UNITED STATES OF AMERICA

 COMMODITY FUTURES TRADING COMMISSION

 GLOBAL MARKETS ADVISORY COMMITTEE MEETING

 Washington, D.C.

 Wednesday, February 12, 2014
 2

 1 PARTICIPANTS:

 2 Introductions:

 3 TED SERAFINI

 4 Opening Statements:

 5 SCOTT D. O'MALIA

 6 MARK P. WETJEN

 7 Panel No. 1: Cross-Border Guidance:

 8 GARY BARNETT

 9 CARLENE KIM

 10 ROBERT A. SCHWARTZ

 11 Panel No. 2: November 14 Staff Advisory Issues:

 12 JOHN RAMSAY

 13 BRIAN BUSSEY

 14 DAVID BAILEY

 15 HANNAH RAYNER

 16 Attendees:

 17 CHRIS ALLEN, Barclays

 18 DARCY BRADBURY, D.E. Shaw

 19 CLIVE CHRISTISON, BP

 20 RANDALL COSTA, Citadel

 21 MIKE DAWLEY, Goldman Sachs

 22 WALLACE TURBEVILLE, Demos
 3

 1 PARTICIPANTS (CONT'D):

 2 DAVID GOONE, Intercontinental Exchange

 3 Paul Hamill, UBS

 4 GEORGE HARRINGTON, Bloomberg

 5 DOUG HEPWORTH, Gresham Investment

 6 JAMES HILL, Morgan Stanley

 7 SUPURNA VEDBRAT, BlackRock

 8 SAMARA COHEN, Goldman Sachs

 9 Panelists:

 10 KIM TAYLOR, CME Group

 11 YASUSHI TAKAYAMA, Nomura Group

 12 DAN ROTH, National Futures Association

 13 JOHN PARSONS, MIT

 14 STEVE O'CONNOR, International Swaps and

 Derivatives Association

 15

 JOE NICOSIA, Louis Dreyfus Commodities

 16

 RAJ MAHAJAN, Allston Trading

 17

 MIKE LESAGE, Risk Management for Cargill

 18

 CAITLIN CLINE, Better Markets

 19

 BOB KLEIN, Citigroup

 20

 SUNIL HIRANI, trueEX

 21

 22 * * * * *
 4

 1 P R O C E E D I N G S

 2 (2:06 p.m.)

 3 MR. SERAFINI: Good afternoon, everyone,

 4 and thanks for coming. My name is Ted Serafini.

 5 As the GMAC-designated Federal Officer and

 6 temporary Chair of the Committee, it's my pleasure

 7 to call to order the 15th meeting of the Global

 8 Markets Advisory Committee.

 9 Today, we'll start by opening it up to

 10 statements for Acting Chairman Mark Wetjen -- and

 11 he's also sponsor of the GMAC -- and Commissioner

 12 O'Malia.

 13 CHAIRMAN WETJEN: Thank you, Ted. The

 14 members of the committee probably heard from Ted

 15 -- must have heard from Ted in the last number of

 16 weeks. And Ted works for me, as one of my legal

 17 advisors. But he's also the designated Federal

 18 Officer, which is a term of art, for these

 19 advisory committees. So, he's going to be helping

 20 us, at least through this meeting, and moderating

 21 it for us. So, thanks, Ted.

 22 Thank you all for coming. Thanks for
 5

 1 agreeing to be part of this. We have a fairly

 2 narrow agenda today, but it's an important topic.

 3 As all of you know, the CFTC staff issued an

 4 advisory with respect to our cross-border guidance

 5 from last summer. The advisory was issued last

 6 November, November 14.

 7 And it quickly became a document of

 8 significant interest on the part of market

 9 participants and other stakeholders -- and just

 10 people generally interested in what we do here at

 11 the CFTC.

 12 So, Chairman Gensler, I think, made a

 13 good decision to essentially elevate that advisory

 14 to a Commission action, in a lot of ways. So,

 15 that's what happened by us putting the advisory out

 16 for comment.

 17 And so this is, in some ways, a part of

 18 that comment period, which is still open. But

 19 we're hoping that, through this meeting today, we

 20 can talk through some of the issues implicated by

 21 the advisory, and start thinking about different

 22 things we need to continue considering, as we, at
 6

 1 the Commission, move forward in fleshing out and

 2 building out our cross-border policy.

 3 Just I'll mention real quickly -- you

 4 might have seen an announcement earlier today

 5 regarding trading venues in London. So, we've

 6 been able to do some work on that front. Again, I

 7 see that as a continuation of efforts that had

 8 begun last year. And this was something that was

 9 indicated in the path forward agreement from last

 10 summer, with European Commission, as something --

 11 or a step, rather -- that the CFTC would take.

 12 So, I appreciate the help of my fellow

 13 Commissioners, including Commissioner O'Malia, in

 14 thinking through that, and working through that.

 15 And, as I said, we'll continue further steps as

 16 necessary to keep rounding out and building out

 17 our cross-border policy, as begun through the

 18 guidance last summer.

 19 So, with that, I will turn it over to

 20 Commissioner O'Malia.

 21 COMMISSIONER O'MALIA: Thank you, Mark,

 22 for calling this meeting, and to begin the
 7

 1 discussion regarding the impacts of the

 2 Commission's cross-border guidance and the staff's

 3 notorious February 14th advisory, further

 4 expanding our jurisdiction over swaps trading by

 5 non-U.S. Persons.

 6 As I've consistently stated, the

 7 Commission must collaborate with foreign

 8 regulators to increase global harmonization of

 9 swaps regulation. The international community has

 10 worked together to develop consistent standards

 11 for the capital and margin requirements for OTC

 12 swaps; however, in other areas, such as day

 13 reporting, the Commission has failed to provide a

 14 clear path forward for market participants and

 15 foreign regulators.

 16 Today is the first day of trading in the

 17 European Commission and the European Union, and

 18 the Commission has still not recognized the E.U.

 19 reporting regime for substituted compliance. I do

 20 remain optimistic that the Commission will work

 21 with foreign regulators to quickly resolve the

 22 outstanding issues, and rely on a compatibility
 8

 1 process, rather than imposing the U.S. regime

 2 globally.

 3 Today's meeting is a positive step in

 4 working with foreign regulators to develop a

 5 solution to limit the extraterritorial application

 6 of the Dodd-Frank Act to foreign transactions that

 7 have a "direct and significant connection," as

 8 provided in the statute. And then we can also

 9 begin discussions about comparability of foreign

 10 regulations.

 11 So, I greatly appreciate the Chairman

 12 calling this meeting to talk about this issue, and

 13 just because we put it out for public comment does

 14 not make it a Commission document, I hope. And

 15 maybe we can have our legal counsel opine on that.

 16 But this is something that we need to be

 17 able to understand what the rules are, going

 18 forward, and how they will be legally enforceable

 19 going forward. There are a number of questions

 20 regarding guidance, the impact of advisories on

 21 guidance, and how that relates to the statute, and

 22 what our legal obligations are, and what your
 9

 1 legal obligations are.

 2 So, I'm all for having this discussion,

 3 to have that good discussion, to make sure we're

 4 very clear about where our jurisdiction starts and

 5 stops, and how we can continue to rely on foreign

 6 regulators -- which I'm grateful to have both the

 7 E.C. and FCA here today, to participate in our

 8 discussion, and to make sure that we're aligned

 9 similarly. And I've had very good discussions in

 10 Asia, as well, to ensure that we're working

 11 together, just as the G20 nations promised back in

 12 Pittsburgh of 2010.

 13 So, with that, Chairman Serafini and

 14 Chairman Wetjen, I'm Chairman O'Malia of the TAC,

 15 but just Chairman up here -- but I look forward to

 16 the conversation today. Thank you all for coming.

 17 CHAIRMAN WETJEN: Thank you,

 18 Commissioner O'Malia. Just one last thing before

 19 I turn it back over to Ted.

 20 I wanted to give a special thanks to

 21 David Bailey and Hannah Rayner, who have come in

 22 from Europe to be part of this meeting. David is
 10

 1 with the FCA in the United Kingdom, and Hannah is

 2 with the European Commission in Brussels. So, we

 3 so appreciate their being here, despite some

 4 threatening weather, and hope they'll get back

 5 safely after today's meeting.

 6 But, again, I think their presence here

 7 is going to add significantly to the level of

 8 discussion. So, I really appreciate your being

 9 here.

 10 MR. SERAFINI: Thanks, Chairman Wetjen.

 11 As everyone knows, we've had a couple of changes

 12 to the composition of the GMAC committee, and

 13 there are a lot of new faces. So, we thought it

 14 might be useful for people to go around the room,

 15 and briefly introduce themselves.

 16 So, I'll start with Chris, over here.

 17 MR. ALLEN: My name's Chris Allen. I'm

 18 from Barclays. I head the Regulatory Policy Unit

 19 for the global organization, based in London.

 20 MS. BRADBURY: Darcy Bradbury -- I'm a

 21 Managing Director with D.E. Shaw. We're a global

 22 multi-strategy hedge fund firm, and we're active
 11

 1 in both the futures and the swaps markets -- so

 2 take a great interest in these issues.

 3 MR. CHRISTISON: Hi. Good afternoon.

 4 I'm Clive Christison. I'm leading the BP supply

 5 and trading business here for the Americas. I'm

 6 based in Chicago.

 7 MR. COSTA: I'm Randall Costa, with

 8 Citadel, and I'm a Managing Director. I focus on

 9 derivatives and reformed market structure issues

 10 for Citadel.

 11 MR. DAWLEY: Good afternoon. I'm Mike

 12 Dawley. I'm a Chairman of the Futures Industry

 13 Association, and also a Managing Director at

 14 Goldman Sachs, who looks after their client

 15 clearing business.

 16 MR. TURBEVILLE: Good afternoon. My

 17 name is Wallace Turbeville -- generally called

 18 Wally. I am a Senior Fellow at Demos, which is an

 19 organization that does research, and writing, and

 20 advocates for the public's interest.

 21 MR. GOONE: I'm David Goone. I'm the

 22 Chief Strategy Officer for Intercontinental
 12

 1 Exchange.

 2 MR. HAMILL: Paul Hamill at UBS. I'm in

 3 e- commerce for FX rates and credit.

 4 MR. HARRINGTON: My name is George

 5 Harrington. I'm the Global Head of Fixed Income,

 6 Currency, and Commodity Trading at Bloomberg. I'm

 7 also Vice President of Bloomberg's Swap Execution

 8 Facility and Vice President of Bloomberg's Swap

 9 Data Repository.

 10 MR. HEPWORTH: My name is Doug Hepworth.

 11 I'm with Gresham Investment Management, which is

 12 an asset management firm, managing about $15

 13 billion in commodity-related strategies.

 14 MR. HILL: James Hill -- I'm Managing

 15 Director in the Global Credit Group at Morgan

 16 Stanley.

 17 MS. VEDBRAT: Supurna VedBrat --

 18 Managing Director at BlackRock, a global asset

 19 management firm, and a Co-Head, Electronic Trading

 20 and Market Structure.

 21 MS. COHEN: I'm Samara Cohen, Managing

 22 Director in the Securities Division of Goldman
 13

 1 Sachs. I've been at Goldman for 15 years. I

 2 spent the first 13 in our interest rate products

 3 business, and I've spent the last 2 exclusively

 4 focusing on helping our clients globally prepare

 5 for derivatives reform.

 6 MR. BARNETT: We're your panelists.

 7 MS. TAYLOR: I'm Kim Taylor, with CME

 8 Group. I'm responsible for clearing and the trade

 9 repository services.

 10 MR. TAKAYAMA: I am Yasushi Takayama,

 11 the General Counsel to the U.S. broker-dealer of

 12 the Nomura Group and Nomura Securities

 13 International, Inc. The Nomura Group is based in

 14 Tokyo, Japan, but has a central presence in the

 15 United States, with 2,300 employees.

 16 So, I feel greatly honored to be here.

 17 Thank you.

 18 MR. ROTH: I'm Dan Roth. I'm the

 19 President of National Futures Association.

 20 MR. PARSONS: I'm John Parsons, from the

 21 Sloan School of Management at MIT, interested in

 22 research and public policy issues on end users and
 14

 1 risk management.

 2 MR. O'CONNOR: I'm Steve O'Connor,

 3 Chairman of the International Swaps and

 4 Derivatives Association.

 5 MR. NICOSIA: I'm Joe Nicosia, Senior

 6 Vice President with Louis Dreyfus Commodities, an

 7 international commodity trading firm.

 8 MR. MAHAJAN: Hello. My name is Raj

 9 Mahajan. I'm the CEO of Allston Trading.

 10 Allston's a proprietary trading firm,

 11 headquartered in Chicago -- specialized in market-

 12 making and algorithmic trading across all asset

 13 classes -- very pleased to have the invitation and

 14 opportunity to participate in the Global Markets

 15 Advisory Committee.

 16 MR. LESAGE: Hi. My name is Mike

 17 LeSage. I'm President of Risk Management for

 18 Cargill, located in Minneapolis.

 19 And I'm very thankful that we're having

 20 this meeting today, and not tomorrow.

 21 MS. CLINE: I'm Caitlin Cline. I'm the

 22 Derivatives Specialist at Better Markets, which is
 15

 1 an organization to advocate for the public

 2 interest and the financial markets.

 3 MR. KLEIN: I'm Bob Klein. I'm a

 4 Managing Director and General Counsel at

 5 Citigroup, where I work with our futures,

 6 clearing, and OTC businesses.

 7 And I'm pleased to be here today. Thank

 8 you.

 9 MR. HIRANI: Hi. I'm Sunil Hirani, with

 10 trueEX. We're a DCM NSF for swaps.

 11 MR. SERAFINI: Thanks, everyone. I

 12 think we had a couple members joining on the phone

 13 who have speaking privileges, if they'd like to

 14 introduce themselves.

 15 All right. Maybe we didn't get that

 16 worked out, but, with that, I'll turn it over to

 17 Acting Chairman Wetjen, to introduce our first

 18 panel.

 19 CHAIRMAN WETJEN: Thanks, Ted. First

 20 panelists we have with us today are from the CFTC

 21 staff. And it's Gary Barnett, Carlene Kim, and

 22 Rob Schwartz, all of whom have had some
 16

 1 involvement in developing the agency's

 2 cross-border policy -- so I turn it over to Gary.

 3 Mr. Barnett: Great. Thank you, Chairman Wetjen.

 4 Good afternoon, everyone. It's a pleasure to be

 5 Here with you today, to discuss staff advisory

 6 number 1369. It was issued by DSIO, November 14,

 7 2013. It relates to the applicability of

 8 transaction-level requirements to non-U.S. Swap

 9 dealers when they enter into trades with a

 10 non-U.S. Person, where those trades are arranged

 11 and negotiated -- or executed -- by personnel or

 12 agents of the non-U.S. swap dealer from the U.S.

 13 And we've got a lot of ground to cover in our

 14 time slot, so let's try to move quickly.

 15 First, in terms of ground rules --

 16 because of outstanding litigation -- and Rob is

 17 sitting right over there -- our orientation will

 18 be to get your thoughts and advice. There will be

 19 limits on what we can tell you. For instance, we

 20 won't be able to describe internal deliberations

 21 or express personal views -- things of that sort.

 22 These are fine. These limitations are
 17

 1 appropriate -- and also fine because our goal

 2 today is to hear and obtain your views in order to

 3 assist the Commission's deliberation of the

 4 issues.

 5 In order to assist our discussion of the

 6 advisory -- and some of the history and issues

 7 that led to it that we are able to discuss --

 8 we're putting up a chart -- and should be in your

 9 packs. It summarizes the Commission's guidance on

 10 application of the transaction-level requirements

 11 to registered swap dealers. This is for category

 12 A of the transaction-level requirements.

 13 And what you see on the left side of the

 14 chart, in the first vertical column, are three

 15 types of swap dealers. And moving to the right

 16 from each of those types is a horizontal row that

 17 summarizes how transaction-level requirements are

 18 applicable to that type of swap dealer when facing

 19 different classes of counterparties, as described

 20 in each of the four buckets in that particular

 21 row.

 22 Okay. So, to start with a little bit of
 18

 1 history behind the advisory -- on November 14,

 2 2013, DSIO issued the advisory, which expresses

 3 the Division's understanding -- which we believe

 4 to be consistent with the Commission's guidance --

 5 of the intended application of the transaction-

 6 level requirements to a swap transaction between a

 7 non-U.S. Swap dealer and a non-U.S. person, if

 8 that transaction was arranged, negotiated, or

 9 executed by personnel or agents of that non-U.S.

 10 swap dealer located in the U.S.

 11 The advisory was created in response to

 12 strong expressions of concern raised by some of

 13 our U.S. swap dealers -- those of the type shown

 14 in the top horizontal row in the chart. So, the

 15 U.S. swap dealer -- and go across the chart.

 16 They explained that their issues rose

 17 from the fact that they are prohibited from

 18 applying substituted compliance or entitled to

 19 total deference in any trades, unlike the foreign

 20 swap dealers described in the second and third

 21 horizontal rows.

 22 They went on to explain that those
 19

 1 foreign entities were competing unfairly with them

 2 in the U.S., using their foreign status as a

 3 competitive advantage. So, unless the U.S. swap

 4 dealers move their businesses into a foreign

 5 entity -- which might not be practically possible

 6 -- it was going to have a significant effect on

 7 their business. They didn't believe these

 8 entities were applying a fair reading of the

 9 guidance, and it was creating a problem for them.

 10 The initial discussion with those swap

 11 dealers led to many hours of meetings and calls

 12 with market participants and internal

 13 deliberations before the advisory was prepared and

 14 issued.

 15 In terms of the substance of the

 16 advisory, it expresses the belief that the

 17 Commission intended substituted compliance to be

 18 available or transaction-level requirements to not

 19 apply to those foreign-to-foreign swap

 20 transactions, where the related activities take

 21 place outside the U.S. -- and, conversely, where

 22 the swap activities are occurring from inside the
 20

 1 U.S., it expresses the belief that the Commission

 2 would not extend either substituted compliance or

 3 total deference to foreign law to those

 4 transactions, so that direct compliance with Title

 5 VII transaction-level requirements would be

 6 intended for those transactions.

 7 Also, in anticipation of follow-on

 8 questions like, does any little bit of activity

 9 from the U.S. make it a problem, and which

 10 activities make it a problem -- we were of the

 11 belief that occasional irregular behavior wouldn't

 12 be problematic from the Commission's perspective.

 13 Instead, in the context of the issues we

 14 were hearing existed, what would be a problem

 15 would be a foreign swap dealer competing with the

 16 U.S. swap dealers by regularly operating the front

 17 office portion of the foreign swap dealer's

 18 business from the U.S.

 19 To rule out occasional or irregular

 20 actions from being problematic, the extent of the

 21 problematic activity was expressed as regular, and

 22 to rule out prohibiting activities that were not
 21

 1 creating the concerns that were being raised, we

 2 described as problematic core front office

 3 activities, and described it as using personnel or

 4 agents located in the U.S., to engage in

 5 activities related to arranging, negotiating, or

 6 executing swaps with non-U.S. Persons.

 7 And, of course, we'll pursue your views

 8 and advice on those terms as we get into the

 9 questions.

 10 After the issuance of the advisory,

 11 immediately, certain non-U.S. swap dealers raised

 12 serious concerns regarding the time to come into

 13 compliance with the transaction-level requirements

 14 for swaps with non-U.S. Persons.

 15 When it was communicated that no

 16 immediate enforcement action was contemplated,

 17 there were requests for greater public notice of

 18 that intention and for more guidance on

 19 implementation timing. And we were advised that

 20 the lack of such guidance might create market

 21 disruptions.

 22 A lawsuit was subsequently filed -- who,
 22

 1 what, when -- I'll let OGC describe that, if need

 2 be. In order to avoid market disruption and allow

 3 time to sort the issues, additional time -- until

 4 January 14, 2014, originally -- was provided to

 5 foreign swap dealers in NAL 1371, which was issued

 6 jointly by DSIO, DMO, and DCR. We issued that on

 7 November 26, and then that relief was extended

 8 until September 15, 2014.

 9 Then the Commission issued a request for

 10 comment on the application of Commission

 11 regulations to swaps between non-U.S. swap dealers

 12 and non-U.S. counterparties, involving personnel

 13 or agents of the non-U.S. swap dealers located in

 14 the U.S. The request for comment was published in

 15 the Federal Register on Wednesday, January 8, and

 16 the comment deadline is March 10, 2014.

 17 The basic operative statement in the

 18 request reads: "In view of the complex legal and

 19 policy issues involved, with respect to the staff

 20 advisory, the Commission is soliciting comment

 21 from all interested parties, to further inform the

 22 Commission's and its staff's deliberations
 23

 1 regarding the subjects addressed in the staff

 2 advisory."

 3 And that's some of the history behind

 4 the advisory. As I said in the very beginning, we

 5 want to use this opportunity to get your thoughts

 6 on the issues, including the questions in the

 7 request for comments. And if time permits, you

 8 know, we'll take any thoughts or comments you have

 9 on the cross-border topic, more generally.

 10 With that, I will start with some

 11 questions for the group.

 12 Let me start by asking for views on the

 13 concerns expressed by the U.S. swap dealers about

 14 the foreign dealer competition in the U.S. Are

 15 the concerns legitimate and real, and does the

 16 fact that foreign entities get to apply

 17 substituted compliance or total deference, as

 18 shown in the horizontal rows two and three, and

 19 not permitted to U.S. Swap dealers -- does that

 20 translate into a significant advantage for the

 21 foreign dealers over the U.S. swap dealers, and

 22 how big a difference?
 24

 1 Can I get thoughts on that?

 2 CHAIRMAN WETJEN: Looking for one brave

 3 soul.

 4 MR. BARNETT: Yep. I know the foreign

 5 --

 6 MR. ALLEN: Shall I start?

 7 MR. BARNETT: Yep. Go ahead. Yep.

 8 MR. ALLEN: I think the question turns,

 9 does it not, on, what is the activity you're

 10 contemplating? And where, in substance, is it

 11 really taking place?

 12 So, if you take the fact pattern where

 13 you have a non-U.S. swap dealer that is

 14 effectively trading somewhere outside of the

 15 United States -- let's say London's an example,

 16 with a client that's also based in London -- but

 17 maybe there is sales coverage being provided from

 18 the United States.

 19 In those circumstances, the risk

 20 associated with that transaction, first and

 21 foremost, is risk which is residing in the London

 22 entity, where it's traded and booked.
 25

 1 I think, looked at from that

 2 perspective, it's difficult to see why, in those

 3 circumstances, U.S. Transaction-level rules

 4 should apply to that transaction at all -- and to

 5 the extent that they might, why you wouldn't have

 6 substituted compliance available in those

 7 circumstances.

 8 I think that's a valid concern, as a

 9 matter both of principle, in terms of why, if you

 10 follow the risk kind of notion, those rules would

 11 apply -- but, also, there are practical

 12 ramifications of the absence of things like

 13 substituted compliance in the context of other

 14 sets of regulation applicable to that entity and

 15 to that transaction in London -- which may be

 16 difficult to reconcile with the obligations being

 17 imposed by the CFTC.

 18 MR. BARNETT: Thank you.

 19 MR. HILL: I would agree with that,

 20 entirely. From a U.S. bank's perspective, we

 21 think that makes 100 percent sense. And,

 22 moreover, I think the statute is relatively clear
 26

 1 on this point -- that the CFTC's authority was

 2 intended to be limited only to those transactions

 3 which had a direct and significant impact on U.S.

 4 interstate commerce.

 5 And surely, a transaction with a

 6 non-U.S. person, which is booked to a non-U.S.

 7 entity, and the only contact with the U.S. is

 8 simply sales coverage for a U.S. product, doesn't

 9 seem to rise to the level of what was intended by

 10 Congress for the CFTC's jurisdiction.

 11 MR. BARNETT: Okay.

 12 MR. COSTA: But arranging, negotiating,

 13 or executing a swap in the U.S. does have a

 14 significant and direct connection. It's activity

 15 in the market. It's price formation. It's

 16 drawing from market activity. It'd be like doing

 17 a trade. In a world where you can only trade on

 18 exchange, it's allowing some trading in the

 19 marketplace, off of that system, off of the pre-

 20 and post-trade transaction requirements. That

 21 does have a direct and significant impact.

 22 MR. HILL: So, if the sales coverage was
 27

 1 in London, that would somehow change your

 2 analysis? It's still price formation. The prices

 3 still have an impact on the U.S. market, but,

 4 clearly, you wouldn't have those transactions be

 5 within the jurisdiction of the CFTC.

 6 MS. KIM: Can I try to frame the issue

 7 -- unless the litigators stop me from continuing

 8 -- I think the issue is -- I mean, we recognize

 9 that the fact pattern that Gary described of the

 10 non-U.S. space swap dealer transacting with their

 11 foreign clients -- but they have some presence

 12 here in the U.S., and conducting some key aspect

 13 of what makes them a swap dealer in the U.S.

 14 And the question that we're posing in

 15 the release is whether some type of

 16 transaction-level requirement -- not the

 17 risk-oriented rules, but those rules that get at

 18 market transparency and counterparty protection --

 19 whether they should apply. And even if they

 20 should apply, whether we should give some

 21 deference and recognition to substituted

 22 compliance.
 28

 1 So, we totally agree with you --

 2 MR. TURBEVILLE: It seems to me that --

 3 yeah.

 4 MS. KIM: -- at the staff level that

 5 this is not really a risk-oriented issue; it's a

 6 question about, when does a non-U.S. space swap

 7 dealer, whose activities in the U.S. may raise

 8 issues or concerns about us doing our job and

 9 protecting market integrity and counterparty

 10 protection?

 11 MR. TURBEVILLE: Yeah. I mean, I think

 12 one of the things that is significant here is, we

 13 slide often into discussions -- where is the trade

 14 booked? It's all about risk. And it's not all

 15 about risk. It's manifestly not all about risk.

 16 So, the question is how the market

 17 functions, and the impact on how the market

 18 functions. So, the activity is in the United

 19 States. If you start defining what activity is

 20 going to trigger this, the type of activity is

 21 going to infer what the business purpose is of the

 22 activity in the United States in the first place.
 29

 1 In other words, why does XYZ Euro Bank

 2 have an office at 40 Broad Street in New York

 3 City? So, one can infer from that what the

 4 activity is.

 5 The other thing that we seem to slide

 6 into a lot oif questions of jurisdiction. And the

 7 jurisdiction, at least as I -- as you might expect

 8 -- as I read, the potential jurisdiction of the

 9 CFTC is extraordinarily broad.

 10 That's not necessarily what we're

 11 talking about here. So, we're talking about how

 12 things should come out, as opposed to the question

 13 of jurisdiction and some kind of, you know,

 14 court-like analysis of the statute.

 15 So, you know, what kind of activity?

 16 What does that infer about what they're doing

 17 here? It's not about risk; it's about impact on

 18 the market function. And it's really not about

 19 jurisdiction, unless I've got something wrong.

 20 COMMISSIONER O'MALIA: Carlene, can I --

 21 where do we have a territorial authority within

 22 the CEA? I think that's what Wally was pointing
 30

 1 out. I mean, our jurisdiction is defined by the

 2 CEA, and we have jurisdiction over participants,

 3 registrants, et cetera. For some of these type of

 4 activities, we don't -- we're not the district

 5 court, all right?

 6 We don't have jurisdiction over

 7 everything that occurs in the United States. We

 8 have very specific activities on DCMs or SEFs;

 9 those type of activities. Where does this fall

 10 within our specific CEA jurisdiction?

 11 MR. TURBEVILLE: Carlene, before you

 12 answer it, does someone have 2I? It might be

 13 helpful just to read it, if someone has it in

 14 front of them.

 15 COMMISSIONER O'MALIA: Well, but, then,

 16 that's a different test, right? Wally just said

 17 it's not about risk.

 18 MS. KIM: Well, I'm sorry to interrupt.

 19 On one level, you can look at this as an activity

 20 that's within the U.S., and that doesn't implicate

 21 2I. But, personally, I think that might be too

 22 simplistic -- because it's very difficult to
 31

 1 determine when activities within the U.S. or

 2 outside the U.S. --

 3 COMMISSIONER O'MALIA: But where in the

 4 CEA does it say we have a territorial -- just all

 5 things territorial are under our jurisdiction?

 6 MS. KIM: Let me point to what I

 7 understand to be the CFTC's historical approach in

 8 the futures space. And that is that, to the

 9 extent that any activity takes place -- and I'm

 10 talking in the context of intermediaries -- the

 11 agency has always taken the view that any activity

 12 -- any solicitation, for example -- that takes

 13 place in the U.S. Would trigger our jurisdiction.

 14 And so building off that, the staff has

 15 taken the view that -- or at least has raised the

 16 question whether similar approach should be taken

 17 in the swaps context.

 18 MR. HILL: The Dodd-Frank statute

 19 doesn't give you that authority. The Dodd-Frank

 20 statute says you have jurisdiction over swaps that

 21 have a direct and significant impact on the U.S.

 22 economy.
 32

 1 MS. KIM: Right.

 2 MR. HILL: Moreover, the authority given

 3 to the SEC in the same statute was considerably

 4 broader -- such that they would have the kind of

 5 jurisdiction you're talking about. But that

 6 jurisdiction was not given to the CFTC, and it was

 7 intentional.

 8 MS. KIM: But I would also point out

 9 that section 2I specifically refers to activities

 10 outside the U.S. You could only presume that

 11 Congress, when they gave us that 2I, recognized --

 12 or at least made a distinction between activities

 13 in the U.S. and activities outside the U.S. It's

 14 a language that was purposefully placed in the

 15 statutory provision, which just made explicitly

 16 clear that we do have the authority to reach

 17 activities outside the U.S.

 18 I certainly don't read it as a way to

 19 limit what traditionally has been our interests

 20 and our jurisdiction of activities that takes

 21 place within the United States.

 22 MR. TURBEVILLE: As I recall, 2I -- the
 33

 1 way it works is that it doesn't give you an

 2 affirmed or grant of jurisdiction; it says that,

 3 as it relates to activities outside of the U.S.,

 4 there are restrictions. So, I --

 5 COMMISSIONER O'MALIA: To the contrary,

 6 Wally -- it's a limit on our jurisdiction. It

 7 says "to the extent it has a direct and

 8 significant impact on the United States," then

 9 it's within our jurisdiction -- specific "to the

 10 extent."

 11 MR. TURBEVILLE: Right. No, I'm

 12 actually agreeing with you. I'm saying it is a

 13 limitation.

 14 COMMISSIONER O'MALIA: Who?

 15 MR. TURBEVILLE: But it's a limitation

 16 on how far -- well, then, where does it stop, if

 17 --

 18 COMMISSIONER O'MALIA: Well, I mean,

 19 that's a -- I mean --

 20 MR. TURBEVILLE: Under this one, it

 21 doesn't seem there is an end to it. I mean, at

 22 some point, somebody will decide what the words
 34

 1 mean and in the context. I have a few. Others

 2 will have narrower views. A few will have broader

 3 views, I assume, but it's --

 4 COMMISSIONER O'MALIA: I got outvoted on

 5 my view.

 6 MR. COSTA: But we don't need to reach

 7 outside the United States, if we refer back to the

 8 discussion before. The language says "unless

 9 those activities have a direct and significant

 10 connection with activities in or effect on

 11 commerce of the United States."

 12 I thought what we were saying is, the

 13 activity of arranging, negotiating, or executing a

 14 swap, in the context of a market, is an activity

 15 that is in or has an effect on commerce in the

 16 United States.

 17 And the question, I thought, that was

 18 being addressed in the first instance by the

 19 November 14 advisory was whether that activity

 20 would be subject to, for example, the pre- and

 21 post-trade transparency effects, or whether some

 22 piece of it could be carved out, or whether we
 35

 1 would create incentives that would move people to

 2 structure their business to avoid those

 3 requirements that bore on the integrity of the

 4 market in the United States -- squarely within

 5 that clause.

 6 COMMISSIONER O'MALIA: But Carlene

 7 argued a territorial application, which is -- we

 8 interchange 2I with some sort of broad territorial

 9 authority, which really doesn't show up in our

 10 statute, unless you go by registered entities --

 11 the specific entities that we have jurisdiction

 12 under the CEA.

 13 And, you know, it's convenient to argue

 14 that we have 2I when it's outside the United

 15 States, and we have every jurisdiction when it's

 16 inside the United States. I'm not sure that's the

 17 case.

 18 MR. HILL: I wonder if we could back for

 19 a minute, and talk about the types of transactions

 20 we're talking about, and what will happen if the

 21 current approach is the final approach.

 22 And that is, you're talking about
 36

 1 non-U.S. clients who are transacting with non-U.S.

 2 banks, who occasionally want to trade a U.S.

 3 product, okay?

 4 With respect to those counterparties, a

 5 U.S. bank is operating out of a London branch or a

 6 London affiliate, who has a sales force in the

 7 U.S. covering those products. The European client

 8 will not trade with those entities, because they

 9 do not want to be subject to the U.S. rules.

 10 So, only one thing can happen: Those

 11 European clients will choose to transact with

 12 those European banks that cover U.S. products out

 13 of Europe, rather than the U.S. That's what's

 14 going to happen.

 15 The natural response to that is, the

 16 U.S. banks will either give up that business

 17 entirely -- which is not good for the market -- or

 18 they will simply develop a second sales force in

 19 Europe that covers U.S. product. That's what's

 20 going to happen. So, either we're out of the

 21 business completely, or we set up a separate sales

 22 force in London, covering U.S. product.
 37

 1 So, that's what we're talking about

 2 here. It's not like somehow people are going to

 3 stop trading these products, and we're not going

 4 to have any impact on the U.S. Economy or

 5 anything like that. What is going to happen is,

 6 clients in Europe will be covered out of Europe,

 7 rather than out of New York.

 8 And if that's what the CFTC wants,

 9 that's where we'll end up. That doesn't seem to

 10 make a lot of sense.

 11 MS. COHEN: I agree with Mr. Hill's

 12 points, and I'm happy to kind of walk through at a

 13 high level. And, again, it's in agreement with

 14 what he said -- what it would look like, and what

 15 it would cost, I think, systemically, to implement

 16 a conduct test.

 17 But, importantly, I'd like to back up a

 18 few more months from November to what I would

 19 argue was the very broad cross-border reach that

 20 the Commission took with the U.S. person

 21 definition, which was implemented with a

 22 tremendous amount of work across the industry,
 38

 1 both buy side and sell side, in the weeks between,

 2 you know, June and October 10.

 3 And in that period of time, we had

 4 thousands of clients located in countries, you

 5 know, everywhere who became U.S. people, and who

 6 are now subject to transaction- level rules. And

 7 in those weeks, we had to work with those clients,

 8 to explain to them what clearing was, what a SEF

 9 was, what the protocols were, how to come into

 10 compliance. It wasn't good enough to know that

 11 they were going to be U.S. people on October 10;

 12 they had to be ready to trade under the Dodd-Frank

 13 framework on October 10.

 14 And that type of entities-based

 15 approach, which we worked very hard to implement,

 16 is fundamentally different than this

 17 trade-by-trade type of implementation that's

 18 proposed by the November advisory. If the

 19 guidance that was given to us back in the spring

 20 suggested a conduct-based approach, we would have

 21 built something all together different than what

 22 was built and implemented very transparently
 39

 1 across the industry over the summer and into the

 2 early fall.

 3 MR. ALLEN: I agree with that. I think

 4 it fundamentally (inaudible) through the relevance

 5 of the U.S. person concept, as expanded in

 6 October, when it comes to U.S. dollar products or

 7 products which are otherwise covered, from a sales

 8 perspective, out of the United States.

 9 As the previous speaker commented, it's

 10 a fundamentally different philosophy and outlook

 11 in terms of how one builds systems and trading

 12 upright of some distribution coverage from the one

 13 which is predicated upon the concept of U.S.

 14 person, which is obviously the one we've been

 15 working with for the last couple of years.

 16 MR. TURBEVILLE: But the concept of U.S.

 17 person is very distinguishable. A U.S. person

 18 engaging in behaviors outside of the U.S. has

 19 certain implications. A non-U.S. Person engaging

 20 in behaviors inside the U.S. has certain

 21 implications.

 22 Criminal law -- somebody can engage in
 40

 1 criminal conduct as a U.S. person and be

 2 prosecuted in the United States, but if a foreign

 3 person comes here and engages in criminal conduct,

 4 they are prosecuted, hopefully.

 5 I don't think anybody else is unclear on

 6 this. Maybe it's just me. I don't really -- I

 7 think it might be more productive to talk about

 8 what kinds of behaviors and activities in the

 9 U.S., at 40 Broad Street, are we talking about,

 10 and whether there really is a nexus between the

 11 quality of the U.S. markets and those kinds of

 12 activities that we've covered.

 13 If everybody else understands that,

 14 ignore that comment.

 15 MR. HILL: The example we're talking

 16 about is, you have a European pension plan who

 17 trades European products on a regular basis; on

 18 occasion, wants to trade a U.S. dollar swap. And

 19 if they're trading with a large German bank, whose

 20 sales force is located in London or in Germany,

 21 they call the sales force in London; clearly no

 22 implication for the U.S.
 41

 1 On the other hand, if they're trading

 2 with a U.S. Bank who has their U.S. sales force

 3 for U.S. swaps located in New York, even though

 4 that transaction will be booked to our London

 5 affiliate, they may talk to a sales person in the

 6 U.S. to understand the swap and understand the

 7 pricing.

 8 And the question is, do you want to

 9 treat those two transactions differently?

 10 MR. COSTA: Historically, that swap

 11 would've been booked to the U.S. -- your U.S.

 12 affiliate, right?

 13 MR. HILL: That is absolutely incorrect.

 14 MR. COSTA: Okay.

 15 MR. HILL: So, when they're trading with

 16 a German bank and covered out of London, we say no

 17 CFTC jurisdiction. Same product -- when they're

 18 trading with a U.S. bank, booking to their London

 19 broker-dealer -- who you have said is a non-U.S.

 20 person under the U.S. guidance -- and the only

 21 contact and the only implication for the U.S. is,

 22 the salesperson, who is the expert in that
 42

 1 product, gets on the phone with the client and

 2 says, "Here's where our levels are today, and

 3 here's some market color." That's the only

 4 difference.

 5 MS. KIM: Can I just clarify? Well, you

 6 know, you're skipping a step here. You're raising

 7 a good point, but the step that we're skipping is

 8 whether that conduct that you describe, the

 9 conduct in the U.S., should be sufficient enough

 10 for us to apply transaction-level requirement.

 11 So, we would like to know more --

 12 MR. HILL: That's exactly the point I'm

 13 making -- is that really sufficient enough? Are

 14 those transaction sufficiently different that you

 15 want to regulate them differently and say, "You

 16 can't rely on substituted compliance for that

 17 transaction; you have to comply with U.S. rules"

 18 -- because if that's what you say -- it's not us

 19 driving this.

 20 MS. KIM: Let me rephrase my question.

 21 MR. HILL: It's not us driving. It's

 22 the clients driving it.
 43

 1 MS. KIM: Right. Let me rephrase that.

 2 MR. HILL: If you say the U.S.

 3 transaction rules apply to that transaction, the

 4 client will not want to trade with us, and they

 5 will choose to trade with the German bank.

 6 My only response to that is to get out

 7 of the business, or to move my sales force to

 8 London, and have two sales forces -- one in

 9 London, covering U.S. products for non-U.S.

 10 clients, and one in New York, covering U.S.

 11 Products for U.S. clients.

 12 COMMISSIONER O'MALIA: And can I -- I

 13 think Wally's point was, let's talk about that

 14 activity. Well, if Wally wanted to talk about the

 15 activity -- this arranging or negotiating activity

 16 -- and to regulate that, that's one thing. But by

 17 implicating that as a U.S. activity, all the

 18 transaction-level and data reporting rules --

 19 everything applies.

 20 It's not simply regulating that

 21 activity, correct? It is not the negotiating that

 22 we're going to regulate; it's everything after
 44

 1 negotiating -- the trading, the swap data

 2 repository, the continuation data. All of these

 3 things become U.S. products.

 4 This might be a different conversation

 5 if we limited it to what Wally noted -- the

 6 activity in the United States.

 7 MS. KIM: No, but that's the question.

 8 There's a spectrum of activities that could take

 9 place in the U.S., to support or to be part of a

 10 swap transaction that's ultimately booked in a

 11 non-U.S. jurisdiction.

 12 At the extreme is, all of the

 13 discussions, the negotiation, dealing with the

 14 material terms of the swap transaction, being done

 15 right out of the U.S.

 16 At the other end, there's something very

 17 ministerial that could include something as

 18 minimal as giving pricing information or market

 19 data information.

 20 The question we're asking in this

 21 release is, in that spectrum, at what point is it

 22 sufficient enough to trigger our jurisdictional
 45

 1 interest?

 2 So, I mean, that's what I meant by

 3 skipping the question here, the threshold issue.

 4 MR. HILL: I would suggest that if the

 5 transaction is being booked to London and the

 6 counterparty is a non-U.S. Person, as per your

 7 release over the summer, then a salesperson being

 8 involved in that phone call -- even saying done on

 9 the trade -- is not a direct and significant

 10 impact on U.S. interstate commerce.

 11 MR. TURBEVILLE: But what you're doing

 12 is saying, if it's booked to London, and if it's

 13 only sales activity, the question is really, what

 14 is the activity that has the nexus?

 15 And I didn't mean to suggest that only

 16 that activity that occurs in the United States

 17 should be -- those are the only rules. Once that

 18 activity is there, then what that means is that

 19 that transaction is part of the U.S. Market, and

 20 the integrity of the U.S. market requires that

 21 that transaction be -- to say, "I can book it

 22 somewhere else and get out of this" -- there's the
 46

 1 inverse of it: "I'll just book it to Micronesia."

 2 So, you've got to talk about what the activity is

 3 here that gets us into the U.S. market.

 4 MR. BARNETT: Let me ask, what would the

 5 outcome be if we allowed U.S. swap dealers to use

 6 substituted compliance? In other words, if we

 7 were to align the top row with the second or the

 8 third row.

 9 MR. HILL: That goes a long way toward

 10 addressing the issue, because if they were

 11 transacting with the German bank, then when we're

 12 transacting with them, we're subject to the same

 13 rules -- then I think it's a level playing field.

 14 Again, it's not us driving this. The

 15 clients are driving it. The non-U.S. client

 16 trading in a U.S. product doesn't want to do RFQ

 17 to three -- or two. They don't want it. That's

 18 why they're dealing with our London affiliate or

 19 with the German bank; it's not us.

 20 F: Just -- I know we could debate facts

 21 for a long time, and perhaps with Jim's firm it's

 22 different, but, typically -- and this goes to
 47

 1 something that he pointed out -- he said the

 2 salesperson in the U.S. is an expert. That's

 3 because the U.S. dollar interest rate swap

 4 expertise and trading activity is, by and large,

 5 housed. It's very, you know, solid in New York,

 6 right?

 7 So, typically, when our firm has traded

 8 U.S. Dollar interest rate swaps, whether out of a

 9 non-U.S. entity or a U.S. entity, we're

 10 interacting with the salesperson who's down the

 11 row from the trader.

 12 Now what was happening last year is, we

 13 were being encouraged to change agreements so that

 14 we could book offshore -- in order to avoid the

 15 burden of U.S. regulation.

 16 So, doesn't that have a direct and

 17 significant connection to the market activity, the

 18 extent of pre-input, like RFQ for two or three. I

 19 understand people want to avoid it, but the

 20 activity is in the U.S. -- the actual arranging or

 21 negotiating.

 22 And there is a market of price formation
 48

 1 and activity that's being impacted by allowing --

 2 again, you had regularly. I get the occasional.

 3 I get the fact that you could be -- you know, you

 4 have a Greek fund who deals with a London

 5 salesperson, and that salesperson is traveling in

 6 New York. They're the relationship person. They

 7 do a one-off trade, right?

 8 But the point was regularly. So, if you

 9 have the sales desk with all that expertise,

 10 calling that trader -- and now, just because

 11 somebody puts another hat on and says, "Well, for

 12 the moment now, I represent an entity in London.

 13 You can avoid those requirements" -- that seems to

 14 me to have a direct and significant impact on

 15 price formation, transparency, and trading in the

 16 U.S.

 17 MR. KLEIN: But, Randall, I think your

 18 point assumes that there is no comparable regime

 19 that would pick up transparency price reporting

 20 and other things outside the United States. And

 21 that's really not what we're talking about. We're

 22 talking about a debate where there ought to be
 49

 1 concepts of substituted compliance, and where the

 2 G20 commitment is built on the concept of a

 3 coordinated regulatory response to what is a

 4 global market.

 5 And in some ways, I find this debate to

 6 be interesting, but not really acknowledging the

 7 realities that there are clients, as Jim alluded,

 8 who are in Europe. And we've talked about the

 9 costs on U.S. dealers. I think Jim's point a few

 10 minutes ago was really the key point. This is

 11 customer-driven. There are clients in the E.U.

 12 that are spending a considerable amount of money

 13 to come into compliance with E.U. reporting rules,

 14 E.U. documentation rules, with business conduct

 15 standards outlined in (inaudible). And the mere

 16 fact that when they pick up the phone, they're

 17 suddenly connected to somebody in the U.S. -- or

 18 even routinely connected to somebody in the U.S.

 19 who might be booking back into Europe -- means

 20 that they now have to ditch all of that

 21 infrastructure and be prepared to comply with a

 22 set of U.S. rules, and that's nonsensical --
 50

 1 particularly in a world where we're not talking

 2 about U.S. Regulation versus no regulation; we're

 3 talking about what ought to be a coordinated

 4 global regulatory approach.

 5 MR. ALLEN: I completely agree with

 6 that. And if I may, just picking up on that point

 7 -- it's not just a case that you wouldn't then be

 8 applying European rules, and you'd be applying the

 9 CFTC's rules instead -- of course, you'd be

 10 applying both. But if you don't have any

 11 substituted compliance, then any progress that's

 12 made in the light of the path forward and various

 13 discussions between the CFTC and the European

 14 Commission are, quite frankly, completely

 15 academic.

 16 MR. NICOSIA: I think one of the things

 17 we have to be very cognizant of is -- I agree with

 18 what Jim was saying -- is that the world's going

 19 to find a way to do this in the most efficient

 20 manner, the way the customer wants. In today's

 21 world, customer is very flexible on where he does

 22 his business -- and is able to adapt very quickly.
 51

 1 So, really, part of the issue is, if all

 2 compliance was the same globally, you wouldn't

 3 have an issue. The bigger you drive the

 4 differences between regulation here and regulation

 5 overseas or anywhere else, the larger the problem

 6 you're going to have to drive business to the

 7 least common denominator of what the participants

 8 want.

 9 So, the largest task that the CFTC has

 10 is actually in negotiation with the substitute

 11 compliance authorities that are around to narrow

 12 that gap, so as then the issues of -- because

 13 there is a cost to be able to have to book that

 14 other transaction and to create a second

 15 workforce.

 16 If you can narrow that cost gap, then

 17 you'll narrow the differences of what other people

 18 -- to what extremes they will go to. But if those

 19 differences are wide, you're either going to have

 20 substitute products -- they're going to take the

 21 place of what looks to be a direct U.S. product of

 22 what they're doing -- and there'll be lookalikes
 52

 1 that they'll get around the law to where they are.

 2 And the business will flow overseas.

 3 MR. KLEIN: I'm going to take issue with

 4 the concept of lowest common denominator of

 5 regulation. I don't think that's the issue. I

 6 think the issue is that it takes systems, and

 7 time, and money to comply with any regulatory

 8 regime.

 9 And to the extent that those regulatory

 10 regimes are not perfectly harmonized -- and they

 11 never will be -- then market participants are

 12 going to build primarily to one regulatory regime

 13 or the other, because it's not cost- effective to

 14 do otherwise. And I think you need to keep that

 15 in mind.

 16 I also think that part of the issue here

 17 that we haven't really talked about is

 18 predictability of regulation, and the fact that,

 19 you know, we've had here a series of events where

 20 very, very significant rules were adopted by staff

 21 guidance and staff no-action letter -- and, in

 22 some instances, even footnotes in those letters.
 53

 1 And that, I think, has been a large part

 2 of the problem, because it makes it extremely

 3 difficult for people to anticipate what they need

 4 to do to comply with the rules.

 5 MS. TAYLOR: I think that point that

 6 we're heading toward about exporting very specific

 7 elements of one jurisdiction's regulation into

 8 another jurisdiction -- the extra-territory

 9 element -- is a much broader problem than just as

 10 being discussed with this particular issue.

 11 And I couldn't agree more that there

 12 needs to be an ability of the regulators to work

 13 together toward an outcome-based assessment of

 14 equivalence, or substituted compliance, or

 15 whatever you want to characterize it as, so that

 16 customers, intermediaries, markets, clearinghouses

 17 are not being forced to meet sets of requirements

 18 that are, in some cases, in opposition to each

 19 other.

 20 MR. O'CONNOR: Just looking at the

 21 overseas bank angle for a second -- I was in

 22 France last week, and party to a discussion
 54

 1 between a French bank and a French regulator,

 2 where they were talking about a fact pattern where

 3 a French corporation wants to do a Euro swap with

 4 a French bank, but because it's out of house, the

 5 book is passed to the U.S., and there's a trader

 6 for that French bank in New York who executes the

 7 trade, and then passes the risk back to Europe the

 8 following morning.

 9 They were just expressing consternation

 10 that that could, in any way, be picked up by U.S.

 11 regulation.

 12 MR. BARNETT: Okay. So, following on,

 13 then, from the point about substituted compliance

 14 and thinking about the guidance -- and the first

 15 line -- I guess, moving down, when we look at what

 16 we've got going on on the second and third rows,

 17 and looking at the differences between the two

 18 bottom horizontal rows -- what about those two?

 19 Are they creating competitive disadvantages

 20 between the two types of swap dealers?

 21 MR. BARNETT: Obviously, they're the

 22 same, except for the true foreign trades.
 55

 1 MR. ALLEN: I think, just as a general

 2 observation about it, the point one of the

 3 previous speakers made, I think, is quite relevant

 4 to this -- which is the issue of the global

 5 international regulation of this activity can't

 6 just be looked at exclusively through the U.S. law

 7 lens -- or the CFTC law lens.

 8 A lot of the activities which take place

 9 where activity is traded in London, where client

 10 is in London, maybe the dollar product expertise

 11 based in New York, which is why that person is on

 12 the phone -- but, otherwise, that activity is

 13 almost exclusively London-based.

 14 That is going to be picked up as a

 15 matter of U.K. Regulation. The PRA and the FCA,

 16 in that particular example, will have particular

 17 views about how they believe that conduct and

 18 interaction with clients ought to occur.

 19 So, I think when we look at this

 20 question of symmetry and competitive application

 21 of CFTC's rules to one type of entity or another,

 22 I think it has to be done in the context of
 56

 1 looking internationally at, what is the aggregate

 2 framework of regulation that applies to that

 3 activity more holistically -- and not exclusively

 4 to the CFTC Title VII lens?

 5 MR. BARNETT: Additional thoughts? I

 6 mean, I think what you're saying, then, in that

 7 context is -- looking to cut it at some point --

 8 then you're saying -- again, I'm trying to think

 9 about in a practical term. You're thinking about

 10 the bottom row, in terms of total deference,

 11 because it stops certain requirements at some

 12 point.

 13 Or are you just talking conceptually?

 14 MR. ALLEN: Well, I certainly think the

 15 bottom right box ought to stay as it is. That

 16 would be very worrying.

 17 But I think the point -- which has

 18 already been raised by a couple of people -- so,

 19 kind of to my mind, falls into two conceptual

 20 categories.

 21 The one -- which I know people have

 22 different views about, but is -- I go back to the
 57

 1 point I made with my initial column. The concept

 2 is kind of following the risk.

 3 If that activity is essentially taking

 4 place outside of the United States -- it's been

 5 booked into a non-U.S. entity (inaudible) may well

 6 be traded there, as well. And all you have is

 7 dollar product expertise assisting in the

 8 negotiation of that product with a client.

 9 I think one has to look very carefully

 10 at what rules you would expect to apply exported

 11 into that relationship, in a transaction-level

 12 capacity, given, as Commissioner O'Malia pointed

 13 out, the kind of application of U.S. rules that

 14 would be triggered under the advisory, as it

 15 currently stands, would go substantially beyond

 16 the specific actions of that individual on the

 17 phone, and would extend to that transaction more

 18 generally.

 19 I also think -- and this is the second

 20 of the two conceptual categories that I have in

 21 mind -- even if one doesn't accept that point, the

 22 absence of substituted compliance, in that
 58

 1 context, is going to be a real on-the- ground,

 2 practical execution problem when you're conducting

 3 that transaction in my example in London --

 4 because you're going to be absolutely bang to

 5 rights, within the scope of U.K. rules and U.K.

 6 regulations, as pushed out from the European

 7 Commission, and being applied by the FCA and the

 8 PRA in the U.K., relations to that relationship.

 9 Now even if he gets to a place where the

 10 system of rules in Europe is virtually identical

 11 to that of the United States, if you don't have

 12 substituted compliance in that context, then it

 13 becomes completely academic that you have a

 14 similar outcome, because the institution in

 15 question will have to comply simultaneously with

 16 both -- and no discussions about an outcomes-based

 17 or otherwise perspective as to the equivalence or

 18 otherwise view of substituted compliance with the

 19 (inaudible) regime will be of any relevance

 20 whatsoever.

 21 CHAIRMAN WETJEN: Gary, if I may, I

 22 think what you were asking, though, is -- I
 59

 1 appreciate Chris's point, but I think, just to try

 2 and clarify, if I can -- if I understood it right

 3 -- try and clarify Gary's point or question.

 4 I think what you are asking is the box

 5 to the far right -- so it's in the last column to

 6 the right, and it's the middle row -- is

 7 substituted compliance the right words to have in

 8 that box, or, instead, should it be total

 9 deference? I think that's what you're asking,

 10 wasn't it?

 11 MR. BARNETT: Yeah, but I think I'm

 12 understanding it. I'm just trying to think about

 13 how to apply in a practical way, you know. And,

 14 obviously, substituted compliance is better than

 15 direct compliance from some perspective. Total

 16 deference would be loved by all for certain things

 17 -- and which things, and which not -- but I think

 18 it aligns with -- I mean, I understand what he's

 19 getting at.

 20 Certain things should fall through. Now

 21 whether it's the transaction doesn't get picked

 22 up, or it gets caught but the requirements don't
 60

 1 apply, I think, are sort of the same. You get the

 2 same end result, I think.

 3 MR. ALLEN: Just on the point about the

 4 difference between those two lines for the far

 5 right box, as it falls under true foreign -- I

 6 think it's difficult to answer the question

 7 completely in the abstract. It kind of depends

 8 what total deference would mean, because the

 9 position, as it would apply to a bank which is

 10 established in the E.U., is potentially quite

 11 different from the position of an entity which is

 12 operating through a branch in the E.U., but has

 13 not otherwise established that.

 14 European law takes a very different view

 15 as to the outcome, in terms of the application of

 16 rules -- certainly under the EMIR regulation,

 17 which, of course, is directly relevant as an

 18 analog to our discussion around Title VII. So,

 19 there is a basis for distinction there, as a

 20 matter, at least, of European law, in terms of how

 21 it would answer that question.

 22 MR. LESAGE: Again, I think I'm
 61

 1 concurring somewhat with how Chris was outlining

 2 things -- just say again, this has to be done

 3 under the focus of global harmonization, because,

 4 for the case of our company, we've got, you know,

 5 a number of affiliates, you know, in Europe that

 6 we've Dodd-Franked, and then now, due to EMIR,

 7 they've got to go through, you know, regulatory

 8 compliance, work with that. So, it's duplication,

 9 you know, across the board -- redundancies.

 10 You know, and a different example we

 11 face is that we get customers in Australia that

 12 we're, you know, explaining, going through the

 13 process of getting them, you know, Dodd-Franked.

 14 And they -- you know, to explain to them, you

 15 know, relative to what their license practice is

 16 already in Australia, and under their regulations,

 17 it's easier for them just to say, "Yeah, no, I

 18 feel more comfortable with what I currently know,

 19 and how I've currently been operating."

 20 So, frankly, we've seen that, from a

 21 competitive standpoint, to be a disadvantage, you

 22 know, for us in operating globally -- is that
 62

 1 these -- again, since there's not this

 2 harmonization -- or at least a base level of

 3 standards of harmonization -- you're going to

 4 create pockets of, you know, ineffectiveness, you

 5 know, frankly, due to duplicity many times. And

 6 it's very, very confusing for customers.

 7 So, it's unfortunate we don't have more

 8 customers at this table to talk about how -- and

 9 maybe that's for the next meetings, because, you

 10 know, some global customers have complained

 11 vigorously to us about how onerous the process has

 12 been.

 13 COMMISSIONER O'MALIA: I do find it

 14 interesting that the temperature's gone down when

 15 we start looking at entity-level charts. We don't

 16 really disagree with the entity-level chart. What

 17 we start to disagree -- and where we started this

 18 whole discussion -- is activity base. And then

 19 that throws your chart completely off when we tell

 20 the world this is the entity and how the rules

 21 apply, and then we substitute another test --

 22 which was Samara's test -- concern about -- then
 63

 1 you apply an activity test to everything.

 2 And then that's when everything comes

 3 off the rails about who's in charge, and what

 4 activity, and when it becomes direct, and when it

 5 becomes significant. And, you know, the

 6 temperature's lowered around here. Everybody kind

 7 of sees where the boxes are, and it makes sense to

 8 them, right -- until we start applying it.

 9 And I think that's where we're back into

 10 the soup.

 11 MR. KLEIN: I think that leads to an

 12 important macro-point that doesn't really answer

 13 your question, but I think there are all kinds of

 14 problems with trying to come up with an effective

 15 conduct-based test.

 16 But to the extent that you're going to

 17 apply a conduct-based test, it has to be applied

 18 across the board -- otherwise, you're going to

 19 create competitive disparities based upon business

 20 organizations that don't really lead to different

 21 results.

 22 So, it's a bad idea, but if you're going
 64

 1 to do it, you need to do it across the board.

 2 COMMISSIONER O'MALIA: Right.

 3 MR. TURBEVILLE: Just remember, there

 4 really are two different things going on when you

 5 talk about jurisdiction and conflicts of law.

 6 There's entity and there's activity.

 7 And, again, just because you're a foreign

 8 national, and you rob a bank in the United States

 9 doesn't mean you get tried -- say you're a French

 10 national; you don't get tried in France.

 11 So, these things are almost inevitable,

 12 if you're going to deal in an international

 13 market. I was with Goldman Sachs for five years

 14 in Europe, and we had many things that made us

 15 competitively disadvantaged -- part of which is,

 16 they gave me a very generous housing allowance

 17 that I used, that undoubtedly was a drag on

 18 Goldman Sachs's performance in Europe, my house

 19 allowance.

 20 But those are facts, and those are true,

 21 and those can never be -- I mean, I don't think

 22 the goal of this is to wipe out some of the issues
 65

 1 of disparity that occur when U.S. banks go global,

 2 when European banks go global.

 3 So, to me, that chart is perfectly

 4 logical, with its focus on activities, and it's

 5 just up to us to come up with the right standards.

 6 MS. COHEN: I have to say, the bank

 7 robbing analogy is a little confusing to me. I

 8 mean, we're talking about -- and we could give you

 9 a whole host of other examples, but we're still

 10 talking about activity between a non-U.S. person

 11 and -- I mean, this gets to Scott's point -- a

 12 regulated, registered swap dealer with the

 13 Commission.

 14 So, these trades are being reported to

 15 the SDR. Entity-level requirements have applied,

 16 and we're talking about the application of

 17 transaction-level rules in a place that the

 18 customer has no expectation of being subject to

 19 these kind of Dodd-Frank-specific elements, like

 20 having to sign up to a protocol, and having your

 21 trades publicly reported.

 22 But they're still training with the CFTC
 66

 1 registrant.

 2 MR. TURBEVILLE: I think that this is

 3 not about protection of the customer; this is

 4 about effect on the U.S. Marketplace. So --

 5 MR. HILL: Sorry; RFQ2 is specifically a

 6 customer -- theoretically, at least -- a CFTC

 7 customer protection rule that is specifically the

 8 rule that non-U.S. clients would like not to have

 9 applied to them. So, it is about customer

 10 protection.

 11 MR. TURBEVILLE: I view RFQ2 -- maybe we

 12 should do it differently -- as not so much saving

 13 a customer from hurting itself as a question of

 14 market integrity that's part of the Dodd-Frank

 15 Act, that suggested prices should be competitively

 16 set -- not just for the customer, but because of

 17 the integrity of the marketplace.

 18 MR. COSTA: And to Bob's earlier point

 19 -- isn't it a bit of a timing thing when we talk

 20 about reciprocity? In Europe, there isn't yet an

 21 effective derivatives reform trading structure.

 22 When we have equivalents, then you could imagine
 67

 1 boundaries. The line will have to be drawn.

 2 So, you could say, for this use case,

 3 you have two non-U.S. parties that are arranging

 4 where you have the arrangement, the negotiation,

 5 and the execution in the U.S. If you flipped it

 6 around, presumably when Europe has, for example, a

 7 comparable regime, you know, it could work the

 8 same way.

 9 In other words, you could have two U.S.

 10 parties that are negotiating a trade through

 11 Europe. It's possible that then the European

 12 rules would apply, because that was the nexus.

 13 I recognize that's jurisdictional, but

 14 that would achieve the reciprocity that we're

 15 talking about. Today, that doesn't exist.

 16 There's a time lag to, you know, follow on Bob's

 17 point.

 18 MR. HILL: Just to be clear, the test is

 19 not negotiating, arranging, and executing; it's

 20 or.

 21 So, for example, I can price a trade in

 22 Europe. I can execute a trade in Europe. But if
 68

 1 I have a documentation person sitting in New York,

 2 negotiating the ISDA master agreement -- in a way

 3 that has an impact on price -- I now am subject to

 4 the U.S. rules.

 5 If it was and all of those things, it

 6 might be a very different test. But it's not.

 7 It's or.

 8 MR. HEPWORTH: A point of clarification

 9 -- does the substituted compliance really mean

 10 substituted compliance if positively affirmed;

 11 otherwise, direct compliance?

 12 MR. BARNETT: Yes, and that's an

 13 important point, because even if you went to two

 14 or three, for instance, you'd have places where it

 15 wouldn't work. And you have to deal with that, as

 16 well.

 17 So, I'd have to think about how to deal

 18 with that, as well. So, what I'm hearing is that

 19 moving towards trying to find something that

 20 harmonizes better -- we can think of some ways to

 21 do that, and then there's still some issues like

 22 that, to figure out how to deal with better.
 69

 1 MR. HEPWORTH: And is there

 2 consideration of perhaps two paths toward

 3 substituted compliance -- one being --

 4 MR. BARNETT: I can't talk about it. I

 5 don't -- yeah. But we understand your point.

 6 MR. HILL: The CFTC makes these kinds of

 7 distinctions all the time. For example, if I have

 8 a commodity pool that is sold to all non-U.S.

 9 investors, but it is traded out of New York -- all

 10 of the trading decisions are made in New York --

 11 and the FCM is located in New York, as long as all

 12 the investors are located offshore, the CFTC says,

 13 "That commodity pool's not within my jurisdiction,

 14 and an exemption is granted."

 15 So, it's not like we're asking or

 16 suggesting the CFTC should change the way they

 17 think about rules. In fact, I think I would

 18 suggest that we're asking to be consistent in the

 19 swap space, as you are in other spaces.

 20 MR. TURBEVILLE: Sorry to do this again,

 21 but the fact is, the rules we're talking about are

 22 for a different purpose. And you can actually
 70

 1 reach two different conclusions easily. I mean,

 2 Title VII did things that have never been done

 3 before, and went to areas that have never been

 4 done before because of the relationship between

 5 this market and, you know, the greatest financial

 6 calamity that the planet has experienced, bar one.

 7 So, there are two different purposes,

 8 and just because the commodity pool rule exists

 9 doesn't mean --

 10 MR. BARNETT: Yeah, we sort of have

 11 almost two kind of U.S. person kind of things in

 12 the commodity pool space, in two different

 13 contexts. And you're right. And then Title VII

 14 has got its own impact and rules.

 15 But as we work through other things, we

 16 can think, for instance, why somebody should be a

 17 U.S. person in one context, but maybe shouldn't

 18 for another, because of, you know, risk

 19 importation reasons. But that doesn't change the

 20 -- we get that. That's sort of legal analysis.

 21 And the other part is, you know, getting

 22 this to practically work right.
 71

 1 MS. COHEN: I would just come back to --

 2 quickly -- I mean, you said that quite quickly,

 3 but multiple U.S. Person definitions just, like,

 4 systematically are --

 5 MR. BARNETT: Makes you shake, huh?

 6 MS. COHEN: Yeah, they do make me shake.

 7 I mean, we've already coded our systems with, you

 8 know, CFTC U.S. Person and SEC U.S. person plats

 9 with the expectation that they may come out to be

 10 different.

 11 But the fact is, you're exactly right.

 12 And our clients point this out to us on numerous

 13 occasions -- there's more than one U.S. person

 14 definition operating within the CFTC. So, think

 15 about the complexity of overlaying a

 16 trade-by-trade transaction-level rule test on top

 17 of that.

 18 Practically speaking, it's just

 19 incredibly difficult -- and, therefore, very

 20 expensive.

 21 MR. BARNETT: I don't disagree, and I'm

 22 not trying to be argumentative, but just,
 72

 1 sometimes, U.S. person is not supposed to be an

 2 objective standard of who is a citizen. You know,

 3 it's partly to achieve a regulatory goal that's

 4 stated.

 5 So, you know, in terms of, like, the

 6 Title VII U.S. person thing, it's like, with whom

 7 should we look for sufficient contact in the U.S.?

 8 What transactions do we look at to see if there's

 9 been sufficient contact with the U.S.?

 10 So, you might end up with one thing

 11 there for those purposes. We call it U.S. person,

 12 but we weren't trying to define you're a U.S.

 13 person, but you're -- it's sort of for that

 14 purpose.

 15 And there's, you know, other contexts,

 16 where you end up with different results -- again,

 17 in the commodity pool space. We've got two

 18 different ones and two very different rules to

 19 different things.

 20 But I totally get what you're saying.

 21 We can't lose sight of efficiency and, you know,

 22 how to make this work right, and thinking that we
 73

 1 can just start using multiple definitions, you

 2 know, just won't work. I mean, I get the point.

 3 MR. HILL: And even if you could make it

 4 work, I still think where you end up is, the end

 5 result is, the European clients either won't trade

 6 with those dealers who have sales coverage in the

 7 U.S. -- and, ultimately, those salespeople will

 8 simply be moved to London to cover those clients.

 9 So, even if you think this is the right

 10 answer, the outcome is not what you want it to be,

 11 I think.

 12 MR. MAHAJAN: I just wanted to make a

 13 couple of comments.

 14 We're neither a bank nor a customer, so

 15 I'm not sure we're particularly relevant to this

 16 discussion, but we provide a lot of liquidity

 17 globally.

 18 So, I find the arguments -- and I

 19 started my career at a bank -- I find the

 20 arguments around avoiding customers incurring

 21 duplicative regulatory costs to be extremely

 22 persuasive. I think that's self-evident.
 74

 1 I find it less persuasive linking that

 2 argument to an aversion to RFQ2. And that's

 3 because I think that is a very different issue.

 4 It's about transparency, and it's about price

 5 formation. And I would submit sort of two

 6 arguments around why that's -- if you could

 7 decouple them as regulators, I actually think you

 8 would be on pretty solid ground.

 9 You know, one, that foreign pension fund

 10 more than likely does business with Morgan

 11 Stanley, Goldman Sachs, Barclays on any given day.

 12 So, the notion that, for one particular

 13 transaction, they're going to have a problem with

 14 getting two indications -- yeah, I just don't find

 15 that credible.

 16 And I think the second, from a customer

 17 perspective, there's always going to be an initial

 18 aversion to the RFQ-type sort of process. It's

 19 just inconvenient. There's going to be some

 20 process. But there is precedent, whether it's

 21 corporate bonds or others, to that ultimately

 22 being adopted. And you've got large, public,
 75

 1 successful companies, like Market Access, as a

 2 testament to that.

 3 MR. HILL: I think you should review the

 4 comment letters that were submitted by buy side

 5 firms on the RFQ proposals, because what you said

 6 is actually inconsistent with the views of --

 7 MR. MAHAJAN: Self-selection.

 8 MR. KLEIN: I'm going to suggest that

 9 talking about RFQ is not really constructive to

 10 this dialogue -- because I think RFQ is not in the

 11 G20 communiqué, and it's not in Dodd-Frank. I

 12 think the different regulators in different

 13 jurisdictions can choose different paths toward

 14 creating open, transparent markets. And if a

 15 regulator in another jurisdiction chooses a

 16 different path, that does not mean they are

 17 presumptively wrong, and the CFTC should be

 18 applying RFQ to transactions that are

 19 predominantly located in that jurisdiction.

 20 But I'm not sure getting down to this

 21 micro-level is really helpful, because the point

 22 is, there are going to be different regulatory
 76

 1 approaches. And the question is, you know, how do

 2 you sort out the potential overlap with those kind

 3 of micro-issues?

 4 MS. TAYLOR: And, again, if the focus is

 5 on the outcome being relatively equivalent, in

 6 terms of safety, soundness, transparency, whatever

 7 the goal is, then I couldn't agree more that the

 8 application of micro-specific details being

 9 exported across jurisdiction is problematic.

 10 MR. HARRINGTON: One of the things that

 11 we've seen, as a SEF, is that, you know, through

 12 the on-boarding process, there were about 650

 13 clients that are now signed, ready to use the RFQ

 14 system.

 15 I think, you know, there's general

 16 concern, there's general trepidation about using

 17 it, but I think people are getting over that. I

 18 think that Samara touched on it briefly. The

 19 reporting is absolutely the big difference, right?

 20 So, the fact that you have this -- your

 21 trades are hitting a tape, the tape is public,

 22 everyone can see it -- versus in a mirror. You
 77

 1 have to report to a TR. First off, you're

 2 reporting on T plus one, but second off, it's

 3 disappearing. It's not going anywhere. It's

 4 aggregated in a way that no one can make out what

 5 happens -- especially when you're talking about --

 6 maybe not in the on-the-run index market, where

 7 it's so liquid and it's, you know, not so obvious.

 8 But when you get into interest rate

 9 swaps, and you're getting into, you know, specific

 10 interest rate swaps, you know, if you have a

 11 certain trading strategy, it's very, very clear to

 12 people who are in the know of what's going on in

 13 the market that one particular type of account

 14 trades a particular type of product, and that is a

 15 huge difference.

 16 So, when you talk substituted

 17 compliance, if you know, you have one going into

 18 an SDR in the United States, that's printing. You

 19 have one going into a TR, it's very clear what the

 20 clients are going to prefer, if they have a

 21 choice.

 22 MR. COSTA: But that also suggests that
 78

 1 markets are, in fact, jurisdictional in some ways,

 2 right? You have a U.S. dollar swap market. And

 3 if you can take a piece of it and hive it off,

 4 whatever people want and for whatever reasons,

 5 that has a potential significant and direct effect

 6 on the integrity of the market.

 7 MS. VEDBRAT: I'd just like to, you

 8 know, add a little bit, you know, to the debate.

 9 So, as we're making these decisions, I

 10 would encourage not losing sight of how onerous

 11 this could be for the end user. When we're

 12 talking about non-U.S. clients that have the

 13 optionality of trading, you know, with pure

 14 European counterparties, we tend to do two tasks.

 15 One is, like, you know, maybe they will

 16 be willing to adhere to Dodd-Frank, and then we

 17 will consider at the asset management firm, will

 18 there be a liquidity hit to the end price? You

 19 know, because as a fiduciary, we have to make sure

 20 that we're able to get the best price possible.

 21 So, if the client doesn't want to

 22 adhere, then it's very simple: We just will deal
 79

 1 with the counterparties that we are assured we

 2 won't have any conflict. But if they are willing

 3 to adhere, the question that we get is, once the

 4 European regulation, you know, comes to play or we

 5 have more clarity, is there going to be a

 6 conflict?

 7 And for that, we actually have no

 8 answer. So, you ultimately end up in a situation

 9 that you have to take the most conservative view

 10 -- and that is to deal with the pure European

 11 counterparties -- which I don't think is actually

 12 beneficial, from a pricing perspective, to the

 13 client.

 14 MR. BARNETT: Thank you. Other

 15 thoughts? That's very helpful -- appreciate it.

 16 CHAIRMAN WETJEN: Gary, you have some

 17 other questions, too, don't you, for the group?

 18 MR. BARNETT: I think that the overall

 19 arching conversation's covered a lot of the

 20 questions we had prepared. So, I mean, if we

 21 want, we can cover other cross- border issues,

 22 other thoughts about it. I think we have a lot
 80

 1 from this that we can come back and talk to you

 2 about, with respect to, what should we do about

 3 where we're going with this part of the guidance?

 4 CHAIRMAN WETJEN: I have a quick

 5 question. So, we're looking at this graph, Gary.

 6 I think what we're talking about here is, again,

 7 the bottom right box, and how the effect of the

 8 guidance, in some circumstances, anyway, put

 9 people in the box two rows about it, right?

 10 MR. BARNETT: Yep. Correct.

 11 CHAIRMAN WETJEN: And, you know, this

 12 might not even be necessary, but another way to

 13 potentially do this -- and this doesn't account

 14 for problems that we continue to have with timing

 15 -- but maybe there's some lower amount of activity

 16 on U.S. soil that would render that top right box

 17 eligible for substituted compliance. I'm not sure

 18 that's necessary, as a matter of policy, but it

 19 could be a workable, practical solution.

 20 MR. BARNETT: I think we have the

 21 competition issue to deal with, as well, but I

 22 take your point on the activity -- and what's the
 81

 1 threshold, and --

 2 CHAIRMAN WETJEN: Yeah, and I'm thinking

 3 specifically about Europe -- whether it's total

 4 deference or whether it's substituted compliance.

 5 The same rules would be followed if you're talking

 6 about a European pension fund facing a non-U.S.

 7 dealer registered with the CFTC -- located in

 8 London, for example.

 9 MR. BARNETT: Mm-hmm. Right.

 10 MS. TAYLOR: I'm not an expert on the

 11 way this would affect this specific issue, but I

 12 have seen other cases where activity-based limits

 13 that drive cliffs about other regulations applying

 14 do tend to have a significant impact on how people

 15 do their business.

 16 People do anything they can to avoid

 17 going over the edge of the cliff, and that, I

 18 think, is a problem with specific activity

 19 level-based requirements.

 20 MR. TURBEVILLE: Would you suggest that

 21 if somebody did everything associated with a

 22 transaction in the United States, and booked it to
 82

 1 London, that activity should have no effect on the

 2 outcome of what market protection- based

 3 regulation applies?

 4 MS. TAYLOR: I think the gentleman from

 5 Barclays keeps coming back to, where's the risk?

 6 And I think, in a lot of cases --

 7 MR. TURBEVILLE: I'm not interested in

 8 what risk. It's protecting the market. Okay,

 9 maybe I'm wrong, but you're disagreeing with my

 10 basic premise.

 11 MS. TAYLOR: The risk is a big element

 12 of protecting the market. And I'm not saying it

 13 should be a free-for-all, but there are a variety

 14 of jurisdictions who have adopted a variety of

 15 different elements of the policy objectives, in

 16 slightly different ways.

 17 And to the extent that there can be kind

 18 of an application of international calibration of

 19 outcomes, as opposed to -- if everybody applies

 20 their most specific rule to every entity, every

 21 transaction, every activity, every product, we are

 22 going to have a marketplace globally that nobody's
 83

 1 going to be able to trade, because it's going to

 2 become vastly too -- you want to buy safety up to

 3 a certain point, and then you don't want to buy

 4 anything.

 5 MR. TURBEVILLE: Yeah, there's an urge

 6 to make it a completely global marketplace. And

 7 there should be one- world government.

 8 But we actually have different

 9 jurisdictions. I mean, it does happen, and we

 10 spend --

 11 CHAIRMAN WETJEN: Just look around the

 12 table. It seems a lot of people disagree with

 13 that last point.

 14 MR. TURBEVILLE: It's a benign one-world

 15 government, right?

 16 But the --

 17 CHAIRMAN WETJEN: I still don't see

 18 nodding heads.

 19 MR. TURBEVILLE: Yeah, exactly. But the

 20 point is -- I mean, I'm going to just invert a lot

 21 of the arguments that are happening here. I go

 22 back to my hometown, Nashville. I set up a
 84

 1 complete trading shop with everything there, and

 2 then I set up in London an entity to which to book

 3 the trade -- a risk entity that's just a vehicle

 4 for clearing operations --

 5 The fact is, we're stuck with the

 6 concept of jurisdiction. We're stuck with the

 7 fact that this organization spent a heck of a long

 8 time trying to figure out, what is the right way

 9 to configure a transparent marketplace? And came

 10 to a conclusion. And the question is where you

 11 draw the lines.

 12 And activity -- I just can't see that

 13 activity shouldn't be relevant to that, since

 14 we're stuck with it.

 15 MR. HILL: To use your example, though

 16 -- in that situation, where you've got a London

 17 client, the transaction's being booked to a London

 18 entity, and there is some activity in the U.S. --

 19 I mean --

 20 MR. TURBEVILLE: I said all of the

 21 activity in the U.S.; it's just a shell booking --

 22 MR. HILL: Okay, well, we're not talking
 85

 1 about shells in London, because they're registered

 2 swap dealers. So, they're not shells, obviously.

 3 There's a whole requirement for capitalization and

 4 everything else associated with these entities.

 5 They're not shells.

 6 But let me just go back to your --

 7 MR. TURBEVILLE: Sorry; a single-purpose

 8 entity. But my point is, I'm just inverting the

 9 argument --

 10 MR. HILL: I understand, but they're

 11 U.S.- registered swap dealers, not shells.

 12 But to go to your example -- so, in that

 13 case, where it's a European pension plan, and a

 14 European-based U.S. swap dealer, and there's

 15 activity going on in the U.S. And so you would

 16 apply the U.S. rules.

 17 Would you suggest that the European

 18 rules shouldn't apply, or are you suggesting that

 19 they both should apply? Because, surely, the

 20 European regulator -- in my example, London -- the

 21 U.K. regulator has an interest in protecting the

 22 U.K. pension plan. So, would you apply both sets
 86

 1 of rules?

 2 MR. TURBEVILLE: I can't speak to the

 3 outcome of what I would -- since there is no

 4 one-world government, I actually can't speak to

 5 the outcome.

 6 But what I can speak to is that the

 7 transaction- level requirements of the U.S. law

 8 should apply.

 9 MR. HILL: Okay. So, what happens if --

 10 MR. TURBEVILLE: And, in fact, what

 11 should happen is that the Europeans should defer.

 12 MR. HILL: So, it's a European pension

 13 plan, with all the retirement money of all the

 14 European pensioners, and it's being booked to a

 15 European bank --

 16 MR. TURBEVILLE: Transacted in the U.S.

 17 market. The European pension plan came to the

 18 U.S. market to transact, because all the

 19 activities are in the U.S., in the marketplace.

 20 MR. HILL: So, the European regulator

 21 has no interest in protecting the European pension

 22 plan, whose assets are being traded by a European
 87

 1 asset manager.

 2 MR. TURBEVILLE: Yes. Again, that's a

 3 straw man argument. I'm not saying that the

 4 European pension plans shouldn't be protected. I

 5 mean, they should be. But the integrity of the

 6 U.S. market should be, also, and those are two

 7 different things.

 8 MR. HILL: Well, what happens when the

 9 rules are inconsistent?

 10 MR. TURBEVILLE: If there's a European

 11 company that comes and buys products in the United

 12 States, the rules and regulations for production

 13 of that product in the United States should apply.

 14 And then that entity can take it back to Europe,

 15 and use it in accordance with the rules that apply

 16 in Europe. So, they're two different things.

 17 And what I'm saying is that there are

 18 activities that suggest very strongly, to the

 19 point of being, to me, fairly obvious, that those

 20 activities happening in the United States should

 21 attract U.S. transaction-level regulation.

 22 MR. COSTA: Isn't a theme of this
 88

 1 discussion risk versus the integrity of a market

 2 in a jurisdiction?

 3 So, I thought a lot of this table was

 4 driven by the concern that, from the side of an

 5 entity that ends up -- in any of these paradigms

 6 -- as a U.S. nexus, the risk finds its way back,

 7 right?

 8 A situation, let's say, where a swap is

 9 booked offshore, but it's back-to-back to the

 10 United States, which we all know is a structure

 11 that can be widely used.

 12 So, part of the goal there was focused,

 13 indeed, on risk and entity. But there is a

 14 separate point, just to distinguish, about the

 15 integrity of a market.

 16 MR. O'CONNOR: So, Randall, just picking

 17 up on that -- and I think --

 18 CHAIRMAN WETJEN: And, Steve, sorry to

 19 interrupt, but after your point, maybe we'll take

 20 a break.

 21 MR. O'CONNOR: You think I'm going to be

 22 so exhausting?
 89

 1 I think when Jim made a point earlier,

 2 you said -- I forget the exact fact pattern, but

 3 it was two parts. He's based in European. One

 4 could have been the overseas branch or sub of a

 5 U.S. bank. If they were executing a dollar

 6 interest rate swap, say, and the salesman was in

 7 the U.S., and he provided market color, that trade

 8 had an impact on price discovery in the U.S. --

 9 therefore, that should get on the radar.

 10 Surely, that, though, extends,

 11 therefore, to any U.S. dollar interest rate traded

 12 throughout the world. And if so, isn't the

 13 logical extension of that argument that the CFTC

 14 should regulate any dollar swap, wherever traded,

 15 between whatever parties, even if everything is

 16 totally offshore?

 17 CHAIRMAN WETJEN: Someone can respond

 18 before we break.

 19 MS. BRADBURY: Well, I think one of the

 20 issues is, as someone was saying earlier, we don't

 21 yet know what the rules are going to be other

 22 places. And so it's hard to have this discussion
 90

 1 when we sort of only have half the sky clear; the

 2 other half looking like snow right now.

 3 So, at the end of the day, you know, in

 4 a year from now, the clients in Europe who don't

 5 want currently to have U.S. rules apply to them

 6 may think, "Gee, those are good rules. You know,

 7 I'd like to trade U.S. interest rate swaps in New

 8 York. That's a better deal for me."

 9 And so it's very hard for clients who

 10 may not have to comply now, unlike my firm, which

 11 is pretty firmly in the U.S. category. They don't

 12 know how to make that judgment. And I think if we

 13 can maybe, over time, really ask the Commission to

 14 work closely with your colleagues in other

 15 jurisdictions so we get, if not identical, kind of

 16 similar, analogous, you know, substitutable rules

 17 that will help everyone -- because if, you know,

 18 you would like most U.S. Interest rate liquid

 19 swaps to be traded on these SEFs, that would be

 20 really good for customers -- but as opposed to a

 21 very split market, you know, with less liquidity

 22 and less transparent pricing.
 91

 1 But I think it is literally hard to have

 2 this discussion when you don't know what the other

 3 rules are going to be. That's the challenge for

 4 the Commission and, I think, your colleagues

 5 overseas.

 6 MR. NICOSIA: Yeah. If I could, though,

 7 I think Stephen's question was a really good one,

 8 because the argument sometime is switching here

 9 from the ability of transparency and what's right

 10 for the market versus other regulatory issues.

 11 And then we're trying to define a line

 12 of how much interaction, whether it's sales force,

 13 whether it's color -- where do you cross the line

 14 that U.S. picks up jurisdiction? And you can get

 15 to the point where it's so minute that his

 16 question then becomes relevant.

 17 MR. TURBEVILLE: Right, but that's not

 18 what --

 19 MR. NICOSIA: And is it just the

 20 interest rate swap, or is it the U.S. product in

 21 and of itself that drives the jurisdiction or not?

 22 So --
 92

 1 MR. TURBEVILLE: The United States has

 2 an interest in the product itself, no matter where

 3 it happen. However, that's as an interest.

 4 That's not to suggest that this process would pick

 5 that up, and that's not to suggest that I wouldn't

 6 suggest this process should pick it up.

 7 So, the fact of the matter is, what has

 8 been chosen to be the indicia have to do with

 9 activities -- and you can say, no matter how many

 10 activities in the United States occurred, our

 11 rules shouldn't apply -- or not.

 12 I happen to think that the discussion

 13 should be around what kinds of activities are that

 14 make it part of the U.S. market, as opposed to

 15 just an interest rate swap that happens in

 16 Micronesia, and safeties and rules shouldn't

 17 apply.

 18 MR. NICOSIA: It's very difficult to get

 19 to define a rule according to degree of either

 20 activity or level of activity. You have to be

 21 able to choose between what it is you're going to

 22 regulate against. It's either going to be against
 93

 1 the product, it's either against the jurisdiction,

 2 the locale, the activity.

 3 But you cannot just apply a general

 4 feel-good-man story to everything and say, "If I

 5 believe I want to do this when it's good, but I

 6 won't in that case."

 7 MR. TURBEVILLE: But that's what the law

 8 says all of the time.

 9 SPEAKER: That's actually the great

 10 answer to Steve's, you know, interesting question,

 11 which is jurisdiction -- as, I think, you know,

 12 the SEC has found for over a long jurisprudence,

 13 is a very clean way of drawing that materiality

 14 distinction, right?

 15 The U.S. interest rate swap market,

 16 against which, you know, Treasury trading is used

 17 to hedge -- it's very centered here. So, when

 18 we're talking also about, how do you define a

 19 workable construct for a market with integrity, a

 20 market where everybody plays by the same rules,

 21 jurisdiction is a very logical line to do it.

 22 And I think that is reflected in the

Comment [TS1]: Who is speaking? 
 94

 1 statute where it's direct and significant

 2 connection with activities in or effect on

 3 commerce of the United States.

 4 MR. HEPWORTH: To the extent that we

 5 desire to go to foreign governments, and convince

 6 them to harmonize rules, this chart creates a

 7 perverse incentive -- which is basically saying,

 8 "Hey, we want you to harmonize the rules to our

 9 rules. And if you don't, we are not going to let

 10 our banks compete in your market."

 11 MR. GOONE: I have one or maybe two

 12 comments. It's interesting that the conversation

 13 here has always been about dollar swaps. So,

 14 let's just say, for example, dollar swaps are a

 15 U.S. and aren't portable.

 16 You know, my personal view might be -- I

 17 would say that's a little absolute, and nothing's,

 18 you know, forever, but talk about a global market

 19 that can be traded, whether here, or Europe, or

 20 Asia that isn't necessarily owned by any. I'll

 21 just throw out, for example, oil or something like

 22 that, where it is not specific to any one
 95

 1 jurisdiction.

 2 Would we be having these same

 3 discussions, number one?

 4 And number two -- my other point I

 5 wanted to make is, if you have the concept of

 6 substituted compliance -- so back to my first

 7 point, though. On my first point, it seems like,

 8 let's take dollar swap -- and I know that's a big

 9 issue here, and probably the primary issue of many

 10 people around the table -- but I think if you're

 11 going to apply these rules to everything, we

 12 should at least think about markets that are

 13 global, and where will the markets move to or not

 14 move to?

 15 And I don't think the intent -- and

 16 maybe I'm wrong -- of the CFTC or any of the other

 17 regulatory bodies are to have markets move, you

 18 know, through, for lack of a better word,

 19 regulatory arbitrage to somewhere else. It's just

 20 to ensure the safety of its marketplace --

 21 whatever that is defined as.

 22 The second one is, under that concept,
 96

 1 if you do have a concept of substituted

 2 compliance, the question I would have is, you

 3 know, the timeline that Randall brought up is, I

 4 think, very important -- that you can't have a --

 5 let's use hyperbole -- five-year gap between

 6 compliance of one regime versus another, because

 7 you're still, you know -- it kind of renders some

 8 of this chart -- I don't want to say meaningless,

 9 but a lot less viable if their substituted

 10 compliance has huge time gaps with the regulatory

 11 bodies that are all trying to work together.

 12 MR. SERAFINI: This seems like maybe

 13 it's a good place to take a break -- because I

 14 know we have a second panel that's eager to

 15 present. I know they will have a lot to say on these

 16 issues, so let's take a 10-minute break, and then

 17 we'll reconvene.

 18 (Recess)

 19 MR. SERAFINI: Thanks, everyone. I'd

 20 like to call the GMAC meeting back to order, and

 21 I'd like to turn it over to Chairman Wetjen to

 22 introduce the speakers on our next panel.
 97

 1 CHAIRMAN WETJEN: Thanks, Ted. I

 2 mentioned both Hannah's and David's presence.

 3 They're now at the table, joining us.

 4 They'll give some of their perspectives in the

 5 advisory from November.

 6 But I'd also like to introduce John

 7 Ramsay and Brian Bussey, from the Securities

 8 Exchange Commission -- our little sister agency,

 9 as we refer to it around here.

 10 And with that, I think we'll start first

 11 with our guests from Europe, and have either David

 12 or Hannah start -- whichever you prefer.

 13 MS. RAYNER: Hello. So, for those of

 14 you that I haven't met before, my name's Hannah

 15 Rayner. I work for the Market Infrastructure

 16 Division at the European Commission, with

 17 responsibility for implementing EMIR, with a

 18 particular focus on cross-border aspects.

 19 So, first of all, I'd like to say thank

 20 you to the CFTC for inviting us along to

 21 participate in this meeting today. The advisory

 22 has significant ramifications for market
 98

 1 participants in the E.U., as we've heard today

 2 from some of the committee members.

 3 The CFTC and the European Commission

 4 have had a fruitful and well-documented dialogue

 5 on cross-border issues over the past few years,

 6 and we've had numerous conversations already on

 7 many of the issues raised by the November

 8 advisory.

 9 So, I'm quite sure that the Acting

 10 Chairman and Commissioner O'Malia are fully

 11 anticipating the constructive criticism that I'm

 12 here to deliver on behalf of the European

 13 Commission today.

 14 The European Commission is concerned by

 15 the lack of regard to cross-border realities of

 16 the derivatives markets in the advisory -- to the

 17 extent that we are seriously concerned that the

 18 scope to which the CFTC is seeking to now apply

 19 its transaction rules will further inhibit

 20 cross-border activity.

 21 A broad range of transactions between

 22 non-U.S. Persons will become subject to U.S.
 99

 1 rules. In the E.U., particularly, as well as in

 2 many other G20 jurisdictions who advanced in their

 3 own rulemaking and implementation processes, those

 4 non-U.S. persons will be subject to similar rules

 5 in their home authorities, and this leads to dual

 6 regulation -- the impacts of which is unnecessary

 7 compliance burdens, which can cause uncertainty,

 8 increased costs of a type that Samara was talking

 9 to earlier, to the extent that cross-border

 10 activity simply ceases to no longer be

 11 commercially viable for these firms.

 12 And the ultimate consequence of this is

 13 market and liquidity fragmentation along

 14 geographical lines.

 15 I think, frankly, we're not completely

 16 clear on what the reasoning is behind the policy

 17 in the advisory. The starting point under the

 18 Dodd-Frank Act is that extraterritorial

 19 application of its provisions should not be the

 20 case, unless there is a direct and significant

 21 effect on U.S. commerce.

 22 So, the CFTC was not mandated to go out
 100

 1 and develop rules as to when the Dodd-Frank

 2 provisions should apply extraterritoriality.

 3 Quite the opposite -- the starting point is that

 4 the rules should not apply extraterritoriality,

 5 unless there really is this significant and direct

 6 effect on U.S. commerce.

 7 And I would have to question whether the

 8 transactions that are caught by the DFA provisions

 9 as a result of the advisory really do meet this

 10 test. Certainly, there was no explanation

 11 contained in the very short advisory as to how the

 12 CFTC believes that this test is met.

 13 I won't comment on procedural matters,

 14 but the advisory just simply doesn't seem to make

 15 the case for expanding U.S. regulation to non-U.S.

 16 market participants in such a broad and

 17 indiscriminate way.

 18 And I think, from the European

 19 Commission's perspective, particularly, we were

 20 disappointed by the contradiction of the approach

 21 under the advisory, with the spirit of the path

 22 forward agreement that was reached between
 101

 1 Commissioner Barnier and former Chairman Gensler,

 2 back in July of last year.

 3 Getting, really, to principles under the

 4 path forward, the EC and the CFTC agreed that

 5 relevant definitions, as a matter of principle,

 6 should be construed on a territorial basis.

 7 We agreed that we would not seek to

 8 apply our rules unreasonably in other

 9 jurisdictions. And, importantly, we agreed that

 10 we should be able to defer to each other when

 11 justified by the quality of our respective

 12 regulation and enforcement regimes -- so providing

 13 for substituted compliance or equivalence. And

 14 this advisory would seem to depart from that

 15 agreed approach.

 16 I mean, this isn't just an E.U.-U.S.

 17 issue, of course. This affects other

 18 jurisdictions that are also in the process of

 19 implementing similar rules. These market

 20 participants will become subject to dual

 21 regulation.

 22 In September '13, the G20 leaders
 102

 1 committed to deferring to each other when

 2 justified on the basis of our respective

 3 regulatory and enforcement regimes, taking an

 4 outcomes-based approach -- and avoidance of dual

 5 regulation through a territorial approach, and

 6 through deference between international regulators

 7 needs to be applied -- not just in the E.U.-U.S.

 8 sphere, but across the globe, to ensure that we

 9 have efficient cross-border regulation that

 10 doesn't inhibit market growth.

 11 So, what do we need to make cross-border

 12 markets work, generally? We need two things.

 13 The starting point should be a

 14 territorial approach to regulation. We shouldn't

 15 be regulating outside our borders, unless there's

 16 clear justification. There are identifiable gaps

 17 that can harm financial or market stability, and

 18 import risk to our shores.

 19 To the extent that we think that there

 20 could be gaps or there could be risk imported, on

 21 effect on our markets, we should provide,

 22 nonetheless, for deference to each others' roles.
 103

 1 This can't be disconnected from territoriality.

 2 There are instances where a transaction

 3 that crosses borders will carry regulation with

 4 it. But if we allow for our counterparties to

 5 comply with competing rules that achieve the same

 6 objectives, in line with the G20 commitment, then

 7 we can avoid both dual regulation for our firms

 8 and all of the burdens that brings, as well as

 9 preventing against the importation of any risk to

 10 our shores.

 11 So, the European Commission would appeal

 12 to the CFTC to keep these two fundamental

 13 principles in mind when reviewing the advisory.

 14 CHAIRMAN WETJEN: David? Y: Thank you

 15 very much, gentlemen. I'd like to thank you for

 16 inviting the FCA to participate today in these

 17 important discussions.

 18 To start with, I'd like to make it very

 19 clear to the entire committee that the FCA's

 20 benefitted from a very open dialogue over the past

 21 few years, with all of the regulatory authorities

 22 that are present today, on cross- border issues
 104

 1 concerning derivative markets.

 2 And that's really important, because, as

 3 has already been talked about, these markets are

 4 an important cog in the wheel of the broader

 5 global economy, and over 50 percent of trading in

 6 them takes place on a cross-border basis. So,

 7 it's really important that the way we oversee

 8 these markets supports our regulatory objectives

 9 in a way which underpins the smooth functioning of

 10 the broader global economy.

 11 As has already been mentioned, the G20

 12 and the FSB made clear and very public statements

 13 about how regulation should operate on a

 14 cross-border basis. And that's based on the

 15 concept of allowing deferral to fellow regulatory

 16 regimes.

 17 Now I'm not going to repeat the FSB and

 18 the G20 statements, but if you'll indulge me, I

 19 would like to briefly reiterate an abridged

 20 version of the intent -- the OTC Derivatives

 21 Regulators Group. For obvious reasons, I'll now

 22 refer to as the ODRG -- a group which includes all
 105

 1 of my fellow regulatory authorities here today --

 2 a statement they made in August last year, which

 3 was that the principles have acknowledged the

 4 desire to eliminate the application of

 5 inconsistent and duplicative requirements, and a

 6 flexible outcomes-based approach should form the

 7 basis of final assessments regarding equivalence

 8 or substituted compliance.

 9 Of course, these are not new concepts.

 10 They're not new under Dodd-Frank, or under EMIR,

 11 or any of the pieces of legislation being

 12 implemented on a global basis. And they apply

 13 equally to firms and to infrastructures.

 14 For example, for several years, the CFTC

 15 and the FCA -- or FSA, as we used to be known --

 16 have recognized that derivatives trading venues

 17 serve a global market. Hence, the UK's recognized

 18 overseas investment exchange regime, and the

 19 CFTC's Foreign Board of Trade regime, and our

 20 overseas exchanges to operate in our respective

 21 jurisdictions, and remain primarily supervised by

 22 the home supervisor on a day-to-day basis,
 106

 1 provided that home regime achieves substantially

 2 similar regulatory outcomes.

 3 We've had great collaboration with

 4 colleagues here at the CFTC on those regimes, and

 5 we've shown that the intent the ODRG expressed can

 6 be made to work effectively in practice.

 7 I think it's important we reflect on

 8 what would happen if we don't implement our rules

 9 in a way that's consistent with what the ODRG

 10 said. And that's real risk exist that we'll

 11 submit firms and trades to duplicative regulation,

 12 and the potential for conflicts or

 13 inconsistencies, which could prevent or discourage

 14 firms from trading cross-border -- and basically

 15 imply that they need to trade locally, not

 16 globally.

 17 And these are not hollow concerns. As

 18 we've already seen from the data that ISDR has

 19 published, following the implementation of the SEF

 20 regime, liquidity and certain core derivative

 21 markets have fragmented significantly, with

 22 cross-border activity reduced by as much as 3/4 in
 107

 1 some markets.

 2 Feedback the FCA continues to receive is

 3 that this is a live and growing issue, which has

 4 real implications for both market resilience and

 5 the broader economy.

 6 So, putting that into context of the

 7 advisory that we're here to discuss today, my

 8 understanding is that that promotes a situation

 9 whereby non-U.S. firms that are fully regulated in

 10 their home jurisdictions, simply by virtue of the

 11 activity they do within the U.S., have to comply

 12 with two sets of regulations. And that brings

 13 into view the issues that I've highlighted

 14 previously.

 15 In the U.K., we also appreciate the

 16 importance of ensuring that activity which might

 17 bring risk to our markets is subject to

 18 appropriate oversights. But, importantly, our

 19 rules always allow for the rules that apply to be

 20 our own or equivalent ones from the relevant

 21 overseas jurisdiction, like the U.S.

 22 So, if you were to look at the table
 108

 1 that's still up on the chart there, that would

 2 look very different if you superimposed the E.U.

 3 requirements on top. There'd be a lot more

 4 substituted compliance and a lot more deference.

 5 So, in considering this advisory, I

 6 would urge the CFTC to think of a few questions in

 7 line with the ODRG statement as you reassess the

 8 guidance. And there's three questions.

 9 Firstly, does the advisory cover

 10 business that really has a direct or significant

 11 impact here? If it does, then the second question

 12 is, does it seek to eliminate inconsistent or

 13 duplicative requirements? And thirdly, does it

 14 provide for the deferral to another regime, where

 15 that regime achieves similar outcomes?

 16 In my view, those are excellent

 17 questions that I think all regulators would do

 18 well to ask themselves about every aspect of our

 19 respective cross-border regimes.

 20 So, I'm really pleased that the

 21 Commission has taken the opportunity to review and

 22 consult on the advisory, and I look forward to
 109

 1 working with you as you finalize it.

 2 Thank you.

 3 CHAIRMAN WETJEN: Thanks very much.

 4 John?

 5 MR. ROTH: Thank you. I should, at the

 6 outset, begin -- I'll do this for both Brian and

 7 me, the standard disclaimer that any views we

 8 express are our own, don't necessarily reflect

 9 those of the Commission, Commissioners, or

 10 colleagues on the staff. Did I get that right?

 11 Thank you.

 12 So, to give you a little bit of the SEC perspective on

 13 these issues -- I know the SEC is sometimes accused of

 14 being the tail on the derivatives dog, so I'll try

 15 hard not to wag it too much in the discussion today.

 16 As you may recall, in May of last year, the Commission

 17 issued proposed rules relating to the application of

 18 Title VII in the cross-border area. One key element

 19 of those proposed rules was that any transaction that

 20 is conducted within the United States generally would

 21 be subject to regulation under Title VII.

 22 The proposed conduct test that we created actually is
 110

 1 broader than the conduct test that has been discussed

 2 and sort of incorporated in footnote 513 of the CFTC's

 3 cross- border guidance, in that it would capture

 4 security-based swap transactions carried out within

 5 the United States, whether or not they were done by

 6 non-U.S. dealers or by other non-U.S. persons. Unlike

 7 the CFTC's approach, our proposal would permit

 8 substituted compliance in various circumstances.

 9 There are several reasons why the SEC proposed this

 10 approach. First, we felt that it was consistent with

 11 our longstanding approach in the traditional

 12 securities space, which has been a core element of our

 13 approach to regulating our markets -- which is to say

 14 any significant activity, particularly what I will

 15 call sort of front office dealer activity that takes

 16 place physically within the United States has always

 17 been viewed as activity that not only do we have the

 18 authority to regulate, but, in some sense, feel it's

 19 incumbent upon us to take charge of in some kind of

 20 meaningful way.

 21 Second, the proposed approach is consistent with our

 22 view that Title VII is not just about risk
 111

 1 characteristics or limiting the potential for risk to

 2 be transported to the U.S. As has been discussed here

 3 earlier, you know, much of Title VII, as we know, is

 4 also about market integrity, market transparency,

 5 other issues that bear on the ways that the markets

 6 generally operate for market participants.

 7 Third, we were concerned that not capturing activity

 8 that has those kinds of key elements taking place

 9 within the U.S. could create gaps in the coverage of

 10 Title VII.

 11 And finally -- and a related point -- we were

 12 concerned about ensuring a level playing field for all

 13 entities that are engaged in securities-based swap

 14 activity within the U.S.

 15 As the Commission noted specifically in the proposal,

 16 treating foreign dealers with offices here differently

 17 could have adverse effects on U.S. dealers and

 18 competitive parity.

 19 We've received a large number of comments on many

 20 issues, but certainly including this issue. Many of

 21 the commenters stressed the importance of consistency

 22 between the approach taken by the SEC and the CFTC.
 112

 1 They were concerned that the approach that we adopted

 2 was not in line with what was assumed to be the

 3 approach, at least, that the CFTC was taking at that

 4 time.

 5 Other commenters raised concern about the workability

 6 of the approach, again, echoing some of the concerns

 7 that have been described here about relying on a

 8 trade-by-trade kind of determination to craft

 9 compliance procedures.

 10 The European Commission, in particular, criticized the

 11 approach, because it did not provide, in EC's view,

 12 sufficient opportunity for substituted compliance in

 13 applying rules to those kinds of situations.

 14 We also received a few supporting comments. So, there

 15 were a few of those, too -- probably not -- the weight

 16 of the comments was not supportive.

 17 So, in terms of where we are in our process, as you

 18 may know, we've proposed substantially all the rules

 19 we're required to, and have adopted several key final

 20 rules, as indicated in the proposal. And as our Chair

 21 reiterated in recent Congressional testimony, the

 22 Commission is likely to consider, before long, certain
 113

 1 of the issues presented in the proposal, in an initial

 2 release that would address many of the key

 3 definitional issues -- also, tend to be some of the

 4 more controversial issues, including the issue that

 5 we're talking about today.

 6 Other matters dealing with the applicable cross-

 7 border issues in the context of trade reporting,

 8 mandatory trading, clearing, et cetera, would be

 9 handled in subsequent and separate releases.

 10 So, I will leave it there. Just one more note that

 11 may be of relevance or may be of interest -- since I

 12 have been intimately involved with the Volcker Rule in

 13 recent months -- is to just point out that in the

 14 context of the adoption of the Volcker Rule, a similar

 15 kind of approach to one that's being discussed here

 16 today was taken in defining activities by banking

 17 entities that would take place outside the United

 18 States -- and, therefore, could take advantage of what

 19 would be excluded from the Volcker Rule prohibitions

 20 on proprietary trading.

 21 And, among other things, the particular exemption that

 22 was provided in the rule as adopted provides that a
 114

 1 banking entity engaging in offshore activity in the

 2 trade, including any personnel of the banking entity

 3 or its affiliate, that arrange, negotiate, or execute

 4 the trade is not located in the U.S. or organized

 5 under U.S. law.

 6 So, there was this concept that in order to take

 7 advantage of the exemption, you need to make sure that

 8 people were not performing sort of front office kind

 9 of dealing activity in the U.S.

 10 There was also some language in the adopting release

 11 for the cognoscenti or people who are really

 12 interested -- footnote 1521 talks a little bit about

 13 what it means for personnel to arrange, negotiate, or

 14 execute a trade for these purposes. And I won't

 15 belabor that point here, but if people find that

 16 instructive at all, they might refer to it.

 17 So, I think I will cut it off there, and I'd be glad

 18 to participate in the rest of the discussion, along

 19 with Brian.

 20 Thanks.

 21 CHAIRMAN WETJEN: Thank you, John.

 22 Brian, do you want to add anything?
 115

 1 MR. BUSSEY: I think John covered it.

 2 CHAIRMAN WETJEN: Okay, thank you. I'll

 3 turn it over to the membership, and see if there

 4 might be any questions of the panelists. I'll

 5 start with a question. This came up a little bit

 6 earlier, and then John just alluded to it -- in

 7 fact, identified this footnote, where, I gather,

 8 the SEC went into quite a bit of detail concerning

 9 what arranging, or negotiating, or executing

 10 means.

 11 And so I guess my first question is

 12 whether or not how that was defined, even in the

 13 advisory, was specific enough -- you know, putting

 14 aside any quibbles to the overall approach of the

 15 advisory -- but I'm just curious whether that was

 16 specific enough to give people an idea of what

 17 kind of conduct was contemplated -- again, putting

 18 aside judgments about whether it was the requisite

 19 amount of conduct on U.S. soil.

 20 MS. RAYNER: I mean, I think, from our

 21 perspective, there is definitely detail lacking

 22 into the nature of transactions that the advisory
 116

 1 was meant to capture. Putting aside the

 2 fundamental objections we have to taking an

 3 extraterritorial approach and not providing for

 4 substituted compliance, there really was a lot of

 5 detail lacking in the advisory as to which types

 6 of transactions were being included.

 7 I was actually quite unnerved to hear

 8 James, who earlier suggested if the master

 9 agreement was negotiated in the U.S., that could

 10 bring the transaction into scope in U.S. rules,

 11 even if the transaction was ultimately was

 12 executed and booked in Europe or elsewhere.

 13 So, I mean, I think to the extent that

 14 this concept remains in any advisories or further

 15 guidance, then there really needs to be very, very

 16 clear elaboration around which types of

 17 transactions are intended to be covered.

 18 MR. HILL: Just to be clear, I wasn't

 19 advocating for that approach.

 20 MS. RAYNER: That was very clear.

 21 MR. BUSSEY: And, also, to be clear, the

 22 footnote that John referred to was actually
 117

 1 jointly adopted by the banking regulators, as well

 2 as the CFTC and the SEC, in the context of the

 3 Volcker Rule.

 4 And I think -- you know, I can't speak

 5 to the CFTC's approach to defining these terms in

 6 the context of Title VII, but I think there's some

 7 indication in the Volcker release, in that

 8 footnote that John cited, that kind of gives gloss

 9 that would suggest that a reading -- at least in

 10 the Volcker context -- that (inaudible) may not be

 11 what they were thinking.

 12 So, they specifically talk about, you

 13 know, back- office functions not being included in

 14 -- again, for purposes of Volcker -- what would be

 15 considered arranging, executing, and negotiating a

 16 transaction.

 17 MR. RAMSAY: I mean, I guess I would

 18 offer the thought that, you know, in the range of

 19 the pantheon of issues that the industry has to

 20 deal with in parsing through regulatory

 21 requirements and understanding what terms mean,

 22 this one seems to me to be not all that difficult
 118

 1 to, you know, come to some reasonable

 2 understanding on.

 3 I sort of assume -- or I would take that

 4 the larger objection to many folks in the industry

 5 to be -- not that you can't figure out what that

 6 means, but just the process of having to make that

 7 determination on a trade-by- trade basis, and then

 8 figure out which trades are, in fact, in one

 9 bucket versus another, and try to design

 10 compliance systems around that is certainly a

 11 point that we get, and we understand.

 12 You know, again, speaking only for

 13 myself, one possible approach is that if one were

 14 to confine the approach to, you know, transactions

 15 -- if you were capturing transactions that took

 16 place within the U.S. only, in the circumstances

 17 where you have dealing activity where there is

 18 regular dealing activity, front office activity at

 19 a location in the U.S., with, you know, overseas

 20 clients, U.S. Clients -- in those circumstances,

 21 perhaps it wouldn't be too difficult to determine

 22 that those operations are falling within the
 119

 1 scope, and then you'd still have to address the

 2 question of, do you permit substituted compliance

 3 in appropriate circumstances?

 4 Again, in our proposal, we have proposed

 5 to do so, subject to certain conditions.

 6 MR. HILL: In the context of the SEC

 7 thinking about these things -- I wonder, did you

 8 guys look at the difference in the jurisdiction of

 9 the SEC versus the CFTC and the statute?

 10 So, the CFTC's jurisdiction is set forth

 11 in Section 722, and it is limited expressly by the

 12 language in the statute, whereas the SEC's

 13 jurisdiction is set forth in Section 772, a

 14 different section, using much broader language.

 15 Did you guys evaluate that, and consider

 16 why Congress would have done it differently?

 17 MR. BUSSEY: Do you want me to --

 18 MR. RAMSAY: Yeah.

 19 MR. BUSSEY: Yeah, we certainly did look

 20 very closely at the language. I think one of the

 21 things that's curious to us, though, in listening

 22 to the conversation thus far today is, actually,
 120

 1 one of the significant differences between the two

 2 sets of language is, as many people know, we do

 3 not have the direct and significant language.

 4 So, the way that we set out -- or that

 5 our commissions set out in our proposing release

 6 -- in thinking about this issue, it's a two-step

 7 process.

 8 One, is the activity without the

 9 jurisdiction of the United States? And I think

 10 there's some differences in language between the

 11 CFTC's statute and our statute, but, in general,

 12 that concept of that first-level question -- is it

 13 within or without the jurisdiction of the United

 14 States?

 15 Once you make a decision about whether a

 16 particular activity is within or without the

 17 jurisdiction, then you get to the second question,

 18 to our mind, of, is there a direct and significant

 19 effect? So, a situation where it is without the

 20 jurisdiction of the United States, the CFTC can

 21 then ask, even though it's without the

 22 jurisdiction, does it have a direct and
 121

 1 significant effect in the United States, as an

 2 additional basis of asserting jurisdiction.

 3 We don't have that prong. What we have

 4 is an anti-evasion prong when the activity is

 5 without the jurisdiction of the United States.

 6 MR. TURBEVILLE: And just to reiterate

 7 -- what you're saying is that there's an

 8 equivalency, in terms of jurisdiction, about

 9 within the United States, bounds of the United

 10 States, it's an activity-based -- that particular

 11 section doesn't address that.

 12 MR. BUSSEY: Well, I can't speak --

 13 MR. TURBEVILLE: That's why I changed

 14 it. That particular section doesn't address

 15 activities within the United States, which are

 16 possibly equally broad.

 17 MR. BUSSEY: Yeah, I mean, there's

 18 definitely differences in the language. I think

 19 ours speaks to both persons and activities, and

 20 the CFTC's speaks to activities.

 21 I'm not sure -- you know, as I read the

 22 CFTC release, they did not spend a lot of time on
 122

 1 this issue. We spent a significant amount of time

 2 on the issue. I'm not sure how they would read

 3 their statute if faced with the question, but we

 4 certainly view the first question being, is the

 5 relevant activity within or without the

 6 jurisdiction of the United States, for purposes of

 7 the particular provision at issue.

 8 That is the first question, and then the

 9 next question --

 10 MR. RAMSAY: Right. And then you never

 11 even get to the other question about whether it

 12 has a significant effect or not.

 13 MR. BUSSEY: Right.

 14 MR. TURBEVILLE: Right. And the other

 15 thing I believe is true is that the SEC has

 16 experienced some guidance from the courts, in

 17 terms of extraterritorial jurisdiction over time.

 18 And, as I recall, long ago and far away, there was

 19 a roundtable here about this issue -- a joint

 20 roundtable between the two of you.

 21 And that was argued then by someone --

 22 it was me, actually -- that, in fact, you can go
 123

 1 through a parsing of the language and court

 2 decisions that are associated with you guys, and

 3 there may not be that much difference, really, in

 4 terms of extraterritorial.

 5 I'm not asking you to comment on that,

 6 but, indeed, there is a gloss on your

 7 extraterritorial jurisdiction that's been provided

 8 to you by the courts; am I right?

 9 MR. BUSSEY: That's right. The recent

 10 -- or not so recent now; time has flown in the

 11 last few years -- the Morrison decision, but that

 12 was not in the regulatory context. It was in the

 13 context of an enforcement -- excuse me -- not even

 14 enforcement; it was a private litigation matter.

 15 MR. TURBEVILLE: Yeah, I understand.

 16 But it's a gloss of --

 17 MR. RAMSAY: And again -- important,

 18 again, to make the point that it's two very

 19 different questions. It's very different, on the

 20 one hand, whether an agency has jurisdiction to

 21 regulate in a particular area, and whether it

 22 makes good sense or good policy to do so, with
 124

 1 respect to particular sets of transactions.

 2 But, you know, to an SEC lawyer or

 3 somebody -- you know, a broker-dealer kind of

 4 regulatory lawyer -- outside the swap space -- and

 5 certainly appreciate and understand that, given

 6 the global nature of the swaps market, there are,

 7 you know, factors that you need to consider in

 8 that context.

 9 But, you know, to our mind, the

 10 proposition that, for example, with trading and

 11 securities, that you could have whoever it is --

 12 an offshore entity -- negotiating, arranging,

 13 executing, performing all of those key functions

 14 out of an office in the U.S. with whoever,

 15 regardless of who it is -- without having the

 16 ability to regulate that activity, we would view

 17 as kind of an astonishing proposition.

 18 So, we didn't view the jurisdictional

 19 piece of this to be that much of a stretch. One

 20 still has to get to the question of, does it make

 21 good policy sense to regulate, and how should you

 22 regulate that activity?
 125

 1 MR. BUSSEY: Just to go to -- John made

 2 a comment about the weight of the comments in his

 3 initial remarks. Actually, one of the comments

 4 that was supportive was actually the Federal

 5 Securities Committee of the ADA -- people that are

 6 very familiar with the way that SEC jurisdiction

 7 has been thought about in years past -- so just to

 8 kind of back up John's point.

 9 But I think the discussion earlier in

 10 the day, where folks were trying to bring it to

 11 the issue of substituted compliance and the scope

 12 of substituted compliance, which is, I think, a

 13 theme that both David and Hannah brought up -- at

 14 least one of their points -- that seems to be one

 15 where a lot of good thought needs to be done to

 16 make sure that we're -- at least from the SEC

 17 perspective, as we think about the comments that

 18 we've received, and think about the dialogue that

 19 we've had, how do we think about substituted

 20 compliance in this space, so that the regimes work

 21 together?

 22 We got good comments on it, as John said
 126

 1 -- including from the EC -- and we're definitely

 2 taking that comment into account, as we work

 3 towards a final adopting release on these issues.

 4 We're taking up all the airspace, John,

 5 I think.

 6 CHAIRMAN WETJEN: Oh yeah. I wanted to

 7 ask a question of David and Hannah.

 8 I'm just curious -- if the tables are

 9 turned, so to speak, and you have a U.S. dealer

 10 involved in a swap, booking the swap, but they

 11 have personnel in London, let's say -- I'm just

 12 curious how you guys are thinking about how to

 13 treat that transaction, and whether to asset

 14 jurisdiction -- or maybe assert jurisdiction over

 15 certain parts of it, as some others have suggested

 16 earlier.

 17 But just generally speaking, how would

 18 you guys approach that hypothetical?

 19 MS. RAYNER: So, the scope of the

 20 transaction- level requirements under EMIR are

 21 limited by EMIR itself. The obligations of EMIR

 22 fall on E.U. entities only, to the extent that any
 127

 1 E.U. entity is transacting with an entity that's

 2 incorporated in a third-country jurisdiction.

 3 So, if an E.U. bank is transacting with

 4 a U.S. Bank -- or, indeed, a Japanese bank -- and

 5 the regulations in that third country -- in U.S.

 6 or Japan -- have been deemed to be satisfactorily

 7 comparable -- equivalent is the terminology that

 8 we use -- then the E.U. bank can choose to comply

 9 with the regulation in the jurisdiction of its

 10 counterparty.

 11 So, the EMIR would not, in the first

 12 instance -- there's one exception that I'll talk

 13 to in a moment -- would not apply to non-E.U.

 14 entities. And to the extent that obligations

 15 attach themselves to a cross-border transaction,

 16 the E.U. entity can comply with the regulations in

 17 the third country in which its counterparty is

 18 based.

 19 CHAIRMAN WETJEN: So, I gather that

 20 means, then, that if there's personnel in the

 21 E.U., working on behalf of a third country-located

 22 firm, that in and of itself does not render that
 128

 1 entity an E.U. entity. Is that right?

 2 MS. RAYNER: No, no -- exactly; it

 3 wouldn't. The exception that I spoke to -- EMIR

 4 gave a mandate to the European Security Markets

 5 Authority -- ESMA -- to develop rules setting out

 6 when obligations under EMIR -- with, specifically,

 7 clearing and margin requirements -- could attach

 8 themselves to transactions between two

 9 third-country entities.

 10 And the tests there are -- so there's a

 11 first prong around anti-evasion, and a second

 12 prong around risk being back into the E.U. above a

 13 certain threshold.

 14 But even in those instances, if the

 15 third-country counterparties to that transaction

 16 are based in a jurisdiction where there is

 17 comparable regulation, then they can choose to

 18 comply with third-country regulations. There is

 19 always a possibility for substituted compliance

 20 under EMIR.

 21 MR. BAILEY: So, just to come in on this

 22 and support what Hannah said -- a lot of the
 129

 1 discussion today has been about what to regulate

 2 -- like, what matters, what needs regulation.

 3 But an equally important question is,

 4 when you've decided what matters, how to regulate

 5 it. And we've very clearly taken the view from a

 6 European perspective -- that, if there is a regime

 7 in a cross-border trade that provides for similar

 8 outcomes, then participants can satisfy the

 9 European obligations via using the overseas

 10 regime.

 11 From an FCA perspective, that's the only

 12 way that we see the cross-border business being

 13 done on a sensible and level regulatory playing

 14 field. And that's why we'd like to see

 15 substituted compliance or equivalence from our

 16 perspective extended as far as possible.

 17 MR. RAMSAY: I should add -- and either

 18 Hannah or David, you can correct me if I'm wrong

 19 -- but the draft technical standards under EMIR --

 20 there's another particular provision. I don't

 21 know if you classify it as an exception to the

 22 general rule, with respect to transactions done by
 130

 1 third branches.

 2 So, as I understand it, anyway, the

 3 proposal there is that a contract between -- well,

 4 I can just read the language. OTC derivative

 5 context shall be considered having a direct,

 6 substantial, and foreseeable effect within the

 7 union when the two counterparties enter into the

 8 OTC derivatives contract via their branches in the

 9 union.

 10 And so you could have two foreign

 11 entities, non- U.S. entities, through their

 12 branches entering into a contract, a union, and

 13 the rules would apply.

 14 And the description here, anyway,

 15 suggests that that approach was taken into order

 16 to ensure a level playing field, with respect to

 17 activity conducted in the E.U.

 18 MS. RAYNER: Yeah, John, you're right.

 19 That's the proposal that ESMA has put forward to

 20 the European Commission. We're still going

 21 through the process of adopting those standards

 22 internally, but, as I outlined, in that instance,
 131

 1 substituted compliance would, nonetheless, be

 2 available.

 3 MR. TURBEVILLE: In terms of level

 4 playing field, I'm a little bit confused. If

 5 people pick, they are likely to pick what's in

 6 their interest, right, their self-interest to

 7 pick. Is that about level playing field, or is

 8 that about something else? I mean, it sounds to

 9 me like there's not one consistent set of rules;

 10 it's a question of people picking and choosing,

 11 which means that there'll be different outcomes,

 12 depending on what the interests of the parties

 13 are.

 14 I'm confused. A level playing field

 15 would be all rules are all the same everywhere.

 16 And if they're going to pick, they must have some

 17 interests.

 18 MR. BAILEY: As we've heard from

 19 committee members sitting around the table today,

 20 across different jurisdictions, we're never going

 21 to be in a situation where the words on the page

 22 say exactly the same things, but it can be the
 132

 1 case that they deliver the same or very similar

 2 regulatory outcomes. And defining you've got that

 3 situation in place, why wouldn't you not let the

 4 other regime apply?

 5 Why would you not let substituted

 6 compliance apply? That's exactly the approach

 7 we've taken from a European perspective.

 8 MR. TURBEVILLE: Well, because there

 9 might be -- you know, it strikes me that most of

 10 the legal regime and regulatory regime isn't just

 11 getting close enough for government work; it's

 12 actually trying to reach a result.

 13 So, there are two differences of opinion

 14 about how things should come out between the E.U.

 15 and ourselves. And --

 16 MR. BAILEY: But in terms of result,

 17 we're saying substantially similar regulatory

 18 outcomes. So, the output is substantially

 19 similar.

 20 MR. TURBEVILLE: No, I understand, but,

 21 again, this agency went through a long and

 22 involved process trying to define what a
 133

 1 transparent market, as mandated by the law, is.

 2 And so there are differences.

 3 And it just strikes me that, again, in

 4 terms of level playing field, letting people pick

 5 all over the place is not a level playing field;

 6 it's a question of people optimizing their own

 7 regulatory -- and maybe tax -- results.

 8 MR. HILL: With all due respect to the

 9 CFTC, who did, I think, a very good job, and

 10 worked very hard to get these rules right, I don't

 11 think they have a magic crystal ball such that

 12 they invented the only perfect rules in the world.

 13 And I do think that their colleagues in

 14 Europe, I suspect, will do a very good job of

 15 coming up with similar -- although not identical

 16 -- rules, such that it is reasonable for the CFTC

 17 to conclude that they can defer to those rules

 18 that their European colleagues have come up with

 19 as reasonable, to comply with when engaging in

 20 cross-border transactions.

 21 I don't think anyone wants to suggest

 22 that only the CFTC is capable of getting this
 134

 1 right.

 2 CHAIRMAN WETJEN: I agree with all those

 3 points. The only other thing I was going to add,

 4 in response to what Wally said, was that there's a

 5 history at the agency, continued through the

 6 guidance, of embracing substituted compliance.

 7 And there is a significant history before the

 8 guidance was issued last summer in taking that

 9 approach, which is something that, in fact, is

 10 provided for, allowed for under the statute.

 11 I had one other question for the

 12 panelists. Looking again at the chart, we have a

 13 different approach under certain hypotheticals for

 14 how we deal through our guidance with a foreign

 15 branch versus other non-U.S. swap dealers. And

 16 I'm curious for a reminder from the group how you

 17 all address those two different types of legal

 18 entities in your cross-border policies.

 19 MS. RAYNER: So, just to be clear --

 20 sorry -- you're talking about how the E.U. would

 21 regulate a U.S. Branch of an E.U. bank.

 22 CHAIRMAN WETJEN: That's right.
 135

 1 MS. RAYNER: Yeah. So, the branches are

 2 considered to be an extension of the legal entity

 3 -- so a U.S. branch, a Japanese branch, a

 4 Malaysian branch of an E.U. bank would be -- any

 5 transactions executed by them but back to the E.U.

 6 entity would be governed by EMIR, but, again,

 7 substituted compliance would be available if any

 8 transactions executed through those branches were

 9 with their country counterparties.

 10 So, if the EUNC is transacting with a

 11 U.S. client through its New York branch, then it

 12 can choose the code to comply with -- the

 13 Dodd-Frank Act, CFTC rules -- subject to an

 14 equivalence, determination having been undertaken,

 15 to give it that optionality to comply with either

 16 the U.S. or the E.U. regime.

 17 MR. BUSSEY: For the SEC, we did not go

 18 as far as the CFTC in the proposal. So, in

 19 thinking about the issue of how we should apply

 20 our rules to non-U.S. branches of U.S. banks, we

 21 were considering, among other things, looking at

 22 how certain types of businesses in this room
 136

 1 structure their business through guaranteed subs

 2 versus foreign branches.

 3 And we're called on under our statute to

 4 consider competitive effects in our rulemaking;

 5 take those requirements under our statute very

 6 seriously. Did a lot of thinking about

 7 competitive effects.

 8 And at least proposing stage --

 9 CHAIRMAN WETJEN: John, I don't mean to

 10 interrupt -- or Brian; sorry -- but we also have a

 11 similar statutory provision.

 12 MR. BUSSEY: I won't speak again to CFTC

 13 provision, but that's helpful to hear.

 14 So, we thought about it from a

 15 competitive perspective, for those U.S. dealers

 16 that were structured currently in a branch way

 17 versus a guaranteed sub way.

 18 One of the things that's come out in the

 19 comment process, and in the E.U. approach, is that

 20 if we're in a situation where we're not applying

 21 our rules to the foreign branches of U.S. banks,

 22 in a sense, the way the CFTC does -- which is
 137

 1 pretty much across the board -- in Europe, the

 2 London branch of a U.S. bank doing a transaction

 3 with a non- E.U. counterparty that's not the

 4 London branch of a non-E.U. Counterparty, there's

 5 a potential gap there, right, because the E.U.

 6 has, at least in their final technical standards,

 7 has made a decision that they are not going to

 8 apply their transaction-level requirements to the

 9 London branch of a U.S. bank, unless -- you know,

 10 if they're doing it with a Cayman hedge fund or,

 11 you know, some non-E.U. counterparty.

 12 So, that's an issue that we definitely

 13 need to take into account.

 14 MR. RAMSAY: So, if we don't apply the

 15 rules in that context, then they just may not be

 16 covered by anything.

 17 MR. BUSSEY: That's right. But I think,

 18 similar to the E.U., similar to the CFTC, we

 19 proposed -- or our commission proposed -- a pretty

 20 liberal approach to substituted compliance. I

 21 mean, in general, we didn't go as far as the EC

 22 did; we went farther than the CFTC. Got a lot of
 138

 1 comments on it. We're thinking about how far we

 2 should be taking substituted compliance at the

 3 adopting stage.

 4 And then just to pick up on Wally's

 5 point -- you know, substituted compliance, unlike

 6 the CFTC, this is new for us. We do not have a

 7 history of substituted compliance at the SEC.

 8 We're going farther, even proposing, in when we

 9 would consider applying substituted compliance,

 10 right?

 11 So, the true London dealer -- putting

 12 aside the whole issue today -- London dealer,

 13 doing a transaction with a U.S. counterparty, we

 14 would provide for substituted compliance; the CFTC

 15 would not.

 16 So, we're going farther with substituted

 17 compliance, but you have to believe with

 18 substituted compliance that it's not

 19 pick-and-choose, Wally. I think you have to

 20 believe that it's truly outcomes-based, and you

 21 only grant substituted compliance when it provides

 22 comparable outcomes.
 139

 1 If you think it's something other than

 2 that, you've got other issues.

 3 MR. BAILEY: Just to come in on that --

 4 I think it's really important to appreciate that

 5 substituted compliance is not a license to trawl

 6 the globe, looking for the lowest possible

 7 regulatory standard. It's where two cross-border

 8 counterparties are dealing. The cross-border

 9 counterparty can apply its domestic rules -- which

 10 have been assessed and deemed equivalent -- or to

 11 deliver equivalent regulatory outcomes to the

 12 other regime. It really is not -- and if anyone

 13 thinks it's a license to just trawl around,

 14 looking for the lowest standard, it really isn't.

 15 MR. ALLEN: If I may just make a couple

 16 of comments on that -- on Brian's point about the

 17 potential gap that exists in circumstances where

 18 you have, for example, the London branch of a U.S.

 19 entity -- an entity that is not itself the

 20 counterparty -- that obviously does point to a

 21 difference, which is why I made the comment I did

 22 earlier.
 140

 1 When you look at the table -- and the

 2 second and third rows on the far right column --

 3 you potentially get a different outcome, which

 4 justifies a different way of thinking about that

 5 question from a CFTC perspective, in terms of the

 6 application of its rules.

 7 But I was also just going to make the

 8 point that David just made, which is that,

 9 actually, the concept of sort of pick-and-choose,

 10 I don't think it can or should be viewed that way.

 11 If we were talking about a choice which

 12 presented itself in terms of a lower standard of

 13 regulation or a higher standard of regulation,

 14 then equivalence and the optionality simply

 15 wouldn't exist, because the regulatory agencies

 16 would not have determined in those circumstances

 17 that the alternative regime was equivalent, and,

 18 therefore, there would no question of applying the

 19 third-country regime. It would have to be

 20 achieving substantially similar regulatory

 21 outcomes.

 22 And, in fact, the reasons why it's so
 141

 1 important to have that kind of flexibility, albeit

 2 that the rules may well be providing for similar

 3 regulatory outcomes, of course, is a combination

 4 of factors. But one of them, most obviously, is

 5 the risk, alternatively, of duplicative rules

 6 applying to the same transaction being applied by

 7 two sets of regulators.

 8 And the second, which I think sometimes

 9 gets disregarded, is the expectation and mindset

 10 of the clients and investors, in terms of the

 11 regulatory regime they were to expect to be

 12 applying to activity there, conducting in certain

 13 geographies.

 14 So, just to take that one step further

 15 -- if you're talking about, as we have done --

 16 particularly on the previous panel, but it follows

 17 through to this one -- about activity which is,

 18 first and foremost, conducted in Europe, in, say,

 19 London, where the activity on the part of a bank

 20 is being conducted there -- and, also, the client

 21 is based there -- there will be an expectation on

 22 the part of most of those clients that it will be
 142

 1 the European system of rules that will apply to

 2 that relationship and that transaction.

 3 MR. O'CONNOR: Can I follow on from

 4 Doug? Question for David and Hannah, actually.

 5 You mentioned the global economy and the

 6 impact there, David. In the context of the

 7 international arena, the G20's focus on global

 8 growth, FSB Chairman Mark Carney has said that

 9 market fragmentation is harmful to global growth.

 10 I think there is some consensus, at least in part,

 11 of this room that some of these rules -- building

 12 duplicate sales forces, having other types of

 13 barriers -- cause fragmentation.

 14 And then, on top of that, if you take

 15 the most extreme views that we've heard today as

 16 to what is CFTC jurisdiction, you have activity

 17 that's traded in the U.S., you have U.S. entities.

 18 Transactions executed by a U.S. Entity will be

 19 captured, and then, perhaps, U.S. product gets

 20 traded about.

 21 And then, on top of that, if you add

 22 from the other -- from the stuff that's not
 143

 1 already captured, anything that's arranged, or

 2 negotiated, or executed in the U.S., you get a

 3 very large proportion of global OTC activity --

 4 which, you know, is untenable, I think.

 5 And my question, though, is, David and

 6 Hannah, if you imagine a world where we've moved

 7 to a situation where the rules are exactly the

 8 same between the U.S. and Europe, if not word for

 9 word but mostly, and, also, that people agree that

 10 dual regulation is harmful, where would you draw

 11 the line, in terms of who would be the primary

 12 regulator for activity? Would it be the

 13 traditional entity risk model?

 14 MR. BAILEY: That's quite a broad

 15 question there, which I'll try and unpick.

 16 I think the problem here is, when you

 17 have got two sets of rules applying to the same

 18 trade or the same entity, that's when you get the

 19 chance of conflicts. That's when you place dual

 20 regulatory burdens. You might even do reporting

 21 burdens on individual counterparties, and you will

 22 see parties trying to avoid dual regulation, which
 144

 1 leads to the fragmentation that I talked about

 2 earlier -- which is a problem, and I think it's a

 3 real problem that already some of the reports are

 4 showing.

 5 And I think it will be a real problem in

 6 terms of market resilience. If we enter a period

 7 of stressed markets, having that kind of

 8 fragmentation is really unhelpful, and that's

 9 where the substituted compliance or equivalence

 10 comes into play, because it allows the

 11 participants on both sides of the trade to meet

 12 one set of rules, not both sets of rules.

 13 I mean, typically, the way the EMIR has

 14 been set up talks about looking at things at the

 15 entity level -- either European participants or

 16 what is captured by the European regulation -- and

 17 then for the cross-border trades, there is

 18 substituted compliance available.

 19 If that were replicated, then that seems

 20 like a pragmatic solution on which a global market

 21 can actually operate.

 22 MR. PARSONS: I have to say, I'm a
 145

 1 little bit coming from a different place than some

 2 other people -- what's a boogeyman, and what I

 3 should be comforted about.

 4 Certainly, I would be happy if we didn't

 5 have any fragmented markets, but my recollection

 6 was, people did not like Wally's world of one

 7 government. So, we're going to have

 8 fragmentation. We're going to have seams. Seams,

 9 in any market, are always a bit of a problem.

 10 It's now a question of, where do you

 11 draw the seams? And I'm not sure I see the places

 12 where the seams are being drawn. I just don't see

 13 the horrific events.

 14 I mean, I've grown up in a globe where

 15 we've had fragmentation. The whole Euro-dollar

 16 market was created because of regulations in the

 17 U.S. that moved it over there. It was expensive.

 18 You had to do some extra transactions and the

 19 like, but it didn't ruin global commerce, that you

 20 had that kind of fragmentation. So, I don't quite

 21 get that boogeyman.

 22 And, at the same time, when we're
 146

 1 talking about substituted compliance and the worry

 2 that people are going to pick and choose, I hear

 3 it being asserted that it's all going to be

 4 comparable, nobody's going to talk about a world

 5 where there's regulatory arbitrage. But we've had

 6 substituted compliance among our supervisors for

 7 banks in the United States, and there certainly

 8 was regulatory arbitrage.

 9 So, there's good reason for people to be

 10 worried. There's substantive problems that come

 11 about when people can pick and choose.

 12 So, I'm not saying that we should work

 13 hard to get substituted compliance; I just don't

 14 understand belittling that problem, and I don't

 15 understand exaggerating so significantly the

 16 dangers of fragmentation.

 17 One of the things I think we overlook is

 18 the value of a high-quality market. And the

 19 United States has had high-quality securities

 20 markets for a long, long time that has attracted

 21 transactions to be executed inside the United

 22 States, because of excellent regulation.
 147

 1 Sometimes, we've slipped and let that go, but we

 2 have the opportunity in the swaps marketplace to

 3 assure transparency, to assure executions happen

 4 in a certain way.

 5 And the only way to actually do that is

 6 to have somebody who has a defined jurisdiction of

 7 the market. If people have the ability to just

 8 pick and choose on a transaction-by-transaction

 9 basis, you don't have a coherently defined market.

 10 So, I think we should also look at these

 11 questions of which transactions are going to be

 12 covered, in terms of, how is it viable for the

 13 CFTC, or any supervisor in the EC, or anywhere in

 14 Japan -- how is it viable for that supervisor to

 15 define a marketplace, and to have some standards

 16 of conduct to which business can then flow, in

 17 search of good locations for execution?

 18 MR. TAKAYAMA: Well, I have one comment

 19 and one question.

 20 The first one is, in terms of the global

 21 economy and the instability of the financial

 22 market, obviously, having a smaller number of
 148

 1 opportunities -- ideally, one -- and, you know, to

 2 be used to buy different types of the product

 3 trades in different regions. And that would

 4 obviously benefit because of the diversification

 5 benefit, as well as, you know, (inaudible) type of

 6 things.

 7 So, this would benefit financial

 8 institutions in stability; then hence, the study

 9 through the financial market, I think.

 10 So, introducing a conduct-based

 11 (inaudible) test to put those, you know, entities

 12 subject to the (inaudible) of the regulations may

 13 lead to the fragmentation of the entities, and

 14 that would not be, you know, ideal for, you know,

 15 financial institutions', you know, management, and

 16 stability, I think. That is one point.

 17 Another point -- and this is actually a

 18 question -- and I recall that Mr. Ramsay said

 19 that, you know, you having appropriate rules is

 20 consistent with, you know, traditional securities

 21 space or traditional securities market.

 22 So, my question is, in comparison to
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 1 the, you know, traditional securities market,

 2 where we have to be concerned with the market

 3 (inaudible), or insider trading, or other

 4 (inaudible) misconduct, do we have, you know, same

 5 (inaudible) using the conduct- based test?

 6 So, you know, a swap market where, you

 7 know -- like an aggregation of the positions to

 8 get the most diversification benefit or

 9 (inaudible) benefit would be kind of prevalent.

 10 Thank you.

 11 MR. RAMSAY: I appreciate the question.

 12 If I interpret it correctly -- and as I think I

 13 said -- the fact that there certainly are relevant

 14 differences in terms of the characteristics of the

 15 swaps markets versus traditional -- although

 16 traditional securities markets have become much

 17 more globalized than they have in the past, but

 18 there are certainly significant differences that

 19 ought to bear on questions about how broadly one

 20 might apply the rules of any one jurisdiction to

 21 activities outside, and how you consider questions

 22 of substituted compliance, et cetera -- no
 150

 1 question.

 2 I was really just using that to make the

 3 point that, you know, from our perspective,

 4 looking at the traditional kind of jurisdictional

 5 question, even post- Morrison, you know, it's hard

 6 for us to understand why the jurisdictional

 7 question is a real question.

 8 The question about kind of how broadly

 9 you should apply the rules is, of course, still a

 10 very significant one.

 11 MR. BUSSEY: And then, on the other part

 12 of your question about -- I assume you're not

 13 suggesting that there's not fraud in the swaps

 14 market. I mean, you know, to the extent you can

 15 insider-trade on an equity security, or you can

 16 use some sort of derivative tied to that equity

 17 security to trade on that information -- and

 18 that's not speculation; that actually happens, and

 19 it happens cross- border.

 20 I mean, and nobody should be skeptical

 21 about that. You know, that does happen.

 22 And, in fact, getting to Steve's point
 151

 1 about -- we're not asserting that, you know, this

 2 -- I forgot who came up with intergalactic -- you

 3 know, this notion of, if it's a U.S. underlier,

 4 wherever it is in the world, whoever's doing it,

 5 it's, you know, somehow subject to U.S.

 6 Jurisdiction.

 7 I think the point that Wally made -- you

 8 know, if it's a U.S. underlier -- frankly, if it's

 9 a French underlier for the French -- even if it's

 10 being done by two people in Asia, it could have an

 11 effect on their market -- not to say that they can

 12 assert jurisdiction, but they may have a

 13 regulatory interest in it.

 14 And, in fact, I think some of the

 15 agreements that we've worked on internationally in

 16 the data space suggests that regulators have an

 17 interest in that information, in situations where

 18 they can't require the reporting of it.

 19 But I think we need to be realistic,

 20 that there is, in fact, an ability -- at least in

 21 the security-based swap space -- to have fraud and

 22 manipulation through the derivatives markets, and
 152

 1 those activities will impact U.S. Markets. I

 2 mean --

 3 MR. RAMSAY: Right. Yes. And I

 4 definitely should add that, in distinguishing the

 5 characteristics of different markets, I don't know

 6 that I would single out the absence of the

 7 potential for fraud or manipulation as, you know,

 8 something that would uniquely characterize

 9 derivatives markets.

 10 I mean, it wasn't -- just speaking of

 11 improprieties -- generally, it wasn't all that

 12 long where, you know, probably if somebody had

 13 suggested that there was the potential for

 14 inappropriate conduct in setting LIBOR rates or

 15 other rates like that, people might have found

 16 that a surprising proposition, until not so long

 17 ago.

 18 MS. COHEN: I'd like to return, for a

 19 moment, to a point that John made that I thought

 20 was very powerful and so important, and that is

 21 the concept of high-quality regulation and the

 22 importance of definitions, which I think is very
 153

 1 closely related to something else we've talked

 2 about, which is transparency and customer

 3 expectations.

 4 So, I would say two things. First,

 5 returning to your question earlier, Mark, about

 6 those verbs -- for me, personally -- and I think,

 7 you know, I speak institutionally -- we don't

 8 think it's a very easy thing at all, and we don't

 9 think that we have enough detail to understand how

 10 to apply those three verbs in the context of a

 11 functioning marketplace.

 12 And in the days between November 17 and

 13 January 3, we were spending a tremendous amount of

 14 time pouring through numbers of use cases and

 15 deciding, do we have to program it here, or here,

 16 or here? And those problems are actually going to

 17 continue to increase in a market that's

 18 electronifying, with new forms of conduct being

 19 introduced -- you know, some of them next week,

 20 and more over the months to come. So, I think

 21 that getting these definitions right and clear is

 22 critically important.
 154

 1 And then, of course, I want to point to

 2 something that, you know, is probably obvious to

 3 everybody, but is so important I think it bears

 4 remembering -- the SEC proposed a rule, took

 5 comments, is clearly listening to those comments,

 6 prior to going live with any meaningful derivative

 7 rules.

 8 So, the important thing here is that

 9 customers who are going to deal in

 10 securities-based swaps will come to the market

 11 with clear transparency and expectations of what

 12 rules are going to apply to them, and in what

 13 context.

 14 And to the context there's any

 15 consideration being given to such a meaningful

 16 change in the cross-border regime that's being

 17 applied to a, you know, functioning, you know,

 18 transformed derivatives market at this point, the

 19 confusion and disruption that it will create just

 20 must be taken into account, in terms of, you know,

 21 phasing something like that in, if it's determined

 22 to be good policy.
 155

 1 MR. HILL: And just to give you a

 2 real-world example of something like that -- when

 3 the November guidance came out, there was at least

 4 one, maybe several, electronic trading platforms

 5 in London that said, "If our prices were coming

 6 from a mainframe located in the United States, we

 7 would not be permitted to trade on their

 8 platform," because they were concerned about

 9 having to register as a SEF, because now we're in

 10 the context of, you know, are you negotiating

 11 whatever the requirements are? Literally, they

 12 wanted to know that the price was coming from a

 13 mainframe located outside the U.S.

 14 So, it's clear that those rules are not

 15 clear, if we're getting questions like that.

 16 MR. RAMSAY: I would just want to --

 17 I've been wanting to make this point for a while,

 18 too, and I think that's a good sort of trigger for

 19 it -- is that I do think -- there, obviously, in

 20 this area, are a host of interpretive questions

 21 that have arisen, will continue to arise -- issues

 22 that are and will continue to be shared jointly by
 156

 1 our agencies.

 2 So, whether it's a question of, you

 3 know, the meaning of "arrange," "execute," or, you

 4 know, a host of other things, you know, it's

 5 certainly our hope, going forward -- we have a

 6 fresh opportunity to coordinate and, you know, to

 7 the extent possible, issue interpretations on

 8 relevant terms jointly with the CFTC, so that

 9 people may still be groping, to a certain extent,

 10 but there will be a narrower range of things,

 11 hopefully, that people will need to wonder about.

 12 CHAIRMAN WETJEN: I was going to make

 13 just one other observation about the substituted

 14 compliance process -- and this point was made, at

 15 least indirectly, by others before.

 16 But wWe, at the CFTC, have already issued

 17 some determinations, and the European Commission

 18 has begun working on some, as well, and there's

 19 been a nice dialogue between the CFTC and the

 20 European Commission on those different matters.

 21 And I'm not sure how it was done before

 22 at the CFTC, in regards to bringing to life this
 157

 1 comparability and comprehensiveness approach

 2 that's, again, provided for in the statute. But

 3 the way it's been done more recently -- at least

 4 as long as I've been at the Commission -- has been

 5 with a great deal of rigor -- in fact, in a way,

 6 that probably has been, if not frustrating, a

 7 little bit -- at least has caused some anxiety,

 8 let's say, among some, because with that

 9 additional rigor, it's not always clear what the

 10 outcome will be, and whether it'll be as easy to

 11 find comparability.

 12 But at least with respect to the

 13 determinations we've done already -- which relate

 14 to our entity-level requirements, and we issued

 15 those last December -- there is a great deal of

 16 rigor and careful analysis. And it might've been

 17 something just shy of line-by-line analysis of

 18 another country's regime, but, ultimately, the

 19 outcomes, I think, were what people would've

 20 expected -- in which to say there was

 21 comparability found for the six major

 22 jurisdictions. And where there was not
 158

 1 comparability, it tended to be in the areas of

 2 some type of reporting obligation -- in which case

 3 -- and, again, it could be something redundant --

 4 we required that reporting obligation of the

 5 entity located in that particular jurisdiction.

 6 So, I think that's a good way to do it,

 7 because it's more difficult, and it takes more

 8 time. It doesn't, perhaps, lead to the outcome a

 9 lot of folks might wish, with the level of

 10 certainty they might want, but at least a very

 11 good, rigorous analysis.

 12 And I think it's having the effect --

 13 and I'd love to hear David and Hannah share their

 14 views on this, in terms of whether they agree --

 15 but it seems to be having a good effect in terms

 16 of how other countries are implementing their

 17 reforms in the wake of -- if I can say it that way

 18 -- the CFTC putting its reforms in place. And we

 19 just happened to be, with a lot of that effort --

 20 we're further through it.

 21 And so that's my observation. It seems

 22 to be a pretty good approach. The comparability
 159

 1 determinations are not being done willy-nilly, but

 2 we're, in fact, finding comparability in the

 3 jurisdictions you would expect, with just a little

 4 bit of added redundancy by way of reporting, for

 5 instance, at least in the entity space.

 6 So, it seems to be working, but I want

 7 to hear the reaction or views of David and Hannah

 8 on that particular --

 9 MR. BAILEY: Thanks, Chairman. And I'll

 10 agree. I think the two important aspects of an

 11 equivalence or a substituted compliance assessment

 12 are rigor and collaboration. So, that needs to be

 13 done in detail, and it needs to be done seriously,

 14 so it can provide confidence to market

 15 participants that it's been done to a high

 16 standard.

 17 That reflects everything we've seen of

 18 the process so far -- certainly between the U.S.

 19 and Europe; a great deal of analysis. I think the

 20 last time this committee met on this topic, it was

 21 described as rocket science. And a lot of

 22 technical work has gone into that.
 160

 1 And the second point is, it needs to be

 2 done with a great deal of collaboration. I am no

 3 expert on the U.S. Statutes. I need the CFTC. I

 4 need the SEC's help to understand your rules --

 5 and, actually, how you apply them in practice.

 6 And I know it's the same the other way round. And

 7 we spent a lot of time talking and understanding

 8 how you apply your rules.

 9 So, with those two factors in place,

 10 then the process can work well. And, certainly,

 11 that's been our view of how things have worked

 12 to-date.

 13 MS. RAYNER: Yeah, I would agree with

 14 what David says. I mean, it sounds like, you

 15 know, a much more simple approach to say, "Well,

 16 we'll look at the outcomes achieved, rather than

 17 looking for line-by-line equivalents." But, I

 18 mean, in actual fact, you do almost have to take a

 19 bottom-up approach, and examine your rules

 20 line-by-line to really get a good understanding as

 21 to what the content of the rules in another

 22 jurisdiction are, I think.
 161

 1 We're actually quite lucky, between the

 2 E.U. and the U.S. -- and particularly the CFTC --

 3 because we did collaborate very closely as we

 4 developed our rules. We all know it was slightly

 5 behind in terms of implementation in Europe, but

 6 the CFTC and the Commission were going through the

 7 rule development stage largely at the same time,

 8 so we were able to share ideas, to share texts,

 9 and in some places, we've come out with

 10 essentially identical rules.

 11 But, nonetheless, it needs to be a very,

 12 very thorough analysis as regulators, to get the

 13 comfort. But the outcome is that we've achieved

 14 the same regulatory objectives, and, you know,

 15 there does need to be a post- dialogue between

 16 regulators to really understand how we're applying

 17 our rules in practice.

 18 And that's certainly the approach that

 19 we've been taking at the EC, and the approach that

 20 the CFTC has taken thus far.

 21 Yeah, and we're seeing some progress.

 22 So, yeah, it's encouraging.
 162

 1 CHAIRMAN WETJEN: Yeah, I mean,

 2 oObviously, the details matter. And I'm thinking,

 3 at the moment, in particular about the details

 4 around our SEF regime, for instance. And we, of

 5 course, have been talking a great deal in recent

 6 weeks about that, and some of these details around

 7 our regime for SEFs have a lot of consequence.

 8 So, it just would not be appropriate to,

 9 with a broad brush, take a gander at some other

 10 country's regulation, say, "That looks roughly the

 11 same," and be on with it. I just don't think that

 12 would work. I presume you guys would agree with

 13 that, too.

 14 MS. RAYNER: It would save us a lot of

 15 time, but, yeah, we need to be thorough. I agree.

 16 MR. BAILEY: I'll agree. And I think

 17 the announcement you mentioned earlier on the

 18 issuance of some no-action letters by the CFTC

 19 today in the trading space -- if you look into the

 20 detail of those, they indicate some of the level

 21 of detail that's had to be gone into, looking at

 22 how regimes can be made to work together.
 163

 1 And that's just one example. I think

 2 that's a positive step in taking forward some of

 3 the commitments outlined in the path forward.

 4 So, we're very supportive of the

 5 Commission and the CFTC working together on taking

 6 those path forward commitments forward.

 7 Obviously, I need to read the no-action

 8 letters in detail. And one thing that I think

 9 we've all learnt is, you've got to look at the

 10 footnotes. And so I will certainly be doing that

 11 on the flight home.

 12 CHAIRMAN WETJEN: It'll be some number

 13 fewer than 1500 -- 52 or whatever it was.

 14 MR. SERAFINI: Well, this seems like a

 15 good time to maybe call the meeting to a close.

 16 We'll end it on a high note.

 17 I don't know, Chairman Wetjen, if you

 18 have any closing comments you want to make.

 19 CHAIRMAN WETJEN: I don't, other than to

 20 thank all the members and, also, our panelists,

 21 our special guests from Europe and from the SEC.

 22 I think that your presence today added a lot of
 164

 1 value to this conversation, and so I very, very

 2 much appreciate you being able to come join us

 3 today.

 4 One other thing I might mention -- I

 5 think Teddy made the membership aware of this, but

 6 we're going to have a debriefing after the open

 7 meeting today upstairs for the membership and the

 8 panelists. So, we hope as many of you are able

 9 can join us upstairs.

 10 And thanks again for everyone being

 11 here. Scott, do you have anything?

 12 MR. SERAFINI: Great. At this point, as

 13 the GMAC DFO and temporary Chair of the committee,

 14 I adjourn the GMAC meeting. Thanks, everyone.

 15 (Whereupon, at 5:08 p.m., the

 16 PROCEEDINGS were adjourned.)

 17 * * * * *

 18

 19

 20

 21

 22
 165

 1 CERTIFICATE OF NOTARY PUBLIC

 2 DISTRICT OF COLUMBIA

 3 I, Mark Mahoney, notary public in and for

 4 the District of Columbia, do hereby certify that

 5 the forgoing PROCEEDING was duly recorded and

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 7 that the witnesses were sworn to tell the truth

 8 under penalty of perjury; that said transcript is a

 9 true record of the testimony given by witnesses;

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 11 employed by any of the parties to the action in

 12 which this proceeding was called; and, furthermore,

 13 that I am not a relative or employee of any

 14 attorney or counsel employed by the parties hereto,

 15 nor financially or otherwise interested in the

 16 outcome of this action.

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 22 My Commission Expires: March 14, 2014