 

in Registration Calculations 

The Commission has adopted final 

rules and interpretive guidance 

implementing the statutory definitions 

of the terms ‘‘swap dealer’’ and ‘‘major 

swap participant’’ in CEA sections 

1a(49) and 1a(33).59 The Final Entities 

Rules delineate the activities that cause 

a person to be an SD and the level of 

swap positions that cause a person to be 

an MSP. In addition, the Commission 

has adopted rules concerning the 

statutory exceptions from the definition 

of an SD, including the de minimis 

exception.60 Commission regulation 

1.3(ggg)(4) sets forth a de minimis 

threshold of swap dealing, which takes 

into account the notional amount of a 

person’s swap dealing activity over the 

prior 12 months.61 When a person 

engages in swap dealing transactions 

above that threshold, the person meets 

the SD definition in section 1a(49) of the 

CEA.62 Commission regulations 

1.3(jjj)(1) and 1.3(lll)(1) set forth swap 

position thresholds for the MSP 

definition in Commission regulation 

1.3(hhh). When a person holds swap 

positions above those thresholds, such 

person meets the MSP definition in 

section 1a(39) of the CEA. 

i. Proposed Guidance 

In the Proposed Guidance, the 

Commission addressed the general 

manner in which a person’s overseas 

swap dealing activities or positions may 

require registration as an SD or MSP, 

respectively. Specifically, under the 

Proposed Guidance, a non-U.S. person 

whose swap dealing transactions with 

U.S. persons exceed the de minimis 

threshold would be required to register 

as an SD.63 Likewise, under the 

Proposed Guidance, a non-U.S. person 

who holds swap positions with U.S. 

counterparties that are above the 

specified MSP thresholds would be 

required to register as an MSP.64 In 

determining whether a non-U.S. person 

is engaged in more than a de minimis 

level of swap dealing, the Proposed 

Guidance would include the notional 

value of any swap transactions between 

such non-U.S. person (or any of its nonU.S. affiliates under common control) 

and a U.S. person, other than foreign 

branches of registered SDs.65 Following 

a similar rationale, the Proposed 

Guidance stated that in calculating 

whether a non-U.S. person meets an 

MSP threshold, the non-U.S. person 

would include the notional value of any 

swaps entered into between such nonU.S. person and a U.S. person.66

In general, commenters did not raise 

concerns or objections to the 

Commission’s interpretation that nonU.S. persons who engage in more than 

a de minimis level of swap dealing with 

U.S. persons would be required to 

register as SDs.67 A number of 

commenters argued, however, that a 

non-U.S. person should not be required 

to register as an SD solely by reason of 

its swap obligations being guaranteed by 

a U.S. person.68 SIFMA stated that the 

‘‘connection between a non-U.S. swap 

dealing entity and its U.S. guarantor 

creates too tenuous a nexus to justify 

registration on the basis of this 

relationship alone.’’ 69 Other 

commenters raised various other issues 

with respect to the treatment of 

guarantees.70


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Federal Register / Vol. 78, No. 4 / Monday, January 7, 2013 / Rules and Regulations 867 

shifting business overseas; Commission should 

clarify that it will ‘‘follow through on properly 

implementing these principles and will not enable 

a ‘race to the bottom’ in which incentives are 

created for derivatives affiliates of global banks that 

are able to relocate to areas of lax regulation to take 

advantage of an inadequate ‘substituted 

compliance’ regime.’’). 

71 7 U.S.C. 1a(49) and 1a(33). See Final Entities 

Rules. 

72Similarly, if a non-U.S. person must include 

swaps with such foreign branches in its calculation 

of whether it is within the definition of MSP in 

Commission regulation 1.3(hhh), it could be 

required to register with the Commission in that 

capacity. Although the Proposed Guidance did not 

provide for a similar exclusion with respect to the 

consideration of a non-U.S. person’s swaps with 

foreign branches of U.S. SDs with respect to 

determining whether the non-U.S. person must 

register as an MSP, some commenters requested 

that the Commission provide a similar exclusion. 

See SIFMA (Aug. 27, 2012) at 9, A–28, A–29; Citi 

(Aug. 27, 2012) at 2–3. 

73Commenters, such as Goldman, argued that the 

rationale for this exclusion is equally applicable to 

non-U.S. persons that are banks or broker-dealers 

when dealing with U.S. SDs that do not conduct 

overseas business through foreign branches. Absent 

a similar interpretation in these circumstances, they 

argued, U.S. SDs would be at a competitive 

disadvantage vis-a`-vis foreign branches of U.S. SDs 

since non-U.S. persons will limit their dealing 

activities to foreign branches of U.S. SDs. See 

Goldman (Aug. 27, 2012) at 5–6. The Commission 

does not believe that it would be appropriate for a 

non-U.S. person to exclude from the de minimis 

calculation swap dealing transactions with U.S. SDs 

(other than their foreign branches). By way of 

comparison, however, for purposes of the Final 

Order, a swap that a non-U.S. person enters into 

with a non-U.S. affiliate of a U.S. SD (whether 

guaranteed by a U.S. person or not) is not a swap 

with a U.S. person and, thus, need not be counted 

towards the de minimis calculation. The 

Commission proposed to interpret section 2(i) so as 

to exclude swap dealing transactions with a foreign 

branch of a U.S. SD in order to avoid the otherwise 

potential result that foreign entities would cease 

doing swap dealing business with foreign branches 

of U.S. SDs in order to avoid SD status, while 

continuing to do business with foreign affiliates of 

U.S. SDs located in the same jurisdiction. The 

Commission does not believe relief should be 

provided in a manner that would lead to such 

disparate treatment of entities located outside the 

United States, i.e., foreign branches and foreign 

affiliates of U.S. SDs that are located in the same 

jurisdiction but that happen to bear a different legal 

structure. Similar considerations of potentially 

discriminatory results do not apply, however, with 

respect to swaps directly with U.S. SDs. Such U.S. 

SDs are different in kind from a foreign affiliate of 

a U.S. SD, and the rationale for the foreign branch 

exclusion is inapposite in these circumstances. 

74The representation of the intention to register 

with the Commission as a swap dealer need not be 

obtained prior to execution of a swap. 

ii. Commission Determination on 

Exemptive Relief Regarding Registration 

Registration Thresholds for Non-U.S. 

Persons. As noted above, the 

Commission is not, at this time, taking 

action on the Proposed Guidance. Under 

CEA sections 1a(49) and 1a(33) and 

Commission regulations 1.3(ggg)(4) and 

1.3(hhh),71 a person is required to take 

account of the notional amount of all of 

its swap dealing activity over the prior 

12 months for purposes of the SD 

determination, and all of its swap 

positions for purposes of the MSP 

determination. These CEA provisions 

and the Commission’s regulations apply 

to activities within the United States 

and, as provided in section 2(i), to 

certain activities outside the United 

States. 

However, while the Commission 

continues to consider the comments on 

its Proposed Guidance regarding section 

2(i), the Commission believes it 

appropriate to provide, under the Final 

Order, relief for non-U.S. persons 

(regardless of whether the non-U.S. 

persons’ swap obligations are 

guaranteed by U.S. persons) from the 

requirement that a person include all its 

swaps in its calculation of the aggregate 

gross notional amount of swaps 

connected with its swap dealing activity 

for SD purposes or in its calculations for 

MSP purposes. On the other hand, the 

Commission believes that it is not 

appropriate to provide a non-U.S. 

person with relief from the registration 

requirement when the aggregate level of 

its swap dealing with U.S. persons, as 

that term is defined above, exceeds the 

de minimis level of swap dealing, or 

when the level of its swap positions 

with U.S. persons, again as that term is 

defined above, exceeds one of the MSP 

thresholds. In the Commission’s view, 

such relief from the registration 

requirement is inappropriate when a 

level of swap activities that is 

substantial enough to require 

registration as an SD or an MSP when 

conducted by a U.S. person, is 

conducted by a non-U.S. person with 

U.S. persons as counterparties. 

Therefore, the Final Order provides 

that a non-U.S. person (regardless of 

whether the non-U.S. persons’ swap 

obligations are guaranteed by U.S. 

persons) does not need to include in its 

calculation of the aggregate gross 

notional amount of swaps connected 

with its swap dealing activity for 

purposes of Commission regulation 

1.3(ggg)(4) or in its calculation of 

whether it is an MSP for purposes of 

Commission regulation 1.3(hhh), any 

swaps where the counterparty is a nonU.S. person. 

Exclusion for Swaps with Foreign 

Branches of U.S. Swap Dealers. The 

Proposed Guidance would exclude from 

a non-U.S. person’s de minimis 

threshold calculation its swap 

transactions with foreign branches of 

U.S. SDs. This exclusion was intended 

to allow non-U.S. persons to continue 

their swap activities with foreign 

branches of U.S. SDs without exceeding 

the de minimis threshold, thereby 

triggering a requirement to register as an 

SD. 

In CFTC Letter 12–22, the 

Commission staff noted that because the 

proposed exclusion would be limited to 

registered U.S. SDs and many of the 

persons who expect to register as U.S. 

SDs may not do so until December 31, 

2012, or later, market participants had 

expressed concern that a non-U.S. 

person could be required after October 

12, 2012, to begin counting toward the 

de minimis threshold any swap dealing 

transactions with a foreign branch of 

any person that may meet the definition 

of ‘‘U.S. person’’ and that is not yet 

registered (and consequently be 

required to register as an SD) even 

though many U.S. persons with foreign 

branches intend to register as SDs later 

in 2012 or in early 2013.72 The 

Commission staff noted that this 

potential outcome would not be 

consistent with the scope of relief 

intended to be provided in the Proposed 

Guidance.73

The Commission believes it 

appropriate to provide, in this Final 

Order, the scope of relief afforded in 

CFTC Letter No. 12–22 while it 

considers action on the Proposed 

Guidance. Accordingly, for purposes of 

the Final Order, swap transactions by a 

non-U.S. person with a foreign branch 

of a registered U.S. SD, or with a foreign 

branch of a U.S. person that is not yet 

registered as a U.S. SD but that does 

intend to register as such when 

required, are not required to be included 

in the calculations for SD and MSP 

registration purposes. 

Therefore, the Final Order provides 

that a non-U.S. person does not need to 

include in its calculation of the 

aggregate gross notional amount of 

swaps connected with its swap dealing 

activity for purposes of Commission 

regulation 1.3(ggg)(4) or in its 

calculation of whether it is an MSP for 

purposes of Commission regulation 

1.3(hhh), any swap where the 

counterparty is a foreign branch of a 

U.S. person that is registered as an SD 

or that represents that it intends to 

register with the Commission as an SD 

by March 31, 2013.74

Aggregation for the De Minimis 

Calculation. Commission regulation 

1.3(ggg)(4) requires that a person 

include, in determining whether its 

swap dealing activities exceed the de 

minimis threshold, the aggregate 

notional value of swap dealing 

transactions entered by its affiliates 

under common control. Additionally, 

under the Proposed Guidance, a nonU.S. person, in determining whether its 

swap dealing transactions exceed the de 

minimis threshold, would include the 


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868 Federal Register / Vol. 78, No. 4 / Monday, January 7, 2013 / Rules and Regulations 

75For this purpose, the Commission construes 

‘‘affiliates’’ to include persons under common 

control as stated in the Final Entities Rules with 

respect to the term ‘‘swap dealer,’’ which defines 

control as ‘‘the possession, direct or indirect, of the 

power to direct or cause the direction of the 

management and policies of a person, whether 

through the ownership of voting securities, by 

contract or otherwise.’’ See Final Entities Rules, 77 

FR at 30631, fn. 437. 

76The Commission notes that, in any case, the 

swap dealing transactions of a non-U.S. person’s 

non-U.S. affiliates that may have to be included in 

the de minimis determination are the transactions 

between the non-U.S. affiliates and U.S. person 

counterparties. In no case would swap dealing 

transactions between the non-U.S. person’s nonU.S. affiliates and other non-U.S. person 

counterparties need to be included in the 

determination. 

77The Commission wishes to make clear that 

relief from the registration requirement is not 

available to any person or entity that engages in 

swap dealing transactions with U.S. persons above 

the de minimis threshold. The discussion in this 

section relates only to whether and when non-U.S. 

persons must aggregate their own swap dealing 

transactions with the swap dealing of their non-U.S. 

affiliates. 

78See, e.g., Cleary (Aug 16, 2012) at 5–6; SIFMA 

(Aug 13, 2012) at 4–5. 

79Section 1.3 (ggg)(3) of the Commission’s 

regulations permits a person to apply for a limited 

purpose designation based on a particular type, 

class, or category of a swap, or to a particular 

business unit within an entity. See Commission 

regulation 1.3(ggg)(3); Final Entities Rules, 77 FR at 

30645–46. Cleary urged the Commission to 

recognize limited designation for non-agricultural 

firms. Specifically, it argued that limited 

designation should be available to an entity that 

registers as a firm, and not merely a branch, 

division, or office. See Cleary (Aug. 16, 2012) at 14. 

Regarding the two points raised by Cleary, the 

Commission clarifies that a limited designation is 

available to any registrant that can demonstrate its 

ability to comply with applicable requirements; it 

is not limited to only agricultural firms, and it 

could be available to an entity that registers as a 

firm. The Commission believes that further relief at 

this time regarding limited designations is not 

justified under the criteria of CEA section 4(c). As 

noted in the Final Entities Rules, the Commission 

believes that limited designation is appropriately 

addressed on a case-by case basis in the context of 

individual applications for registration. See Final 

Entities Rules, 77 FR at 30646 (‘‘Any particular 

limited purpose application will be analyzed in 

light of the unique circumstances presented by the 

applicant.’’). 

80See e.g., Goldman (Aug. 27, 2012) at 6–7; Credit 

Suisse (Aug. 27, 2012) at 9; IIB (Aug. 27, 2012) at 

26 (stating that, although it is not entirely clear, in 

a central booking arrangement under which a nonU.S. person dealing in swaps with other non-U.S. 

persons ‘‘books’’ those swaps to a U.S. affiliate 

(which either directly becomes a party to the swap 

or indirectly enters a back-to-back arrangement), the 

Proposed Guidance could be interpreted as 

requiring the non-U.S. affiliate to separately register 

as an SD if its activities with non-U.S. persons meet 

the definition of an SD); and Lloyd’s (Aug. 24, 2012) 

at 2–3 (requesting clarification as to whether or not 

non-U.S. institutions (not acting as principal to 

swaps with U.S. persons) employing central 

booking models, would be required to register as 

SDs when they centrally manage market risk for 

swaps with an affiliated non-U.S. SD and other nonU.S. related swaps activities). 

81Cleary and SIFMA have asked the Commission 

to confirm that swap activities that are limited to 

unwinding ‘‘legacy’’ swap portfolios do not 

constitute swap dealing. See Cleary (Aug. 16, 2012) 

at 11–12; SIFMA (Aug. 27, 2012) at A–31. See also 

The Clearing House (Aug. 13, 2012) at 11. In a 

related vein, IIB requested that the Proposed Order 

be modified to allow certain less active ‘‘Transition 

Affiliates’’ additional time to transfer swap 

positions to their principal swap dealing affiliate, 

see IIB (Aug. 9, 2012) at 7, and Cleary separately 

asked the Commission to consider whether the 

aggregation rule should apply to non-U.S. affiliates 

whose swap dealing activity is already subject to 

local regulation by a G–20 supervisor, see Cleary 

(Aug. 16, 2012) at 9–10. In general, the Commission 

previously concluded that bright-line tests and 

aggregate notional value of swap dealing 

transactions entered into by its non-U.S. 

affiliates under common control but 

would not include the aggregate 

notional value of swap dealing 

transactions entered into by its U.S. 

affiliates. 

Numerous comments on the Proposed 

Guidance discussed considerations 

relating to when the swap dealing 

activities of affiliates should be 

aggregated for purposes of determining 

if a non-U.S. person is required to 

register as an SD. The Commission is 

considering these comments, and 

intends to address them in preparing 

final guidance on this issue. However, 

the Commission believes it is 

appropriate to provide, in the Final 

Order, temporary relief from the 

requirement in Commission regulation 

1.3(ggg)(4) to include the swap dealing 

activities of certain affiliates in the de 

minimis calculation. 

For purposes of the Final Order, the 

Commission believes that a non-U.S. 

person that is engaged in swap dealing 

activities with U.S. persons as of the 

effective date of the Final Order should 

not be required to include, in its 

determination of whether it exceeds the 

de minimis threshold, the swap dealing 

transactions of any of its U.S. 

affiliates.75 In addition, the Commission 

believes it is appropriate that if the nonU.S. person is an affiliate of a person 

that is registered as an SD, it should not 

be required to include, in its 

determination of whether it exceeds the 

de minimis threshold, the swap dealing 

transactions of any of its non-U.S. 

affiliates that engage in swap dealing 

activities, so long as each such excluded 

affiliate is either (i) engaged in swap 

dealing activities with U.S. persons as of 

the effective date of the Final Order or 

(ii) registered as an SD.76

Where at least one of the entities in 

the affiliated group registers as an SD, 

the Commission believes that during the 

transition period covered by the Final 

Order, it is not necessary to aggregate 

the swap dealing transactions of the 

various affiliates, even if the aggregate 

amount of such swap dealing 

transactions among all the unregistered 

non-U.S. affiliates is above the de 

minimis threshold. Thus, where at least 

one of the entities in the affiliated group 

registers as an SD, another entity in the 

affiliated group would have to register 

as an SD only if its own swap dealing 

transactions with U.S. persons, 

considered individually, were above the 

de minimis threshold.77

As noted above, however, this limited 

transitional relief is not applicable if a 

non-U.S. affiliate begins to engage in 

swap dealing transactions with U.S. 

persons after the effective date of the 

Final Order. The Commission believes 

that this limitation is appropriate for the 

relatively short time period that the 

Final Order will be in effect, in order to 

prevent evasion and abuse of this relief. 

Without this limitation, new non-U.S. 

affiliates could be created simply in 

order to engage in further swap dealing 

activity with U.S. persons. Moreover, 

most commenters were clear that 

limited transitional relief from the 

aggregation requirement is necessary 

with respect to their existing swap 

dealing activities, but is not necessary in 

order to expand their swap dealing 

activities in the short term.78

Central Booking Entity. In the event 

an entity operates a ‘‘central booking 

system’’ where swaps are booked into a 

single legal entity, whether or not such 

entity is a counterparty to the swap, the 

Proposed Guidance stated that the entity 

that books the swaps would be subject 

to any applicable SD registration 

requirement, as if it had entered into 

such swaps directly, regardless of 

whether such entity is a U.S. person or 

whether the booking entity is a 

counterparty to a swap (has booked the 

swap directly) or has booked a swap 

indirectly by way of a back-to-back 

swap or other arrangement with an 

affiliate. The Commission noted that a 

non-U.S. affiliate or subsidiary may also 

be required to register as an SD if it 

independently meets the definition of 

an SD.79 A number of commenters 

sought clarification of the Commission’s 

interpretation with respect to the central 

booking model.80

In this situation, the Commission 

clarifies that a non-U.S. person should 

not be required to include in its 

calculation of the aggregate gross 

notional amount of swaps connected 

with its swap dealing activity for 

purposes of Commission regulation 

1.3(ggg)(4), any swap to which it is not 

a party because the swap is entered into 

by an affiliated central booking entity. 

Summary. For purposes of the 

transitional relief under this Final 

Order, in determining whether a nonU.S. person is engaged in more than a 

de minimis level of swap dealing 81 or 


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categorical exclusions from the term ‘‘swap dealer’’ 

based on the general nature of a person’s business 

are unwarranted. See Final Entities Rules, 77 FR at 

30615. The Commission believes that this approach 

is equally appropriate here, with regard to the 

exemptive relief requested in the cross-border 

context. As noted above, the Commission believes 

that registration of non-U.S. persons that are within 

the definition of the term ‘‘swap dealer’’ is a key 

element of the Dodd-Frank swaps reforms. 

Therefore the Commission believes, at this time, 

that blanket relief in this area along the lines 

suggested by commenters is not in the public 

interest, and that the determination of whether 

particular activities constitute swap dealing or 

otherwise bring a person within the definition of 

the term ‘‘swap dealer,’’ should proceed along the 

lines that the Commission adopted in the Final 

Entities Rules. Under these circumstances, the 

Commission has determined that it would be 

inappropriate to provide further relief in this regard 

under CEA section 4(c). However, the Commission 

does not intend to preclude its staff from 

considering appropriate relief in this regard on a 

case-by-case basis. 

82As noted above, this further relief is available 

only where the non-U.S. person is engaged in swap 

dealing activities with U.S. persons as of the 

effective date of the Final Order. 

83The foregoing summary is based on the term 

‘‘U.S. person’’ as it is defined above. 

84S. Rep. No. 111–176, at 228 (2010). 

85To date, the Commission has not adopted final 

rules relating to the Entity-Level Requirement of 

capital adequacy, nor the Transaction-Level 

Requirements of margining (and segregation) for 

uncleared swaps, and trade execution. See sections 

2(h)(8), 4s(e) and 4s(l) of the CEA, 7 U.S.C. 2(h)(8), 

6s(e) and 6s(l). No exemptive relief is necessary 

with respect to Requirements that are not yet in 

effect and, therefore, the Final Order does not apply 

to these Requirements. In the event that final rules 

with respect to any of these Requirements that are 

issued by the Commission come into effect prior to 

the expiration of this Final Order, the Commission 

will consider extending the Final Order to such 

Requirements at that time. For further details 

regarding the Entity-Level Requirements and the 

Transaction-Level Requirements, see the 

appendices to the Proposed Order. 

86Specifically, the Entity-Level Requirements are 

those set forth in Commission regulations 1.31, 3.3, 

23.201, 23.203, 23.600, 23.601, 23.602, 23.603, 

23.605, 23.606, 23.607, 23.608 and 23.609 and parts 

20, 45 and 46. 

87 IIB and The Clearing House noted that the 

Proposed Order did not address Commission 

regulation 1.31, which sets forth certain 

recordkeeping obligations that apply to all books 

and records required to be kept under the 

Commission’s regulations. See IIB (Aug. 9, 2012) at 

10; and The Clearing House (Aug. 16, 2012) at 14. 

In the Proposed Order, the Commission proposed 

generally that recordkeeping requirements would be 

Entity-Level Requirements but did not explicitly list 

Commission regulation 1.31 as an Entity-Level 

Requirement. The Commission clarifies that for 

purposes of the Final Order, Commission regulation 

1.31 is an Entity-Level Requirement and, therefore, 

subject to the exemptive relief under the Final 

Order 

88Specifically, the Transaction-Level 

Requirements are those set forth in CEA section 

2(h)(8) and Commission regulations 23.202, 23.400 

to 23.451, 23.501, 23.502, 23.503, 23.504(a), 

23.504(b)(1), (b)(2), (b)(3) and (b)(4), 23.506 and 

23.610 and part 43. The Proposed Guidance placed 

one of the Transaction-Level Requirements— 

external business conduct standards—into a 

‘‘Subcategory B,’’ as distinguished from the 

remaining Transaction-Level Requirements in 

‘‘Subcategory A.’’ This distinction is not relevant 

for purposes of the Final Order, in which all 

Transaction-Level Requirements are provided the 

same exemptive relief. 

89See The Clearing House (Aug. 13, 2012) at 13– 

14. To that end, The Clearing House recommended 

that certain rules currently categorized as entitylevel be changed to transaction-level. 

holds swap positions above any of the 

MSP thresholds, the non-U.S. person— 

whether guaranteed or not by a U.S. 

person—may exclude and not consider 

the aggregate notional value of: 

• Any swap where the counterparty is 

a non-U.S. person; and 

• Any swap where the counterparty is 

a foreign branch of a U.S. person that is 

registered as an SD or that represents 

that it intends to register with the 

Commission as an SD by March 31, 

2013; and 

• For purposes of SD registration 

only, any swap to which it is not a party 

because the swap is entered into by an 

affiliated central booking entity. 

Further, for purposes of the 

transitional relief under this Final 

Order, in determining whether a nonU.S. person is engaged in more than a 

de minimis level of swap dealing, the 

non-U.S. person may exclude and not 

consider the aggregate notional value 

of: 82

• Any swap dealing transaction of its 

U.S. affiliates under common control; 

and 

• If any of its affiliates under common 

control is registered as an SD, any swap 

dealing transaction of any of its nonU.S. affiliates that (i) is engaged in swap 

dealing activities with U.S. persons as of 

the effective date of the Final Order or 

(ii) is registered as an SD.83

D. Entity-Level and Transaction-Level 

Requirements 

1. Categorization of Entity- and 

Transaction-Level Requirements 

Title VII of the Dodd-Frank Act 

establishes a comprehensive new 

regulatory framework for SDs and MSPs. 

This framework is an important element 

of the ‘‘improve[d] financial 

architecture’’ that Congress established 

in the Dodd-Frank Act to reduce 

systemic risk and enhance market 

transparency.84 Among other things, a 

registered SD or MSP must comport 

with certain statutory requirements (and 

regulations the Commission may 

promulgate thereunder) governing risk 

management, internal and external 

business conduct standards, and 

reporting. Further, U.S. SDs and MSPs, 

once registered, are required to comply 

with all of the requirements applicable 

to SDs and MSPs for all their swaps, not 

just the swaps that make them an SD or 

MSP. 

For purposes of the Proposed Order, 

the Dodd-Frank swap provisions were 

divided into two categories: (1) EntityLevel Requirements, which apply to all 

the firm’s activities or transactions; and 

(2) Transactional-Level Requirements, 

which apply on a transaction-bytransaction basis. For purposes of the 

Final Order, the Commission will apply 

the Entity-Level and Transaction-Level 

Requirements as proposed.85

The Entity-Level Requirements 

consist of: (1) Capital adequacy; (2) chief 

compliance officer; (3) risk 

management; (4) swap data 

recordkeeping; (5) SDR reporting; and 

(6) LTR.86 The Entity-Level 

Requirements apply to registered SDs 

and MSPs across all their swaps without 

distinctions as to the counterparty or the 

location of the swap.87

The Transaction-Level Requirements 

consist of: (1) Clearing and swap 

processing; (2) margining and 

segregation for uncleared swaps; (3) 

trade execution; (4) swap trading 

relationship documentation; (5) 

portfolio reconciliation and 

compression; (6) real-time public 

reporting; (7) trade confirmation; (8) 

daily trading records; and (9) external 

business conduct standards.88

The Commission intends to consider 

any reclassification of Entity-Level and 

Transaction-Level requirements, 

including for the reasons raised by 

various commenters, in connection with 

further guidance on cross-border issues. 

As described below, however, the 

Commission has considered issues 

raised by commenters regarding the 

scope of the proposed exemptive relief 

from such Requirements—apart from 

their ultimate classification. 

2. General Comments on the Proposed 

Order 

In response to the Proposed Order, a 

number of commenters addressed the 

proposed exemptive relief from the 

Entity-Level and Transaction-Level 

Requirements. The Clearing House 

stated that appropriate phase-in relief 

requires the Commission to ‘‘provide 

greater flexibility’’ with respect to the 

application of the Dodd-Frank 

requirements to overseas operations and 

non-U.S. counterparties.89 Several other 

commenters—including IIB, Citigroup 

and Cleary—recommended that the 

Commission either delay the 

compliance date for certain 

requirements or expand the scope of 

relief (particularly as to transactions 

with non-U.S. counterparties) to address 

certain compliance and operational 

burdens associated with applying the 

Dodd-Frank requirements to 


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870 Federal Register / Vol. 78, No. 4 / Monday, January 7, 2013 / Rules and Regulations 

90See e.g., IIB (Aug. 13, 2012) at 9–10, Cleary 

(Aug. 16, 2012) at 14–16; and Citigroup (Aug. 13, 

2012) at 4. 91See IIB (Aug. 13, 2012) at 10. 

92 Id. IIB also said that there may be jurisdictions 

that restrict the disclosure of even swaps with U.S. 

persons, and additional relief may be necessary for 

those jurisdictions. 

93See Cleary (Aug. 16, 2012) at 15–16. 

94See SIFMA (Aug. 13, 2012) at 8–9. 

95See The Clearing House (Aug. 13, 2012) at 13– 

14. This commenter also stated that where the 

foreign jurisdiction lacks any parallel transactionlevel rules, the registrant should not be required to 

apply any Dodd-Frank Transaction-Level 

Requirements with respect to any swap with a nonU.S. counterparty. For jurisdictions with 

transaction-level requirements, all registrants 

should be allowed to comply with the local 

requirements during the exemptive period. 

96See Citi (Aug. 13, 2012) at 9. 

97See SIFMA (Aug. 13, 2012) at 11. 

98See Deutsche Bank (Aug. 13, 2012) at 3; see 

also Cleary (Aug. 16, 2012) at 14–15. 

99See id. 

100See 7 U.S.C. 2(a)(13)(G). 

transactions outside the United States.90

These comments and the Commission 

determinations in response thereto are 

discussed below. 

3. SDR Reporting (Part 45 and Part 46) 

and LTR Requirements 

i. Comments 

As discussed above, in the Proposed 

Order, the Commission proposed to 

allow non-U.S. SDs and MSPs to delay 

compliance with Entity-Level 

Requirements subject to specified 

conditions—except for the Entity-Level 

Requirements of SDR reporting and LTR 

requirements. Under the Proposed 

Order, non-U.S. SDs and MSPs would 

be required to comply with SDR 

reporting and LTR requirements for all 

swaps with U.S. counterparties upon 

their compliance date. And, with 

respect to swaps with non-U.S. 

counterparties, the Commission 

proposed that only those non-U.S. SDs 

and MSPs that are not affiliates or 

subsidiaries of a U.S.-based SD would 

be permitted to delay compliance with 

the SDR reporting and LTR 

requirements. The Commission is 

adopting this temporary exemptive 

relief generally as proposed, with 

certain modifications in response to 

comments received. 

Some commenters requested an 

extension of the compliance date for 

SDR reporting and LTR requirements. 

IIB stated that due to the ‘‘expansive’’ 

proposed aggregation rule and 

ambiguities in the proposed U.S. person 

definition, non-U.S. registrants may not 

have their systems ready to report their 

U.S.-facing swaps, which they expect to 

be relatively few in number.91 As an 

initial step, IIB requested that the 

Commission further extend the 

compliance date for SDR reporting and 

LTR requirements with respect to swaps 

between non-U.S. registrants and other 

non-U.S. counterparties (including 

foreign branches of U.S. persons) under 

the exemptive relief, pending final 

interpretive guidance and for a 

‘‘reasonable’’ time thereafter.92

Similarly, cleary stated that compliance 

with part 45 swap data reporting 

requirements would require U.S. 

operations overseas (i.e., affiliates and 

foreign branches) to develop new 

reporting infrastructures, which requires 

additional time for implementation. It 

requested that registrants be permitted 

to comply with SDR reporting with nonU.S. counterparties by reporting to the 

Global Trade Repository (‘‘GTR’’).93

Other commenters requested broader 

relief from the reporting requirements. 

SIFMA argued that non-U.S. registrants 

should be relieved from complying with 

SDR reporting for all of their swaps.94

SIFMA explained that because the 

proposed reporting relief is not available 

for swaps with U.S. counterparties, nonU.S. registrants are effectively required 

to comply with the full extent of SDR 

reporting and LTR requirements upon 

the effectiveness of the rules, nullifying 

the benefit of any transition period. 

Therefore, SIFMA urged that the 

proposed relief for non-U.S. registrants 

should apply to swaps with all 

counterparties. 

The Clearing House stated that 

potential registrants—whether U.S. or 

non-U.S. and irrespective of affiliation 

or branch status—should not be 

required to apply SDR reporting rules or 

LTR requirements to transactions with 

non-U.S. counterparties.95 It explained 

that for swaps with non-U.S. 

counterparties, these rules are 

transaction-specific and further, the cost 

of developing the necessary reporting 

infrastructure during the exemptive 

period would create disadvantages visa`-vis those potential registrants for 

which delayed implementation of these 

requirements would be granted under 

the Final Order. The Clearing House, 

like IIB, also cited the fact that under the 

Proposed Guidance, many non-U.S. 

entities may be unexpectedly required 

to register as SDs but lack the 

operational infrastructure to comply 

with the reporting requirements. 

Several commenters also requested 

additional time for compliance with 

part 46 reporting of historical and 

transition swaps. For example, Citi 

stated that data for many historical 

swaps is not available in the format 

necessary, and that many of the relevant 

swaps have expired or were 

terminated.96 SIFMA said that allowing 

additional time for compliance would 

not materially hinder the Commission’s 

ability to assess systemic risk.97 SIFMA 

requested that the Commission delay for 

all market participants part 46 historical 

swap reporting for a particular 

counterparty and asset class until 120 

days after SDR reporting under part 45 

is effective for that reporting 

counterparty and asset class in order to 

alleviate the difficulties associated with 

compliance with both reporting 

requirements. 

Finally, as noted above, the Proposed 

Order stated that the exemptive relief 

for SDR reporting and LTR requirements 

for non-U.S. registrants in their swaps 

with non-U.S. counterparties would not 

extend to non-U.S. registrants that are 

affiliates or subsidiaries of U.S. 

registrants. A number of commenters, 

including Deutsche Bank, recommended 

that the Commission eliminate the term 

‘‘affiliate’’ and exempt non-U.S. 

registrants from reporting swaps with 

non-U.S. counterparties, except where 

the non-U.S. registrant is a direct 

subsidiary of a U.S. registrant.98

Commenters expressed the concern that 

this proposed exemptive relief from 

SDR reporting and LTR requirements 

was too narrow in that it would not 

extend to a non-U.S. registrant by virtue 

of its affiliation with a U.S. SD under 

the common ownership of a non-U.S. 

person that is neither an SD nor an 

MSP.99

ii. Commission Determination on SDR 

Reporting and LTR Requirements 

SDR reporting is a fundamental 

component of Dodd-Frank’s objective to 

reduce risk, increase transparency, and 

promote market integrity within the 

financial system generally, and the 

swaps market in particular.100 SDR 

reporting achieves the statutory 

objectives of transparency and enhanced 

price discovery by, among other things, 

requiring that market participants report 

swap transaction and pricing data to an 

SDR. SDR reporting also serves as a 

valuable regulatory tool. In particular, 

timely reporting of comprehensive swap 

transaction data to SDRs will be 

important to the Commission’s ability to 

effectively monitor and address the risk 

exposures of individual market 

participants (including SDs and MSPs) 

and the concentration of risk within the 

swaps market more generally. Similarly, 

LTR enables the Commission to 

promptly and efficiently identify 

significant traders and collect data on 

their trading activity so that the 

Commission can reconstruct market 

events, conduct investigations, and 

bring enforcement actions as 


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101CFTC Division of Swap Dealer and 

Intermediary Oversight and Division of Market 

Oversight, Time-Limited No-Action Relief for Swap 

Dealers from Certain Swap Data Reporting 

Requirements of Part 43, Part 45, and Part 46 of the 

Commission’s Regulations, No-Action Letter No. 

12–32, dated Nov. 19, 2012. 

102CFTC Division of Market Oversight, TimeLimited No-Action Relief for Bespoke or Complex 

Swaps from Certain Swap Data Reporting 

Requirements of Parts 43 and 45 of the 

Commission’s Regulations, No-Action Letter No. 

12–39, dated Nov. 19, 2012. 

103 77 FR at 41112. 

104Accordingly, swaps with non-U.S. 

counterparties that are entered into by non-U.S. 

registrants that are part of an affiliated group in 

which the ultimate parent entity is a U.S. registrant, 

bank, financial holding company, or bank holding 

company, are subject to the SDR reporting and LTR 

requirements. 

105See e.g., SIFMA (Aug. 13, 2012) at 14; Citi 

(Aug. 13, 2012) at 7; UBS AG (‘‘UBS’’) (June 13, 

2012) at 1; IIB (Aug. 9, 2012) at 10; Societe Generale 

(Aug. 9, 2012) at 8; ISDA (Aug. 10, 2012) at 7; Swiss 

Financial Market Supervisory Authority (‘‘FINMA’’) 

(July 16, 2012) at 2; Hong Kong Banks (Aug. 27, 

2012) at 2–3. 

106See also the discussion of the importance of 

SDR reporting in section III.D.3.ii., above 

107See CFTC Division of Market Oversight, Re: 

Time-Limited No-Action Relief for Part 20 

Reporting Entities Regarding Identifying 

Information and Time-Limited No-Action Relief for 

Part 45 and Part 46 Reporting Counterparties 

Regarding Legal Entity Identifiers, Other 

Enumerated Identifiers, or Other Identifying Terms, 

No-Action Letter No.12–46, Dec. 7, 2012. Further, 

in response to comments, the Commission is 

revising Form 7–R. This is the Commission form 

that a firm uses to apply for registration with the 

Commission. By signing Form 7–R, the firm makes 

a set of certifications, acknowledgments and 

undertakings. In addition, if the applicant is a 

foreign firm, the firm agrees to provide its books 

and records for inspection by the Commission, 

NFA, or the U.S. Department of Justice (‘‘DOJ’’) 

upon request and in a specified manner. Included 

is a statement that the foreign firm is not subject 

to any blocking, privacy or secrecy laws, and that 

failure to provide the books and records in the 

manner specified could result in enforcement 

action, denial or revocation of registration, or other 

consequences. 

Certain foreign firms that will be required to 

register with the Commission as SDs by a date 

certain may be subject to blocking, privacy, or 

secrecy laws in their home jurisdictions that could 

limit or prevent production by those firms of their 

books and records in accordance with the 

procedures they would be agreeing to by signing 

Form 7–R. In order to permit these firms to register 

as required by U.S. law, without violating their 

home country laws, the Commission is making the 

terms of the agreement in Form 7–R that a firm 

Continued 

appropriate. In short, SDR reporting and 

LTR requirements are vital to ensuring 

that the Commission has a 

comprehensive and accurate picture of 

market activities in order to fulfill its 

regulatory mandate, including systemic 

risk mitigation, market monitoring, and 

market abuse prevention. 

The Commission notes that 

Commission staff has recently granted 

no-action relief with respect to certain 

of these reporting requirements. In 

CFTC Letter No. 12–32, Commission 

staff provided time-limited no-action 

relief to SDs ‘‘from certain requirements 

of the Commission’s swap data 

reporting rules, in order to allow for a 

common monthly compliance date for 

swap dealers newly falling within the 

scope of these rules, and to extend the 

compliance date for reporting historical 

swap transaction data pursuant to Part 

46 of the Commission’s regulations.’’ 101

In CFTC Letter No. 12–39, Commission 

staff granted time-limited no-action 

relief to reporting parties from certain 

reporting requirements in part 43 and 

part 45 with respect to bespoke or 

complex products.102 The no-action 

relief granted in these letters is available 

to both U.S. and non-U.S. persons who 

may be subject to these reporting 

obligations. 

The Commission believes that it is 

necessary to implement these reporting 

requirements as expeditiously as 

possible, and in a manner intended to 

achieve their underlying statutory 

objectives. Therefore, in light of the 

relief provided by the Commission staff, 

the Commission has determined that it 

would not further the public interest or 

the purposes of the CEA to further delay 

compliance with the SDR reporting or 

LTR requirements for non-U.S. 

registrants. For similar reasons, the 

Commission has determined to not 

extend exemptive relief from the SDR 

reporting or LTR requirements to U.S. 

registrants for their transactions with 

non-U.S. counterparties. Thus, the 

Commission has determined not to 

provide relief under CEA section 4(c) in 

this regard. 

Finally, the Commission is clarifying 

its proposal that only those non-U.S. 

SDs and MSPs that are not affiliates or 

subsidiaries of a U.S.-based SD would 

be permitted to delay compliance with 

the SDR reporting and LTR 

requirements with respect to swaps with 

non-U.S. counterparties. As explained 

in the preamble of the Proposed Order, 

this condition was intended to limit the 

relief to non-U.S. registrants that are not 

‘‘part of a U.S-based affiliated 

group.’’ 103 Accordingly, in response to 

comments received, the Commission is 

clarifying that the relief from the SDR 

reporting and LTR requirements is 

reserved for swaps with non-U.S. 

counterparties that are entered into by 

non-U.S. registrants that are not part of 

an affiliated group in which the ultimate 

parent entity is a U.S. registrant, bank, 

financial holding company, or bank 

holding company.104 The Commission 

believes that this modification strikes 

the appropriate balance between 

facilitating such non-U.S. registrants’ 

phasing in of their reporting obligations 

and achieving the critical statutory and 

regulatory objectives of the SDR 

reporting and LTR requirements as 

discussed above. Therefore, the 

Commission has determined that this 

provision of the Final Order, as 

modified, is consistent with the public 

interest and the purposes of the CEA 

and, therefore, is appropriate for 

temporary exemptive relief pursuant to 

CEA section 4(c). 

4. Privacy and Confidentiality Laws 

i. Comments 

A number of commenters, both 

market participants and foreign 

regulators, stated that certain DoddFrank requirements—namely, SDR 

reporting and LTR requirements, and 

U.S. regulators’ access to books and 

records—may conflict with local 

privacy and data protection laws.105

They further noted that potential 

solutions to such blocking statutes, such 

as mutual assistance agreements and/or 

client consents, may be available but 

will require time to implement. Certain 

commenters, including UBS, Citi, and 

Societe Generale, specifically requested 

that compliance with the reporting 

requirements for non-U.S. persons with 

non-U.S. counterparties, including 

foreign branches of U.S. persons, be 

delayed pending final interpretive 

guidance (and for a reasonable time 

thereafter). As an alternative, SIFMA 

suggested that at least during the term 

of the exemptive relief, all market 

participants (including futures 

commission merchants) should be 

permitted to mask client information 

from any reporting requirements, 

including SDR reporting and LTR, 

where the failure to do so would violate 

applicable foreign laws and regulations. 

ii. Commission Determination on 

Privacy and Confidentiality Laws 

The Commission believes that, given 

the importance of the subject reporting 

requirements to market transparency 

and integrity, it is critical to apply these 

requirements to all registered SDs and 

MSPs.106 However, the Commission 

recognizes the potential challenges that 

non-U.S. firms may face in jurisdictions 

with conflicting privacy and 

confidentiality laws. As a result of these 

challenges, the Commission staff 

recently granted time-limited no-action 

relief from provisions of parts 20, 45, 

and 46 of the Commission’s regulations 

that require the reporting of certain 

information revealing the identity of a 

counterparty or affiliated group where 

reporting such information would 

violate the privacy laws of a non-U.S. 

jurisdiction.107 In light of the 


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produce its books and records upon request of the 

Commission, NFA, or DOJ, subject to the provisions 

of any applicable blocking, privacy or secrecy laws. 

See Form 7–R at page 42, which may be found on 

NFA’s Web site at http://www.nfa.futures.org/NFAregistration/templates-and-forms/Form7–Rentire.pdf. 

108Under Commission regulation 23.603(i), a 

registered SD or MSP must make all records 

required to be maintained in accordance with 

Commission regulation 1.31 available promptly 

upon request to representatives of the Commission. 

Under the Final Order, the Commission reserves 

this right to access records held by registered SDs 

and MSPs, regardless of the registrant’s location. 

109The Proposed Order provided that non-U.S. 

registrants may comply with Transaction-Level 

Requirements for transactions with non-U.S. 

counterparties only as required by the home 

jurisdiction (or in the case of foreign branches of a 

U.S. registrant, the foreign location of the branch). 

Cleary requested that compliance with the host 

jurisdiction also be permitted. See Cleary (Aug. 16, 

2012) at 16. In response, the Commission is 

clarifying the Final Order to allow the non-U.S. 

registrant (or branch of a U.S. registrant) to comply 

with only the applicable requirements of the local 

jurisdiction. 

110See SIFMA (Aug. 13, 2012) at 10 (arguing that, 

otherwise, U.S. SDs would be at a competitive 

disadvantage and that U.S. SDs face the same 

operational difficulties as non-U.S. SDs when 

transacting in the U.S. with non-U.S. 

counterparties). 

111 Id. at 9. 

112See ISDA (Aug. 10, 2012) at 7 (‘‘in the interest 

of competitive parity between U.S. and non-U.S. 

entities, ISDA recommends that the Commission 

align the domestic and extraterritorial compliance 

dates of all requirements’’). 

113See Cleary (Aug. 16, 2012) at 11 (‘‘during the 

exemption’s phase-in period * * * the CFTC 

should ensure competitive parity by exempting all 

[SDs] from transaction-level requirements in 

connection with transactions with non-U.S. 

counterparties’’). 

114Where appropriate, however, the Commission 

has provided relief to both U.S. and non-U.S. 

registrants. For example, the Commission recently 

approved interim final rules for SDs and MSPs that 

would otherwise be required to comply with certain 

business conduct and documentation requirements 

in provisions of subpart F, subpart H, and subpart 

I to part 23 of the Commission’s Regulations. 

Specifically, the compliance date for Commission 

regulations 23.502 and 23.504 is deferred until July 

1, 2013. Additionally, the compliance date for 

Commission regulations 23.201(b)(3)(ii); 23.402; 

23.401(c); 23.430; 23.431(a)–(c); 23.432; 

23.434(a)(2), (b), and (c); 23.440; 23.450; and 23.505 

is deferred until May 1, 2013. The compliance dates 

for all other provisions of subpart F, subpart H, and 

subpart I of part 23 remain unchanged. See 

Business Conduct and Documentation 

Requirements for Swap Dealers and Major Swap 

Participants, Interim Final Rules, Dec. 18, 2012, 

available at http://www.cftc.gov/ucm/groups/ 

public/@newsroom/documents/file/ 

federalregister121812.pdf. 

115See SIFMA (Aug. 13, 2012) at 12; Deutsche 

Bank (Aug. 13, 2012) at 3–4 (citing SDR reporting 

as an example of such disparities). 

Commission staff’s decision to provide 

no-action relief with respect to this 

issue, the Commission has determined 

that it would not further the public 

interest or the purposes of the CEA to 

grant further relief with respect to the 

reporting requirements solely on the 

basis of potentially conflicting privacy 

and data protection laws. Therefore, the 

Commission declines to provide relief 

under CEA section 4(c) in this regard. 

Similarly, the Commission views its 

access to a registrant’s books and 

records as a fundamental regulatory tool 

necessary to properly monitor and 

examine the registrant’s compliance 

with the CEA. Consistent with existing 

practice, the Commission intends to 

exercise its right to access a registrant’s 

books and records and maintain its right 

to examine a registrant, regardless of the 

registrant’s location.108 In this regard, 

the Commission believes that mutual 

cooperation with other regulators is 

equally important to achieve the 

effective and efficient supervision of 

cross-border activities. In recognition of 

the importance of such mutual 

cooperation, the Commission will 

endeavor to achieve an understanding 

with each relevant regulator and 

memorialize such understanding in a 

supervisory arrangement. In the 

Commission’s view, this is a balanced 

and flexible approach that will ensure 

that the agency has access to 

information critical to fulfilling its 

statutory responsibilities, but achieved 

in a manner designed to ensure 

continuing cooperative relationships 

with its counterparts overseas. 

5. Exemptive Relief for U.S. Swap 

Dealers 

i. Comments 

The Proposed Order would permit 

non-U.S. registrants and foreign 

branches of U.S. registrants to delay 

compliance with Transaction-Level 

Requirements with respect to swaps 

with non-U.S. persons.109 The relief 

would not be available to U.S. SDs (with 

the exception of foreign branches). 

SIFMA requested that the Commission 

extend the relief from compliance with 

the Entity-Level Requirements 

(including SDR reporting) to U.S. 

registrants transacting with non-U.S. 

persons since it will be difficult, if not 

impossible, to collect the counterparty 

information that is necessary to effect 

compliance with certain of these 

requirements.110 SIFMA also supported 

granting U.S. SDs relief from swap data 

recordkeeping and internal conflicts 

requirements for swaps with non-U.S. 

persons.111 ISDA similarly argued that 

the rationale for exemptive relief applies 

equally to a U.S. SD transacting directly 

with non-U.S. persons.112 Cleary raised 

concerns about the disparate treatment 

extended to U.S. SDs and non-U.S.-SDs 

under the Proposed Order in respect to 

Transaction-Level Requirements as 

applied to transactions with non-U.S. 

persons.113 Cleary requested that in the 

interim, for the duration of the 

exemptive relief, the Commission 

should exempt all SDs from 

Transaction-Level Requirements for 

transactions with non-U.S. persons. 

ii. Commission Determination on Relief 

for U.S. Swap Dealers 

The Commission believes that 

extension of this relief to U.S. SDs’ 

activities would not only be contrary to 

the directive in CEA section 2(i), but 

also detrimental to the Commission’s 

strong supervisory interests in swap 

activities occurring inside the United 

States. Nevertheless, the Commission 

has carefully considered the potential 

consequences of disparate treatment of 

U.S. and non-U.S. registrants and, 

where possible, has attempted to 

minimize the disparity between these 

registrants. A notable example of this is 

the relief from the Transactional-Level 

Requirements, which applies equally to 

both non-U.S. persons and the overseas 

operations of U.S. persons (i.e., foreign 

branches or non-U.S. affiliates). 

In the Commission’s view, it would be 

contrary to the public interest and the 

purposes of the CEA to address 

commenters’ concerns about regulatory 

disparity by diminishing the regulatory 

requirements that apply to swap 

activities inside the United States. 

Rather, the Commission believes that 

this issue is more appropriately 

addressed by working closely with its 

overseas counterparts, including 

continued participation in international 

groups to adopt and enforce robust and 

consistent standards across 

jurisdictions.114

6. Relief for Transactions Involving 

Non-Registrants 

i. Comments 

As noted above, the Proposed Order 

would not extend relief to swap 

counterparties that are neither SDs nor 

MSPs. Certain commenters, such as 

SIFMA and Deutsche Bank, asserted 

that this would lead to an anomalous 

result. By way of illustration, they noted 

that a swap between a non-U.S. person 

and a foreign branch of an SD would be 

exempt from applicable TransactionLevel Requirements, but a swap 

between the same non-U.S. person and 

a foreign branch of a U.S. bank that is 

not a registered SD would not be eligible 

for the relief.115 They asked that the 

Commission extend exemptive relief to 

non-U.S. persons who enter into swaps 

with foreign branches of U.S. persons, 

regardless of whether the U.S. person is 

a registered SD or MSP. 


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116See ISDA (Aug. 10, 2012) at 17; SIFMA (Aug. 

13, 2012) at 14–15. 

117See SIFMA (Aug. 13, 2012) at 14–15. 

118See Cleary (Aug. 16, 2012) at 17. Cleary 

suggested, for example that the Commission 

consider a jurisdiction-by-jurisdiction approach 

under which the relief would expire for non-U.S. 

registrants as their home (or host) jurisdictions 

implement comparable requirements. 

119See Proposed Order, 77 FR at 41112. The 

Commission’s commitment in this regard also was 

recently reflected in the Joint Press Statement of 

Leaders on Operating Principles and Areas of 

Exploration in the Regulation of the Cross-border 

OTC Derivatives Market, included in CFTC Press 

Release 6439–12, Dec. 4, 2012, which is signed by 

CFTC Chairman Gensler and the leaders of 11 other 

regulatory authorities (‘‘We will consider providing 

appropriate transitional implementation periods for 

entities in jurisdictions that are implementing 

comparable regulations, supervision, and 

comprehensive oversight. In order to facilitate an 

orderly transition with respect to new OTC 

derivatives regulatory requirements when 

promulgating regulations with cross-border 

applicability, we agree to a reasonable, limited 

transition period to facilitate the implementation of 

such cross-border regulatory requirements in 

appropriate circumstances and in consultation with 

other jurisdictions.’’). 

120 ‘‘Effective Date for Swap Regulation,’’ 76 FR 

42508, 42514, Jul. 19, 2011. 

121See SIFMA (Aug., 13, 2012) at 10 (noting that 

the Proposed Order makes clear that a foreign 

branch of a U.S. SD is eligible for such relief with 

respect to swaps with a non-U.S. counterparty, but 

the definition of U.S. person (which includes 

branches) makes the treatment of swaps between a 

foreign branch of a U.S. SD and a non-U.S. SD 

unclear). 

122See Citi (Aug. 13, 2012) at 2–3 (noting that, 

under the Proposed Order, relief from the 

Transaction-Level Requirements would not be 

available in this scenario because a branch is 

deemed a U.S. person, and arguing that this result 

would make it difficult for such branches to hedge 

risk in local markets, and reduce liquidity for nonU.S. SDs, because U.S. SDs would be limited in 

their ability to make markets abroad via their 

overseas branches). 

123For purposes of this relief from TransactionalLevel Requirements for a swap between foreign 

branches of U.S. registrants, a swap is with the 

foreign branch of a U.S. person when (i) the 

personnel negotiating and agreeing to the terms of 

the swap are located in the jurisdiction of such 

foreign branch; (ii) the documentation of the swap 

specifies that the counterparty or ‘‘office’’ for the 

U.S. person is such foreign branch and (iii) the 

swap is entered into by such foreign branch in its 

normal course of business. If the swap does not 

meet these three criteria, it will be treated as a swap 

of the U.S. person and not as a swap of the foreign 

branch of the U.S. person, and the swap will not 

be eligible for this relief from Transaction-Level 

Requirements. 

ii. Commission Determination on 

Transactions Involving Non-Registrants 

The Commission believes that it 

would not be appropriate to extend 

temporary exemptive relief to swaps by 

a non-U.S. person with a foreign branch 

of a U.S. person that is not a registrant. 

As explained above, in crafting the 

scope of relief to be granted under CEA 

section 4(c), the Commission carefully 

balanced the need to implement the 

Dodd-Frank swap provisions as 

expeditiously as possible and the need 

to mitigate undue disruptions to market 

practices. Consistent with that objective, 

the Commission’s determination to 

exclude swaps between non-U.S. 

persons and foreign branches of U.S. 

registrants from certain requirements 

was based on the fact that the U.S. 

registrant (of which the foreign branch 

is an integral part, not a separate entity) 

would be subject to various prudential 

requirements as part of the overall 

requirements applicable to registrants. 

In the Commission’s view, these 

requirements provide a sufficient level 

of regulatory safeguards with respect to 

the U.S. registrants to allow for 

temporary relief from the TransactionalLevel Requirements with respect to the 

foreign branches of those U.S. 

registrants. 

In contrast, where the foreign branch 

is not part of a U.S. registrant, the DoddFrank requirements applicable to that 

foreign branch are greatly reduced and 

may, in some cases, be absent. 

Accordingly, the Commission believes 

that it would not further the public 

interest to grant relief from applicable 

Transaction-Level Requirements with 

respect to foreign branches of other 

classes of U.S. persons, and therefore 

declines to issue such exemptive relief 

under CEA section 4(c). 

7. Expiration Date for the Relief 

i. Comments 

A number of commenters, including 

ISDA and SIFMA, stated that the 

expiration of the Final Order should be 

tied to the publication of the final 

guidance, and not simply one year after 

the publication of the Proposed 

Order.116 According to SIFMA, any 

transition period is meaningful only if 

measured from the date that the full 

scope of the exemptive relief is 

disclosed, i.e., the date of the 

publication of the final guidance.117

Cleary recommended that the 

Commission align the duration of the 

exemptive relief with implementation in 

other G–20 jurisdictions.118

ii. Commission Determination on 

Expiration Date for the Relief 

The Commission declines to adopt the 

commenters’ suggestion. The Final 

Order maintains the expiration date in 

the Proposed Order. However, as noted 

in the Proposed Order, the Commission 

is committed to an orderly transition to 

the Dodd-Frank Act’s regulatory 

regime.119 Consistent with this 

commitment to an orderly phase-in of 

the cross-border application of DoddFrank requirements, ‘‘[s]hould the 

Commission deem it appropriate to 

extend any exemptive relief, the 

Commission will be in a better position 

to tailor any exemption at that time.’’ 120

8. Foreign Branches of a U.S. Swap 

Dealer 

i. Comments 

SIFMA commented that the 

Commission should clarify that relief 

from the Transaction-Level 

Requirements is available to a foreign 

branch of a U.S. SD that enters into a 

swap with a non-U.S. SD.121 Citi 

requested that the Commission extend 

relief to swaps between foreign branches 

of U.S. SDs.122

ii. Commission Determination on 

Foreign Branches of a U.S. Swap Dealer 

The Commission clarifies that relief 

from the Transaction-Level 

Requirements is available to a swap 

between a foreign branch of a U.S. 

registrant and a non-U.S. SD. That is, for 

purposes of this relief, the non-U.S. SD 

may treat the foreign branch as a nonU.S. person. 

On the other hand, as discussed 

above, the Commission believes that a 

swap between two foreign branches of 

U.S. registrants is a swap between two 

U.S. persons, and such transactions are 

fully subject to the Transaction-Level 

Requirements. Nevertheless, the 

Commission has determined that it 

would be appropriate to provide relief 

during the effectiveness of the Final 

Order so that foreign branches of U.S. 

registrants123 may comply only with 

transaction-level requirements as may 

be required in the location of the foreign 

branch while the Commission further 

considers, and works with international 

regulators regarding, the treatment of 

foreign branches of U.S. registrants. 

As part of its further consideration of 

this issue, the Commission is 

considering additional requirements to 

determine if a swap is with the foreign 

branch of a U.S. person. These 

requirements could include, for 

example, that the foreign branch is the 

location of employment of the 

employees negotiating the swap for the 

U.S. person or, if the swap is executed 

electronically, the employees managing 

the execution of the swap, that the U.S. 

person treats the swap as a swap of the 

foreign branch for tax purposes, that the 

foreign branch operates for valid 

business reasons and is not only a 

representative office if the U.S. person, 

and that the branch is engaged in the 

business of banking or financing and is 

subject to substantive regulation in the 

jurisdiction where it is located. The 

Commission seeks comment from 


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124See, e.g., SIFMA (Aug. 27, 2012), at A–52—A– 

53; IIB (Aug. 9, 2012) at 9. 125See joint letter from FIA, IIB and SIFMA (Nov. 

30, 2012) at 11; see also SIFMA (Aug. 27, 2012) at 

A–25, A–44; Cleary (Aug. 16, 2012) at 4. 

126This expression of intent does not confer upon 

any party any rights or defenses in any investigation 

or in any action that may be brought by the 

Commission. As always, the Commission will 

weigh all facts and circumstances in determining 

whether to commence an enforcement action. 

127See e.g., Cleary (Aug. 16, 2012) at 13. 

128See IIB (Aug. 9, 2012) at 7–8; and Societe 

Generale (Aug. 9, 2012) at 11. 

129See Cleary (Aug. 16, 2012) at 13. Cleary stated 

that, in this connection, the Commission may wish 

to consider recognizing comparable foreign 

requirements for principal and associated person 

registration and obligations. 

130See id. 

131See CFTC Division of Swap Dealer and 

Intermediary Oversight, Re: Relief for Swap Dealers 

and Major Swap Participants from Compliance with 

Regulation 23.22(b) with Respect to: (1) NonDomestic Associated Persons who Deal only with 

Non-Domestic Swap Counterparties; and (2) 

Persons Employed in a Clerical or Ministerial 

Capacity, No-Action Letter No. 12–43, Dec. 7, 2012. 

132House Conf. Report No. 102–978, 1992 

U.S.C.C.A.N. 3179, 3213. 

market participants and other interested 

parties regarding whether it is 

appropriate to include these or other 

requirements in the determination of 

when a swap is with the foreign branch 

of a U.S. person. 

9. Compliance Plans and Good-Faith 

Compliance 

The Proposed Order required that a 

person seeking relief under the order 

would submit to the NFA a compliance 

plan addressing how it plans to comply 

with applicable requirements under the 

CEA and related regulations. 

Commenters on this aspect of the 

Proposed Order questioned the value of 

the compliance plan and requested 

clarifications of the Commission’s 

expectations concerning compliance 

plans.124 Upon further consideration of 

the regulatory implementation process, 

the Commission has determined that the 

submission of a compliance plan should 

not be necessary in connection with 

phasing in compliance with the DoddFrank requirements in the cross-border 

context during the limited time frame in 

which the Final Order will be in effect. 

Therefore, the Final Order does not 

require submission of a compliance 

plan. 

Market participants have raised the 

concern that, despite their best efforts at 

compliance, there could be ‘‘practical or 

technical limitation or interpretive 

uncertainty’’ that might need to be 

resolved before an SD’s or MSP’s full 

compliance with the Dodd-Frank 

requirements is practically feasible.125

In light of these concerns, the 

Commission believes it is appropriate to 

provide market participants guidance 

regarding its intentions concerning its 

enforcement authority when an SD or 

MSP is making diligent, good faith 

implementation efforts in this period of 

transition. The Commission does not 

intend to bring an enforcement action 

against an SD or MSP for failing to fully 

comply with applicable Dodd-Frank 

requirements prior to July 12, 2013, 

provided that there is a practical or 

technical impediment to compliance 

that results in an inability to comply 

with relevant compliance deadlines, or 

uncertainty in interpreting, particular 

Dodd-Frank requirement(s) and the SD 

or MSP is acting reasonably and in good 

faith to fully comply with the applicable 

Dodd-Frank requirements, which would 

include, at a minimum, (i) material 

progress toward timely implementation 

and compliance; (ii) identification of 

any implementation or interpretive 

issue as soon as reasonably possible; 

(iii) timely elevation of such issue(s) to 

the SD’s or MSP’s senior management 

for consideration and resolution; and 

(iv) timely consultation with other 

industry participants and the 

Commission as necessary to seek 

resolution of any such issue(s).126

10. Relief for Principals/Associated 

Persons 

i. Comments 

Under Commission regulation 

3.10(a)(2), each applicant for SD or MSP 

registration must file, together with 

Form 7–R, a Form 8–R executed by each 

natural person that qualifies as a 

‘‘principal’’ of the applicant. As part of 

this process, each principal is required 

to submit a fingerprint card, as well as 

submit to a detailed background check. 

Commission regulation 23.22 prohibits 

an SD or MSP from permitting an 

associated person subject to statutory 

disqualification (as defined by the CEA) 

from being involved in effecting swaps 

on behalf of such registrant. Citing 

difficulties associated with differences 

in the standards for statutory 

disqualification among jurisdictions and 

privacy issues associated with collecting 

information about individuals, 

commenters requested that only those 

individuals directly involved in the 

solicitation or acceptance of swaps (or 

supervising such individuals) be 

regarded as ‘‘associated persons.’’ 127

Commenters, such as IIB and Societe 

Generale, urged the Commission to 

exclude directors and senior officers 

(but not those in charge of the business 

unit subject to regulation by the 

Commission) from principal status.128

Cleary contended that globally active 

banks operate under a paradigm that 

differs from traditional Commission 

registrants and noted the differences in 

governance structures and the roles of 

boards of directors in foreign 

jurisdictions.129 Under these 

circumstances, Cleary requested that the 

Commission grant relief, on an interim 

basis, from registration for associated 

persons, and from requirements 

applicable to principals, of non-U.S. 

registrants. Specifically, Cleary said, the 

Commission should treat as principals 

only those individuals directly engaged 

in the activities giving rise to 

registration.130

ii. Commission Determination on Relief 

for Principals/Associated Persons 

The Commission does not believe, at 

this time, that blanket relief from 

requirements applicable to principals or 

from associated person registration to 

address these concerns is appropriate 

pursuant to the standards required for 

exemptive relief under CEA section 4(c). 

Rather, the Commission believes that 

any relief from these requirements is 

appropriately addressed through staff 

action.131 The Commission views the 

registration of individuals to be an 

important facet of ensuring the integrity 

of the firm itself, and a staff process will 

permit Commission staff to tailor relief 

as appropriate and necessary. 

IV. Section 4(c) of the CEA 

After considering the complete record 

in this matter, the Commission has 

determined that the requirements of 

CEA section 4(c) have been met with 

respect to the exemptive relief described 

above. First, in enacting section 4(c), 

Congress noted that the purpose of the 

provision ‘‘is to give the Commission a 

means of providing certainty and 

stability to existing and emerging 

markets so that financial innovation and 

market development can proceed in an 

effective and competitive manner.’’ 132

As noted in the Proposed Order, the 

Commission is issuing this relief in 

order to ensure an orderly transition to 

the Dodd-Frank regulatory regime and 

to provide greater legal certainty to 

market participants regarding their 

obligations under the CEA with respect 

to their cross-border swap activities. 

This exemptive relief also will 

advance the congressional mandate 

concerning harmonization of 

international standards with respect to 

swaps, consistent with section 752(a) of 

the Dodd-Frank Act. In that section, 

Congress directed that, in order to 

‘‘promote effective and consistent global 

regulation of swaps and security-based 

swaps,’’ the Commission, ‘‘as 

appropriate, shall consult and 

coordinate with foreign regulatory 


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133See section 752(a) of the Dodd-Frank Act. 

134 44 U.S.C. 3501 et seq. 

135The Commission’s notice was published in the 

Federal Register. See 77 FR 43271, Jul. 24, 2012. 

On August 13, 2012, OMB approved the 

Commission’s initial information collection request 

until February 28, 2013, and assigned OMB control 

number 3038–0098. 

136On November 7, 2012, the Commission, by 

separate notice in the Federal Register, announced 

an opportunity for public comment on the proposed 

extension of OMB approval of the prior information 

collection request, with a 60-day comment period 

that expires on January 7, 2013. See 77 FR 66819 

Nov. 7, 2012. Because the Final Order does not 

require submission of a compliance plan, this 

extension is no longer relevant. 

137 7 U.S.C. 19(a). 

138See generally CFTC-SEC Joint Report on 

International Swap Regulation Required by Section 

719(c) of the Dodd Frank Act (Jan. 31, 2012) at 105– 

09. 

authorities on the establishment of 

consistent international standards with 

respect to the regulation’’ of swaps and 

security-based swaps.133 This relief, by 

providing non-U.S. registrants the 

latitude necessary to develop and 

modify their compliance plans as the 

regulatory structure in their respective 

home jurisdiction changes, will promote 

the adoption and enforcement of robust 

and consistent standards across 

jurisdictions. 

The Commission emphasizes that the 

Final Order is temporary in duration 

and reserves the Commission’s 

enforcement authority, including its 

anti-fraud and anti-manipulation 

authority. As such, the Commission has 

determined that the Final Order is 

consistent with the public interest and 

purposes of the CEA. For similar 

reasons, the Commission has 

determined that the Final Order will not 

have a material adverse effect on the 

ability of the Commission or any 

contract market to discharge its 

regulatory or self-regulatory duties 

under the CEA. Finally, the Commission 

has determined that the Final Order is 

limited to appropriate persons within 

the meaning of CEA section 4c(3), since 

the SDs and MSPs eligible for the relief 

are likely to be the types of entities 

enumerated in that section and active in 

the swaps market. Therefore, upon due 

consideration, pursuant to its authority 

under section 4(c) of the CEA, the 

Commission hereby issues the Final 

Order. 

V. Paperwork Reduction Act 

The Paperwork Reduction Act 

(‘‘PRA’’) 134 imposes certain 

requirements on Federal agencies in 

connection with their conducting or 

sponsoring any collection of 

information as defined by the PRA. An 

agency may not conduct or sponsor, and 

a person is not required to respond to, 

a collection of information unless it 

displays a currently valid control 

number. 

In connection with the Proposed 

Order, the Commission requested 

review and approval by OMB of a new 

collection of information titled 

‘‘Exemptive Order Regarding 

Compliance with Certain Swap 

Regulations.’’ 135 This collection of 

information would have related to the 

compliance plans to be submitted to the 

NFA by persons seeking relief under the 

exemptive order. No comments were 

received on the paperwork burden 

associated with this information 

collection request. Because the Final 

Order does not require the submission 

of a compliance plan, it does not require 

a collection of information from any 

persons or entities.136

VI. Cost-Benefit Considerations 

Relating to the Final Order 

Section 15(a) of the CEA 137 requires 

the Commission to consider the costs 

and benefits of its actions before 

promulgating a regulation under the 

CEA or issuing certain orders. Section 

15(a) further specifies that the costs and 

benefits shall be evaluated in light of 

five broad areas of market and public 

concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission considers the costs and 

benefits resulting from its discretionary 

determinations with respect to the 

section 15(a) factors. 

A. Background 

Throughout the Dodd-Frank 

rulemaking process, the Commission 

has strived to ensure that new 

regulations designed to achieve DoddFrank’s protections be implemented in a 

manner that is both timely and also 

minimizes unnecessary market 

disruption. In its effort to implement the 

Dodd-Frank regulations on a crossborder basis, the Commission’s 

approach has not been different. In this 

respect, the Commission has attempted 

to be responsive to industry’s concerns 

regarding implementation and the 

timing of new compliance obligations, 

and thereby ensure that market practices 

would not be unnecessarily disrupted 

during the transition to the new swap 

regulatory regime. At the same time, 

however, the Commission has 

endeavored to comply with the 

Congressional mandate to implement 

the new SD and MSP regulatory scheme 

in a timely manner. The Commission, 

therefore, also seeks to ensure that the 

implementation of these requirements is 

not subject to undue delay. The 

Commission believes that the Final 

Order strikes the proper balance 

between promoting an orderly transition 

to the new regulatory regime under the 

Dodd-Frank Act, while appropriately 

tailoring relief to ensure that market 

practices are not unnecessarily 

disrupted during such transition. 

The Final Order also reflects the 

Commission’s recognition that 

international coordination is essential in 

this highly interconnected global 

market, where risks are transmitted 

across national borders and market 

participants operate in multiple 

jurisdictions.138 The Final Order would 

allow market participants to implement 

the calculations related to SD and MSP 

registration on a uniform basis and to 

delay compliance with certain DoddFrank requirements while the 

Commission continues to work closely 

with other domestic financial regulatory 

agencies and its foreign counterparts in 

an effort to further harmonize the crossborder regulatory framework. 

B. Summary of Proposed Consideration 

of the Costs and Benefits of the 

Exemptive Order 

In terms of costs, in the Proposed 

Order the Commission considered the 

potential costs incurred by swap entities 

to submit a compliance plan in order to 

obtain exemptive relief. As noted above, 

the Final Order does not require 

submission of a compliance plan and 

therefore these potential costs are no 

longer relevant to the Final Order. 

Apart from the direct costs of 

submitting a compliance plan, the 

Commission noted in the Proposed 

Order that it may result in indirect costs 

to the public, including the costs of 

continuing systemic risk to U.S. 

taxpayers due to delayed compliance 

with the Entity-Level Requirements and, 

to a more limited extent, TransactionLevel Requirements of the Dodd-Frank 

Act. The Commission proposed that 

these costs are not, however, susceptible 

to meaningful quantification due to a 

lack of data regarding several key 

variables. 

In terms of benefits, the proposal 

stated that the exemptive order would 

provide a benefit in that it would allow 

affected entities additional time to 

transition into the new regulatory 

regime in a more orderly manner, which 

promotes stability in the markets as that 

transition occurs. Another benefit 

proposed was the increase in 

international harmonization because the 


TKELLEY on DSK3SPTVN1PROD with 
876 Federal Register / Vol. 78, No. 4 / Monday, January 7, 2013 / Rules and Regulations 

139See AFR (Aug. 13, 2012) at 2. See also Better 

Markets (Aug. 16, 2012) at 1. 

140Cleary (Aug.16, 2012) at 3. 

141 IIB (Aug. 9, 2012) at 2. 

142See SIFMA (Aug. 13, 2012) at 5. See also letter 

to Chairman Gensler from Reps. Scott Garrett and 

Randy Neugebauer (June 20, 2012) at 2 (requesting 

that the Commission formalize any cross border 

guidance through a rule making that includes the 

appropriate cost-benefit analysis that the law 

requires). 

143Better Markets (Aug. 16, 2012) at 2. 

144 ISDA (Aug. 10, 2012) at 7. 

145Cleary (Aug 16, 2012) at 11. 

146See The Clearing House (Aug. 13, 2012) at 16. 

147See Deutsche Bank (Aug. 13, 2012) at 3. 

148 Id. 

proposed relief provided U.S. and nonU.S. registrants the latitude necessary to 

develop and modify their compliance 

plans as the regulatory structure in their 

home jurisdiction changes, which 

would promote greater regulatory 

consistency and coordination with 

international regulators. 

The Commission explained that one 

of the key benefits of the proposed 

compliance plan condition is that it 

would ensure that non-U.S. persons 

claiming the exemption would be 

actively and demonstrably considering 

and planning for compliance with the 

Entity-Level and Transaction-Level 

Requirements under the CEA, as may be 

applicable. In addition, the Commission 

stated that relief as proposed would 

allow foreign branches of U.S. SDs and 

MSPs to comply only with those 

requirements as may be required in the 

jurisdiction where the foreign branch is 

located for swaps with non-U.S. 

counterparties, effective concurrently 

with the date upon which such SDs and 

MSPs must first apply for registration 

until 6 months following the 

publication of the proposed order in the 

Federal Register. 

C. Comments 

The Commission requested comments 

on all aspects of its proposed 

consideration of costs and benefits and 

any alternatives to the same. As 

discussed and considered throughout 

this release, the Commission received 

26 comments on the Proposed Order, 

many addressing the potential economic 

and competitive effects of the proposed 

exemption in qualitative terms. None, 

however, provided additional data or 

information from which the 

Commission could modify and/or 

expand upon its dollar cost estimates of 

the conditions to the exemption. 

In the paragraphs that follow, the 

Commission summarizes and responds 

to the comments received that relate to 

the enumerated cost and benefit 

considerations set forth in CEA section 

15(a), most notably considerations of 

protection of the market participants 

and the public, and considerations of 

competitiveness. The Commission 

believes that, while it is possible that 

the estimated dollar costs will increase 

or decrease as a result of the 

modifications to the proposal in this 

final order, the Commission does not 

expect any such changes to be 

significant. 

While most commenters expressed 

support for the Commission’s objective 

in the Proposed Order—that is, ensuring 

an orderly transition to Dodd-Frank’s 

regulatory framework and providing 

greater legal certainty for market 

participants by providing a phase-in of 

certain requirements, other commenters 

expressed caution that delayed 

implementation could leave the public 

unprotected from the types of risk the 

Dodd-Frank Act and the Commission’s 

implementing regulations are intended 

to address. 

Public interest groups including 

Americans for Financial Reform, Public 

Citizen’s Congress Watch, and Better 

Markets stated that the proposed 

delayed implementation of the DoddFrank derivatives regime, where there is 

a clear and direct U.S. taxpayer 

exposure, would deprive taxpayers of 

the protections required by the statute, 

such as clearing and margin, which 

these commenters believe should go 

into effect as rapidly as possible. AFR 

further states that although the risk to 

U.S. taxpayers related to European 

banks is somewhat less direct, it is real 

and has been significant, as shown by 

the U.S. taxpayer bailouts that 

benefitted foreign counterparties to AIG 

Financial Products during the 2008 

crisis.139

Industry commenters urged the 

Commission to avoid potential undue 

disruption and market dislocation by 

carefully phasing in implementation in 

a manner that ‘‘appropriately balances 

the competing objectives and obstacles 

facing the Commission and the private 

sector and that avoids adverse market 

and economic impacts.’’ 140 IIB, for 

example, said that requiring non-U.S. 

SDs and MSPs to comply with all 

applicable Dodd Frank requirements at 

the time of registration or shortly 

thereafter would ‘‘create unrealistic and 

unwarranted compliance burdens’’ and 

therefore the Commission should 

provide additional time for 

compliance.141 Commenters also said 

that if the Commission adopts interim 

requirements that would apply for only 

a short time, it should take care that 

market participants would not be 

unnecessarily required to incur costs to 

comply with requirements that are 

subject to change.142

Commenters also addressed the 

perceived competitive effects of the 

Proposed Order. Better Markets stated 

that, as a general matter, it would be 

inappropriate and contrary to law for 

the Commission to delay 

implementation of the Dodd-Frank Act 

to allow ‘‘the rest of the world to catch 

up’’ to the U.S.143 In contrast, ISDA 

believes that the Commission should 

align the compliance dates for U.S. and 

non-U.S. SDs and MSPs in order to 

avoid the ‘‘profound effect[s] on 

transactional relationships’’ that may 

result from ‘‘a framework under which 

the Commission imposes on [U.S. SDs 

and MSPs] a substantially earlier rollout 

of Entity-level requirements and 

Transaction level requirements with 

non-U.S. persons in certain cases.’’ 144

This view was shared by other industry 

commenters, which recommended that 

‘‘during the exemption’s phase-in 

period, while transaction-level 

requirements have not yet come into 

effect outside the U.S., the Commission 

should ensure competitive parity by 

exempting all SDs from transaction level 

requirements in connection with 

transactions with non-U.S. 

counterparties.’’ 145

Regarding the Proposed Order’s 

treatment of SDR Reporting and LTR 

requirements, The Clearing House stated 

that differential treatment between 

foreign SDs and non-U.S. affiliates or 

subsidiaries of U.S. SDs would create a 

competitive disadvantage for overseas 

branches and affiliates of U.S. entities 

and would not serve the Commission’s 

purpose of mitigating risk to the U.S.146

Deutsche Bank pointed out that because 

the Proposed Order would not provide 

relief to non-U.S. SDs and MSPs that are 

affiliates of U.S. SDs, members of an 

affiliated group that is based outside the 

U.S. but in which one of the members 

is a U.S. SD (such as, potentially, the 

Deutsche Bank group) would not benefit 

from the Proposed Order.147 In this 

context, Deutsche Bank stated that 

affiliates, particularly in different 

countries, frequently use different and 

unrelated technology systems, and 

therefore a non-U.S. SD or MSP with a 

U.S. SD affiliate may not be able to 

easily use the reporting systems of its 

U.S. SD affiliate.148

D. Consideration of Costs and Benefits 

of the Final Order 

The Final Order permits, subject to 

the conditions specified therein, market 

participants outside the United States (i) 

to apply a limited, interim definition of 

the term ‘‘U.S. person’’ for a period of 

six months, (ii) to determine SD and 


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149 In this context, the Commission considered 

whether additional costs could result from the 

provisions of the exemptive order that provide 

additional time for historical swap reporting. The 

Commission does not believe that providing 

additional time for historical swap reporting will 

result in any significant costs because the required 

data will still be provided within a relatively short 

period of time. 

150See CFTC Staff Responds to Questions on 

Timing of Swap Dealer Registration Rules, CFTC 

Press Release 6348–12, September 10, 2012. 

151For a listing of all relevant no-action letters 

and staff guidance, see: http://www.cftc.gov/ 

LawRegulation/DoddFrankAct/GuidanceQandA/ 

index.htm. 

152See CFTC Letter No. 12–32. 

153The Commission notes, for example, that 

certain Dodd Frank requirements, such as margin 

and capital rules, have not been finalized and are 

unlikely to apply to U.S. SDs and MSPs in the first 

half of 2013. Also, other requirements, such as the 

clearing requirement, will be phased in during that 

time. 

154For example, while the Commission 

acknowledges that the requirement to have a chief 

compliance officer in place does impose costs, it is 

unknown whether shifting the time that this 

requirement will go into effect by approximately six 

months will significantly alter the financial terms 

at which SDs and MSPs subject to that requirement 

would enter into swaps. 

MSP registration requirements in a 

uniform manner, (iii) to apply the SD de 

minimis aggregation requirements in a 

limited manner, an (iv) to delay 

compliance with certain Dodd Frank 

requirements specified in the Final 

Order until July 12, 2013. The Final 

Order reflects the Commission’s 

determination to protect U.S. persons 

and markets through the cross-border 

application of the provisions of the 

Dodd-Frank Act and the Commission’s 

regulations in a manner consistent with 

section 2(i) of the CEA and longstanding 

principles of international comity. By 

carefully tailoring the scope and extent 

of the phasing-in provided by the Final 

Order, the Commission believes that it 

achieves an appropriately balanced 

approach to implementation that 

mitigates the costs of compliance while 

avoiding open-ended delay in protecting 

the American public from swaps 

activities overseas. To be sure, the 

conditions attached to the Final Order 

are not without cost, but the 

Commission believes that phasing-in of 

certain Dodd-Frank requirements as 

permitted by the Final Order will 

reduce overall costs to market 

participants. 

In the absence of the Final Order, 

non-U.S. SDs or MSPs would be 

required to be fully compliant with the 

Dodd-Frank regulatory regime without 

further delay. The Final Order delays 

compliance with a number of these 

requirements until July 12, 2013. With 

respect to these entities, therefore, the 

benefits include not only the avoided 

costs of compliance with certain 

requirements during the time that the 

Final Order is in effect, but also 

increased efficiency because the 

additional time allowed to phase in 

compliance will allow market 

participants more flexibility to 

implement compliance in a way that is 

compatible with their systems and 

practices. The additional time provided 

by the Final Order will also give foreign 

regulators more time to adopt 

regulations covering similar topics, 

which could increase the likelihood that 

substituted compliance will be an 

option for market participants. Thus, the 

Final Order is expected to help reduce 

the costs to market participants of 

implementing compliance with certain 

Dodd Frank requirements. These and 

other costs and benefits are considered 

below. 

1. Costs 

A potential cost of the Final Order, 

albeit one that is difficult to quantify, is 

the potential that the relief from certain 

SD de minimis aggregation requirements 

and the delay in compliance permitted 

by the Final Order will leave market 

participants without certain protections 

flowing from the Dodd Frank Act for the 

period during which the Final Order 

applies. The Final Order may also, as 

discussed above, leave U.S. taxpayers 

exposed to systemic risks during that 

time period.149 The Commission 

believes that these costs are mitigated, 

however, by the relatively short time 

period of the Final Order’s application, 

by the fact that certain key Dodd Frank 

requirements will apply during this 

time, and by the limitation of the Final 

Order’s scope to non-U.S. persons. The 

Commission notes, however, that 

concerns about these costs are one of the 

bases for the limited nature of the Final 

Order, and that adoption of many of the 

modifications suggested by commenters 

to expand the order would potentially 

increase such costs. 

The Commission has also considered 

the possibility, raised by commenters, 

that competitive disparities will result 

from the delay in compliance permitted 

to non-U.S. market participants during 

the effectiveness of the Final Order. In 

general, the effect of the Final Order is 

that while U.S. SDs and MSPs will 

begin to comply with certain Dodd 

Frank requirements when they apply to 

be registered (which will begin at the 

end of 2012 and continue through the 

first part of 2013),150 non-U.S. market 

participants will not have to comply 

with such requirements, to the extent 

provided under the Final Order, until 

July 12, 2013. This delay raises the 

potential that the earlier imposition of 

certain requirements on U.S. SDs and 

MSPs could also impose a competitive 

disadvantage on them. The Commission 

believes, however, that any potential 

competitive disadvantage from the Final 

Order is uncertain, and there are factors 

indicating it is unlikely to be significant. 

Moreover, the Commission’s staff is 

minimizing, through a variety of noaction letters and staff guidance, the 

potential for competitive disparities by 

affording U.S. and non-U.S. market 

participants time-limited relief to 

achieve compliance with certain 

regulatory requirements before staff 

would recommend enforcement action 

by the Commission.151 For example, 

CFTC Letter No. 12–32 provides relief 

regarding compliance with certain 

requirements of the Commission’s swap 

data reporting rules. In so doing, 

Commission staff allows for a common 

monthly compliance date for SDs newly 

within the scope of those rules, and to 

extend the compliance date for 

reporting historical swap transaction 

data pursuant to Part 46 of the 

Commission’s regulations.152

The potential disadvantage is 

uncertain because it is unknown 

whether the Dodd Frank requirements 

imposed on U.S. SDs and MSPs in the 

first half of 2013 will discourage 

potential counterparties from engaging 

in swaps with them.153 Specifically, it is 

unknown whether the compliance 

expenses incurred during that time will 

directly affect swap terms in a manner 

that would impose a significant 

disadvantage.154 Also, the Commission 

cannot estimate with certainty the 

likelihood that potential competitive 

disadvantages arising from the Final 

Order will be significant for U.S. SDs 

and MSPs. A variety of factors influence 

a person’s choice of potential swap 

counterparties, and therefore whether 

the earlier imposition of certain Dodd 

Frank requirements on U.S. SDs and 

MSPs will cause a significant shift of 

swap business away from them is 

uncertain. It may be that a person 

seeking to enter into relatively few 

swaps would perceive a transitory 

advantage in dealing with a more lightly 

regulated non-U.S. person while the 

exemptive order is in effect. The 

Commission also considered that if a 

person has in place relationships with 

multiple counterparties (both U.S. and 

non-U.S.), the person may be more 

likely to enter into swaps with the nonU.S. counterparties while the Final 

Order is in effect, and the higher level 

of swap activity with non-U.S. 

counterparties may continue after the 

order expires. Also, U.S. SDs and MSPs 


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878 Federal Register / Vol. 78, No. 4 / Monday, January 7, 2013 / Rules and Regulations 

155 In fact, the complexity of these arrangements 

and documentation is one of the reasons that 

foreign potential registrants have requested more 

time to come into compliance with the Dodd Frank 

requirements. 

may be driven to accept lower profit 

margins on swaps in order to prevent 

such shifts to non-U.S. counterparties. 

These negative competitive effects on 

U.S. SDs and MSPs would be more 

likely if compliance expenses incurred 

by U.S. SDs and MSPs in the first half 

of 2013 negatively affect the swap terms 

they offer, and if swap users are more 

sensitive to such changes in swap terms. 

On the other hand, many relationships 

between SDs and their counterparties 

are connected with other financial 

arrangements that are reflected in 

complex documentation and are 

difficult to modify quickly.155 This 

difficulty would attenuate the 

likelihood of a significant shift of swap 

counterparties away from U.S. SDs and 

MSPs during the relatively short period 

that the Final Order is in effect. 

The Commission has considered the 

potential negative competitive effects of 

the Final Order on U.S. SDs and MSPs. 

However, since it is difficult to isolate 

the effects of the Final Order from all 

other factors that may affect how swap 

users choose counterparties and the 

terms at which they enter into swaps, it 

is difficult to estimate on a quantitative 

basis the potential costs that could 

result for U.S. SDs and MSPs from the 

potential negative competitive effects of 

the Final Order. Thus, the Commission 

cannot reach a definitive conclusion 

about the effect of the Final Order on 

competition. In any event, commenters 

who raised the potential competitive 

effect of the Proposed Order did not 

provide any specific facts, examples or 

analysis to facilitate a detailed 

consideration of these concerns. 

Regarding the comments on the 

Proposed Order’s treatment of the SDR 

reporting and LTR requirements, the 

Commission believes that allowing nonU.S. SDs and MSPs that are not part of 

an affiliated group in which the ultimate 

parent entity is a U.S. registrant, bank, 

or financial or bank holding company to 

forego reporting of swaps with non-U.S. 

counterparties during the effectiveness 

of the Final Order is not likely to 

impose a significant competitive 

disadvantage on those SDs and MSPs 

that are required to report such swaps 

with non-U.S. counterparties. Although 

it is possible that some non-U.S. 

counterparties may have concerns about 

reporting of their swap activities and 

may therefore prefer to enter into swaps 

with SDs and MSPs that are not subject 

to these requirements, any resulting 

advantage to those SDs and MSPs will 

last only until the Final Order expires 

on July 12, 2013, and as noted above the 

likelihood of significant customer shifts 

during that time is uncertain. As for the 

point that the relief in the Final Order 

should be available to members of an 

affiliated group that is based outside the 

U.S. but in which one of the members 

is a U.S. SD, the Final Order has been 

modified to provide this availability. 

Last, the commenter’s point that 

affiliates in different countries may use 

different and unrelated technology 

systems illustrates one of the reasons 

that the Commission is providing the 

relief in the Final Order—i.e., to give 

affiliates in different countries time to 

mitigate any incompatibilities in their 

systems. 

In connection with the interim 

definition of the term ‘‘U.S. person’’ 

which may be applied by non-U.S. 

market participants covered by the Final 

Order, the Commission has considered 

the potential that costs could arise from 

applying this interim definition and 

then transitioning to a different 

definition at expiration of the Final 

Order. To mitigate transition costs, the 

Commission intends that during the 

transitional period during which the 

Final Order is in effect, market 

participants will make the system and 

operational changes necessary to 

implement any final definition of U.S. 

person. 

2. Benefits 

The primary benefit of this Final 

Order is that it affords entities 

additional time to come into compliance 

with certain of the Commission’s 

regulations. The Commission has 

considered the comments regarding the 

complex issues faced by non-U.S. SDs 

and MSPs in complying with the 

applicable Dodd-Frank requirements, 

and it believes that this additional time 

will be of benefit to market participants 

beyond simply delaying the time at 

which they will have to incur the costs 

of complying with the regulations. More 

importantly, this additional time will 

permit market participants to 

implement the Commission’s 

regulations more flexibly, so that each 

market participant’s implementation 

activities can be more closely 

coordinated with its particular situation, 

including factors such as the type of 

swaps it uses, the characteristics of its 

counterparties, and the nature of its 

internal swap processes and systems. 

Reduced costs may occur as the result 

of phasing in new systems, operational 

patterns, legal agreements, or other 

business arrangements over a longer 

period of time, particularly for SDs and 

MSPs outside the U.S. For example, 

different jurisdictions may have varying 

documentation requirements or 

business practices that would lengthen 

the time needed to come into 

compliance. The Final Order provides 

time for this. 

The Commission understands that if 

all market participants world-wide were 

required to comply with all applicable 

requirements upon applying to register 

as SDs and MSPs (which will begin at 

the end of 2012), some market 

participants would have to rush to 

implement compliance. The 

Commission is cognizant that 

compliance costs may be increased 

simply by the need to implement 

compliance quickly, which could entail, 

for example, retaining outside 

consultants rather than having in-house 

employees effect the necessary 

implementation steps. Thus, the 

Commission believes that by giving nonU.S. market participants additional time 

to come into compliance with certain of 

its regulations, the overall cost of 

compliance implementation will be 

reduced, not just delayed. 

The Final Order also benefits entities 

by providing categories of entities the 

same relief, which eliminates the need 

for entities to seek individualized 

determinations by the Commission’s 

staff regarding their particular 

transactions or operations. Providing 

additional time to all the non-U.S. 

market participants covered by the Final 

Order may facilitate action by industry 

groups to assist in compliance efforts 

and encourage cooperation among 

market participants. 

In addition, the Commission believes 

that the delay provided by the Final 

Order may permit some non-U.S. 

jurisdictions to adopt regulatory 

requirements that are similar to certain 

of the Commission regulations and 

therefore may potentially be the basis 

for substituted compliance by market 

participants in those jurisdictions. 

Based on discussions with market 

participants, the Commission expects 

that substituted compliance would in 

some circumstances be less costly than 

compliance with Commission 

regulations, and therefore the Final 

Order has the potential to reduce costs 

by providing a greater opportunity for 

substituted compliance. 

E. Section 15(a) Factors 

1. Protection of Market Participants and 

the Public 

The exemptive relief provided in this 

Final Order will protect market 

participants and the public by 

facilitating a more orderly transition to 

the new regulatory regime than might 


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156As used in this Order, the terms ‘‘Entity-Level 

Requirements’’ refer to the requirements set forth in 

Commission regulations 1.31, 3.3, 23.201, 23.203, 

23.600, 23.601, 23.602, 23.603, 23.605, 23.606, 

23.607, 23.608 and 23.609 and parts 20, 45 and 46 

and ‘‘Transaction-Level Requirements’’ refer to the 

requirements set forth in CEA section 2(h)(8) and 

Commission regulations 23.202, 23.400 to 23.451, 

23.501, 23.502, 23.503, 23.504(a), 23.504(b)(1), 

(b)(2), (b)(3) and (b)(4), 23.506 and 23.610 and part 

43. To date, the Commission has not adopted final 

rules relating to the Entity-Level Requirements of 

capital adequacy, nor the Transaction-Level 

Requirements of margining (and segregation) for 

uncleared swaps. See sections 4s(e) and 4s(l) of the 

CEA, 7 U.S.C. 6s(e), 6s(l). 

157For this purpose, the Commission construes 

‘‘affiliates’’ to include persons under common 

control as stated in the Commission’s final rule 

further defining the term ‘‘swap dealer,’’ which 

defines control as ‘‘the possession, direct or 

indirect, of the power to direct or cause the 

direction of the management and policies of a 

person, whether through the ownership of voting 

securities, by contract or otherwise.’’ See Final 

Entities Rules, 77 FR at 30631, fn. 437. 

otherwise occur in the absence of this 

order. In particular, non-U.S. persons 

are afforded additional time to come 

into compliance than would otherwise 

be the case, which contributes to greater 

stability and reliability of the swap 

markets during the transition process. 

2. Efficiency, Competitiveness, and 

Financial Integrity of the Markets 

The Commission believes that the 

efficiency and integrity of the markets 

will be furthered by the additional 

compliance time provided in this order 

and the condition that entities submit a 

compliance plan. As discussed above, 

the Commission is mindful of the claims 

that the final order could potentially 

cause competitive disparities, and has 

taken steps to mitigate those potential 

costs where doing so would be 

consistent with the Dodd-Frank Act and 

the Commission’s policy objectives. 

3. Price Discovery 

The Commission has not identified 

any costs or benefits of the proposed 

order with respect to price discovery. 

4. Risk Management 

Entity level risk-management and 

capital requirements could be delayed 

by operation of the Final Order, which 

could weaken risk management. 

However, such potential risk is limited 

by the fact that the exemptive order is 

applicable for a finite time. 

5. Other Public Interest Considerations 

The Commission has not identified 

any other public interest costs or 

benefits of the proposed order. 

VII. Final Order 

The Commission, in order to provide 

for an orderly implementation of Title 

VII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(‘‘Dodd-Frank Act’’), and consistent 

with the determinations set forth above, 

which are incorporated in this Final 

Order by reference, hereby grants, 

pursuant to section 4(c) of the 

Commodity Exchange Act (‘‘CEA’’), 

time-limited relief to non-U.S. swap 

dealers (‘‘SDs’’) and major swaps 

participants (‘‘MSPs’’) and to foreign 

branches of U.S. SDs and MSPs, from 

certain swap provisions of the CEA, 

subject to the terms and conditions 

below.156

(1) Phase-in of ‘‘U.S. Person’’ 

Definition: All market participants, 

including a prospective or registered SD 

or MSP, must apply for purposes of this 

Final Order a ‘‘U.S. person’’ definition 

which would define the term as: 

(i) A natural person who is a resident 

of the United States; 

(ii) A corporation, partnership, 

limited liability company, business or 

other trust, association, joint-stock 

company, fund or any form of enterprise 

similar to any of the foregoing, in each 

case that is (A) organized or 

incorporated under the laws of a state or 

other jurisdiction in the United States or 

(B) effective as of April 1, 2013 for all 

such entities other than funds or 

collective investment vehicles, having 

its principal place of business in the 

United States; 

(iii) A pension plan for the 

employees, officers or principals of a 

legal entity described in (ii) above, 

unless the pension plan is primarily for 

foreign employees of such entity; 

(iv) An estate of a decedent who was 

a resident of the United States at the 

time of death, or a trust governed by the 

laws of a state or other jurisdiction in 

the United States if a court within the 

United States is able to exercise primary 

supervision over the administration of 

the trust; or 

(v) An individual account or joint 

account (discretionary or not) where the 

beneficial owner (or one of the 

beneficial owners in the case of a joint 

account) is a person described in (i) 

through (iv) above. 

Any person not listed in (i) to (v) 

above is a ‘‘non-U.S. person’’ for 

purposes of this Final Order. 

(2) De Minimis and MSP Threshold 

Calculations. A non-U.S. person is not 

required to include, in its calculation of 

the aggregate gross notional amount of 

swaps connected with its swap dealing 

activity for purposes of Commission 

regulation 1.3(ggg)(4), or in its 

calculation of whether it is an MSP for 

purposes of Commission regulation 

1.3(hhh), (i) any swap where the 

counterparty is not a U.S. person, or (ii) 

any swap where the counterparty is a 

foreign branch of a U.S. person that is 

registered as an SD or that represents 

that it intends to register with the 

Commission as an SD by March 31, 

2013. A non-U.S. person is not required 

to include, in its calculation of the 

aggregate gross notional amount of 

swaps connected with its swap dealing 

activity for purposes of Commission 

regulation 1.3(ggg)(4), any swap to 

which it is not a party because the swap 

is entered into by an affiliated central 

booking entity. 

(3) Aggregation for Purposes of the De 

Minimis Calculation. A non-U.S. person 

that is engaged in swap dealing 

activities with U.S. persons as of the 

effective date of this Order is not 

required to include, in its calculation of 

the aggregate gross notional amount of 

swaps connected with its swap dealing 

activity for purposes of Commission 

regulation 1.3(ggg)(4), the aggregate 

gross notional amount of swaps 

connected with the swap dealing 

activity of its U.S. affiliates under 

common control.157 Further, a non-U.S. 

person that is engaged in swap dealing 

activities with U.S. persons as of the 

effective date of this Order and is an 

affiliate under common control with a 

person that is registered as an SD is also 

not required to include, in its 

calculation of the aggregate gross 

notional amount of swaps connected 

with its swap dealing activity for 

purposes of Commission regulation 

1.3(ggg)(4), the aggregate gross notional 

amount of swaps connected with the 

swap dealing activity of any non-U.S. 

affiliate under common control that is 

either (i) engaged in swap dealing 

activities with U.S. persons as of the 

effective date of this Order or (ii) 

registered as an SD. Also, a non-U.S. 

person is not required to include, in its 

calculation of the aggregate gross 

notional amount of swaps connected 

with its swap dealing activity for 

purposes of Commission regulation 

1.3(ggg)(4), the aggregate gross notional 

amount of swaps connected with the 

swap dealing activity of its non-U.S. 

affiliates under common control with 

other non-U.S. persons as 

counterparties. 

(4) Non-U.S. SDs and MSPs: A nonU.S. SD or non-U.S. MSP may delay 

compliance with respect to Entity-Level 

Requirements that are in effect as of the 

effective date of this Order (subject to 

the condition in paragraph (5) below). 

(5) Notwithstanding paragraph (4), (i) 

non-U.S. SDs and non-U.S. MSPs shall 

be required to comply with the swap 

data repository (‘‘SDR’’) reporting and 

LTR requirements for all swaps with 


TKELLEY on DSK3SPTVN1PROD with 
880 Federal Register / Vol. 78, No. 4 / Monday, January 7, 2013 / Rules and Regulations 

158For purposes of this relief from TransactionalLevel Requirements with respect to a swap between 

foreign branches of U.S. registrants, a swap is with 

the foreign branch of a U.S. person when (i) the 

personnel negotiating and agreeing to the terms of 

the swap are located in the jurisdiction of such 

foreign branch; (ii) the documentation of the swap 

specifies that the counterparty or ‘‘office’’ for the 

U.S. person is such foreign branch and (iii) the 

swap is entered into by such foreign branch in its 

normal course of business. 

U.S. counterparties, upon their 

respective compliance dates; and (ii) 

non-U.S. SDs and Non-U.S. MSPs that 

are part of an affiliated group in which 

the ultimate parent entity is a U.S. SD, 

U.S. MSP, U.S. bank, U.S. financial 

holding company, or U.S. bank holding 

company shall be required to comply 

with the SDR reporting and Large 

Trader Reporting requirements for 

swaps with non-U.S. counterparties, 

upon their respective compliance dates. 

However, during the pendency of this 

Final Order, non-U.S. SDs and non-U.S. 

MSPs that are not part of an affiliated 

group in which the ultimate parent 

entity is a U.S. SD, U.S. MSP, U.S. bank, 

U.S. financial holding company or U.S. 

bank holding company may delay 

compliance with the SDR reporting and 

LTR requirements for swaps with nonU.S. counterparties in accordance with 

paragraph (4). 

(6) With respect to Transaction-Level 

Requirements as applied to transactions 

with a non-U.S. counterparty, non-U.S. 

SDs and non-U.S. MSPs may comply 

with such Requirements only as may be 

required by the local jurisdiction of 

such registrants; provided, however, 

that such registrants shall comply with 

such requirements that are in effect for 

all swaps with U.S. counterparties. 

(7) U.S Registrant: A U.S. person shall 

apply to register as an SD or MSP by the 

date such registration is required and 

shall comply with all applicable EntityLevel and Transaction-Level 

Requirements that are in effect, except 

that: (A) with respect to TransactionLevel Requirements as applied to swaps 

with a non-U.S. counterparty (including 

a non-U.S. SD or non-U.S. MSP), a 

foreign branch of a U.S. SD or U.S. MSP 

may comply with those requirements 

only as may be required by the local 

jurisdiction of such branches and (B) 

with respect to Transaction-Level 

Requirements as applied to swaps 

between foreign branches of U.S. SDs or 

foreign branches of U.S. MSPs,158 such 

foreign branches may comply with those 

requirements only as may be required 

by the local jurisdiction of such foreign 

branches. 

(8) Expiration of Relief: The relief 

provided to non-U.S. SDs and non-U.S. 

MSPs (and foreign branches of a U.S. SD 

or MSP) in this order shall be effective 

upon approval by the Commission and 

expire on July 12, 2013. 

(9) Scope of Relief: The time-limited 

relief provided in this Order: (A) Shall 

not affect, with respect to any swap 

within the scope of this Order, the 

applicability of any other CEA provision 

or Commission regulation (i.e., those 

outside the Entity-Level and 

Transaction-Level Requirements); (B) 

shall not limit the applicability of any 

CEA provision or Commission 

regulation to any person, entity or 

transaction except as provided in this 

Order; (C) shall not affect the 

applicability of any provision of the 

CEA or Commission regulations to 

futures contracts, or options on future 

contracts; and (D) shall not affect any 

effective or compliance date set forth in 

any Dodd-Frank Act rulemaking by the 

Commission. 

Finally, the Commission may, in its 

discretion, condition, suspend, 

terminate, or otherwise modify this 

Final Order, as appropriate, on its own 

motion. 

Issued in Washington, DC on December 21, 

2012, by the Commission. 

Sauntia S. Warfield, 

Assistant Secretary of the Commission. 

Appendices to Final Exemptive Order 

Regarding Compliance With Certain 

Swap Regulations—Commission Voting 

Summary and Statements of 

Commissioners 

Note: The following appendices will 

not appear in the Code of Federal 

Regulations. 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Gensler and 

Commissioners Chilton, O’Malia and Wetjen 

voted in the affirmative; Commissioner 

Sommers voted in the negative. 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the Final Exemptive Order 

Regarding Compliance with Certain Swap 

Regulations (Final Order). With this 

Commission action another important step 

has been taken to make swaps market reform 

a reality. 

Starting at the end of this month, domestic 

and foreign swap dealers will register. Once 

registered, swap dealers will report their 

trades to both regulators and the public. 

Foreign swap dealers will report their trades 

with U.S. persons. With these steps, the 

bright lights of transparency will, for the first 

time, shine on the swaps market. Swap 

dealers also will be required to implement 

sales practice standards that prohibit fraud, 

treat customers fairly and improve 

transparency. The public and our economy 

will benefit. 

The Final Order provides phased 

compliance for foreign swap dealers 

(including overseas affiliates of U.S. persons) 

and overseas branches of U.S. swap dealers 

with respect to certain requirements of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Dodd-Frank Act). 

Since the enactment of the Dodd-Frank 

Act, the Commission has worked steadfastly 

toward a transition from an opaque 

unregulated marketplace to a transparent, 

regulated swaps marketplace and has phased 

in the timing for compliance to give market 

participants time to adjust to the new 

regulatory regime and smooth the transition. 

Today’s Order is a continuation of the 

Commission’s commitment to this phasing of 

compliance—in this case for foreign market 

participants—and is consistent with the 

phase-in order proposed in July 2012. 

The Order will remain in effect until July, 

2013, as proposed in the July 12 order, and 

is intended to complement other Commission 

and staff actions that facilitate an orderly 

transition. 

During this transition period, a foreign 

swap dealer may phase in compliance with 

certain entity-level requirements. In addition, 

those entities (as well as foreign branches of 

U.S. swap dealers) are provided time-limited 

relief from specified transaction-level 

requirements when transacting with overseas 

affiliates guaranteed by U.S. entities (as well 

as with foreign branches of U.S. swap 

dealers). 

The relief period provides time for the 

Commission to work with foreign regulators 

as they implement comparable requirements 

and as the Commission develops a 

substituted compliance program. Substituted 

compliance, where appropriate, would allow 

for foreign swap dealers to meet the reform 

requirements of the Dodd Frank Act by 

complying with comparable and 

comprehensive foreign regulatory 

requirements. 

With respect to any transaction with a U.S. 

person, though, compliance will be required 

in accordance with previously issued rules 

and staff guidance. 

The Order incorporates a definition of 

‘‘U.S. person,’’ that benefits from helpful 

comments of market participants to our 

initial proposal and continuing discussions 

with the international regulatory community. 

Under the Order, a foreign person will not 

be required to include in its calculation of 

swap dealing activities any swap with a nonU.S. person, as well as with foreign branches 

of U.S. swap dealers. 

In addition, based upon comments 

received on the cross-border interpretive 

guidance proposed last July, the Final Order 

also provides time-limited relief from 

aggregation requirements with respect to the 

de-minimis calculation for swap dealer 

registration. Specifically, the Final Order 

provides time-limited relief from the 

requirement that a non-U.S. person include 

the swap dealing transactions of its U.S. 

affiliates under common control (or any of its 

foreign affiliates that are currently dealing) in 

its calculation for determining whether or not 

it has exceeded the de minimis threshold. 

The Commission is separately seeking 

additional public comment on cross-border 

issues related to the term ‘‘U.S. person,’’ the 

aggregation requirements for foreign persons, 


TKELLEY on DSK3SPTVN1PROD with 
Federal Register / Vol. 78, No. 4 / Monday, January 7, 2013 / Rules and Regulations 881 

as well as the definition of a ‘‘foreign 

branch’’. 

Today’s Commission action assists foreign 

swap dealers to comply with the Dodd-Frank 

Act in an orderly fashion. 

Earlier this week in a separate action, the 

Commission issued an interim final rule 

allowing for more time to come into 

compliance on specific documentation 

requirements, providing swap dealers an 

additional four months with respect to sales 

practice documentation and six months with 

respect to relationship documentation. 

The Commission recognizes the 

importance of international cooperation and 

coordination in the regulation of this highly 

interconnected global market. To this end, 

the Commission staff has actively engaged in 

substantive discussions with foreign 

counterparts in an effort to better understand 

and develop a more harmonized cross-border 

regulatory framework. 

The Final Order also reflects comments 

from foreign market participants. For 

example, foreign banks requested a phase-in 

for the application of entity-level 

requirements. At the same time, foreign 

banks stated that the transaction-level 

requirements would apply to their 

transactions with U.S. persons. 

This Final Order reflects this on-going 

consultation with foreign regulatory 

counterparts who provided comments on the 

proposed exemptive order issued in July 

2012. During this period of phased 

compliance, the Commission will continue to 

engage with foreign counterparts. As set forth 

in a December 4 joint press statement of 

market regulators, the Commission will meet 

regularly with foreign regulators to consult 

on, among other topics, the basis for 

substituted compliance, timing and 

sequencing of rules, clearing determinations, 

and options to address potential conflicting, 

inconsistent, and duplicative rules. 

As the Commission and the international 

regulatory community move forward, we all 

recognize that risk has no geographic 

boundary and money can move in and out of 

markets and jurisdictions in milliseconds. 

For the public to be protected, swaps market 

reform must cover transactions of overseas 

branches and overseas affiliates guaranteed 

by U.S. entities. 

The 2008 financial crisis demonstrated this 

when financial aftershocks spread 

throughout the globe and swaps executed 

offshore by U.S. financial institutions sent 

risk straight back to our shores. As a result 

of the crisis, eight million Americans lost 

their jobs, millions of families lost their 

homes, and small businesses across the 

country folded. 

Congress and the President responded with 

the Dodd-Frank Act, including the crossborder provisions of the law. Section 722(d) 

of the Dodd-Frank Act states that swaps 

reforms shall not apply to activities outside 

the United States unless those activities have 

‘‘a direct and significant connection with 

activities in, or effect on, commerce of the 

United States.’’ Congress provided that 

reforms should account for risks that may 

come from abroad. 

Failing to bring swaps market reform to 

transactions with overseas branches and 

overseas affiliates guaranteed by U.S. entities 

would mean American jobs and markets 

would likely move offshore, but, particularly 

in times of crisis, risk would come crashing 

back to our economy. 

The nature of modern finance is that large 

financial institutions set up hundreds, if not 

thousands of ‘‘legal entities’’ around the 

globe. 

They do so in an effort to respond to 

customer needs, funding opportunities, risk 

management and compliance with local laws. 

They do so as well, though, to lower their 

taxes, manage their reported accounting, and 

to minimize regulatory, capital and other 

requirements, so-called ‘‘regulatory 

arbitrage.’’ Many of these far-flung legal 

entities, however, are still directly connected 

back to their U.S. affiliates. 

During a default or crisis, the risk that 

builds up offshore inevitably comes crashing 

back onto U.S. shores. When an affiliate of 

a large, international financial group has 

problems, the markets accept this will infect 

the rest of the group. 

This was true with AIG. Its subsidiary, AIG 

Financial Products, brought down the 

company and nearly toppled the U.S. 

economy. It was run out of London as a 

branch of a French-registered bank, though 

technically was organized in the United 

States. 

Lehman Brothers was another example. 

Among its complex web of affiliates was 

Lehman Brothers International (Europe) in 

London. When Lehman failed, the London 

affiliate had more than 130,000 outstanding 

swaps contracts, many of them guaranteed by 

Lehman Brothers Holdings back in the 

United States. 

Yet another example was Citigroup, which 

set up numerous structured investment 

vehicles (SIVs) to move positions off its 

balance sheet for accounting purposes, as 

well as to lower its regulatory capital 

requirements. Yet, Citigroup had guaranteed 

the funding of these SIVs through a 

mechanism called a liquidity put. When the 

SIVs were about to fail, Citigroup in the 

United States assumed the huge debt, and 

taxpayers later bore the brunt with two multibillion dollar infusions. The SIVs were 

launched out of London and incorporated in 

the Cayman Islands. 

Bear Stearns is another case. Bear Stearns’ 

two sinking hedge funds it bailed out in 2007 

were incorporated in the Cayman Islands. Yet 

again, the public assumed part of the burden 

when Bear Stearns itself collapsed nine 

months later. 

A decade earlier, the same was true for 

Long-Term Capital Management. When the 

hedge fund failed in 1998, its swaps book 

totaled in excess of $1.2 trillion notional. The 

vast majority were booked in its affiliated 

partnership in the Cayman Islands. 

This year’s events of JPMorgan Chase, 

where it executed swaps through its London 

branch, are a stark reminder of this reality of 

modern finance. 

As there have been these and other 

financial institution failures in the past, in 

our free markets, we must be prepared for 

when other firms fail in the future. DoddFrank reform is about protecting the public 

from such failures in the future. 

It’s my firm belief that if reforms were not 

to cover the branches and overseas affiliates 

of U.S. entities, either directly or through 

substituted compliance, the public will be 

left without the benefits and protections that 

Congress intended with Dodd-Frank. 

Foreign governments and their taxpayers 

also will be concerned about the risks 

engendered by the cross-border activities of 

financial institutions. 

The Final Order approved today benefitted 

from consultation with foreign regulatory 

counterparts. The Commission also received 

constructive comment from the public and 

Members of Congress. 

I am grateful to the staff of the Commission 

for their tireless work on this Order and the 

Commission’s broader effort to implement 

swaps market reform. In accordance the 

directives of Congress and the Commission’s 

final rules, swaps market reform is taking 

shape. I look forward to working with my 

colleagues to complete this important task. 

Appendix 3—Statement of 

Commissioner Jill E. Sommers 

Although I am very supportive of granting 

temporary relief from certain provisions of 

the Dodd-Frank Act, I disagree with the 

approach and am concerned that the 

Commission continues to insert unnecessary 

complexities into the cross-border 

determinations. As I have said a number of 

times, the Commission has worked for 

decades to establish relationships with our 

foreign counterparts based on respect, trust 

and information sharing, which has resulted 

in a long and successful history of mutual 

recognition. All G20 nations have agreed to 

a comprehensive set of principles for 

regulating the over-the-counter derivatives 

markets. Instead of recognizing these 

commitments and resolving to work towards 

mutual recognition of comparable regulatory 

regimes, keeping in mind the core policy 

objectives of the G20 commitments, the 

Commission has embarked on a cross-border 

analysis that I fear is taking us down a path 

of regulatory detail that is overly 

burdensome, complicated, and unnecessary. 

Moreover, it is a mistake to require 

registration and compliance with certain 

regulations before our final guidance has 

been issued. Foreign entities will not have 

the basic information they need to make 

informed decisions regarding the ultimate 

obligations of engaging in swaps activities 

with U.S. persons (the definition of which 

continues to shift) prior to having to make 

the decision to register. There is no reason 

why the Commission could not have issued 

broader relief until these issues are settled. 

We have simply chosen not to. 

I have consistently supported 

harmonization with both foreign and 

domestic regulators. Over the past few 

months we have received invaluable input 

from many global regulators, who have 

agreed to meet in early 2013 to inform each 

other on the progress made in finalizing 

reforms in their respective jurisdictions and 

to consult on possible transition periods. 

Future meetings will explore options for 

addressing conflicts, inconsistencies, and 

duplicative rules and examine ways in which 

comparability assessments and appropriate 


TKELLEY on DSK3SPTVN1PROD with 
882 Federal Register / Vol. 78, No. 4 / Monday, January 7, 2013 / Rules and Regulations 

159Cross-Border Application of Certain Swaps 

Provisions of the Commodity Exchange Act, 77 FR 

41214 (July 12, 2012). 160CFTC Division of Swap Dealer and 

Intermediary Oversight, Re: Time-Limited NoAction Relief: Swaps Only With Certain Persons to 

be Included in Calculation of Aggregate Gross 

Notional Amount for Purposes of Swap Dealer De 

Minimis Exception and Calculation of Whether a 

Person is a Major Swap Participant, No-Action 

Letter No. 12–22, Oct. 12, 2012. 161 Joint Press Statement of Leaders on Operating 

Principles and Areas of Exploration in the 

Regulation of the Cross-border OTC Derivatives 

Market, December 4, 2012. 

162 7 U.S.C. 2(i). 

cross-border supervisory and enforcement 

arrangements may be made. It is my hope 

that these meetings will lead the Commission 

to listen to the concerns being raised by 

regulators around the world and to adopt a 

more reasonable approach when it finalizes 

the cross-border guidance. 

Appendix 4—Statement of 

Commissioner Bart Chilton 

As we have set out to do from the 

beginning of the Dodd-Frank rulemaking 

process, we are cognizant of the need for 

regulators around the globe to harmonize 

rules to the extent possible in order to avoid 

market disruption and regulatory arbitrage. 

In responding to a letter from Members of 

the House Agriculture Committee’s 

Subcommittee on General Farm Commodities 

and Risk Management, I pointed out that I 

expect the Commission will act imminently 

to ensure the following three broad 

objectives: 

• Narrow the definition of U.S. person so 

that our extraterritorial reach is not too 

broad; 

• Provide sensible aggregation 

requirements so that foreign banks won’t 

automatically have to become U.S. swaps 

dealers just because they do business with 

foreign affiliates of U.S. banks; 

• Provide for a phased-in compliance to 

July 2013 to allow time for other jurisdictions 

to implement derivative market reforms. 

In addition, we must ensure that, in this 

interim period, U.S. swap dealers and major 

swap participants can avoid a Dodd-Frank 

compliance-related enforcement action by 

working to comply reasonably and in good 

faith. 

Derivatives reform in the U.S. isn’t taking 

place in a vacuum. And, regulators on several 

continents are moving at different speeds. 

Like an orchestra playing holiday music, not 

all sections of instruments necessarily start a 

number at the same time. Yet, they wind up 

in harmony. So too it must be in global 

financial reform. Ending up in harmony is 

critical to achieving our overarching purpose: 

making global financial markets safer, more 

transparent, and more effective. 

Appendix 5—Statement of 

Commissioner Scott D. O’Malia 

I respectfully concur with the 

Commission’s approval of this Order. The 

relief provided in the Order is timely and 

helps provide some level of clarity in the 

short term to market participants as they 

transition to the Commission’s new swap 

regulatory regime. Crucially, it also provides 

time for the Commission to engage with 

foreign regulators in order to develop a 

coordinated, harmonized approach to 

regulating the global swap markets in the 

long term. 

While I generally support the relief 

provided, the Order should have done much 

more to provide clarity and consistency and 

to ensure a level playing field for market 

participants. In particular, I would like to 

note that the definition of ‘‘U.S. Person’’ 

contained in this Order is the third different 

definition articulated by the Commission 

within the past six months: The expansive 

definition in the Commission’s July proposed 

guidance,159 the narrower ‘‘territorial’’ 

definition in an October staff no-action 

letter,160 and now this modified territorial 

definition. The industry cannot get too used 

to this definition either, as there will be, 

remarkably, a fourth definition next year 

when the Commission finalizes its crossborder guidance. This is a regrettable lack of 

consistency for a concept that is so central to 

foreign swap market participants’ ability to 

determine their compliance obligations. 

This Order expires July 12, 2013. The 

Commission should use the time between 

now and then to do two things. First, as 

mentioned above, it should actively engage 

with other regulators. I was encouraged by 

the joint statement released earlier this 

month by a group of international derivatives 

regulators (including the Commission),161

which emphasized the importance of 

coordination and committed the signatories 

to consult one another with regard to the 

timing and sequencing of regulation; 

comparability determinations; clearing 

determinations; and conflicting, inconsistent 

and duplicative rules. But these 

consultations over the next several months 

cannot merely be an exercise in going 

through the motions. Rather, they must be 

substantive, and they should ultimately lead 

to a final Commission cross-border guidance 

that addresses the strong concerns raised by 

fellow regulators about the Commission’s 

July proposal. For their part, fellow 

regulators can make this engagement process 

more effective by providing detailed plans of 

their existing and upcoming regulations as 

well as concrete, specific blueprints for 

potential comparability and substituted 

compliance determinations. 

Second, the Commission should use the 

next several months to revisit and revise the 

grossly overbroad conception of 

extraterritorial reach that it argued for in the 

July proposed guidance. Most important, the 

Commission needs to articulate a clear, 

logical interpretation of the ‘‘direct and 

significant’’ connection required by the 

statute as a prerequisite to applying our 

regulations to entities and activities 

abroad.162 As I have noted before, the 

statutory language is a limitation on the 

Commission’s authority, but the proposed 

guidance interpreted it as the opposite. If the 

Commission develops a sufficient rationale 

for the ‘‘direct and significant’’ standard, it 

will have gone a long way toward 

appropriately determining the scope of its 

extraterritorial reach. 

[FR Doc. 2012–31736 Filed 1–4–13; 8:45 am] 

BILLING CODE 6351–01–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R03–OAR–2012–0371; FRL–9765–9] 

Approval and Promulgation of Air 

Quality Implementation Plans; 

Delaware, New Jersey, and 

Pennsylvania; Determination of 

Attainment of the 2006 24-Hour Fine 

Particulate Matter Standard for the 

Philadelphia-Wilmington, PA-NJ-DE 

Nonattainment Area 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Final rule. 

SUMMARY: EPA is making a 

determination of attainment regarding 

the Philadelphia-Wilmington, PA-NJ-DE 

fine particulate matter (PM2.5) 

nonattainment area (hereafter referred to 

as ‘‘the Philadelphia Area’’ or ‘‘the 

Area’’). EPA has determined that the 

Philadelphia Area has attained the 2006 

24-hour PM2.5 National Ambient Air 

Quality Standard (NAAQS), based upon 

quality-assured, quality-controlled and 

certified ambient air monitoring data for 

the 2008–2010 and 2009–2011 periods. 

Preliminary data available for 2012 are 

consistent with continued attainment of 

the Philadelphia Area. This 

determination of attainment suspends 

the requirements for the respective state 

portions of the Philadelphia Area to 

submit an attainment demonstration 

and associated reasonably available 

control measures (RACM), a reasonable 

further progress (RFP) plan, contingency 

measures, and other planning State 

Implementation Plan (SIP) revisions 

related to the attainment of the standard 

for so long as the Area continues to 

attain the 2006 24-hour PM2.5 NAAQS. 

This action is being taken under the 

Clean Air Act (CAA). This action does 

not constitute a redesignation to 

attainment, and the Philadelphia Area 

will remain designated nonattainment 

for the 2006 24-hour PM2.5 NAAQS until 

such time as EPA determines that the 

Philadelphia Area, or portion thereof, 

meets the CAA requirements for 

redesignation to attainment for the 

standard, including an approved 

maintenance plan. 

DATES: This final rule is effective on 

January 7, 2013. 

ADDRESSES: EPA has established a 

docket for this action under Docket ID 

Number EPA–R03–OAR–2012–0371. All 

documents in the docket are listed in 

the www.regulations.gov Web site. 

Although listed in the electronic docket, 

some information is not publicly 


TKELLEY on DSK3SPTVN1PROD with