78878 Federal Register / Vol. 78, No. 249 / Friday, December 27, 2013 / Notices 

9Exemptive Order Regarding Compliance With 

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

2013). 

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

SpeechesTestimony/opaomalia-29. 

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

SpeechesTestimony/omaliastatement071213b. 

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

originally published proposed and further proposed 

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

respectively. See Cross-Border Application of 

Certain Swaps Provisions of the Commodity 

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

Further Proposed Guidance Regarding Compliance 

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

2013). 

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

Commission failed to complete an important 

piece of the cross-border regime, namely, 

supervisory memoranda of understanding 

(‘‘MOUs’’) between the Commission and 

fellow regulators. 

I have previously stated that these MOUs, 

if done right, can be a key part of the global 

harmonization effort because they provide 

mutually agreed-upon solutions for 

differences in regulatory regimes.10

Accordingly, I stated that the Commission 

should be able to review MOUs alongside the 

respective comparability determinations and 

vote on them at the same time. Without these 

MOUs, our fellow regulators are left 

wondering whether and how any differences, 

such as direct access to books and records, 

will be resolved. 

Finally, as I have consistently maintained, 

the substituted compliance process should 

allow other regulatory bodies to engage with 

the full Commission.11 While I am pleased 

that the Notices are being voted on by the 

Commission, the full Commission only 

gained access to the comment letters from 

foreign regulators on the Commission’s 

comparability determination draft proposals 

a few days ago. This is hardly a transparent 

process. 

Unclear Path Forward 

Looking forward to next steps, the 

Commission must provide answers to several 

outstanding questions regarding these 

comparability determinations. In doing so, 

the Commission must collaborate with 

foreign regulators to increase global 

harmonization. 

First, there is uncertainty surrounding the 

timing and outcome of the MOUs. Critical 

questions regarding information sharing, 

cooperation, supervision, and enforcement 

will remain unanswered until the 

Commission and our fellow regulators 

execute these MOUs. 

Second, the Commission has issued timelimited no-action relief for the swap data 

repository reporting requirements. These 

comparability determinations will be done as 

separate notices. However, the timing and 

process for these determinations remain 

uncertain. 

Third, the Commission has failed to 

provide clarity on the process for addressing 

the comparability determinations that it 

declined to undertake at this time. The 

Notices only state that the Commission may 

address these requests in a separate notice at 

a later date given further developments in the 

law and regulations of other jurisdictions. To 

promote certainty in the financial markets, 

the Commission must provide a clear path 

forward for market participants and foreign 

regulators. 

The following steps would be a better 

approach: (1) The Commission should extend 

the Exemptive Order to allow foreign 

regulators to further implement their 

regulatory regimes and coordinate with them 

to implement a harmonized substituted 

compliance process; (2) the Commission 

should implement a flexible, outcomes-based 

approach to the substituted compliance 

process and apply it similarly to all 

jurisdictions; and (3) the Commission should 

work closely with our fellow regulators to 

expeditiously implement MOUs that resolve 

regulatory differences and address regulatory 

oversight issues. 

Conclusion 

While I support the narrow comparability 

determinations that the Commission has 

made, it was my hope that the Commission 

would work with foreign regulators to 

implement a substituted compliance process 

that would increase the global harmonization 

effort. I am disappointed that the 

Commission has failed to implement such a 

process. 

I do believe that in the longer term, the 

swaps regulations of the major jurisdictions 

will converge. At this time, however, the 

Commission’s comparability determinations 

have done little to alleviate the burden of 

regulatory uncertainty and duplicative 

compliance with both U.S. and foreign 

regulations. 

The G–20 process delineated and put in 

place the swaps market reforms in G–20 

member nations. It is then no surprise that 

the Commission must learn to coordinate 

with foreign regulators to minimize 

confusion and disruption in bringing much 

needed clarity to the swaps market. For all 

these shortcomings, I respectfully dissent 

from the Commission’s approval of the 

Notices. 

[FR Doc. 2013–30974 Filed 12–26–13; 8:45 am] 

BILLING CODE 6351–01–P 

COMMODITY FUTURES TRADING 

COMMISSION 

Comparability Determination for the 

European Union: Certain TransactionLevel Requirements 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of Comparability 

Determination for Certain Requirements 

under the European Market 

Infrastructure Regulation. 

SUMMARY: The following is the analysis 

and determination of the Commodity 

Futures Trading Commission 

(‘‘Commission’’) regarding certain parts 

of a joint request by the European 

Commission (‘‘EC’’) and the European 

Securities and Markets Authority 

(‘‘ESMA’’) that the Commission 

determine that laws and regulations 

applicable in the European Union 

(‘‘EU’’) provide a sufficient basis for an 

affirmative finding of comparability 

with respect to the following regulatory 

obligations applicable to swap dealers 

(‘‘SDs’’) and major swap participants 

(‘‘MSPs’’) registered with the 

Commission: (i) swap trading 

relationship documentation; (ii) swap 

portfolio reconciliation and 

compression; (iii) trade confirmation; 

and (iv) daily trading records 

(collectively, the ‘‘Business Conduct 

Requirements’’). 

DATES: Effective Date: This 

determination will become effective 

immediately upon publication in the 

Federal Register. 

FOR FURTHER INFORMATION CONTACT: Gary 

Barnett, Director, 202–418–5977, 

gbarnett@cftc.gov, Frank Fisanich, Chief 

Counsel, 202–418–5949, ffisanich@

cftc.gov, and Ellie Jester, Special 

Counsel, 202–418–5874, ajester@

cftc.gov, Division of Swap Dealer and 

Intermediary Oversight, Commodity 

Futures Trading Commission, Three 

Lafayette Centre, 1155 21st Street, NW., 

Washington, DC 20581. 

SUPPLEMENTARY INFORMATION: 

I. Introduction 

On July 26, 2013, the Commission 

published in the Federal Register its 

‘‘Interpretive Guidance and Policy 

Statement Regarding Compliance with 

Certain Swap Regulations’’ 

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

Commission set forth its interpretation 

of the manner in which it believes that 

section 2(i) of the Commodity Exchange 

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

provisions to activities outside the U.S. 

and informed the public of some of the 

policies that it expects to follow, 

generally speaking, in applying Title VII 

and certain Commission regulations in 

contexts covered by section 2(i). Among 

other matters, the Guidance generally 

described the policy and procedural 

framework under which the 

Commission would consider a 

substituted compliance program with 

respect to Commission regulations 

applicable to entities located outside the 

U.S. Specifically, the Commission 

addressed a recognition program where 

compliance with a comparable 

regulatory requirement of a foreign 

jurisdiction would serve as a reasonable 

substitute for compliance with the 

attendant requirements of the CEA and 

the Commission’s regulations 

promulgated thereunder. 

In addition to the Guidance, on July 

22, 2013, the Commission issued the 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 78, No. 249 / Friday, December 27, 2013 / Notices 78879 

2 78 FR 43785 (July 22, 2013). 

3The Transaction-Level Requirements under the 

Exemptive Order consist of 17 CFR 37.12, 38.11, 

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

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

of the Commission’s regulations. 

4See id. at 43789. 

5See id. at 43790. 

6For purposes of this notice, the Business 

Conduct Requirements consist of 17 CFR 23.202, 

23.501, 23.502, 23.503, and 23.504. 

7According to the most recent Financial Stability 

Board Progress Report, the EU is scheduled to have 

a clearing requirement by Q3 2014. That report also 

states that the EU is scheduled to begin authorizing 

CCPs in Q4 2013, issue its first clearing 

determinations in Q1 2014, and adopt central 

clearing Regulatory Technical Standards (RTS) in 

Q2 2014 (OTC Derivatives Working Group, ‘‘OTC 

Derivatives Market Reforms: Sixth Progress Report 

on Implementation,’’ Financial Stability Board, 

Sept. 2, 2013). Under EMIR, ESMA would 

determine which swaps would be subject to 

mandatory clearing according to provisions that are 

comparable to those set forth in Commission 

regulation 39.5(b). A clearing requirement would 

apply to financial entities, as well as to nonfinancial entities whose swap activity exceeds a 

certain threshold. ESMA’s ‘‘Discussion Paper, The 

Clearing Obligation under EMIR’’ (July 2013) 

describes the standardized swaps that could be 

subject to a clearing requirement. Such swaps 

include the interest rate and credit default swaps 

covered by the Commission’s clearing requirement 

(Commission regulation 50.4), other credit default 

swap indices, non-deliverable forwards that may be 

included in a Commission clearing requirement, 

and many other swaps including OTC equity index 

derivatives cleared only through European central 

counterparties, some of which are not Commissionregistered derivatives clearing organizations. 

8Public Law 111–203, 124 Stat. 1376 (2016). 

9 7 U.S.C. 2(i). 

10The compliance dates are summarized on the 

Compliance Dates page of the Commission’s Web 

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

DoddFrankAct/ComplianceDates/index.htm.) 

Exemptive Order Regarding Compliance 

with Certain Swap Regulations (the 

‘‘Exemptive Order’’).2 Among other 

things, the Exemptive Order provided 

time for the Commission to consider 

substituted compliance with respect to 

six jurisdictions where non-U.S. SDs are 

currently organized. In this regard, the 

Exemptive Order generally provided 

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

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

six jurisdictions with conditional relief 

from certain requirements of 

Commission regulations (those referred 

to as ‘‘Transaction-Level Requirements’’ 

in the Guidance) until the earlier of 

December 21, 2013, or 30 days following 

the issuance of a substituted compliance 

determination.3 However, the 

Commission provided only transitional 

relief from the real-time public reporting 

requirements under part 43 of the 

Commission’s regulations until 

September 30, 2013, stating that ‘‘it 

would not be in the public interest to 

further delay reporting under part 43 

. . . .’’ 4 Similarly, the Commission 

provided transitional relief only until 

October 10, 2013, from the clearing and 

swap processing requirements (as 

described in the Guidance), stating that, 

‘‘[b]ecause SDs and MSPs have been 

committed to clearing their [credit 

default swaps] and interest rate swaps 

for many years, and indeed have been 

voluntarily clearing for many years, any 

further delay of the Commission’s 

clearing requirement is unwarranted.’’ 5

The Commission did not make any 

comparability determination with 

respect to clearing and swap processing 

prior to October 10, 2013, or real-time 

public reporting prior to September 30, 

2013. 

On May 7, 2013, the EC and ESMA 

(collectively, the ‘‘applicant’’) submitted 

a request that the Commission 

determine that laws and regulations 

applicable in the EU provide a sufficient 

basis for an affirmative finding of 

comparability with respect to certain 

Transaction-Level Requirements, 

including the Business Conduct 

Requirements.6 The applicant provided 

Commission staff with an updated 

submission on August 6, 2013. On 

November 11, 2013, the application was 

further supplemented with corrections 

and additional materials. The following 

is the Commission’s analysis and 

determination regarding the Business 

Conduct Requirements, as detailed 

below. 

In addition to the Business Conduct 

Requirements described below, the 

applicant also requested a comparability 

determination with respect to law and 

regulations applicable in the EU 

governing (1) clearing and swap 

processing;7 and (2) real-time public 

reporting. The Commission declines to 

take up the request for such 

comparability determination at this time 

due to the Commission’s view that there 

are not laws or regulations applicable in 

the EU to compare with the 

requirements of the Commission’s 

regulations on mandatory clearing and 

swap processing, and real-time public 

reporting. The Commission may address 

these requests in a separate notice at a 

later date in consequence of further 

developments in the law and 

regulations applicable in the EU. 

II. Background 

On July 21, 2010, President Obama 

signed the Dodd-Frank Wall Street 

Reform and Consumer Protection Act8

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

which, in Title VII, established a new 

regulatory framework for swaps. 

Section 722(d) of the Dodd-Frank Act 

amended the CEA by adding section 

2(i), which provides that the swap 

provisions of the CEA (including any 

CEA rules or regulations) apply to crossborder activities when certain 

conditions are met, namely, when such 

activities have a ‘‘direct and significant 

connection with activities in, or effect 

on, commerce of the United States’’ or 

when they contravene Commission 

rules or regulations as are necessary or 

appropriate to prevent evasion of the 

swap provisions of the CEA enacted 

under Title VII of the Dodd-Frank Act.9

In the three years since its enactment, 

the Commission has finalized 68 rules 

and orders to implement Title VII of the 

Dodd-Frank Act. The finalized rules 

include those promulgated under 

section 4s of the CEA, which address 

registration of SDs and MSPs and other 

substantive requirements applicable to 

SDs and MSPs. With few exceptions, the 

delayed compliance dates for the 

Commission’s regulations implementing 

such section 4s requirements applicable 

to SDs and MSPs have passed and new 

SDs and MSPs are now required to be 

in full compliance with such regulations 

upon registration with the 

Commission.10 Notably, the 

requirements under Title VII of the 

Dodd-Frank Act related to SDs and 

MSPs by their terms apply to all 

registered SDs and MSPs, irrespective of 

where they are located, albeit subject to 

the limitations of CEA section 2(i). 

To provide guidance as to the 

Commission’s views regarding the scope 

of the cross-border application of Title 

VII of the Dodd-Frank Act, the 

Commission set forth in the Guidance 

its interpretation of the manner in 

which it believes that Title VII’s swap 

provisions apply to activities outside 

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

CEA. Among other matters, the 

Guidance generally describes the policy 

and procedural framework under which 

the Commission would consider a 

substituted compliance program with 

respect to Commission regulations 

applicable to entities located outside the 

U.S. Specifically, the Commission 

established a recognition program where 

compliance with a comparable 

regulatory requirement of a foreign 

jurisdiction would serve as a reasonable 

substitute for compliance with the 

attendant requirements of the CEA and 

the Commission’s regulations. With 

respect to the standards forming the 

basis for any determination of 

comparability (‘‘comparability 

determination’’ or ‘‘comparability 

finding’’), the Commission stated: 

In evaluating whether a particular category 

of foreign regulatory requirement(s) is 

comparable and comprehensive to the 

applicable requirement(s) under the CEA and 

Commission regulations, the Commission 

will take into consideration all relevant 


tkelley on DSK3SPTVN1PROD with NOTICES
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11 78 FR 45342–45345. 

12See the Guidance, 78 FR 45342–44. 

13Under §§ 23.203 and 23.606, all records 

required by the CEA and the Commission’s 

regulations to be maintained by a registered SD or 

MSP shall be maintained in accordance with 

Commission regulation 1.31 and shall be open for 

inspection by representatives of the Commission, 

the United States Department of Justice, or any 

applicable prudential regulator. 

In its Final Exemptive Order Regarding 

Compliance with Certain Swap Regulations, 78 FR 

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

applicant for registration as an SD or MSP must file 

a Form 7–R with the National Futures Association 

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

to address existing blocking, privacy, or secrecy 

laws of foreign jurisdictions that applied to the 

books and records of SDs and MSPs acting in those 

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

modifications to Form 7–R were a temporary 

measure intended to allow SDs and MSPs to apply 

for registration in a timely manner in recognition 

of the existence of the blocking, privacy, and 

secrecy laws. In the Guidance, the Commission 

clarified that the change to Form 7–R impacts the 

registration application only and does not modify 

the Commission’s authority under the CEA and its 

regulations to access records held by registered SDs 

and MSPs. Commission access to a registrant’s 

books and records is a fundamental regulatory tool 

necessary to properly monitor and examine each 

registrant’s compliance with the CEA and the 

regulations adopted pursuant thereto. The 

Commission has maintained an ongoing dialogue 

on a bilateral and multilateral basis with foreign 

regulators and with registrants to address books and 

records access issues and may consider appropriate 

measures where requested to do so. 

14See e.g., sections 4s(f)(1)(C), 4s(j)(3) and (4) of 

the CEA. 

15See e.g., §§ 23.203(b) and 23.606. 

16See supra note 13. 

17On July 11, 2013, the Commission staff issued 

a no-action letter related to EU rules on risk 

mitigation. See No-Action Relief for Registered 

Swap Dealers and Major Swap Participants from 

Certain Requirements under Subpart I of Part 23 of 

Commission Regulations in Connection with 

Uncleared Swaps Subject to Risk Mitigation 

Techniques under EMIR, CFTC Letter No. 13–45 

(July, 11, 2013) (‘‘Risk Mitigation Letter’’). The 

Commission staff found that the Commission and 

the EU have essentially identical rules in important 

areas of risk mitigation for the largest counterparty 

swap market participants. Specifically, the 

Commission staff determined that under EMIR, the 

EU has adopted risk mitigation rules that are 

essentially identical to certain provisions of the 

Commission’s business conduct standards for SDs 

and MSPs. In areas such as confirmation, portfolio 

reconciliation, portfolio compression, valuation, 

and dispute resolution, the Commission staff found 

that the respective regimes are essentially identical. 

The Commission staff determined that where a 

swap/OTC derivative is subject to concurrent 

jurisdiction under US and EU risk mitigation rules, 

compliance under EMIR will achieve compliance 

with the relevant Commission rules because they 

are essentially identical. The Commission’s analysis 

of the subject submission is informed by the staff’s 

finding in connection with the Risk Mitigation 

Letter but the Commission notes that the standards 

applied in that context are distinguishable from the 

‘‘comparable and comprehensive’’ standards 

applied in the instant comparability determination. 

18EMIR: Regulation (EU) No 648/2012 of the 

European Parliament and of the Council of 4 July 

2012 on OTC derivatives, central counterparties and 

trade repositories. http://eur-lex.europa.eu/LexUri

Serv/LexUriServ.do?uri=OJ:L:2012:201:

0001:0059:EN:PDF 19See EMIR Article 10 and RTS Article 10. 

factors, including but not limited to, the 

comprehensiveness of those requirement(s), 

the scope and objectives of the relevant 

regulatory requirement(s), the 

comprehensiveness of the foreign regulator’s 

supervisory compliance program, as well as 

the home jurisdiction’s authority to support 

and enforce its oversight of the registrant. In 

this context, comparable does not necessarily 

mean identical. Rather, the Commission 

would evaluate whether the home 

jurisdiction’s regulatory requirement is 

comparable to and as comprehensive as the 

corresponding U.S. regulatory 

requirement(s).11

Upon a comparability finding, 

consistent with CEA section 2(i) and 

comity principles, the Commission’s 

policy generally is that eligible entities 

may comply with a substituted 

compliance regime subject to any 

conditions the Commission places on its 

finding, and subject to the 

Commission’s retention of its 

examination authority and its 

enforcement authority.12

In this regard, the Commission notes 

that a comparability determination 

cannot be premised on whether an SD 

or MSP must disclose comprehensive 

information to its regulator in its home 

jurisdiction, but rather on whether 

information relevant to the 

Commission’s oversight of an SD or 

MSP would be directly available to the 

Commission and any U.S. prudential 

regulator of the SD or MSP.13 The 

Commission’s direct access to the books 

and records required to be maintained 

by an SD or MSP registered with the 

Commission is a core requirement of the 

CEA14 and the Commission’s 

regulations,15 and is a condition to 

registration.16

III. Regulation of SDs and MSPs in the 

EU 

On May 7, 2013, the EC and ESMA 

submitted a request that the 

Commission assess the comparability of 

laws and regulations applicable in the 

EU with the requirements of the CEA 

and the Commission’s regulations, and 

that a determination be made on the 

extent to which SDs and MSPs in the 

EU can rely on substituted 

compliance.17 The applicant provided 

Commission staff with an updated 

submission on August 6, 2013. On 

November 11, 2013, the application was 

further supplemented with corrections 

and additional materials. 

As represented to the Commission by 

the applicant, swap activities in the EU 

member states is governed primarily by 

the European Market Infrastructure 

Regulation (‘‘EMIR’’).18

EMIR and the Regulatory Technical 

Standards (‘‘RTS’’) are regulations with 

immediate, binding, and direct effect in 

all EU member states (i.e., no 

transposition into domestic law is 

required). EMIR entered into force on 

August 16, 2012. 

Commission Delegated Regulation 

(EU) No 149/2013 of December 19, 2012 

supplementing Regulation (EU) No 648/ 

2012 of the European Parliament and of 

the Council with regard to regulatory 

technical standards on indirect clearing 

arrangements, the clearing obligation, 

the public register, access to a trading 

venue, non-financial counterparties, and 

risk mitigation techniques for OTC 

derivatives contracts not cleared by a 

central counterparty (‘‘CCP’’) (‘‘OTC 

RTS’’) entered into force on March 15, 

2013. 

It is helpful to note certain 

terminology used in EMIR: 

• Financial counterparties (‘‘FCs’’), 

Article 2(8) EMIR: all types of 

counterparties established in the EU— 

regardless of size or activity—that are 

financial in nature and authorized as 

such: credit institutions, insurers/

reinsurers, pension funds, and hedge 

funds. 

• Non-financial counterparties 

(‘‘NFCs’’), Article 2(9) EMIR: all types of 

counterparties established in the EU 

that do not meet the definition of an FC 

(e.g., corporates, certain SPVs). 

• Non-financial counterparties above 

the clearing threshold (‘‘NFCs+’’), Nonfinancial counterparties below the 

clearing threshold (‘‘NFCs-’’): 

• The clearing thresholds are 

calculated at the group level and are as 

follows: 

(a) EUR 1 billion in gross notional 

value for OTC credit derivative 

contracts; 

(b) EUR 1 billion in gross notional 

value for OTC equity derivative 

contracts; 

(c) EUR 3 billion in gross notional 

value for OTC interest rate derivative 

contracts; 

(d) EUR 3 billion in gross notional 

value for OTC foreign exchange 

derivative contracts; and 

(e) EUR 3 billion in gross notional 

value for OTC commodity derivative 

contracts and other OTC derivative 

contracts not provided for under points 

(a) to (d). 

However, transactions objectively 

measurable as reducing risks directly 

relating to the commercial activity or 

treasury financing activity of the NFC or 

its group (i.e., hedges) do not count 

towards the clearing threshold.19 Under 

the hedging definition both portfolio 

and macro hedging are allowed. 

Certain requirements of EMIR and the 

RTS are subject to delayed 

implementation. EMIR Article 11 and 


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Federal Register / Vol. 78, No. 249 / Friday, December 27, 2013 / Notices 78881 

20 Directive 2004/39/EC and the relevant 

implementing measures (Directive 2006/73/EC and 

Regulation 1287/2006). http://eur-lex.europa.eu/

LexUriServ/

LexUriServ.do?uri=CELEX:32004L0039:EN:NOT 

21See the Web site of the European Commission 

for confirmation of the transposition of MiFID into 

the national law of each member state, available 

here: http://ec.europa.eu/internal_market/

securities/docs/transposition/table_en.pdf. Note 

that the issue of partial implementation in the 

Netherlands was resolved in 2008, http://

ec.europa.eu/eu_law/eulaw/decisions/dec_08_05_

06.htm.The Commission notes that the EC has 

certified to the Commission that each member state 

in which a registered SD or MSP is organized has 

completed the transposition process (e.g., Ireland, 

UK, France, Spain, and Germany). 

22Because the applicant’s request and the 

Commission’s determinations herein are based on 

the comparability of EU requirements applicable to 

entities subject to EMIR and MiFID, an SD or MSP 

that is not subject to the requirements of EMIR or 

MiFID upon which the Commission bases its 

determinations, may not be able to rely on the 

Commission’s comparability determinations herein. 

The applicant has noted for the Commission that 

the concept of an MSP is not explicitly mirrored in 

EU legislation and so it cannot be confirmed that 

MSPs would always be covered by EMIR and 

MiFID. However, the applicant states that the 

definition of an ‘‘investment firm’’ under MiFID is 

considerably wider than that of an SD, and thus 

MSP’s should, in most cases, be caught within the 

definition of ‘‘investment firm.’’ 

23The applicant provided information regarding 

MiFID II and the Markets in Financial Instruments 

Regulation (‘‘MiFIR’’), http://ec.europa.eu/

internal_market/securities/isd/mifid/index_en.htm, 

stating that these two proposals are part of the 

legislative package for the review of MiFID, and that 

the legislative process may be concluded with the 

adoption of the final political agreement by the end 

of 2013. The applicant further stated that an 

additional 18 to 24 months will be needed to adopt 

implementing measures, with the overall package to 

be applied by the end of 2015. 

24 78 FR 45343. 

25 78 FR 45343. 

26 78 FR 45343. 

27 78 FR 45343. The Commission’s substituted 

compliance program would generally be available 

for swap data repository reporting (‘‘SDR 

Reporting’’), as outlined in the Guidance, only if the 

Commission has direct access to all of the data 

elements that are reported to a foreign trade 

repository pursuant to the substituted compliance 

program. Thus, direct access to swap data is a 

threshold matter to be addressed in a comparability 

evaluation for SDR Reporting. Moreover, the 

Commission explains in the Guidance that, due to 

its technical nature, a comparability evaluation for 

SDR Reporting ‘‘will generally entail a detailed 

comparison and technical analysis.’’ A more 

particularized analysis will generally be necessary 

to determine whether data stored in a foreign trade 

repository provides for effective Commission use, in 

furtherance of the regulatory purposes of the DoddFrank Act. See 78 FR 45345. 

28A finding of comparability may not be possible 

for a number of reasons, including the fact that the 

foreign jurisdiction has not yet implemented or 

finalized particular requirements. 

RTS Articles 12 to 17 are subject to a 

phase-in period: 

• Timely Confirmation: Staggered 

phase-in according to product type. 

• Portfolio Reconciliation, 

Compression, and Dispute Resolution: 

Requirements operational for all market 

participants subject to them (different 

provisions apply to FC, NFC+ and 

NFC-) as of September 15, 2013. 

• Daily mark-to-market and mark-tomodel: Applies to FC and NFC+ as of 

March 15, 2013. 

In addition, as represented to the 

Commission by the applicant, swap 

activities in the EU are also governed by 

a number of regulatory requirements 

other than EMIR. 

Markets in Financial Instruments 

Directive (‘‘MiFID)’’:20 MiFID is a 

directive and in accordance with the 

Treaty on the Functioning of the 

European Union, all member states of 

the EU are legally bound to implement 

the provisions of MiFID by November 1, 

2007, by transposing them into their 

national laws. MiFID applies in 

particular to investment firms, which 

comprise any legal person whose 

regular occupation or business is the 

provision of one or more investment 

services to third parties and/or the 

performance of one or more investment 

activities on a professional basis. 

Investment services and activities 

means any of the services and activities 

listed in Section A of Annex I of MiFID 

relating to any of the instruments listed 

in Section C of Annex I of MiFID. 

Section C of Annex 1 refers explicitly to 

swaps as well as ‘‘other derivative 

financial instruments.’’ 

Due to the requirement that each EU 

member state transpose MiFID into its 

national law, the comparability 

determinations in this notice are based 

on the representations of the applicant 

to the Commission that (i) each member 

state of the EU where an SD or MSP 

would seek to rely on substituted 

compliance on the basis of the 

comparability of the MiFID standards 

has completed the process of 

transposing MiFID into its national 

law;21 (ii) such national laws have 

transposed MiFID without change in 

any aspect that is material for a 

comparability determination contained 

herein; and (iii) such transposed law is 

in full force and effect as of the time that 

any SD or MSP seeks to rely on a 

relevant comparability determination 

contained herein. The Commission 

notes that to the extent that any of the 

foregoing representations are incorrect, 

an affected comparability determination 

will not be valid.22

In addition to MiFID, the applicant 

noted that there are a number of 

proposed laws and regulations that, 

when implemented, would affect the 

regulation of SDs and MSPs in the EU.23

IV. Comparable and 

Comprehensiveness Standard 

The Commission’s comparability 

analysis will be based on a comparison 

of specific foreign requirements against 

the specific related CEA provisions and 

Commission regulations as categorized 

and described in the Guidance. As 

explained in the Guidance, within the 

framework of CEA section 2(i) and 

principles of international comity, the 

Commission may make a comparability 

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

basis of the foreign regime as a whole.24

In making its comparability 

determinations, the Commission may 

include conditions that take into 

account timing and other issues related 

to coordinating the implementation of 

reform efforts across jurisdictions.25

In evaluating whether a particular 

category of foreign regulatory 

requirement(s) is comparable and 

comprehensive to the corollary 

requirement(s) under the CEA and 

Commission regulations, the 

Commission will take into consideration 

all relevant factors, including, but not 

limited to: 

• The comprehensiveness of those 

requirement(s), 

• The scope and objectives of the 

relevant regulatory requirement(s), 

• The comprehensiveness of the 

foreign regulator’s supervisory 

compliance program, and 

• The home jurisdiction’s authority to 

support and enforce its oversight of the 

registrant.26

In making a comparability 

determination, the Commission takes an 

‘‘outcome-based’’ approach. An 

‘‘outcome-based’’ approach means that 

when evaluating whether a foreign 

jurisdiction’s regulatory requirements 

are comparable to, and as 

comprehensive as, the corollary areas of 

the CEA and Commission regulations, 

the Commission ultimately focuses on 

regulatory outcomes (i.e., the home 

jurisdiction’s requirements do not have 

to be identical).27 This approach 

recognizes that foreign regulatory 

systems differ and their approaches vary 

and may differ from how the 

Commission chose to address an issue, 

but that the foreign jurisdiction’s 

regulatory requirements nonetheless 

achieve the regulatory outcome sought 

to be achieved by a certain provision of 

the CEA or Commission regulation. 

In doing its comparability analysis, 

the Commission may determine that no 

comparability determination can be 

made28 and that the non-U.S. SD or nonU.S. MSP, U.S. bank that is an SD or 

MSP with respect to its foreign 

branches, or non-registrant, to the extent 


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29 78 FR 45343. 30As explained in the Guidance, such 

‘‘approaches used will vary depending on the 

circumstances relevant to each jurisdiction. One 

example would include coordinating with the 

foreign regulators in developing appropriate 

regulatory changes or new regulations, particularly 

where changes or new regulations already are being 

considered or proposed by the foreign regulators or 

legislative bodies. As another example, the 

Commission may, after consultation with the 

appropriate regulators and market participants, 

include in its substituted compliance determination 

a description of the means by which certain swaps 

market participants can achieve substituted 

compliance within the construct of the foreign 

regulatory regime. The identification of the means 

by which substituted compliance is achieved would 

be designed to address the regulatory objectives and 

outcomes of the relevant Dodd-Frank Act 

requirements in a manner that does not conflict 

with a foreign regulatory regime and reduces the 

likelihood of inconsistent regulatory obligations. 

For example, the Commission may specify that 

[SDs] and MSPs in the jurisdiction undertake 

certain recordkeeping and documentation for swap 

activities that otherwise is only addressed by the 

foreign regulatory regime with respect to financial 

activities generally. In addition, the substituted 

compliance determination may include provisions 

for summary compliance and risk reporting to the 

Commission to allow the Commission to monitor 

whether the regulatory outcomes are being 

achieved. By using these approaches, in the interest 

of comity, the Commission would seek to achieve 

its regulatory objectives with respect to the 

Commission’s registrants that are operating in 

foreign jurisdictions in a manner that works in 

harmony with the regulatory interests of those 

jurisdictions.’’ 78 FR 45343–44. 

31 ‘‘Swaps activities’’ is defined in Commission 

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

registrant, such registrant’s activities related to 

swaps and any product used to hedge such swaps, 

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

swaps or security-based swaps, debt or equity 

securities, foreign currency, physical commodities, 

and other derivatives.’’ The Commission’s 

regulations under Part 23 (17 CFR Part 23) are 

limited in scope to the swaps activities of SDs and 

MSPs. 

32No SD or MSP that is not legally required to 

comply with a law or regulation determined to be 

comparable may voluntarily comply with such law 

or regulation in lieu of compliance with the CEA 

and the relevant Commission regulation. Each SD 

or MSP that seeks to rely on a comparability 

determination is solely responsible for determining 

whether it is legally required to comply with the 

laws and regulations found comparable. Currently, 

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

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

applying for registration as an MSP to carefully 

consider whether the laws and regulations 

determined to be comparable herein are applicable 

to such entity. 

33The Commission has provided the relevant 

foreign regulator(s) with opportunities to review 

and correct the applicant’s description of such laws 

and regulations on which the Commission will base 

its comparability determination. The Commission 

relies on the accuracy and completeness of such 

review and any corrections received in making its 

comparability determinations. A comparability 

determination based on an inaccurate description of 

foreign laws and regulations may not be valid. 

34 78 FR 45345. 

35See 78 FR 45348–50. The Commission notes 

that registrants and other market participants are 

responsible for determining whether substituted 

compliance is available pursuant to the Guidance 

based on the comparability determination 

contained herein (including any conditions or 

exceptions), and its particular status and 

circumstances. 

36An MOU is one type of arrangement between 

or among regulators. Supervisory arrangements 

could include, as appropriate, cooperative 

arrangements that are memorialized and executed 

as addenda to existing MOUs or, for example, as 

independent bilateral arrangements, statements of 

intent, declarations, or letters. 

37 78 FR 45344. 

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

Commission regulation 23.606 require a registered 

SD or MSP to make all records required to be 

maintained in accordance with Commission 

regulation 1.31 available promptly upon request to, 

among others, representatives of the Commission. 

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

Guidance, the Commission states that it ‘‘reserves 

this right to access records held by registered [SDs] 

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

persons who may comply with the Dodd-Frank 

recordkeeping requirement through substituted 

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

45342 n. 461 (affirming the Commission’s authority 

under the CEA and its regulations to access books 

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

fundamental regulatory tool necessary to properly 

applicable under the Guidance, may be 

required to comply with the CEA and 

Commission regulations. 

The starting point in the 

Commission’s analysis is a 

consideration of the regulatory 

objectives of the foreign jurisdiction’s 

regulation of swaps and swap market 

participants. As stated in the Guidance, 

jurisdictions may not have swap 

specific regulations in some areas, and 

instead have regulatory or supervisory 

regimes that achieve comparable and 

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

general, entity-wide, or prudential, 

basis.29 In addition, portions of a foreign 

regulatory regime may have similar 

regulatory objectives, but the means by 

which these objectives are achieved 

with respect to swap market activities 

may not be clearly defined, or may not 

expressly include specific regulatory 

elements that the Commission 

concludes are critical to achieving the 

regulatory objectives or outcomes 

required under the CEA and the 

Commission’s regulations. In these 

circumstances, the Commission will 

work with the regulators and registrants 

in these jurisdictions to consider 

alternative approaches that may result 

in a determination that substituted 

compliance applies.30

Finally, the Commission generally 

will rely on an applicant’s description 

of the laws and regulations of the 

foreign jurisdiction in making its 

comparability determination. The 

Commission considers an application to 

be a representation by the applicant that 

the laws and regulations submitted are 

in full force and effect, that the 

description of such laws and regulations 

is accurate and complete, and that, 

unless otherwise noted, the scope of 

such laws and regulations encompasses 

the swaps activities31 of SDs and 

MSPs32 in the relevant jurisdictions. 33

Further, as stated in the Guidance, the 

Commission expects that an applicant 

would notify the Commission of any 

material changes to information 

submitted in support of a comparability 

determination (including, but not 

limited to, changes in the relevant 

supervisory or regulatory regime) as, 

depending on the nature of the change, 

the Commission’s comparability 

determination may no longer be valid.34

The Guidance provided a detailed 

discussion of the Commission’s policy 

regarding the availability of substituted 

compliance35 for the Business Conduct 

Requirements. 

V. Supervisory Arrangement 

In the Guidance, the Commission 

stated that, in connection with a 

determination that substituted 

compliance is appropriate, it would 

expect to enter into an appropriate 

memorandum of understanding 

(‘‘MOU’’) or similar arrangement36 with 

the relevant foreign regulator(s). 

Although existing arrangements would 

indicate a foreign regulator’s ability to 

cooperate and share information, ‘‘going 

forward, the Commission and relevant 

foreign supervisor(s) would need to 

establish supervisory MOUs or other 

arrangements that provide for 

information sharing and cooperation in 

the context of supervising [SDs] and 

MSPs.’’37

The Commission is in the process of 

developing its registration and 

supervision regime for provisionallyregistered SDs and MSPs. This new 

initiative includes setting forth 

supervisory arrangements with 

authorities that have joint jurisdiction 

over SDs and MSPs that are registered 

with the Commission and subject to 

U.S. law. Given the developing nature of 

the Commission’s regime and the fact 

that the Commission has not negotiated 

prior supervisory arrangements with 

certain authorities, the negotiation of 

supervisory arrangements presents a 

unique opportunity to develop close 

working relationships between and 

among authorities, as well as highlight 

any potential issues related to 

cooperation and information sharing. 

Accordingly, the Commission is 

negotiating such a supervisory 

arrangement with each applicable 

foreign regulator of an SD or MSP. The 

Commission expects that the 

arrangement will establish expectations 

for ongoing cooperation, address direct 

access to information,38 provide for 


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monitor and examine each registrant’s compliance 

with the CEA and the regulations adopted pursuant 

thereto’’). 

39The Commission retains its examination 

authority, both during the application process as 

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

See 78 FR 45342 (stating Commission policy that 

‘‘eligible entities may comply with a substituted 

compliance regime under certain circumstances, 

subject, however, to the Commission’s retention of 

its examination authority’’) and 45344 n. 471 

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

appropriate and necessary, conduct an on-site 

examination of the applicant’’). 

40 7 U.S.C. 6s(i). 

41The term ‘‘portfolio reconciliation’’ is defined 

in § 23.500(i) as any process by which the two 

parties to one or more swaps: (1) exchange the 

terms of all swaps in the swap portfolio between the 

counterparties; (2) exchange each counterparty’s 

valuation of each swap in the swap portfolio 

between the counterparties as of the close of 

business on the immediately preceding business 

day; and (3) resolve any discrepancy in material 

terms and valuations. 

notification upon the occurrence of 

specified events, memorialize 

understandings related to on-site 

visits,39 and include protections related 

to the use and confidentiality of nonpublic information shared pursuant to 

the arrangement. 

These arrangements will establish a 

roadmap for how authorities will 

consult, cooperate, and share 

information. As with any such 

arrangement, however, nothing in these 

arrangements will supersede domestic 

laws or resolve potential conflicts of 

law, such as the application of domestic 

secrecy or blocking laws to regulated 

entities. 

VI. Comparability Determination and 

Analysis 

The following section describes the 

requirements imposed by specific 

sections of the CEA and the 

Commission’s regulations for the 

Business Conduct Requirements in the 

‘‘risk mitigation and transparency’’ 

category that are the subject of this 

comparability determination and the 

Commission’s regulatory objectives with 

respect to such requirements. 

Immediately following a description of 

the requirement(s) and regulatory 

objective(s) of the specific Business 

Conduct Requirements that the 

requestor submitted for a comparability 

determination, the Commission 

provides a description of the foreign 

jurisdiction’s comparable laws, 

regulations, or rules and whether such 

laws, regulations, or rules meet the 

applicable regulatory objective. 

The Commission’s determinations in 

this regard and the discussion in this 

section are intended to inform the 

public of the Commission’s views 

regarding whether the foreign 

jurisdiction’s laws, regulations, or rules 

may be comparable to and as 

comprehensive as those requirements in 

the Dodd-Frank Act (and Commission 

regulations promulgated thereunder) 

and therefore, may form the basis of 

substituted compliance. In turn, the 

public (in the foreign jurisdiction, in the 

United States, and elsewhere) retains its 

ability to present facts and 

circumstances that would inform the 

determinations set forth in this release. 

As was stated in the Guidance, the 

Commission understands the complex 

and dynamic nature of the global swap 

market and the need to take an 

adaptable approach to cross-border 

issues, particularly as it continues to 

work closely with foreign regulators to 

address potential conflicts with respect 

to each country’s respective regulatory 

regime. In this regard, the Commission 

may review, modify, or expand the 

determinations herein in light of 

comments received and future 

developments. 

A. Portfolio Reconciliation and 

Compression 

CEA section 4s(i) directs the 

Commission to prescribe regulations for 

the timely and accurate processing and 

netting of all swaps entered into by SDs 

and MSPs. Accordingly, pursuant to 

CEA section 4s(i), the Commission 

adopted §§ 23.502 and 23.503, which 

require SDs and MSPs to perform 

portfolio reconciliation and 

compression, respectively, for all 

swaps.40

1. Portfolio Reconciliation (§ 23.502) 

Commission Requirement: Regulation 

23.502 provides standards for the timely 

and accurate confirmation, processing, 

and valuation of uncleared swaps by 

SDs and MSPs. The regulation requires 

SDs and MSPs to engage in portfolio 

reconciliation,41 which is a postexecution processing and risk 

management technique that is designed 

to: (i) identify and resolve discrepancies 

between the counterparties with regard 

to the terms of a swap after execution 

and during the life of the swap; and (ii) 

identify and resolve discrepancies 

between the counterparties regarding 

the valuation of the swap. 

Pursuant to Commission regulation 

23.502, for swap portfolios with other 

SDs/MSPs, an SD/MSP must agree in 

writing on the terms of reconciling the 

terms and valuations of each uncleared 

swap in the portfolio (which may be 

performed bilaterally or by a qualified 

third party), and must perform the 

reconciliation no less frequently than: 

• Each business day for portfolios of 

500 or more swaps; 

• Once each week for portfolios of 

more than 50 but fewer than 500 swaps; 

and 

• Quarterly for portfolios of no more 

than 50 swaps. 

Discrepancies in material terms must 

be resolved immediately; and SDs and 

MSPs must have policies and 

procedures to resolve discrepancies of 

10% or greater in valuations as soon as 

possible but no later than five business 

days, provided that the SD or MSP has 

policies and procedures for identifying 

how it will comply with variation 

margin requirements pending resolution 

of a valuation dispute. 

For swap portfolios with non-SDs/ 

MSPs, an SD/MSP must establish 

policies and procedures for engaging in 

portfolio reconciliation that include: 

• Agreement in writing on the terms 

for reconciling the terms and valuations 

of each uncleared swap in the portfolio 

(which may be performed bilaterally or 

by a qualified third party); 

• Portfolio reconciliation frequencies 

of quarterly for portfolios of more than 

100 swaps, and annually for portfolios 

of 100 or fewer swaps; and 

• Discrepancies in material terms and 

valuations of more than 10% must be 

subject to procedures for resolving such 

discrepancies in a timely fashion. 

An SD/MSP must report any 

valuation dispute exceeding 

$20,000,000 to the Commission and any 

applicable prudential regulator if not 

resolved within three business days 

(with respect to disputes between SDs/ 

fMSPs) or five business days (with any 

other counterparty). 

Regulatory Objective: The 

Commission’s portfolio reconciliation 

rule is designed to ensure accurate 

confirmation of a swap’s terms and to 

identify and resolve any discrepancies 

between counterparties regarding the 

valuation of the swap. Given that 

arriving at a daily valuation is one of the 

building blocks for the margin 

regulations and is essential for the 

mitigation of risk posed by swaps, the 

regulations are aimed at ensuring that 

valuation disputes are resolved in a 

timely manner. Disputes related to 

confirming the terms of a swap, as well 

as swap valuation disputes impacting 

margin payments, have long been 

recognized as a significant problem in 

the OTC derivatives market, and 

portfolio reconciliation is widely 

recognized as an effective means of 

identifying and resolving these disputes. 

By identifying and managing 

mismatches in key economic terms and 

valuation for individual transactions 

across an entire portfolio, the 

regulations are aimed at achieving a 

process in which overall risk can be 


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42See Article 13 of the EMIR Regulatory 

Technical Standards. In addition, Article 13(2) 

permits the reconciliation to be performed by a 

third-party, which corresponds to Commission 

regulation 23.502(a)(2) and (b)(2). 

43See Article 13(2) of the EMIR Regulatory 

Technical Standards. 

44See Article 13(3)(a) of the EMIR Regulatory 

Technical Standards. 

45See Article 13(3)(b) of the EMIR Regulatory 

Technical Standards. 

46See Article 15(2) of the EMIR Regulatory 

Technical Standards. 

47For example, the reduced transaction count 

may decrease operational risk as there are fewer 

trades to maintain, process, and settle. 

48See Confirmation, Portfolio Reconciliation, 

Portfolio Compression, and Swap Trading 

Relationship Requirements for Swap Dealers and 

Major Swap Participants, 77 FR 55904, 55932 (Sept. 

11, 2012). 

identified and reduced. The frequency 

of reconciliation of material terms and 

valuations of each swap required by the 

regulations will ensure the risk-reducing 

benefits of reconciliation by presenting 

a consolidated view of counterparty 

exposure down to the transaction level. 

The frequency with which portfolio 

reconciliation must be performed is a 

key component of this regulation. 

Comparable EU Law and Regulations: 

The applicant has represented to the 

Commission that the following 

provisions of law and regulations 

applicable in the EU are in full force 

and effect in the EU, and comparable to 

and as comprehensive as section 4s(i) of 

the CEA and Commission regulation 

23.502. 

• OTC RTS Art. 13.1: FCs and NFCs 

must agree with each of their 

counterparties in writing or other 

equivalent electronic means on the 

terms on which portfolios of uncleared 

OTC derivative contracts shall be 

reconciled. Such agreement must be 

reached before entering into the OTC 

derivative contract. 

• OTC RTS Art. 13.2: Portfolio 

reconciliation must be performed by the 

counterparties to the OTC derivative 

contracts with each other, or by a 

qualified third party duly mandated to 

this effect by a counterparty. 

• The portfolio reconciliation must 

cover key trade terms that identify each 

particular OTC derivative contract and 

must include at least the valuation 

attributed to each contract in 

accordance with the mark-to-market/ 

mark-to-model obligation. 

• In order to identify at an early stage 

any discrepancy in a material term of 

the OTC derivative contract, including 

its valuation, the portfolio reconciliation 

must be performed within the following 

timeframes. For portfolios between or 

among FCs or NFCs+, each business day 

when the counterparties have 500 or 

more OTC derivative contracts 

outstanding with each other; once per 

week when the counterparties have 

between 51 and 499 OTC derivative 

contracts outstanding with each other at 

any time during the week; and once per 

quarter when the counterparties have 50 

or less OTC derivative contracts 

outstanding with each other at any time 

during the quarter. For portfolios where 

at least one of the counterparties is an 

NFC-, once per quarter when the 

counterparties have more than 100 OTC 

derivative contracts outstanding with 

each other at any time during the 

quarter; and once per year when the 

counterparties have 100 or less OTC 

derivative contracts outstanding with 

each other. 

Commission Determination: Pursuant 

to the foregoing standards under EMIR, 

FCs and NFCs must agree in writing 

with each of their OTC derivatives 

counterparties on the terms on which 

portfolios will be reconciled,42 which 

corresponds to the requirement in 

Commission regulation 23.502(a) and (b) 

that SDs and MSPs agree in writing with 

each counterparty (financial and nonfinancial) on the terms for conducting 

portfolio reconciliation. 

The EMIR standards require portfolio 

reconciliation covering key trade terms 

of each OTC derivative contract, 

including at least the valuation of each 

contract,43 which corresponds to the 

requirements under Commission 

regulation 23.502 that discrepancies in 

material terms and valuations be 

resolved. 

Frequency of reconciliation required 

under the EMIR standards for FCs and 

NFCs+ is daily when the number of 

outstanding OTC derivative contracts 

between counterparties is 500 or more, 

weekly when the number of outstanding 

OTC derivative contracts between 

counterparties is greater than 50 and 

less than 500, and quarterly when the 

number of OTC derivative contracts 

between counterparties is 50 or less,44

which corresponds with the frequency 

required of SDs and MSPs outlined 

above with respect to portfolios with 

other SDs and MSPs. EMIR requires 

reconciliation with NFCs- less 

frequently; quarterly for portfolios of 

more than 100 transactions and 

annually otherwise45—which 

corresponds with the requirement of 

Commission regulation 23.502(b)(3). 

The EMIR standards require FCs to 

report to the relevant competent 

authority any disputes between 

counterparties relating to an OTC 

derivative contract, its valuation or the 

exchange of collateral for an amount or 

a value higher than Ö15 million and 

outstanding for at least 15 business 

days,46 while Commission regulation 

23.502(c) has a similar reporting 

requirement for disputes of at least $20 

million outstanding from three to five 

days, depending on counterparty type. 

The EMIR standards, similar to 

§ 23.502(a)(5), require FCs and NFCs to 

have detailed procedures and processes 

for resolving disputes related to 

valuation. 

Generally identical in intent to 

§ 23.502, the EMIR portfolio 

reconciliation standards are designed to 

ensure that valuation disputes are 

recognized and resolved in a timely 

manner. This regular reconciliation will 

assist in identifying and resolving 

discrepancies, which in turn will aid 

the entities in their collateralization and 

risk management. 

Based on the foregoing and the 

representations of the applicant, the 

Commission finds that the portfolio 

reconciliation requirements of the EMIR 

standards submitted by the applicant 

are comparable to and as comprehensive 

as the portfolio reconciliation 

requirements of Commission regulation 

23.502. 

2. Portfolio Compression (§ 23.503) 

Commission Requirement: Portfolio 

compression is a post-trade processing 

and netting mechanism whereby 

substantially similar transactions among 

two or more counterparties are 

terminated and replaced with a smaller 

number of transactions of decreased 

notional value. Portfolio compression is 

intended to ensure timely and accurate 

processing and netting of swaps,47 and 

is widely acknowledged as an effective 

risk mitigation tool.48

Pursuant to § 23.503, an SD/MSP 

must establish policies and procedures 

for terminating fully offsetting 

uncleared swaps, when appropriate; for 

periodically participating in bilateral 

and multilateral compression exercises 

for uncleared swaps with other SDs/

MSPs, when appropriate; and for 

engaging in such exercises for uncleared 

swaps with non-SDs/MSPs upon 

request. 

Regulatory Objective: The purpose of 

portfolio compression is to reduce the 

operational risk, cost, and inefficiency 

of maintaining unnecessary transactions 

on the counterparties’ books. 

Comparable EU Law and Regulations: 

The applicant has represented to the 

Commission that the following 

provisions of law and regulations 

applicable in the EU are in full force 

and effect in the EU, and comparable to 

and as comprehensive as section 4s(i) of 

the CEA and Commission regulation 

23.503: 


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49See Article 14 of the EMIR Regulatory 

Technical Standards. 

50See id. 51 7 U.S.C. 6s(i). 

52Pursuant to § 23.500(l), ‘‘swap transaction’’ is 

defined to mean ‘‘any event that results in a new 

swap or in a change to the terms of a swap, 

including execution, termination, assignment, 

novation, exchange, transfer, amendment, 

conveyance, or extinguishing of rights or 

obligations of a swap.’’ 

53See Confirmation, Portfolio Reconciliation, 

Portfolio Compression, and Swap Trading 

Relationship Documentation Requirements for 

Swap Dealers and Major Swap Participants, 12 CFR 

Part 23, 77 FR 55904 at 55917 (September 11, 2012) 

(Final Rule). 

• OTC RTS Art. 14: FCs and NFCs 

with 500 or more uncleared OTC 

derivative contracts outstanding with a 

counterparty must have procedures to 

regularly, and at least twice a year, 

analyse the possibility of conducting a 

portfolio compression exercise in order 

to reduce their counterparty credit risk 

and engage in such a portfolio 

compression exercise; and 

• FCs and NFCs must ensure that 

they are able to provide a reasonable 

and valid explanation to the relevant 

competent authority for concluding that 

a portfolio compression exercise is not 

appropriate. 

Commission Determination: The 

EMIR standards specified above require 

FCs and NFCs with 500 or more OTC 

uncleared derivative contracts 

outstanding with a counterparty to have 

procedures to regularly, and at least 

twice a year, analyze the possibility of 

conducting a portfolio compression 

exercise in order to reduce their 

counterparty credit risk and engage in 

such a portfolio compression exercise,49

which corresponds to the requirement 

under § 23.503 that SDs and MSPs 

establish procedures for periodically 

engaging in compression exercises with 

their counterparties. 

Under the EMIR standards, FCs and 

NFCs also must ensure that they are able 

to provide a reasonable and valid 

explanation to the relevant competent 

authority for concluding that a portfolio 

compression exercise is not 

appropriate.50 This requirement 

corresponds directly to regulation 

23.503 that SDs and MSPs engage in 

compression exercises with their 

counterparties ‘‘when appropriate,’’ 

which would necessarily require such 

registrants to demonstrate to the 

Commission why a compression 

opportunity was not appropriate. 

Generally identical in intent to 

§ 23.503, the EMIR portfolio 

compression standards are designed to 

reduce the operational risk, cost, and 

inefficiency of maintaining unnecessary 

transactions on the counterparties’ 

books. 

Based on the foregoing and the 

representations of the applicant, the 

Commission finds that the EMIR 

portfolio compression standards 

submitted by the applicant are 

comparable to and as comprehensive as 

the portfolio compression requirements 

of Commission regulation 23.503. 

B. Trade Confirmation (§ 23.501) 

Commission Requirement: Section 

4s(i) of the CEA51 requires that each SD 

and MSP comply with the 

Commission’s regulations prescribing 

timely and accurate confirmation of 

swaps. 

Subject to an implementation period, 

§ 23.501 requires confirmation of swap 

transactions (which includes execution, 

termination, assignment, novation, 

exchange, transfer, amendment, 

conveyance, or extinguishing of rights 

or obligations of a swap) among SDs and 

MSPs by the end of the first business 

day following the day of execution. 

Subject to an implementation period, 

with respect to swaps with non-SDs/

MSPs, SDs and MSPs are required to 

establish policies and procedures 

reasonably designed to ensure 

confirmation with non-SDs and nonMSPs by the end of the first business 

day following the day of execution if the 

counterparty is a financial entity or the 

end of the second business day if the 

counterparty is a non-financial entity. 

SDs and MSPs are also required to 

send an acknowledgement of a swap 

transaction to a counterparty that is not 

an SD/MSP by the end of the first 

business day following the day of 

execution, and are required to provide 

a draft confirmation to non-SDs/MSPs 

prior to execution of a swap, if 

requested. 

The day of execution is determined by 

reference to the business days of the 

counterparties and whether the swap 

was executed after 4:00 p.m. in the 

place of at least one of the 

counterparties. 

Commission regulation 23.501 does 

not apply to swaps executed on a swap 

execution facility (‘‘SEF’’) or designated 

contract market (‘‘DCM’’) if the SEF/

DCM provides for confirmation of swap 

transactions at the same time as 

execution. It also does not apply to 

swap transactions that are submitted for 

clearing by a derivatives clearing 

organization (‘‘DCO’’) within the time 

required for confirmation and the DCO 

provides confirmation at the same time 

the swap transaction is accepted for 

clearing. 

Regulatory Objective: Timely and 

accurate confirmation of swaps— 

together with portfolio reconciliation 

and compression—are important posttrade processing mechanisms for 

reducing risks and improving 

operational efficiency. Through 

§ 23.501, the Commission seeks to 

ensure that both parties to a trade are 

informed of and agree upon all terms of 

a swap transaction52 in writing in a 

timely manner following execution, 

thereby promoting post-trade 

processing, netting, and valuation of the 

swap for risk management purposes. 

The correct calculation of cash flows, 

margin requirements, discharge of 

settlement obligations, and accurate 

measurement of counterparty credit 

exposure are all dependent on timely 

and accurate confirmation.53

Comparable EU Law and Regulations: 

The applicant has represented to the 

Commission that the following 

provisions of law and regulations 

applicable in the EU are in full force 

and effect in the EU, and comparable to 

and as comprehensive as section 4s(i) of 

the CEA and Commission regulation 

23.501. 

OTC RTS Art 12.1: Subject to an 

implementation period, FCs and NFCs+ 

must have in place procedures to ensure 

that uncleared OTC derivatives 

transactions between FCs and NFCs+ 

are confirmed, where available via 

electronic means, as soon as possible 

and at the latest by the end of the next 

business day following the date of 

execution. 

OTC RTS Art. 12.2: Subject to an 

implementation period, FCs and NFCs+ 

must have in place procedures to ensure 

that non-centrally cleared OTC 

derivatives transactions with non- FCs/ 

NFCs+ are confirmed, where available 

via electronic means, as soon as possible 

and at the latest by the end of the 

second business day following the date 

of execution. 

OTC RTS Art. 12.3: For transactions 

concluded after 4:00 p.m. local time, or 

with a counterparty located in a 

different time zone which does not 

allow confirmation by the set deadline, 

the confirmation must take place as 

soon as possible and, at the latest, one 

business day following the deadline set 

out above. 

OTC RTS Art. 12.4: FCs must 

establish the necessary procedure to 

report on a monthly basis to the relevant 

competent authority the number of 

unconfirmed OTC derivative 

transactions referred to in OTC RTS Art. 

12.1—12.3 that have been outstanding 

for more than five business days. 


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54See Article 12 of the EMIR Regulatory 

Technical Standards. 

55See id. 56See 7 U.S.C. 6s(i). 

57Annex II of MiFID. 

58Article 24 MiFID. 

59Article 19 MiFID and 28 to 34 of MiFID L2D. 

60Article 19 (7) MiFID. 

61Article 19 (3) MiFID and Articles 29–33 MiFID 

L2D. 

62Article 19 (8) MiFID and Articles 40–43 of 

MiFID L2D. 

63Article 51 MiFID L2D and Articles 7–8 and 

Annex I, table I of MiFID L2R. 

64EMIR Art. 11 and OTC RTS Art 15. 

Commission Determination: Pursuant 

to the EMIR standards specified above, 

and subject to a phase-in period, OTC 

derivative contracts entered into 

between FCs or NFCs+ must be 

confirmed as soon as possible and at the 

latest by the end of the next business 

day following the date of execution,54

which corresponds to Commission 

regulation 23.501(a)(1) and (3)(i), 

requiring confirmation with other SDs, 

MSPs, and financial entities by the end 

of the first business day following the 

day of execution. 

For OTC derivative contracts with all 

other NFCs, the EMIR standards require 

confirmation as soon as possible and, at 

the latest, by the end of the second 

business day following the date of 

execution.55 This approach corresponds 

to the Commission regulation 

23.501(a)(3)(ii), which requires written 

policies and procedures reasonably 

designed to ensure confirmation with 

non-SDs, non-MSPs, or non-financial 

entities by the end of the second 

business day following the day of 

execution. 

As with Commission regulation 

23.501(a)(5), which provides for a next 

business day adjustment for transactions 

executed after 4:00 p.m. or on a nonbusiness day, the EMIR standards 

provide that transactions concluded 

after 4:00 p.m. local time, or with a 

counterparty located in a different time 

zone that does not allow confirmation 

by the set deadline, the confirmation 

must take place as soon as possible and, 

at the latest, one business day following 

the otherwise applicable deadline. 

Generally identical in intent to 

§ 23.501, the EMIR trade confirmation 

requirements are designed to ensure that 

both parties to a trade are informed of, 

and agree upon, all terms of a swap 

transaction in writing in a timely 

manner following execution, thereby 

promoting post-trade processing, 

netting, and valuation of the swap for 

risk management purposes. 

Based on the foregoing and the 

representations of the applicant, the 

Commission finds that the trade 

confirmation requirements of the EMIR 

standards are comparable to and as 

comprehensive as the swap transaction 

confirmation requirements of 

Commission regulation 23.501. 

C. Swap Trading Relationship 

Documentation (§ 23.504) 

Commission Requirement: Section 

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

MSP to conform to Commission 

standards for the timely and accurate 

confirmation, processing, netting, 

documentation, and valuation of 

swaps.56 Pursuant to this requirement, 

the Commission adopted § 23.504. 

Pursuant to § 23.504(a), SDs and 

MSPs must have policies and 

procedures reasonably designed to 

ensure that the SD or MSP enters into 

swap trading relationship 

documentation with each counterparty 

prior to executing any swap with such 

counterparty. Such requirement does 

not apply to cleared swaps. 

Pursuant to § 23.504(b), SDs and 

MSPs must, at a minimum, document 

terms relating to: 

• Payment obligations; 

• Netting of payments; 

• Events of default or other 

termination events; 

• Netting of obligations upon 

termination; 

• Transfer of rights/obligations; 

• Governing law; 

• Valuation—must be able to value 

swaps in a predictable and objective 

manner—complete and independently 

verifiable methodology for valuation; 

• Dispute resolution procedures; and 

• Credit support arrangements with 

initial/variation margin at least as high 

as set for SD/MSPs or prudential 

regulator (identifying haircuts and class 

of eligible assets). 

Regulatory Objective: Through 

Commission regulation 23.504, the 

Commission seeks to reduce the legal, 

operational, counterparty credit, and 

market risk that can arise from 

undocumented swaps or undocumented 

terms of swaps. Inadequate 

documentation of swap transactions is 

more likely to result in collateral and 

legal disputes, thereby exposing 

counterparties to significant 

counterparty credit risk. 

In particular, documenting 

agreements regarding valuation is 

critical because, as the Commission has 

noted, the ability to determine 

definitively the value of a swap at any 

given time lies at the center of many of 

the OTC derivatives market reforms 

contained in the Dodd-Frank Act and is 

a cornerstone of risk management. With 

respect to other SDs/MSPs and financial 

entities, or upon request of any other 

counterparty, the regulation requires 

agreement on the process (including 

alternatives and dispute resolution 

procedures) for determining the value of 

each swap for the duration of such swap 

for purposes of complying with the 

Commission’s margin and risk 

management requirements, with such 

valuations based on objective criteria to 

the extent practicable. 

Comparable EU Law and Regulations: 

The applicant has represented to the 

Commission that the following 

provisions of law and regulations 

applicable in the EU are in full force 

and effect in the EU, and comparable to 

and as comprehensive as section 4s(i) of 

the CEA and Commission regulation 

23.504. 

MiFID requires counterparties to be 

classified as retail clients, professional 

clients,57 and eligible counterparties,58

and corresponding different conduct of 

business rules apply.59 Investment firms 

have to correctly categorize clients and 

notify those clients of their 

classification; furthermore, investment 

firms should be able to demonstrate the 

correctness of the classification. 

Firms have to conclude agreements 

with retail and professional clients 

setting out the respective rights and 

obligations and any other terms for the 

provision of the services.60 Ex-ante 

information has to be provided to 

clients on the services provided, the 

risks, and the safeguarding of their 

assets.61 Adequate ex-post reports also 

have to be provided.62 Irrespective of 

the classification of clients, specific 

record-keeping obligations regulate the 

recording of client orders and 

transactions.63

With respect to dispute resolution, 

when concluding OTC derivative 

contracts with each other, FCs and NFCs 

must have agreed detailed procedures 

and processes in relation to: (a) the 

identification, recording, and 

monitoring of disputes relating to the 

recognition or valuation of the contract 

and to the exchange of collateral 

between counterparties, and (b) the 

resolution of disputes in a timely 

manner with a specific process for 

handling those disputes that are not 

resolved within five business days. 

Those procedures must at least record 

the length of time for which the dispute 

remains outstanding, the counterparty, 

and the amount which is disputed.64

Commission Determination: The 

EMIR standards specified above require 

OTC derivative contracts entered into 

between FCs or NFCs to be confirmed in 


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65See Article 12 of the EMIR Regulatory 

Technical Standards. 

66See Article 11(2) of EMIR. See also Article 16 

of the EMIR Regulatory Technical Standards 

(describing the market conditions that prevent 

marking-to-market) and Article 17 of the EMIR 

Regulatory Technical Standards (describing the 

criteria for using marking-to-model). 

67See Commission regulation 23.504(a)(2), 17 

CFR 23.504(c)(2). 

68See § 23.504(b)(1), (3), (5), and (6). 

writing,65 which corresponds to the 

requirements of Commission regulation 

23.504(b)(2). 

Pursuant to EMIR Article 11, FCs and 

NFCs+ are required to value outstanding 

OTC derivatives contracts on a mark-tomarket basis daily, or where market 

conditions determine otherwise, a 

‘‘reliable and prudent marking to 

model’’ may be used.66 This 

corresponds with Commission 

regulation 23.504(b)(4)(i), which 

requires SDs and MSPs to engage in 

daily valuation with other SDs and 

MSPs, and financial entities, but allows 

such procedures to be included in 

documentation with NFCs to the extent 

such counterparties request them. 

Under the EMIR standards, when 

concluding OTC derivative contracts 

with each other, counterparties must 

have agreed detailed procedures and 

processes in relation to the 

identification, recording, and 

monitoring of disputes relating to the 

recognition or valuation of the contracts 

and to the exchange of collateral 

between counterparties and in relation 

to the resolution of disputes in a timely 

manner, including a specific process for 

handling disputes that are not resolved 

within five business days. These aspects 

of the EMIR standards correspond to the 

valuation documentation requirements 

under Commission regulation 

23.504(b)(4), which also require use of 

market transactions for valuations to the 

extent practicable, or other objective 

criteria, and an agreement on detailed 

processes for valuation dispute 

resolution for purposes of complying 

with margin requirements. 

Generally identical in intent to 

§ 23.504(b)(2) and (4), the EMIR 

confirmation and valuation 

documentation requirements are 

designed to reduce the legal, 

operational, counterparty credit, and 

market risk that can arise from 

undocumented transactions or terms, 

reducing the risk of collateral and legal 

disputes, and exposure of counterparties 

to significant counterparty credit risk. 

Based on the foregoing and the 

representations of the applicant, the 

Commission finds the confirmation and 

valuation documentation requirements 

of the EMIR standards specified above 

are comparable to and as comprehensive 

as the swap trading relationship 

documentation requirements of 

Commission regulations § 23.504(b)(2) 

and (4). 

For the avoidance of doubt the 

Commission notes that the foregoing 

comparability determination only 

applies with regard to two provisions of 

§ 23.504 (i.e., § 23.504(b)(2) and (4)). No 

comparability finding is made regarding 

the other provisions of § 23.504, namely 

§ 23.504(a)(2) and (c)(2), that SDs and 

MSPs establish policies and procedures, 

approved in writing by senior 

management of the SD or MSP, 

reasonably designed to ensure that they 

have entered into swap trading 

relationship documentation with each 

counterparty prior to or 

contemporaneously with entering into a 

swap transaction with such 

counterparty.67

Moreover, the foregoing comparability 

determination does not extend to the 

requirement that such documentation 

include terms addressing payment 

obligations, netting of payments, events 

of default or other termination events, 

calculation and netting of obligations 

upon termination, transfer of rights and 

obligations, governing law, dispute 

resolution, and credit support 

arrangements, as well as notice of the 

status of the counterparty under the 

orderly liquidation procedures of Title II 

of the Dodd-Frank Act, and the effect of 

clearing on swaps executed 

bilaterally.68 Nor does this 

determination relieve an SD or MSP 

from the documentation audit and 

recordkeeping requirements under 

§ 23.504(c) and (d). 

D. Daily Trading Records (§ 23.202) 

Commission Requirement: Section 

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

regulation 23.202 generally require that 

SDs and MSPs retain daily trading 

records for swaps and related cash and 

forward transactions, including: 

• Documents on which transaction 

information is originally recorded; 

• All information necessary to 

conduct a comprehensive and accurate 

trade reconstruction; 

• Pre-execution trade information 

including records of all oral and written 

communications concerning quotes, 

solicitations, bids, offers, instructions, 

trading, and prices that lead to the 

execution of a swap or related cash and 

forward transactions, whether 

communicated by phone, fax, instant 

messaging, chat rooms, email, mobile 

device, or other digital or electronic 

media; 

• Reliable timing date for the 

initiation of a trade; 

• A record of the time, to the nearest 

minute using Coordinated Universal 

Time (UTC), of each quotation provided 

or received prior to trade execution; 

• Execution trade information 

including the terms of each swap and 

related cash or forward transaction, 

terms regarding payment or settlement, 

initial and variation margin 

requirements, option premiums, and 

other cash flows; 

• The trade ticket for each swap and 

related cash or forward transaction; 

• The date and time of execution of 

each swap and related cash or forward 

transaction to the nearest minute using 

UTC; 

• The identity of the counterparty 

and the date and title of the agreement 

to which each swap is subject, including 

any swap trading relationship 

documentation and credit support 

arrangements; 

• The product name and identifier, 

the price at which the swap was 

executed, and the fees, commissions 

and other expenses applicable; 

• Post-execution trade information 

including records of confirmation, 

termination, novation, amendment, 

assignment, netting, compression, 

reconciliation, valuation, margining, 

collateralization, and central clearing; 

• The time of confirmation to the 

nearest minute using UTC; 

• Ledgers of payments and interest 

received, moneys borrowed and loaned, 

daily swap valuations, and daily 

calculation of current and potential 

future exposure for each counterparty; 

• Daily calculation of initial and 

variation margin requirements; 

• Daily calculation of the value of 

collateral, including haircuts; 

• Transfers of collateral, including 

substitutions, and the types of collateral 

transferred; and 

• Credits and debits for each 

counterparty’s account. 

Daily trading records must be 

maintained in a form and manner 

identifiable and searchable by 

transaction and counterparty, and 

records of swaps must be maintained for 

the duration of the swap plus five years, 

and voice recordings for one year. 

Records must be ‘‘readily accessible’’ for 

the first two years of the five year 

retention period (consistent with § 1.31). 

Regulatory Objective: Through 

§ 23.202, the Commission seeks to 

ensure that an SD’s or MSP’s records 

include all information necessary to 

conduct a comprehensive and accurate 

trade reconstruction for each swap, 

which necessarily requires the records 

to be identifiable by transaction and 


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69 In the EU’s request for a comparability 

determination proposed regulations concerning the 

recording of oral communications were submitted. 

These requirements are currently under negotiation. 

The Commission may reconsider the EU’s request 

when and if the proposal is enacted. 

70Unless the records required by MiFID are 

available to the Commission and any U.S. 

prudential regulator under the foreign legal regime, 

it would be impossible to meet the regulatory 

objective of § 23.202. As stated in the Guidance, the 

ability to rely on a substituted compliance regime 

is dependent on direct access to the books and 

records of a registrant. This is the case with respect 

to any Transaction-Level Requirement, and not only 

the daily trading records required by § 23.202. See 

78 FR 45344–45. 

counterparty. Complete and accurate 

trade reconstruction is critical for both 

regulatory oversight and investigations 

of illegal activity pursuant to the 

Commission’s enforcement authority. 

The Commission believes that a 

comprehensive and accurate trade 

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

Comparable EU Law and Regulations: 

The applicant has represented to the 

Commission that the following 

provisions of law and regulations 

applicable in the EU are in full force 

and effect in the EU, and comparable to 

and as comprehensive as section 4s(g) of 

the CEA and Commission regulation 

23.202. 

MiFID Article 13.6 and MiFID L2D 

Articles 5.1.f and 51: Firms are required 

to maintain records of all services and 

transactions undertaken by the firm that 

are sufficient to enable regulator 

authorities to monitor compliance with 

MiFID and to ascertain whether the firm 

has complied with all obligations with 

respect to clients or potential clients. 

Firms are required to keep detailed 

records in relation to every client order 

and decision to deal, and every client 

order executed or transmitted. 

All required records must be retained 

in a medium available for future 

reference by the regulator, and in a 

form/manner that: 

• Allows the regulator to access them 

readily and reconstitute each key stage 

of processing each transaction; 

• Allows corrections or other 

amendments, and the contents of the 

records prior to such corrections or 

amendments, to be easily ascertained; 

and 

• Ensures that records are not 

manipulated or altered. 

MiFID Article 25(2): Firms must keep 

at the disposal of the regulator, for at 

least five years, the relevant data 

relating to all transactions in financial 

instruments which they have carried 

out, whether on their own account or on 

behalf of a client. 

MiFID L2R Articles 9 to 16: Requires 

transaction reporting in order to provide 

the competent authorities with the 

necessary information to conduct proper 

market surveillance. 

Investment firms are required to 

report details of all executed 

transactions in any financial 

instruments admitted to trading on a 

Regulated Market to the competent 

authority as quickly as possible and no 

later than the close of the following 

working day. 

The content of the transaction report 

is specified in L2 measures (MiFID L2R 

Article 13). 

The reporting obligation lies with 

investment firms. In a case where all the 

required information with respect to 

derivatives transactions has been 

transmitted to a TR that transmits this 

information onwards to the competent 

authority the obligation on the 

investment firm to report will be 

waived. 

Commission Determination: The 

Commission finds that compliance with 

MiFID would enable the relevant 

competent authority to conduct a 

comprehensive and accurate trade 

reconstruction for each swap, which the 

Commission finds generally meets the 

regulatory objective of § 23.202. 

However, the request did not provide 

any basis on which the Commission 

could determine that MiFID or EMIR are 

comparable to and as comprehensive as 

§ 23.202(a)(1) or regulation 23.202(b)(1), 

which require records of oral 

communications to be maintained for 

swap transactions and related cash and 

forward transactions, respectively, 

including telephone, voicemail, and 

mobile device recordings.69

Based on the foregoing and the 

representations of the applicant, the 

Commission hereby determines that the 

daily trading records requirements of 

MiFID are comparable to and as 

comprehensive as § 23.202, excepting 

§ 23.202(a)(1) and (b)(1). This 

determination is limited to the content 

of the recordkeeping requirements of 

§ 23.202 (excepting subsections (a)(1) 

and (b)(1)) and does not extend to the 

requirement that the Commission and 

any U.S. prudential regulator of an SD 

or MSP have direct access to such 

records.70

Issued in Washington, DC, on December 

20, 2013, by the Commission. 

Christopher J. Kirkpatrick, 

Deputy Secretary of the Commission. 

Appendices to Comparability 

Determination for the European Union: 

Certain Transaction-Level 

Requirements 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Gensler and 

Commissioners Chilton and Wetjen voted in 

the affirmative. Commissioner O’Malia voted 

in the negative. 

Appendix 2—Joint Statement of 

Chairman Gary Gensler and 

Commissioners Bart Chilton and Mark 

Wetjen 

We support the Commission’s approval of 

broad comparability determinations that will 

be used for substituted compliance purposes. 

For each of the six jurisdictions that has 

registered swap dealers, we carefully 

reviewed each regulatory provision of the 

foreign jurisdictions submitted to us and 

compared the provision’s intended outcome 

to the Commission’s own regulatory 

objectives. The resulting comparability 

determinations for entity-level requirements 

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

regulations in their home jurisdiction as a 

substitute for compliance with the relevant 

Commission regulations. 

These determinations reflect the 

Commission’s commitment to coordinating 

our efforts to bring transparency to the swaps 

market and reduce its risks to the public. The 

comparability findings for the entity-level 

requirements are a testament to the 

comparability of these regulatory systems as 

we work together in building a strong 

international regulatory framework. 

In addition, we are pleased that the 

Commission was able to find comparability 

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

and Japan. 

The Commission attained this benchmark 

by working cooperatively with authorities in 

Australia, Canada, the European Union, Hong 

Kong, Japan, and Switzerland to reach 

mutual agreement. The Commission looks 

forward to continuing to collaborate with 

both foreign authorities and market 

participants to build on this progress in the 

months and years ahead. 

Appendix 3—Statement of Dissent by 

Commissioner Scott D. O’Malia 

I respectfully dissent from the Commodity 

Futures Trading Commission’s 

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

Comparability Determinations for Certain 

Requirements under the laws of Australia, 

Canada, the European Union, Hong Kong, 

Japan, and Switzerland (collectively, 

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

comparability determinations that the 

Commission has made, moving forward, the 

Commission must collaborate with foreign 

regulators to harmonize our respective 

regimes consistent with the G–20 reforms. 


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Federal Register / Vol. 78, No. 249 / Friday, December 27, 2013 / Notices 78889 

1 Interpretive Guidance and Policy Statement 

Regarding Compliance with Certain Swap 

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

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

SpeechesTestimony/omaliastatement071213b. 

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

4Title VII of the Dodd-Frank Wall Street Reform 

and Consumer Protection Act, Public Law 111–203, 

124 Stat. 1376 (2010). 

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

pr6678–13. 

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

newsroom/documents/file/odrgreport.pdf. The 

ODRG agreed to six understandings. Understanding 

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

approach should form the basis of final assessments 

regarding equivalence or substituted compliance.’’ 

7The Commission made a positive comparability 

determination for Commission regulations 

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

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

(b)(6). 

8 Yen-denominated interest rate swaps are subject 

to the mandatory clearing requirement in both the 

U.S. and Japan. 9Exemptive Order Regarding Compliance With 

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

2013). 10http://www.cftc.gov/PressRoom/

SpeechesTestimony/opaomalia-29. 11http://www.cftc.gov/PressRoom/

SpeechesTestimony/omaliastatement071213b. 

However, I cannot support the Notices 

because they: (1) are based on the legally 

unsound cross-border guidance 

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

substituted compliance process; and (3) fail 

to provide a clear path moving forward. If the 

Commission’s objective for substituted 

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

regulatory gaps between our regulatory 

framework and foreign jurisdictions, then I 

believe that the Commission has successfully 

achieved its goal today. 

Determinations Based on Legally 

Unsound Guidance 

As I previously stated in my dissent, 

the Guidance fails to articulate a valid 

statutory foundation for its overbroad 

scope and inconsistently applies the 

statute to different activities.2 Section 

2(i) of the Commodity Exchange Act 

(‘‘CEA’’) states that the Commission 

does not have jurisdiction over foreign 

activities unless ‘‘those activities have a 

direct and significant connection with 

activities in, or effect on, commerce of 

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

Commission never properly articulated 

how and when this limiting standard on 

the Commission’s extraterritorial reach 

is met, which would trigger the 

application of Title VII of the DoddFrank Act 4 and any Commission 

regulations promulgated thereunder to 

swap activities that are outside of the 

United States. Given this statutorily 

unsound interpretation of the 

Commission’s extraterritorial authority, 

the Commission often applies CEA 

section 2(i) inconsistently and 

arbitrarily to foreign activities. 

Accordingly, because the Commission 

is relying on the legally deficient 

Guidance to make its substituted 

compliance determinations, and for the 

reasons discussed below, I cannot 

support the Notices. The Commission 

should have collaborated with foreign 

regulators to agree on and implement a 

workable regime of substituted 

compliance, and then should have made 

determinations pursuant to that regime. 

Flawed Substituted Compliance Process 

Substituted compliance should not be 

a case of picking a set of foreign rules 

identical to our rules, determining them 

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

determination regarding rules that 

require extensive gap analysis to assess 

to what extent each jurisdiction is, or is 

not, comparable based on overall 

outcomes of the regulatory regimes. 

While I support the narrow 

comparability determinations that the 

Commission has made, I am concerned 

that in a rush to provide some relief, the 

Commission has made substituted 

compliance determinations that only 

afford narrow relief and fail to address 

major regulatory gaps between our 

domestic regulatory framework and 

foreign jurisdictions. I will address a 

few examples below. 

First, earlier this year, the OTC 

Derivatives Regulators Group (‘‘ODRG’’) 

agreed to a number of substantive 

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

specifically agreed that a flexible, 

outcomes-based approach, based on a 

broad category-by-category basis, should 

form the basis of comparability 

determinations.6

However, instead of following this 

approach, the Commission has made its 

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

Comparability Determination for 

Transaction-Level Requirements, the 

Commission has made a positive 

comparability determination for some of 

the detailed requirements under the 

swap trading relationship 

documentation provisions, but not for 

other requirements.7 This detailed 

approach clearly contravenes the 

ODRG’s understanding. 

Second, in several areas, the 

Commission has declined to consider a 

request for a comparability 

determination, and has also failed to 

provide an analysis regarding the extent 

to which the other jurisdiction is, or is 

not, comparable. For example, the 

Commission has declined to address or 

provide any clarity regarding the 

European Union’s regulatory data 

reporting determination, even though 

the European Union’s reporting regime 

is set to begin on February 12, 2014. 

Although the Commission has provided 

some limited relief with respect to 

regulatory data reporting, the lack of 

clarity creates unnecessary uncertainty, 

especially when the European Union’s 

reporting regime is set to begin in less 

than two months. 

Similarly, Japan receives no 

consideration for its mandatory clearing 

requirement, even though the 

Commission considers Japan’s legal 

framework to be comparable to the U.S. 

framework. While the Commission has 

declined to provide even a partial 

comparability determination, at least in 

this instance the Commission has 

provided a reason: the differences in the 

scope of entities and products subject to 

the clearing requirement.8 Such 

treatment creates uncertainty and is 

contrary to increased global 

harmonization efforts. 

Third, in the Commission’s rush to 

meet the artificial deadline of December 

21, 2013, as established in the 

Exemptive Order Regarding Compliance 

with Certain Swap Regulations 

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

failed to complete an important piece of 

the cross-border regime, namely, 

supervisory memoranda of 

understanding (‘‘MOUs’’) between the 

Commission and fellow regulators. 

I have previously stated that these 

MOUs, if done right, can be a key part 

of the global harmonization effort 

because they provide mutually agreedupon solutions for differences in 

regulatory regimes.10 Accordingly, I 

stated that the Commission should be 

able to review MOUs alongside the 

respective comparability determinations 

and vote on them at the same time. 

Without these MOUs, our fellow 

regulators are left wondering whether 

and how any differences, such as direct 

access to books and records, will be 

resolved. 

Finally, as I have consistently 

maintained, the substituted compliance 

process should allow other regulatory 

bodies to engage with the full 

Commission.11 While I am pleased that 

the Notices are being voted on by the 

Commission, the full Commission only 

gained access to the comment letters 

from foreign regulators on the 

Commission’s comparability 

determination draft proposals a few 

days ago. This is hardly a transparent 

process. 

Unclear Path Forward 

Looking forward to next steps, the 

Commission must provide answers to 


tkelley on DSK3SPTVN1PROD with NOTICES
78890 Federal Register / Vol. 78, No. 249 / Friday, December 27, 2013 / Notices 

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

originally published proposed and further proposed 

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

respectively. See Cross-Border Application of 

Certain Swaps Provisions of the Commodity 

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

Further Proposed Guidance Regarding Compliance 

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

2013). 

2 78 FR 43785 (July 22, 2013). 

3The Transaction-Level Requirements under the 

Exemptive Order consist of 17 CFR 37.12, 38.11, 

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

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

of the Commission’s regulations. 

several outstanding questions regarding 

these comparability determinations. In 

doing so, the Commission must 

collaborate with foreign regulators to 

increase global harmonization. 

First, there is uncertainty surrounding 

the timing and outcome of the MOUs. 

Critical questions regarding information 

sharing, cooperation, supervision, and 

enforcement will remain unanswered 

until the Commission and our fellow 

regulators execute these MOUs. 

Second, the Commission has issued 

time-limited no-action relief for the 

swap data repository reporting 

requirements. These comparability 

determinations will be done as separate 

notices. However, the timing and 

process for these determinations remain 

uncertain. 

Third, the Commission has failed to 

provide clarity on the process for 

addressing the comparability 

determinations that it declined to 

undertake at this time. The Notices only 

state that the Commission may address 

these requests in a separate notice at a 

later date given further developments in 

the law and regulations of other 

jurisdictions. To promote certainty in 

the financial markets, the Commission 

must provide a clear path forward for 

market participants and foreign 

regulators. 

The following steps would be a better 

approach: (1) the Commission should 

extend the Exemptive Order to allow 

foreign regulators to further implement 

their regulatory regimes and coordinate 

with them to implement a harmonized 

substituted compliance process; (2) the 

Commission should implement a 

flexible, outcomes-based approach to 

the substituted compliance process and 

apply it similarly to all jurisdictions; 

and (3) the Commission should work 

closely with our fellow regulators to 

expeditiously implement MOUs that 

resolve regulatory differences and 

address regulatory oversight issues. 

Conclusion 

While I support the narrow 

comparability determinations that the 

Commission has made, it was my hope 

that the Commission would work with 

foreign regulators to implement a 

substituted compliance process that 

would increase the global 

harmonization effort. I am disappointed 

that the Commission has failed to 

implement such a process. 

I do believe that in the longer term, 

the swaps regulations of the major 

jurisdictions will converge. At this time, 

however, the Commission’s 

comparability determinations have done 

little to alleviate the burden of 

regulatory uncertainty and duplicative 

compliance with both U.S. and foreign 

regulations. 

The G–20 process delineated and put 

in place the swaps market reforms in G– 

20 member nations. It is then no 

surprise that the Commission must learn 

to coordinate with foreign regulators to 

minimize confusion and disruption in 

bringing much needed clarity to the 

swaps market. For all these 

shortcomings, I respectfully dissent 

from the Commission’s approval of the 

Notices. 

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

BILLING CODE 6351–01–P 

COMMODITY FUTURES TRADING 

COMMISSION 

Comparability Determination for 

Japan: Certain Transaction-Level 

Requirements 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of Comparability 

Determination for Certain Requirements 

under the Japanese Laws and 

Regulations. 

SUMMARY: The following is the analysis 

and determination of the Commodity 

Futures Trading Commission 

(‘‘Commission’’) regarding certain parts 

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

Commission determine that laws and 

regulations applicable in the Japan 

provide a sufficient basis for an 

affirmative finding of comparability 

with respect to the following regulatory 

obligations applicable to swap dealers 

(‘‘SDs’’) and major swap participants 

(‘‘MSPs’’) registered with the 

Commission: (i) Swap trading 

relationship documentation and (ii) 

daily trading records (collectively, the 

‘‘Business Conduct Requirements’’). 

DATES: 

Effective Date: This determination 

will become effective immediately upon 

publication in the Federal Register. 

FOR FURTHER INFORMATION CONTACT: Gary 

Barnett, Director, 202–418–5977, 

gbarnett@cftc.gov, Frank Fisanich, Chief 

Counsel, 202–418–5949, ffisanich@

cftc.gov, and Jason Shafer, Special 

Counsel, 202–418–5097, jshafer@

cftc.gov, Division of Swap Dealer and 

Intermediary Oversight, Commodity 

Futures Trading Commission, Three 

Lafayette Centre, 1155 21st Street, NW., 

Washington, DC 20581. 

SUPPLEMENTARY INFORMATION: 

I. Introduction 

On July 26, 2013, the Commission 

published in the Federal Register its 

‘‘Interpretive Guidance and Policy 

Statement Regarding Compliance with 

Certain Swap Regulations’’ 

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

Commission set forth its interpretation 

of the manner in which it believes that 

section 2(i) of the Commodity Exchange 

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

provisions to activities outside the U.S. 

and informed the public of some of the 

policies that it expects to follow, 

generally speaking, in applying Title VII 

and certain Commission regulations in 

contexts covered by section 2(i). Among 

other matters, the Guidance generally 

described the policy and procedural 

framework under which the 

Commission would consider a 

substituted compliance program with 

respect to Commission regulations 

applicable to entities located outside the 

U.S. Specifically, the Commission 

addressed a recognition program where 

compliance with a comparable 

regulatory requirement of a foreign 

jurisdiction would serve as a reasonable 

substitute for compliance with the 

attendant requirements of the CEA and 

the Commission’s regulations 

promulgated thereunder. 

In addition to the Guidance, on July 

22, 2013, the Commission issued the 

Exemptive Order Regarding Compliance 

with Certain Swap Regulations (the 

‘‘Exemptive Order’’).2 Among other 

things, the Exemptive Order provided 

time for the Commission to consider 

substituted compliance with respect to 

six jurisdictions where non-U.S. SDs are 

currently organized. In this regard, the 

Exemptive Order generally provided 

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

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

six jurisdictions with conditional relief 

from certain requirements of 

Commission regulations (those referred 

to as ‘‘Transaction-Level Requirements’’ 

in the Guidance) until the earlier of 

December 21, 2013, or 30 days following 

the issuance of a substituted compliance 

determination.3 However, the 

Commission provided only transitional 

relief from the real-time public reporting 

requirements under part 43 of the 

Commission’s regulations until 


tkelley on DSK3SPTVN1PROD with NOTICES