71946 Federal Register / Vol. 81, No. 201 / Tuesday, October 18, 2016 / Proposed Rules 

1Public Law 111–203, 124 Stat. 1376 (2010). 

2 7 U.S.C. 1 et seq. 

3See 7 U.S.C. 2(i). Section 2(i) of the CEA states 

that the provisions of that chapter relating to swaps 

that were enacted by the Wall Street Transparency 

and Accountability Act of 2010 (including any rule 

prescribed or regulation promulgated under that 

Act) shall not apply to activities outside the United 

States unless those activities (1) have a direct and 

significant connection with activities in, or effect 

on, commerce of the United States; or (2) 

contravene such rules or regulations as the 

Commission may prescribe or promulgate as are 

necessary or appropriate to prevent the evasion of 

any provision of that chapter that was enacted by 

the Wall Street Transparency and Accountability 

Act of 2010. 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 1 and 23 

RIN 3038–AE54 

Cross-Border Application of the 

Registration Thresholds and External 

Business Conduct Standards 

Applicable to Swap Dealers and Major 

Swap Participants 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Proposed rule; interpretations. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’ or 

‘‘CFTC’’) is publishing for public 

comment proposed rules and 

interpretations (‘‘Proposed Rule’’) 

addressing the cross-border application 

of certain swap provisions of the 

Commodity Exchange Act (‘‘CEA’’). 

Specifically, the proposed rule defines 

key terms for purposes of applying the 

CEA’s swap provisions to cross-border 

transactions and addresses the crossborder application of the registration 

thresholds and external business 

conduct standards for swap dealers and 

major swap participants, including the 

extent to which they would apply to 

swap transactions that are arranged, 

negotiated, or executed using personnel 

located in the United States. 

DATES: Comments must be received on 

or before December 19, 2016. 

ADDRESSES: You may submit comments, 

identified by RIN number 3038–AE54, 

by any of the following methods: 

• CFTC Web site: http://

comments.cftc.gov. Follow the 

instructions for submitting comments 

through the Comments Online process 

on the Web site. 

• Mail: Christopher Kirkpatrick, 

Secretary of the Commission, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW., Washington, DC 

20581. 

• Hand Delivery/Courier: Same as 

Mail, above. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

Please submit your comments using 

only one method. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to http://

www.cftc.gov. You should submit only 

information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that you believe is exempt from 

disclosure under the Freedom of 

Information Act (‘‘FOIA’’), a petition for 

confidential treatment of the exempt 

information may be submitted according 

to the procedures established in § 145.9 

of the CFTC’s regulations, 17 CFR 145.9. 

The Commission reserves the right, 

but shall have no obligation, to review, 

pre-screen, filter, redact, refuse or 

remove any or all of a submission from 

http://www.cftc.gov that it may deem to 

be inappropriate for publication, such as 

obscene language. All submissions that 

have been redacted or removed that 

contain comments on the merits of the 

notice will be retained in the public 

comment file and will be considered as 

required under all applicable laws, and 

may be accessible under the FOIA. 

FOR FURTHER INFORMATION CONTACT: Paul 

Schlichting, Assistant General Counsel, 

(202) 418–5884, pschlichting@cftc.gov; 

Laura B. Badian, Assistant General 

Counsel, (202) 418–5969, lbadian@

cftc.gov; or Elise Bruntel, Counsel, (202) 

418–5577, ebruntel@cftc.gov; Office of 

the General Counsel, Commodity 

Futures Trading Commission, Three 

Lafayette Centre, 1155 21st Street NW., 

Washington, DC 20581. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. Scope of Rulemaking 

B. Current Market Structure 

II. Definitions 

A. U.S. Person 

B. Foreign Consolidated Subsidiary 

(‘‘FCS’’) 

III. ANE Transactions 

A. Background 

B. Commission’s Views Regarding ANE 

Transactions 

C. Proposed Interpretation Regarding the 

Scope of ANE Transactions 

IV. Cross-Border Application of the Swap 

Dealer Registration Threshold 

A. U.S. Persons and U.S. Guaranteed 

Entities 

B. Foreign Consolidated Subsidiaries 

C. Other Non-U.S. Persons 

1. U.S. Counterparties That Are U.S. 

Persons or U.S. Guaranteed Entities 

2. Counterparties That Are FCSs 

3. Other Non-U.S. Counterparties 

4. Swaps Executed Anonymously on a SEF, 

DCM, or FBOT and Cleared 

D. Aggregation Requirement 

E. Summary 

V. Cross-Border Application of the Major 

Swap Participant Registration 

Thresholds 

A. U.S. Persons, U.S. Guaranteed Entities, 

and Foreign Consolidated Subsidiaries 

B. Other Non-U.S. Persons 

C. Attribution Requirement 

D. Summary 

VI. Cross-Border Application of the External 

Business Conduct Standards for Swap 

Dealers and Major Swap Participants 

VII. Related Matters 

A. Regulatory Flexibility Act 

B. Paperwork Reduction Act 

C. Cost-Benefit Considerations 

1. Assessment Costs 

2. Cross-Border Application of the Swap 

Dealer Registration Threshold 

a. U.S. Persons and U.S. Guaranteed 

Entities 

b. Foreign Consolidated Subsidiaries 

c. Other Non-U.S. Persons 

3. Cross-Border Application of the Major 

Swap Participant Registration 

Thresholds 

4. Monitoring Costs 

5. Registration Costs 

6. Programmatic Costs 

7. Cross-Border Application of External 

Business Conduct Requirements 

8. Section 15(a) Factors 

a. Protection of Market Participants and the 

Public 

b. Efficiency, Competitiveness, and 

Financial Integrity of the Markets 

c. Price Discovery 

d. Sound Risk Management Practices 

e. Other Public Interest Considerations 

9. Appendix to Cost-Benefit Considerations 

VIII. Preamble Summary Tables 

Table A—Cross-Border Application of the 

Swap Dealer De Minimis Threshold 

Table B—Cross-Border Application of the 

Major Swap Participant Registration 

Thresholds 

Table C—Cross Border Application of the 

External Business Conduct Standards 

I. Background 

A. Scope of Rulemaking 

In 2010, the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(‘‘Dodd-Frank Act’’ or ‘‘Dodd-Frank’’) 1

amended the Commodity Exchange Act 

(‘‘CEA’’) 2 to establish a new regulatory 

framework for swaps. Added in the 

wake of the 2008 financial crisis, which 

highlighted the potential for crossborder swap activities to have a 

substantial impact on the U.S. financial 

system, the new swap provisions 

expressly apply to activities that have a 

direct and significant connection with 

activities in, or effect on, U.S. commerce 

or that contravene Commission rules or 

regulations necessary or appropriate to 

prevent evasion.3

In response to requests from market 

participants, the Commission published 


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4See Interpretive Guidance and Policy Statement 

Regarding Compliance With Certain Swap 

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

(‘‘Guidance’’). 

5 Id. at 45297, n.39. 

6See id. The Commission notes that at the time 

that the Guidance was adopted, it was tasked with 

regulating a market that grew to a global scale 

without any meaningful regulation. Developing a 

regulatory framework to fit that market is 

necessarily an iterative process, one that requires 

adapting and responding to rapid and continual 

changes in the market. Therefore, the Commission 

expects that this proposed rulemaking will be 

followed by additional rulemakings affecting the 

cross-border application of the Commission’s swap 

regulations. 

7See Margin Requirements for Uncleared Swaps 

for Swap Dealers and Major Swap Participants— 

Cross-Border Application of the Margin 

Requirements, 81 FR 34818 (May 31, 2016) (‘‘CrossBorder Margin Rule’’). 

8See proposed rule § 1.3(ggg)(7) and 1.3(nnn). 

The SD and MSP registration thresholds are 

codified at 17 CFR 1.3(ggg)(4) and 1.3(hhh) through 

(mmm), respectively. 

9See proposed rule § 23.452. The Commission’s 

external business conduct standards are codified in 

17 CFR part 23, subpart H (17 CFR 23.400 through 

23.451). 

10See Request for Comment on Application of 

Commission Regulations to Swaps Between NonU.S. Swap Dealers and Non-U.S. Counterparties 

Involving Personnel or Agents of the Non-U.S. 

Swap Dealers Located in the United States, 79 FR 

1347 (Jan. 8, 2014) (‘‘Request for Comment’’); CFTC 

Staff Advisory No. 13–69, Applicability of 

Transaction-Level Requirements to Activity in the 

United States (Nov. 14, 2013) (‘‘Staff Advisory’’), 

available at http://www.cftc.gov/idc/groups/public/ 

@lrlettergeneral/documents/letter/13-69.pdf. As 

stated therein, the Staff Advisory represented the 

views of the Division of Swap Dealer and 

Intermediary Oversight (‘‘DSIO’’) only, and not 

necessarily those of the Commission or any other 

office or division thereof. Id. at 2. 

11See proposed rule § 1.3(aaaaa); Cross-Border 

Margin Rule, 81 FR 34818; 17 CFR 23.160(a). 

12 Data from swap data repositories (‘‘SDR data’’) 

indicate that the global swap market has several 

market centers, including New York, London, and 

Tokyo. 

13Even in the absence of an explicit arrangement 

or guarantee, the parent entity may, for reputational 

or other reasons, choose or be compelled to assume 

the risk incurred by its affiliates, branches, or 

offices located overseas. 

a policy statement and interpretive 

guidance regarding the cross-border 

application of the swap provisions of 

the CEA.4 The Guidance offered an 

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

and a general, non-binding framework 

for the cross-border application of many 

substantive Dodd-Frank requirements, 

including requirements for swap dealers 

(‘‘SDs’’) and major swap participants 

(‘‘MSPs’’) (collectively, ‘‘SD/MSPs’’). 

Given the complex and dynamic nature 

of the global swap market, the Guidance 

was intended as a flexible and efficient 

way to provide the Commission’s views 

on cross-border issues raised by 

commenters, allowing the Commission 

to adapt in response to changes in the 

global regulatory and market 

landscape.5 The Commission 

accordingly stated that it would review 

and modify its cross-border policies as 

the global swaps market continues to 

evolve and consider codifying the crossborder application of Dodd-Frank swap 

provisions in future rulemakings, as 

appropriate.6

In this release, the Commission is 

proposing to codify a central element of 

the Dodd-Frank regulatory framework 

for SDs and MSPs, incorporating various 

aspects of the Commission’s recent 

cross-border rulemaking regarding the 

margin requirement,7 including the 

definitions of ‘‘U.S. person’’ and 

‘‘guarantee’’ and the concept of a 

Foreign Consolidated Subsidiary 

(‘‘FCS’’). Specifically, the Proposed Rule 

addresses when U.S. and non-U.S. 

persons, including FCSs and those 

whose swap obligations are guaranteed 

by a U.S. person, would be required to 

include their cross-border swap dealing 

transactions or swap positions in their 

SD or MSP registration threshold 

calculations, respectively,8 and the 

extent to which SD/MSPs would be 

required to comply with the 

Commission’s business conduct 

standards governing their conduct with 

swap counterparties (‘‘external business 

conduct standards’’) in cross-border 

transactions.9

The Proposed Rule also addresses 

issues related to a Commission request 

for comment on a 2013 staff advisory, 

which discussed the staff’s view of the 

application of certain Dodd-Frank swap 

provisions to non-U.S. SDs if they use 

personnel located in the United States.10

Specifically, the Proposed Rule 

addresses situations in which swap 

transactions are arranged, negotiated, or 

executed using personnel located in the 

United States (‘‘ANE transactions’’), 

including the types of activities that 

would fall within the scope of ANE 

transactions and the extent to which the 

SD registration threshold and external 

business conduct standards apply to 

ANE transactions. 

As part of the proposed rule, the 

Commission is also proposing to define 

the key terms of ‘‘U.S. person’’ and 

‘‘Foreign Consolidated Subsidiary’’ for 

broad cross-border application in a 

manner consistent with how the terms 

were defined in the Cross-Border 

Margin Rule.11 If adopted, the 

Commission intends that these 

definitions would be relevant not only 

within the context of the proposed rule, 

but for purposes of any subsequent 

rulemakings specifically addressing the 

cross-border application of other 

substantive Dodd-Frank requirements, 

unless the context or a specific rule or 

regulation otherwise requires. The 

Commission believes that applying a 

single definition for these terms 

throughout the Commission’s crossborder framework going forward would 

benefit market participants by 

eliminating complexity associated with 

the use of different definitions for 

different Dodd-Frank rules. 

The Proposed Rule does not address 

the cross-border application of any 

substantive Dodd-Frank requirements 

beyond the SD/MSP registration 

thresholds and external business 

conduct standards. The Commission 

expects to address the cross-border 

application of other Dodd-Frank 

requirements, including the availability 

of substituted compliance, in 

subsequent rulemakings. 

B. Current Market Structure 

In determining how the Commission’s 

SD/MSP registration thresholds should 

apply to market participants in crossborder transactions and the extent to 

which the Dodd-Frank swap 

requirements should apply to ANE 

transactions, the Commission was 

informed by its understanding of the 

current market practices of global 

financial institutions. Financial groups 

that are active in the swap market 

typically operate in multiple market 

centers 12 and carry out swap activity 

with counterparties around the world 

using a number of different operational 

structures. A financial group’s business 

model, including its booking practices 

and how it carries out market-facing 

activities, reflects a range of business 

and regulatory considerations, which 

are weighed differently by, and have 

different effects on, each group. 

Despite its geographic expanse, a 

global financial group effectively 

operates as a single business, with a 

highly integrated network of business 

lines and services conducted through 

various branches or affiliated legal 

entities that are under the control of the 

parent entity. While each branch or 

affiliate may serve a unique purpose, 

they are highly interdependent and 

inextricably linked, with affiliated 

entities within the corporate group 

providing financial or credit support for 

each other, such as in the form of a 

guarantee or the ability to transfer risk 

through inter-affiliate trades.13

A financial group may reflect all of its 

swaps in the financial statements of one 

entity (the ‘‘booking entity’’), realizing 

netting and operational benefits, a 

practice referred to as ‘‘central 

booking.’’ In this case, the booking 

entity retains all the risk associated with 


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14The extent to which swap risk may be 

transferred without changing the booking entity 

may depend on relevant accounting rules, legal 

requirements, and other factors. Swap activities 

may also be carried out through branches located 

in separate jurisdictions rather than, or in addition 

to, affiliates that are domiciled in separate 

jurisdictions. 

15From discussions with market participants, the 

Commission understands that financial groups 

typically prefer to operate their swap businesses 

and manage swap portfolios in the jurisdiction 

where the swap and the underlying asset have the 

deepest and most liquid markets. In operating their 

swap dealing businesses in these market centers, 

financial groups seek to take advantage of expertise 

in products traded in those centers and obtain 

access to greater liquidity, permitting them to more 

efficiently price such products or otherwise 

compete more effectively in the global swap market, 

including in jurisdictions different from the market 

center in which the swap is traded. 

16The market-facing affiliate may in turn employ 

either its own personnel or the personnel of another 

affiliate or unaffiliated agent. Market-facing entities 

may use unaffiliated agents in order to conduct 

swap dealing activity anonymously or to provide 

clients with access to market hubs where they do 

not have their own operations. 

17See The Goldman Sachs Group, Inc. 2013 

Annual Report on Form 10–K at 3 (describing 

Institutional Client Services business, which 

includes swaps and other derivatives trading), 

available at http://www.goldmansachs.com/ 

investor-relations/financials/archived/10k/docs/ 

2013-10-k.pdf. 

18See Morgan Stanley 2013 Annual Report on 

Form 10–K at 3, available at https://

www.morganstanley.com/about-us-ir/shareholder/ 

10k2013/10k2013.pdf. 

19See Global Equities, Citigroup, discussion of 

equities product line (accessed Sept. 29, 2016), 

available at http://www.citibank.com/icg/global_

markets/product_solutions/global_equities/ 

index.jsp. While this description is in the context 

of equities trading and not necessarily swaps, it 

illustrates the integrated nature of the global 

operations of these firms and their affiliates and 

subsidiaries in different countries. 

20See id. 

21Nor would such a framework be consistent 

with CEA section 2(i), which provides that DoddFrank’s swap provisions and the Commission’s 

regulations thereunder apply to cross-border 

transactions under certain circumstances. See Secs. 

Indus. & Fin. Mkts. Ass’n v. CFTC, 67 F. Supp. 3d 

373, 425–26 & n.35 (D.D.C. 2014). 

22Consistent with the reliance standard 

articulated in the Commission’s external business 

conduct rules, see 17 CFR 23.402(d), market 

participants would be allowed to reasonably rely on 

counterparty representations with respect to each of 

these definitions unless they have information that 

would cause a reasonable person to question the 

accuracy of the representation. 

each swap, creating one swap portfolio. 

Alternatively, a financial group may 

book swaps in several different affiliates 

depending on the jurisdiction where the 

counterparty is located or, alternatively, 

where the financial group manages a 

particular type of risk or product. In the 

latter case, the swaps will be reflected 

in the financial statements of different 

affiliates. The risks related to the swaps, 

however, may not remain in the entity 

in which the swap is booked. Using 

arrangements such as inter-affiliate 

transactions or assignments, the risks 

related to a swap may be transferred to 

different entities within an affiliated 

group while the entity at which the 

swap is booked remains unchanged.14

Regardless of a financial group’s 

booking practices, it typically engages in 

sales or trading functions in one or more 

market centers. Performing sales and 

trading functions in global market 

centers provides the financial group 

with access to counterparties in that 

jurisdiction. The financial group’s 

presence in a particular market center 

also enables the group to more 

effectively engage in swaps in that 

locale on behalf of affiliates in other 

jurisdictions that are servicing 

counterparties in those jurisdictions.15

In this highly-integrated corporate 

structure, where financial groups engage 

in swap dealing activity with 

counterparties located in multiple 

jurisdictions, it is not uncommon for a 

swap to be traded through an affiliate in 

one jurisdiction (the ‘‘market-facing 

affiliate’’) and booked and risk-managed 

in another (the ‘‘booking affiliate’’). In 

such cases, a particular affiliate may 

become the market-facing affiliate 

because its trading desk has expertise in 

relevant products or because it has an 

established client network in the 

relevant jurisdiction or market hub.16

However, although each affiliate carries 

out a distinct function in a given swap 

transaction, together they operate as an 

integrated dealing business. 

Large U.S. financial services firms 

emphasize the importance of operating 

globally through a unified structure. For 

example, Goldman Sachs explains that 

one of its core businesses ‘‘serves our 

clients who come to the firm to buy and 

sell financial products, raise funding 

and manage risk. We do this by acting 

as a market maker and offering market 

expertise on a global basis . . . . 

Through our global sales force, we 

maintain relationships with our clients, 

receiving orders and distributing 

investment research, trading ideas, 

market information and analysis. As a 

market maker, we provide prices to 

clients globally across thousands of 

products in all major asset classes and 

markets . . . . Much of this 

connectivity between the firm and its 

clients is maintained on technology 

platforms and operates globally 

wherever and whenever markets are 

open for trading.’’ 17 Morgan Stanley 

explains that it provides financial 

services to clients globally, primarily 

through subsidiaries incorporated in the 

U.S., Europe and Asia, and it ‘‘trades, 

invests and makes markets globally in 

listed swaps and futures and OTC 

cleared and uncleared swaps, forwards, 

options and other derivatives . . . .’’ 18

Citigroup, one of the largest U.S. bank 

holding companies, describes its global 

presence as ‘‘trading desks in over 30 

countries and market access in 70 

countries.’’ 19 Citigroup also states that it 

manages its risk exposures from its 

activities across all these countries via 

its ‘‘Centralized Risk Desk.’’ 20

In sum, the current swap market is 

global in scale and characterized by a 

high level of interconnectedness among 

market participants, with transactions 

negotiated, executed, and arranged 

between counterparties in different 

jurisdictions, (and booked and managed 

in still other jurisdictions). These 

market realities suggest that a crossborder framework that focuses only on 

the domicile of the market participant or 

location of counterparty risk would fail 

to effectively advance the policy 

objectives of the Dodd-Frank swap 

reforms, which were aimed at increasing 

market transparency and counterparty 

protections and mitigating the risk of 

financial contagion in the swap 

market.21 At the same time, the 

Commission is also mindful that its 

policy choices should aim to enhance 

market efficiency and competition and 

the overall functioning of the global 

swap market. Accordingly, as described 

in detail below, in developing the 

Proposed Rule the Commission has 

strived to implement a cross-border 

framework that would achieve the 

important goals of the Dodd-Frank Act 

while mitigating any unnecessary 

burdens and avoiding disruption to 

market practices to the extent possible. 

II. Definitions 

The Commission is proposing to 

define the key terms of ‘‘U.S. person’’ 

and ‘‘Foreign Consolidated Subsidiary’’ 

for purposes of applying the DoddFrank swaps provisions to cross-border 

transactions. Whether a market 

participant is a U.S. person or a Foreign 

Consolidated Subsidiary would, for 

instance, affect how the SD/MSP 

registration thresholds apply under the 

proposed rule.22 If adopted, these 

definitions would also be relevant for 

purposes of any subsequent rulemakings 

specifically addressing the cross-border 

application of other substantive DoddFrank requirements, unless the context 

or a specific rule or regulation otherwise 

requires. 

A. U.S. Person 

Under the Proposed Rule, a ‘‘U.S. 

person’’ would be defined as follows: 

• Any natural person who is a 

resident of the United States (proposed 

§ 1.3(aaaaa)(5)(i)); 


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23The Commission notes that the reference in 

proposed § 1.3(aaaaa)(5)(iii) and (vi) (indicating that 

legal entities would include any branch of the legal 

entity) is intended to make clear that the definition 

includes both foreign and U.S. branches of an 

entity. The Commission further notes that a branch 

does not have a legal identity apart from its 

principal entity. The proposed language is not 

intended to introduce any additional criteria for 

determining an entity’s U.S. person status. 

24See proposed rule § 1.3(aaaaa)(5). See also 

proposed rule § 1.3(aaaaa)(2) (defining ‘‘non-U.S. 

person’’ as any person that is not a U.S. person); 

17 CFR 23.160(a)(10) (defining U.S. person for 

purposes of the Cross-Border Margin Rule). The 

Commission notes that an affiliate or a subsidiary 

of a U.S. person that is organized or incorporated 

in a non-U.S. jurisdiction would not be deemed a 

U.S. person solely by virtue of its affiliation with 

a U.S. person. As used herein, the term ‘‘U.S. 

counterparty’’ refers to a swap counterparty that is 

a ‘‘U.S. person’’ under the Proposed Rule. 

25See 17 CFR 23.160(a)(10). See also CrossBorder Margin Rule, 81 FR at 34823–24. Unless 

expressly stated otherwise herein, the description of 

the U.S. person definition in the Cross-Border 

Margin Rule, including the Commission’s 

interpretation of the principal place of business test 

regarding funds, would also apply in the context of 

the Proposed Rule. 

26See Guidance, 78 FR at 45308–17 (setting forth 

the interpretation of ‘‘U.S. person’’ for purposes of 

the Guidance). 

27See id. at 45313–14 (discussing the U.S. 

majority-ownership prong for purposes of the 

Guidance). The Guidance interpreted ‘‘majorityowned’’ in this context to mean the beneficial 

ownership of more than 50 percent of the equity or 

voting interests in the collective investment vehicle. 

See id. at 45314. 

28Note that a fund fitting within the majority U.S. 

ownership prong may also be a U.S. person within 

the scope of paragraph (iii) of the Proposed Rule 

(entities organized or having a principal place of 

business in the United States). As the Commission 

clarified in the Cross-Border Margin Rule, whether 

a pool, fund or other collective investment vehicle 

is publicly offered only to non-U.S. persons and not 

offered to U.S. persons would not be relevant in 

determining whether it falls within the scope of the 

proposed U.S. person definition. See Cross-Border 

Margin Rule, 81 FR at 34824 n.62. 

29See Guidance, 78 FR at 45316 (discussing the 

inclusion of the prefatory phrase ‘‘include, but not 

be limited to’’ in the interpretation of ‘‘U.S. person’’ 

in the Guidance). 

30See id. at 45312–13 (discussing the unlimited 

U.S. responsibility prong for purposes of the 

Guidance). 

31See Cross-Border Margin Rule, 81 FR at 34823– 

24. 

32See Guidance, 78 FR at 45353 n.531 

(incorporating the interpretation of ‘‘international 

financial institutions’’ included in Further 

Definition of ‘‘Swap Dealer,’’ ‘‘Security-Based Swap 

Dealer,’’ ‘‘Major Swap Participant,’’ ‘‘Major 

Security-Based Swap Participant’’ and ‘‘Eligible 

Contract Participant,’’ 77 FR 30596, 30692 n.1180 

(May 23, 2012) (‘‘Entities Rule’’)). 

33The two definitions overlap but together 

include the following: The International Monetary 

Fund, International Bank for Reconstruction and 

Development, European Bank for Reconstruction 

and Development, International Development 

Association, International Finance Corporation, 

Multilateral Investment Guarantee Agency, African 

Development Bank, African Development Fund, 

Asian Development Bank, Inter-American 

Development Bank, Bank for Economic Cooperation 

and Development in the Middle East and North 

Africa, Inter-American Investment Corporation, 

Council of Europe Development Bank, Nordic 

Continued 

• Any estate of a decedent who was 

a resident of the United States at the 

time of death (proposed 

§ 1.3(aaaaa)(5)(ii)); 

• Any corporation, partnership, 

limited liability company, business or 

other trust, association, joint-stock 

company, fund or any form of entity 

similar to any of the foregoing (other 

than an entity described in proposed 

paragraph (aaaaa)(5)(iv) or (v) of § 1.3) 

(‘‘legal entity’’), in each case that is 

organized or incorporated under the 

laws of the United States or that has its 

principal place of business in the 

United States, including any branch of 

the legal entity 23 (proposed 

§ 1.3(aaaaa)(5)(iii)); 

• Any pension plan for the 

employees, officers or principals of a 

legal entity described in proposed 

paragraph (aaaaa)(5)(iii) of § 1.3, unless 

the pension plan is primarily for foreign 

employees of such entity (proposed 

§ 1.3(aaaaa)(5)(iv)); 

• Any trust governed by the laws of 

a state or other jurisdiction in the 

United States, if a court within the 

United States is able to exercise primary 

supervision over the administration of 

the trust (proposed § 1.3(aaaaa)(5)(v)); 

• Any legal entity (other than a 

limited liability company, limited 

liability partnership or similar entity 

where all of the owners of the entity 

have limited liability) that is owned by 

one or more persons described in 

proposed paragraphs (aaaaa)(5)(i) 

through (v) of § 1.3 who bear(s) 

unlimited responsibility for the 

obligations and liabilities of the legal 

entity, including any branch of the legal 

entity (proposed § 1.3(aaaaa)(5)(vi)); and 

• Any individual account or joint 

account (discretionary or not) where the 

beneficial owner (or one of the 

beneficial owners in the case of a joint 

account) is a person described in 

proposed paragraphs (aaaaa)(5)(i) 

through (vi) of § 1.3 (proposed 

§ 1.3(aaaaa)(5)(vii)).24

In line with commenter requests, this 

definition mirrors the definition of 

‘‘U.S. person’’ recently adopted in the 

context of the Cross-Border Margin 

Rule.25 As stated therein, the 

Commission believes that this definition 

offers a clear, objective basis for 

determining which individuals or 

entities should be identified as U.S. 

persons and that harmonizing with the 

definition in the Cross-Border Margin 

Rule is not only appropriate, but will 

reduce compliance costs for market 

participants in the long run. 

The proposed U.S. person definition 

is generally consistent with the U.S. 

person interpretation set forth in the 

Guidance, with certain exceptions.26

Notably, the proposed definition does 

not include a commodity pool, pooled 

account, investment fund, or other 

collective investment vehicle that is 

majority-owned by one or more U.S. 

persons (‘‘U.S. majority-owned fund 

prong’’).27 The Commission 

understands that identifying and 

tracking a fund’s beneficial ownership 

may pose a significant challenge in 

certain circumstances. Although the 

U.S. owners of such funds may be 

adversely impacted in the event of a 

counterparty default, the Commission 

believes that, on balance, the majorityownership test should not be included 

in the definition of U.S. person.28 In the 

interest of providing legal certainty, the 

proposed definition also does not 

include a catchall provision, thereby 

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

to persons enumerated in the rule.29

Finally, consistent with the CrossBorder Margin Rule, paragraph (vi) of 

the proposed U.S. person definition 

includes legal entities where one or 

more U.S. person owner(s) bear 

unlimited responsibility for the 

obligations and liabilities of the legal 

entity (‘‘unlimited U.S. responsibility 

prong’’). This paragraph represents a 

modified version of a similar concept 

from the Guidance, which interpreted 

‘‘U.S. person’’ to include a legal entity 

‘‘directly or indirectly majority-owned’’ 

by one or more U.S. person(s) that bear 

unlimited responsibility for the legal 

entity’s liabilities and obligations.30

Upon further consideration, the 

Commission believes that the amount of 

equity the U.S. owner(s) have in this 

legal entity would not be relevant 

because the U.S. person owner(s), by 

definition, serve as a financial backstop 

for all of the legal entity’s obligations 

and liabilities regardless of whether 

they are majority or minority owners.31

In consideration of principles of 

international comity, the Commission 

proposes that the term ‘‘U.S. person’’ 

would not include international 

financial institutions. Consistent with 

Commission precedent,32 the 

Commission interprets ‘‘international 

financial institutions’’ to include 

‘‘international financial institutions’’ as 

defined in 22 U.S.C. 262r(c)(2) and 

institutions defined as ‘‘multilateral 

development banks’’ in the Proposal for 

the Regulation of the European 

Parliament and of the Council on OTC 

Derivative Transactions, Central 

Counterparties and Trade Repositories, 

Council of the European Union Final 

Compromise Text, Article 1(4a(a)) 

(March 19, 2012).33


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Investment Bank, Caribbean Development Bank, 

European Investment Bank and European 

Investment Fund. Note that the International Bank 

for Reconstruction and Development, the 

International Finance Corporation and the 

Multilateral Investment Guarantee Agency are parts 

of the World Bank Group. The Commission’s 

proposal is generally similar to the position adopted 

by the SEC, which excluded from its U.S. person 

definition the International Monetary Fund, the 

International Bank for Reconstruction and 

Development, the Inter-American Development 

Bank, the Asian Development Bank, the African 

Development Bank, the United Nations, and their 

agencies and pension plans, and any other similar 

international organizations, their agencies and 

pension plans. See 17 CFR 240.3a71–3(a)(4)(iii); 

Application of ‘‘Security-Based Swap Dealer’’ and 

‘‘Major Security-Based Swap Participant’’ 

Definitions to Cross-Border Security-Based Swap 

Activities; Republication, 79 FR 47278, 47306 (Aug. 

12, 2014) (‘‘SEC Cross-Border Rule’’). 

34Exchange Act rule 3a71–3(a)(4), 17 CFR 

240.3a71–3(a)(4), defines ‘‘U.S. person’’ to mean 

any natural person resident in the United States; 

any partnership, corporation, trust, investment 

vehicle, or other legal person organized, 

incorporated, or established under the laws of the 

United States or having its principal place of 

business in the United States; any account (whether 

discretionary or non-discretionary) of a U.S. person; 

or any estate of a decedent who was a resident of 

the United States at the time of death. 

Exchange Act rule 3a71–3(a)(4) defines ‘‘principal 

place of business’’ to mean the location from which 

the officers, partners, or managers of the legal 

person primarily direct, control, and coordinate the 

activities of the legal person. It also provides that, 

with respect to an externally managed investment 

vehicle, this location is the office from which the 

manager of the vehicle primarily directs, controls, 

and coordinates the investment activities of the 

vehicle. 

35See proposed rule § 1.3(aaaaa)(1). See also 17 

CFR 23.160(a)(1) (defining ‘‘Foreign Consolidated 

Subsidiary’’ for purposes of the Cross-Border 

Margin Rule). The Cross-Border Margin Rule 

defined the term ‘‘Foreign Consolidated 

Subsidiary’’ as limited to SDs and MSPs subject to 

the Commission’s margin requirements (‘‘Covered 

Swap Entities’’ or ‘‘CSEs’’), using the term to 

distinguish non-U.S. CSEs with a U.S. ultimate 

parent entity from other non-U.S. CSEs. 81 FR at 

34826–27. The proposed FCS definition similarly 

but more broadly distinguishes any non-U.S. person 

that is consolidated with a U.S. ultimate parent 

entity from other non-U.S. persons, regardless of 

whether it is a CSE. 

36See proposed rule § 1.3(aaaaa)(3). See also 17 

CFR 23.160(a)(6) (defining ‘‘ultimate parent entity’’ 

for purposes of the Cross-Border Margin Rule). 

37There are two consolidation models. First, 

entities are subjected to the variable interest entity 

(‘VIE’) model. If the VIE model is not applicable, 

then entities are subjected to the voting interest 

model. Under the VIE model, a reporting entity has 

a controlling financial interest in a VIE if it has: (a) 

The power to direct the activities of the VIE that 

most significantly affect the VIE’s economic 

performance, and (b) the obligation to absorb losses 

or the right to receive benefits that could be 

significant to the VIE. Under the voting interest 

model, a controlling financial interest generally 

exists if a reporting entity has a majority voting 

interest in another entity. In certain circumstances, 

the power to control may exist when one entity 

holds less than a majority voting interest (e.g., 

because of contractual provisions or agreements 

with other shareholders). See Financial Accounting 

Standards Board, Accounting Standards 

Codification 810, Consolidation. 

38Cross-Border Margin Rule, 88 FR at 34826–27. 

39As Moody’s Ratings states in a description of 

its bank assessment methodology, ‘‘most [financial] 

groups can be expected to support banking entities 

within their consolidation.’’ See Moody’s Investors 

Service, Cross-Border Application of the Swap 

Dealer De Minimis Exception (Sept. 9, 2014) at 66, 

available at https://www.moodys.com/microsites/ 

gbrm2014/RFC.pdf. 

40The Commission notes that there are some 

important differences between a U.S. Guaranteed 

Entity and an FCS. See Cross-Border Margin Rule, 

81 FR at 34827 (noting that, in contrast to U.S. 

Guaranteed CSEs, in the event of an FCS’s default, 

the U.S. ultimate parent entity does not have a legal 

obligation to fulfill the obligations of the FCS. 

Rather that decision would depend on the business 

judgment of its parent). See also supra note 35 

(describing the definition of FCS in the context of 

the Cross-Border Margin Rule). 

Request for Comment. The 

Commission invites comment on all 

aspects of the Proposed Rule, including 

on whether and in what respects the 

Commission should further harmonize 

the U.S. person definition in the 

Proposed Rule to either the 

interpretation of U.S. person included 

in the Guidance or the U.S. person 

definition adopted by the Securities 

Exchange Commission (‘‘SEC’’) in rule 

3a71–3(a)(4) under the Securities 

Exchange Act of 1934 (‘‘Exchange 

Act’’).34

B. Foreign Consolidated Subsidiary 

(‘‘FCS’’) 

Under the Proposed Rule, the term 

‘‘Foreign Consolidated Subsidiary’’ 

identifies a non-U.S. person that is 

consolidated for accounting purposes 

with an ultimate parent entity that is a 

U.S. person (a ‘‘U.S. ultimate parent 

entity’’). Consistent with the CrossBorder Margin Rule, the proposed rule 

would define ‘‘Foreign Consolidated 

Subsidiary’’ to mean a non-U.S. person 

in which an ultimate parent entity that 

is a U.S. person has a controlling 

financial interest, in accordance with 

U.S. generally accepted accounting 

principles (‘‘U.S. GAAP’’), such that the 

U.S. ultimate parent entity includes the 

non-U.S. person’s operating results, 

financial position and statement of cash 

flows in the U.S. ultimate parent entity’s 

consolidated financial statements, in 

accordance with U.S. GAAP.35 The 

proposed rule would define the term 

‘‘ultimate parent entity’’ to mean the 

parent entity in a consolidated group in 

which none of the other entities in the 

consolidated group has a controlling 

interest, in accordance with U.S. 

GAAP.36

The proposed FCS definition offers a 

clear, bright-line test for identifying 

non-U.S. persons whose swap activities 

present a greater supervisory interest 

relative to other non-U.S. market 

participants, due to the nature and 

extent of the FCS’s relationship with its 

U.S. ultimate parent. As described 

above, the nature of modern finance is 

such that large financial institutions 

typically conduct their business 

operations through a highly integrated 

network of business lines and services 

conducted through multinational 

branches or subsidiaries that are under 

the control of the ultimate parent entity. 

Under this structure, U.S. and non-U.S. 

derivatives trading functions as a single 

enterprise, using funds, risk 

management, information systems and 

trading personnel across the entire 

consolidated entity in the most efficient 

manner in effectuating coordinated 

trading strategies, with the profits and 

losses from global trading operations 

aggregated in the consolidated financial 

statements of the ultimate parent entity. 

The Commission believes that the FCS 

definition appropriately encompasses 

those entities within this consolidated 

group that are subject to the financial 

control, and directly impact the 

financials, of the U.S. ultimate parent 

entity. 

First, consolidation under U.S. GAAP 

is predicated on the financial control of 

the reporting entity.37 Therefore, an 

entity within a financial group that is 

consolidated with its parent entity for 

accounting purposes in accordance with 

U.S. GAAP is subject to the financial 

control of that parent entity. Second, as 

the Commission previously stated, by 

virtue of consolidation with its parent 

entity’s financial statement under U.S. 

GAAP, an FCS’s swap activity creates 

direct risk to the U.S. parent.38 That is, 

as a result of consolidation, the financial 

position, operating results, and 

statement of cash flows of an FCS are 

included in the financial statements of 

its U.S. ultimate parent and therefore 

affect the financial condition, risk 

profile, and market value of the parent. 

Because of that relationship, risks taken 

by FCSs can have a direct effect on the 

U.S. ultimate parent entity. 

Furthermore, the FCS’s counterparties 

generally look to both the FCS and its 

U.S. ultimate parent for fulfillment of 

the FCS’s obligations under the swap, 

even without any explicit guarantee.39

In many cases, the Commission believes 

that the counterparty would not enter 

into the transaction with the subsidiary 

(or would not do so on the same terms), 

and the subsidiary would not be able to 

engage in a swaps business, absent this 

close relationship with the parent 

entity. 

Under these circumstances, the 

Commission believes that it is 

appropriate to require FCSs to include 

relevant swaps for the SD/MSP 

registration calculation like a U.S. 

person (and U.S. Guaranteed Entity).40


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41Although the proposed rule is focused on the 

cross-border application of the registration 

thresholds and external business conduct standards 

for SD/MSPs, the Commission expects to address 

how other substantive Dodd-Frank swap 

requirements (including the trading and clearing 

mandates and reporting requirements) would apply 

to FCSs in cross-border transactions in subsequent 

rulemakings. In doing so, the Commission will give 

due consideration to whether, and the extent to 

which, substituted compliance should be made 

available to FCSs’ swap transactions. 

42 In particular, the Commission recognizes that, 

even absent consolidated financial statements, a 

U.S. parent entity may, for reputational reasons, 

determine that they must support their non-U.S. 

affiliates at times of crisis, with direct risk 

implications for the U.S. parent and U.S. market. 

43See supra note 10. See also Guidance, 78 FR 

at 45333 (providing that the Transaction-Level 

Requirements include (i) Required clearing and 

swap processing; (ii) margining (and segregation) 

for uncleared swaps; (iii) mandatory trade 

execution; (iv) swap trading relationship 

documentation; (v) portfolio reconciliation and 

compression; (vi) real-time public reporting; (vii) 

trade confirmation; (viii) daily trading records; and 

(ix) external business conduct standards). 

44See Request for Comment, 79 FR at 1348–49. 

45See American Bankers Association Securities 

Association (‘‘ABASA’’) (Mar. 10, 2014); Americans 

for Financial Reform (‘‘AFR’’) (Mar. 10, 2014); 

Barclays Bank PLC (‘‘Barclays’’) (Mar. 10, 2014); 

Chris R. Barnard (‘‘Barnard’’) (Mar. 8, 2014); Better 

Markets Inc. (‘‘Better Markets’’) (Mar. 10, 2014); 

Coalition for Derivatives End-Users (‘‘Coalition’’) 

(Mar. 10, 2014); Commercial Energy Working Group 

(‘‘CEWG’’) (Mar. 10, 2014); European Commission 

(Mar. 10, 2014); European Securities and Markets 

Authority (‘‘ESMA’’) (Mar. 13, 2014); Institute for 

Agriculture and Trade Policy (‘‘IATP’’) (Mar. 10, 

2014); Institute of International Bankers (‘‘IIB’’) 

(Mar. 10, 2014); International Swaps and 

Derivatives Association, Inc. (‘‘ISDA’’) (Mar. 7, 

2014); Investment Adviser Association (‘‘IAA’’) 

(Mar. 10, 2014); Japanese Bankers Association 

(‘‘JBA’’) (Mar. 7, 2014); Japan Financial Markets 

Council (‘‘JFMC’’) (Mar. 4, 2014); Securities 

Industry and Financial Markets Association, 

Futures Industry Association, and Financial 

Services Roundtable (‘‘SIFMA/FIA/FSR’’) (Mar. 10, 

2014); Socie ́te ́ Ge ́ne ́rale (‘‘SG’’) (Mar. 10, 2014). The 

associated comment file is available at http://

comments.cftc.gov/PublicComments/ 

CommentList.aspx?id=1452&ctl00_ctl00_

cphContentMain_MainContent_

gvCommentListChangePage=1_50. Although the 

comment file includes records of 22 comments, five 

were either duplicate submissions or not responsive 

to the Request for Comment. 

46See, e.g., IAA at 2 n.4; IIB at 4–5 (transactions 

between two non-U.S. persons present no risk to the 

U.S. financial system and therefore do not have a 

‘‘direct and significant’’ nexus to U.S. commerce); 

ISDA at 3–4, 10–13 (challenging the Commission’s 

interpretation of ‘‘direct and significant’’); JFMC at 

3; SIFMA/FIA/FSR at A–2–A–3 (section 2(i) should 

be interpreted in light of the Dodd-Frank goal of 

mitigating risk); SG at 8. Accord European 

Commission (the Staff Advisory does not clearly 

articulate how the standard it sets out is consistent 

with section 2(i)). 

47See, e.g., European Commission at 2 (the 

unavailability of substituted compliance would 

seem to depart from the G20 commitment to defer 

to foreign regulators when appropriate); IIB at 5–6; 

ISDA at 8–9; IAA at 4 (failure to grant substituted 

compliance reflects a lack of coordination with 

foreign regulators, leading to a less efficient use of 

regulatory resources and the potential for 

duplicative or conflicting regulations); JFMC at 3; 

SIFMA/FIA/FSR at A–13. 48See, e.g., Barclays at 3 n.11; IIB at 4–5; ISDA 

at 6–7; SIFMA/FIA/FSR at 2, A–9–A–10; SG at 2 

(adopting the Staff Advisory would extend the 

Commission’s regulations ‘‘to swaps whose risk lies 

totally offshore’’ and that do not pose a high risk 

to the U.S. financial system). 

49See, e.g., Coalition at 2 (non-U.S. SDs use U.S. 

personnel to arrange, negotiate, or execute swaps 

because they have particular subject matter 

expertise for or due to the location of their clients 

across time zone); European Commission at 1; IIB 

at 7–8 n.18; IAA at 2; ISDA at 4; JFMC at 2–3; 

SIFMA/FIA/FSR at A–4; SG at 3 (a non-U.S. SD may 

use salespersons in the United States if the Covered 

Transaction is linked to a USD instrument). 

50See, e.g., Barclays at 4–5; European 

Commission at 3 (whether negotiation of a Master 

Agreement by U.S. middle office staff would trigger 

application of the Staff Advisory is unclear); IAA 

at 5 (‘‘[T]he terms ‘arranging’ and ‘negotiating’ are 

overly broad and may encompass activities that are 

incidental to a swap transaction,’’ such as providing 

market or pricing information); SIFMA/FIA/FSR at 

A–12 (arranging and negotiating trading 

relationships and legal documentation are ‘‘middleand back-office operations’’ and should not be 

included); SG at 7–8 (‘‘regularly’’ is an arbitrary 

concept that cannot be made workable, and 

programming trading systems to interpret 

‘‘arranging, negotiating, or executing’’ on a trade-bytrade basis would not be feasible). 

51See, e.g., ABASA at 2 (adopting the Staff 

Advisory would ‘‘impose unnecessary compliance 

burdens on swap market participants, encourage 

them to re-locate jobs and activities outside the 

United States to accommodate non-U.S. client 

demands, and fragment market liquidity’’); 

Coalition at 3 (emphasizing the impact on non-U.S. 

affiliates of U.S. end users, such as increased 

hedging costs and reduced access to registered 

counterparties); IIB at 7–8; ISDA at 4; JFMC at 3; 

SG at 8–9. See also IAA at 3 (expressing concern 

that non-U.S. clients may avoid hiring U.S. asset 

managers to avoid application of the Staff 

Advisory). 

52See AFR; Better Markets; IATP. 

A failure to treat these entities the same 

in this context could provide a U.S. 

financial group with an opportunity to 

avoid SD or MSP registration by 

conducting relevant swap activities 

through unregistered entities. However, 

as in the Cross-Border Margin Rule, the 

Commission would not necessarily treat 

FCSs the same as a U.S. person (or U.S. 

Guaranteed Entity) in the context of 

other Dodd-Frank swap provisions.41

The Commission also recognizes that 

other affiliates, even though they are not 

consolidated with the U.S. ultimate 

parent entity for accounting purposes, 

could likewise be distinguished from 

other non-U.S. persons given the nature 

of their relationship with the U.S. 

person and the U.S. market.42 The 

Commission believes that the 

consolidation test provides a workable 

definition that is tailored to focus on 

those affiliates that present greater 

supervisory concerns (relative to other 

non-U.S. persons). 

Request for Comment. The 

Commission seeks comment on all 

aspects of the Proposed Rule’s 

definition of ‘‘Foreign Consolidated 

Subsidiary’’ including on whether the 

proposed FCS definition appropriately 

captures persons that raise greater 

supervisory concerns relative to other 

non-U.S. persons whose swap 

obligations are not guaranteed by a U.S. 

person. If not, please explain and 

provide an alternative(s). 

III. ANE Transactions 

A. Background 

In November 2013, DSIO issued a staff 

advisory providing that a non-U.S. swap 

dealer that regularly uses personnel or 

agents located in the United States to 

arrange, negotiate, or execute a swap 

with a non-U.S. person (‘‘Covered 

Transactions’’) would generally be 

required to comply with the 

‘‘Transaction-Level Requirements,’’ as 

the term was used in the Guidance.43 In 

January 2014, the Commission 

published a request for comment on all 

aspects of the Staff Advisory, including 

(1) the scope and meaning of the phrase 

‘‘regularly arranging, negotiating, or 

executing’’ and what characteristics or 

factors distinguish ‘‘core, front-office’’ 

activity from other activities; (2) 

whether the Commission should adopt 

the Staff Advisory as Commission 

policy, in whole or in part; and (3) 

whether substituted compliance should 

be available for non-U.S. swap dealers 

with respect to Covered Transactions.44

The Commission received seventeen 

comment letters in response to the 

Request for Comment.45 Most 

commenters challenged the Staff 

Advisory as inconsistent with CEA 

section 2(i) 46 or international comity.47

They emphasized that the risk 

associated with Covered Transactions 

lies outside the United States 48 and that 

non-U.S. swap dealers involve U.S. 

personnel primarily for the convenience 

of their global customers.49 They also 

characterized the Staff Advisory as 

impractical or unworkable, describing 

its key language (‘‘regularly arranging, 

negotiating, or executing swaps’’ and 

‘‘performing core, front-office 

activities’’) as vague, open to broad 

interpretation, and potentially capturing 

activities that are merely ‘‘incidental’’ to 

the swap transaction.50 They further 

argued that if the Staff Advisory were 

adopted as Commission policy, nonU.S. swap dealers would close U.S. 

branches and relocate personnel to other 

countries (or otherwise terminate 

agency contracts with U.S.-based agents) 

in order to avoid Dodd-Frank swap 

regulation or having to interpret and 

apply the Staff Advisory, thereby 

increasing market fragmentation.51

A few commenters, however, 

supported the Staff Advisory.52 They 

argued that the Commission has 

jurisdiction over swap activities 


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53See AFR at 2 (CEA section 2(i) clearly sets the 

statutory jurisdiction of CFTC rules to include all 

activities conducted inside the United States); 

Better Markets at 3 (the Staff Advisory ‘‘represents 

the only reasonable interpretation of Congress’s 

mandate to regulate swaps transactions with a 

‘direct and significant connection with activities in, 

or effect on, commerce of the United States’’’); IATP 

at 1 (‘‘It should be self-evident that the swaps 

activities in the United States of non-U.S. persons 

fall under the Commission’s jurisdiction.’’). 

54See AFR at 3 (failure to adopt the Staff 

Advisory ‘‘could mean that U.S. firms operating in 

the U.S. would face different rules for the same 

transactions as compared to competitor firms also 

operating in the very same market and location, 

perhaps literally next door, who had arranged to 

route transactions through a nominally foreign 

subsidiary’’); Better Markets at 3 (allowing 

registered swap dealers to book transactions 

overseas but otherwise handle the swap inside the 

United States would ‘‘create a gaping loophole,’’ 

resulting in ‘‘keystroke off-shoring of the bookings, 

but otherwise the on-shoring of the core activities 

associated with the transaction’’). 

55See AFR at 2–3, 5; Better Markets at 5 (brokers, 

structurers, traders, and salesmen ‘‘collectively 

comprise the general understanding of the core 

front office’’). 

56See AFR at 2–3, 5 (terms ‘‘‘arranging, 

negotiating, or executing’ would appear to exclude 

purely clerical and incidental functions such as 

notating or recording the sale of a swap for 

consolidated risk management or bookkeeping 

purposes’’). See also id. at 5 (definition of 

‘‘regularly’’ should be tied to an expectation that 

U.S. personnel are available on request to arrange, 

negotiate, and execute swaps). 

57See, e.g., Coalition at 5; ESMA at 1; IAA at 3– 

4; ISDA at 9–10; SIFMA/FIA/FSR at A–13, SG at 6– 

7. 

58See, e.g., Barclays at 3 n.11 (transaction-level 

requirements focused on risk mitigation, market 

integrity, or transparency should not apply to 

Covered Transactions); Barnard at 2 (transactionlevel requirements should not apply to Covered 

Transactions with non-U.S. counterparties that are 

not guaranteed or conduit affiliates); IIB at 9–10. 

59See, e.g., Barclays at 3 (‘‘Applying the pre-trade 

disclosure requirements promotes the 

Commission’s interests in regulating activities of 

U.S. based personnel or agents of Commission 

registered entities and in protecting counterparties. 

Such concerns may be raised by the activities of 

such individuals even if the risk arising from those 

swaps transactions is borne by entities outside the 

United States.’’); IIB at 10–12 (‘‘Non-U.S. 

counterparties may reasonably expect the 

protection of the sales practice rules applicable in 

the jurisdiction of the personnel responsible for 

committing the non-U.S. swap dealer to the 

swap.’’); SIFMA/FIA/FSR at A–10–A–12 (‘‘[O]nly 

direct communications by personnel located in the 

United States with counterparties that commit the 

SD to the execution of the transaction should trigger 

application of the requirements under the Staff 

Advisory.’’ (Emphasis omitted)). 

60See 7 U.S.C. 1a(49); 17 CFR 1.3(ggg); Entities 

Rule, 77 FR at 30598. 

61See Entities Rule, 77 FR at 30597; 7 U.S.C. 

1a(49)(A); 17 CFR 1.3(ggg)(1). 62See Entities Rule, 77 FR at 30608. 

occurring inside the United States 53 and 

expressed concern that the 

Commission’s failure to assert such 

jurisdiction would create a substantial 

loophole, allowing U.S. financial firms 

to operate in the United States without 

Dodd-Frank oversight by merely routing 

swaps through a non-U.S. affiliate.54

They further argued that arranging, 

negotiating, or executing swaps are 

functions normally performed by 

brokers, traders, and salesperson and are 

‘‘economically central to the business of 

swap dealing.’’ 55 They added the focus 

on the ‘‘regular’’ use of personnel 

located in the United States to perform 

such core dealing activities would 

exclude ‘‘entirely incidental’’ 

interactions with U.S. personnel from 

triggering Dodd-Frank oversight.56

Commenters that disagreed with the 

Staff Advisory nevertheless offered a 

few suggestions for its modification, 

should the Commission determine to 

adopt it, including offering substituted 

compliance for Covered Transactions 57

or otherwise limiting the scope of 

applicable requirements.58 Certain 

commenters, for instance, recommended 

that the applicable requirements be 

limited to pre-trade disclosure 

requirements (e.g., disclosure of 

material information), arguing that 

applying relationship-wide external 

business conduct rules would require 

wholesale amendments to relationship 

documentations even where the specific 

communication is not material to the 

overall trading relationship.59

B. Commission’s Views Regarding ANE 

Transactions 

After considering the views of 

commenters on the Staff Advisory in 

response to the Commission’s Request 

for Comment, the Commission is setting 

forth its views on whether persons 

engaged in ANE transactions or 

transactions arising from this activity 

fall within the scope of the Dodd-Frank 

Act. The Commission’s analysis is 

guided by the definition of ‘‘swap 

dealer’’ under the CEA and Commission 

regulations. 

Under both the CEA and Commission 

regulations, whether a person is a ‘‘swap 

dealer’’ is a functional test that focuses 

on whether the person engages in 

particular types of activities involving 

swaps.60 In general, the swap dealer 

definition encompasses persons that 

engage in any of the following types of 

activity: (1) Holding oneself out as a 

dealer in swaps; (2) making a market in 

swaps; (3) regularly entering into swaps 

with counterparties as an ordinary 

course of business for one’s own 

account; or (4) engaging in any activity 

causing oneself to be commonly known 

in the trade as a dealer or market maker 

in swaps.61 Commission regulations 

further define the term to include 

specific activities indicative of acting as 

a swap dealer, such as (1) providing 

liquidity by accommodating demand for 

or facilitating interest in the swap, 

holding oneself out as willing to enter 

into swaps, or being known in the 

industry as being available to 

accommodate demand for swaps; (2) 

advising a counterparty as to how to use 

swaps to meet the counterparty’s 

hedging goals, or structuring swaps on 

behalf of a counterparty; (3) having a 

regular clientele and actively 

advertising or soliciting clients in 

connection with swaps; (4) acting in a 

market maker capacity on an organized 

exchange or trading system for swaps, 

and (5) helping to set the prices offered 

in the market rather than taking those 

prices, although the fact that a person 

regularly takes the market price for its 

swaps does not foreclose the possibility 

that the person may be a swap dealer.62

Neither the statutory definition of 

‘‘swap dealer’’ nor the Commission’s 

further definition of that term turns 

solely on risk to the U.S. financial 

system. Consistent with the focus of the 

‘‘swap dealer’’ definition on a person’s 

activity, the Commission does not 

believe that the location of counterparty 

credit risk associated with a dealing 

swap—which, as discussed above, is 

easily and often frequently moved 

across the globe—should be 

determinative of whether a person’s 

dealing activity falls within the scope of 

the Dodd-Frank Act or whether the 

Commission has a regulatory interest in 

the dealing activity. The appropriate 

inquiry also considers whether a nonU.S. person is engaged in the United 

States in any of the indicia of dealing 

activity set forth in the definition of 

‘‘swap dealer.’’ 

In the Commission’s view, and as 

further explained below, arranging, 

negotiating, or executing swaps are 

functions that fall within the scope of 

the ‘‘swap dealer’’ definition. That the 

counterparty risks may reside primarily 

outside the United States is not 

determinative. To the extent that a 

person uses personnel located in the 

United States (whether its own 

personnel or personnel of an agent) to 

arrange, negotiate, or execute its swap 

dealing transactions, the Commission 

believes that such person is conducting 

a substantial aspect of its swap dealing 

activity within the United States and 

therefore, falls within the scope of the 

Dodd-Frank Act. 

The Commission further believes that 

to the extent that ANE transactions raise 

regulatory concerns of the type that the 

Dodd-Frank Act is intended to address, 

applying specific Dodd-Frank swap 

requirements to ANE transactions may 

be appropriate. In establishing a 

comprehensive regulatory regime for 

swaps under the Dodd-Frank Act, 

Congress intended to advance several 


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63As discussed above, the financial group affiliate 

may use the trading desk of an affiliate that 

possesses expertise in relevant products or 

personnel of an affiliate with an established client 

network in relevant market hubs. The financial 

group affiliate may also use the personnel of an 

unaffiliated agent to conduct its swap dealing 

activity, typically where it is seeking to trade 

anonymously or to provide clients with access to 

market hubs where it does not have its own 

operation. 

64A swap transaction may be ‘‘arranged’’ by 

personnel located in the United States regardless of 

whether the counterparty initiated the transaction 

or whether the counterparty’s business was 

solicited. 

65Cf. 17 CFR 23.200(e) (defining ‘‘execution’’ to 

mean an agreement by the parties (whether orally, 

in writing, electronically, or otherwise) to the terms 

of a swap that legally binds the parties to such swap 

terms under applicable law); 23.200(d) (further 

defining ‘‘executed’’ to mean the completion of the 

execution process). 

66The Proposed Rule would accordingly not 

capture the activities of personnel assigned to a 

non-U.S. location if such personnel are only 

incidentally present in the United States when they 

arrange, negotiate, or execute a transaction (e.g., an 

employee of a non-U.S. person happens to be 

traveling within the United States to attend a 

conference). Nor would the Proposed Rule include 

a transaction solely on the basis that a U.S.-based 

attorney is involved in negotiations regarding the 

terms of the transaction. 

67See Security-Based Swap Transactions 

Connected With a Non-U.S. Person’s Dealing 

Activity That Are Arranged, Negotiated, or 

Executed by Personnel Located in a U.S. Branch or 

Office or in a U.S. Branch or Office of an Agent; 

Security-Based Swap Dealer De Minimis Exception, 

81 FR 8598, 8623 (Feb. 19, 2016) (‘‘SEC ANE 

Rule’’). The Commission would also not view a 

swap as falling outside the scope of ANE 

transactions because it resulted from automated 

electronic execution. 

68The activities or location of personnel 

responsible solely for coding the algorithm, 

however, as opposed to specifying the trading 

strategy or techniques that the algorithm is to 

follow, would not be relevant. 

69See supra note 67. 

fundamental policy objectives, 

including reducing risk, increasing 

market transparency and promoting 

market integrity within the financial 

system. A person that, in connection 

with its dealing activity, engages in 

market-facing activity using personnel 

located in the United States is 

conducting a substantial aspect of its 

dealing business in the United States.63

Even if the financial risks are borne by 

entities residing outside the United 

States, this activity indicates a level of 

involvement, and intention to 

participate, in the U.S. swap market that 

may raise concerns regarding customer 

protection, market transparency and 

financial contagion intended to be 

addressed by the Dodd-Frank Act. 

Accordingly, it would undermine the 

policy objectives of the Dodd-Frank Act 

to deem persons that, in connection 

with their dealing activity, engage in 

ANE transactions or transactions arising 

from this activity to fall entirely outside 

the scope of the Dodd-Frank Act solely 

because the transactions involve two 

non-U.S. counterparties. 

In making a determination as to 

whether a particular Dodd-Frank swap 

requirement (including those 

specifically applicable to swap dealers) 

should apply to an ANE transaction, the 

Commission would consider the extent 

to which the underlying regulatory 

objectives would be advanced in light of 

other policy considerations, including 

the potential for undue market 

distortions and international comity. As 

indicated above, the Proposed Rule 

addresses the application of the SD 

registration threshold and external 

business conduct standards to ANE 

transactions. The Commission intends 

to address application of other DoddFrank swap requirements to ANE 

transactions in subsequent cross-border 

rulemakings as necessary and 

appropriate. 

C. Proposed Interpretation Regarding 

the Scope of ANE Transactions 

For purposes of the proposed rule, the 

Commission uses the terms ‘‘arrange’’ 

and ‘‘negotiate’’ to refer to market-facing 

activity normally associated with sales 

and trading, as opposed to internal, 

back-office activities, such as ministerial 

or clerical tasks, performed by 

personnel not involved in the actual 

sale or trading of the relevant swap.64

Accordingly, the terms would not 

encompass activities such as swap 

processing, preparation of the 

underlying swap documentation 

(including negotiation of a master 

agreement and related documentation), 

or the mere provision of research 

information to sales and trading 

personnel located outside the United 

States. In line with Commission 

precedent, ‘‘executed’’ would refer to 

the market-facing act of becoming 

legally and irrevocably bound to the 

terms of the transaction under 

applicable law.65

In applying the proposed rule, the 

Commission would look to the activities 

of personnel assigned to (on an ongoing 

or temporary basis) or regularly working 

in a U.S. location.66 Such personnel 

may be working directly for the dealing 

entity itself or a third-party that is acting 

for or on behalf of (i.e., as an agent of) 

the dealing entity, including a U.S. 

affiliate of the dealing entity. The 

proposed definition would also include 

the market-facing activity of personnel 

normally associated with sales and 

trading even if the personnel are not 

formally designated as sales persons or 

traders. As an anti-evasionary measure, 

a transaction would be viewed as falling 

within the scope of the Dodd-Frank Act 

if personnel located in the United States 

direct other personnel to arrange, 

negotiate, or execute the transaction for 

or on behalf of a dealing entity. 

Swap transactions arranged, 

negotiated, or executed by personnel 

located in the United States implicate 

the Commission’s supervisory interests 

regardless of the reason such U.S. 

personnel were involved. For example, 

a swap would not fall outside the scope 

of the Dodd-Frank Act because a 

counterparty sought to enter into the 

swap outside of its jurisdiction’s regular 

trading hours. Additionally, the 

Commission believes permitting such an 

exception would only incentivize 

dealing entities to wait until after hours 

to enter into a swap, creating the 

potential for a substantial loophole. 

Finally, as the SEC noted in its crossborder rulemaking addressing ANE 

transactions, the Commission would not 

view a swap as falling outside the scope 

of the ANE transactions solely as a 

result of algorithmic trading.67 That is, 

a swap transaction involving 

algorithmic trading could be viewed as 

having been arranged, negotiated, or 

executed using personnel located in the 

United States if such personnel specify 

the trading strategy or techniques 

carried out through algorithmic trading 

or automated electronic execution of 

swaps.68 Therefore, performance of such 

activity by personnel located in the 

United States may fall within the scope 

of the Dodd-Frank Act and trigger the 

application of certain swap 

requirements thereunder. 

The Commission’s proposed approach 

to the determination of when a swap is 

an ANE transaction reflects its 

consideration of the comments received 

in response to the Request for Comment 

and is generally aligned with the SEC’s 

approach to this determination in the 

context of security-based swaps.69 In 

response to commenters and in the 

interest of aligning with the SEC, to the 

extent that the proposed rule applies to 

ANE transactions, application of the 

proposed rule would not be limited to 

swaps ‘‘regularly’’ arranged, negotiated, 

or executed using U.S. personnel. 

Accordingly, a dealing entity may need 

to establish operational structures to 

identify swaps for which relevant 

personnel performing market-facing 

activity in connection with the 

transaction are located in the United 

States. The Commission believes, 

however, that the proposed rule’s focus 

on personnel assigned to or regularly 

working in a U.S. location would 

exclude incidental activity and mitigate 

the burden of such an analysis, as the 

Commission expects that market 


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70 Dealing entities may also facilitate their 

compliance by establishing appropriate policies and 

procedures, including by requiring dealing activity 

to be arranged, negotiated, and executed by 

personnel located outside the United States. 

71One commenter on the SEC’s proposed 

approach, which closely tracked its final rule, 

observed that it created ‘‘a definable standard that 

will bring clarity to the application of securitybased swap requirements to security-based swap 

dealers, and is appropriate and consistent with the 

expectations of the parties as to when U.S. securitybased swap requirements will apply.’’ SIFMA/FSR 

(SEC July 13, 2015) at 2 (stating also that the 

commenters ‘‘strongly believe that the Commission 

has taken the correct approach in focusing on 

market-facing activity of sales and trading 

personnel in defining the ‘arrange, negotiate, or 

execute’ nexus that subjects security-based swap 

activity to the Commission’s regulations based on 

location of conduct’’). 

72See 7 U.S.C. 1a(49)(D) (directing the 

Commission to establish a de minimis exception 

from the SD definition). See also 17 CFR 1.3(ggg)(4); 

Entities Rule, 77 FR 30596. 

73See 17 CFR 1.3(ggg)(4)(i)(A). The de minimis 

threshold is currently set at a phase-in level of $8 

billion, with an ultimate threshold of $3 billion. 

Pursuant to Commission regulation 1.3(ggg)(4)(ii), 

following publication of a staff report on the de 

minimis exception, the Commission may either 

terminate the phase-in level, and thereby institute 

the $3 billion threshold, or propose an alternative 

threshold through rulemaking. See 17 CFR 

1.3(ggg)(4)(ii). Commission staff published for 

public comment a preliminary report on the de 

minimis exception in November 2015, with 

comments due by January 19, 2016. See Swap 

Dealer De Minimis Exception Preliminary Report 

(Nov. 18, 2015), available at http://www.cftc.gov/ 

idc/groups/public/@swaps/documents/file/ 

dfreport_sddeminis_1115.pdf. The comment file is 

available at http://comments.cftc.gov/ 

PublicComments/CommentList.aspx?id=1634. Note 

that Commission regulation 1.3(ggg)(4) also 

contains separate de minimis exceptions related to 

transactions in which the counterparty is a ‘‘special 

entity’’ or ‘‘utility special entity.’’ See 17 CFR 

1.3(ggg)(4)(i)(A)–(B). See also 17 CFR 1.3(ggg)(6) 

(identifying swaps that are not considered in 

determining whether a person is a swap dealer). 

74See 17 CFR 1.3(ggg)(4)(i)(A). For purposes of 

the Proposed Rule, the Commission construes 

‘‘affiliates under common control’’ by reference to 

the Entities Rule, which defined control as the 

possession, direct or indirect, of the power to direct 

or cause the direction of the management and 

policies of a person, whether through the 

ownership of voting securities, by contract or 

otherwise. See 77 FR at 30631 n.437. Accordingly, 

any reference in the Proposed Rule to ‘‘affiliates 

under common control’’ with a person would 

include affiliates that are controlling, controlled by, 

or under common control with such person. 

75See proposed rule § 1.3(ggg)(7). 

76The preamble of this release uses the term 

‘‘U.S. Guaranteed Entity’’ for convenience only. 

Whether a non-U.S. person would be considered a 

U.S. Guaranteed Entity would vary on a swap-byswap basis, such that a non-U.S. person may be 

considered a U.S. Guaranteed Entity for one swap 

and not another, depending on whether the nonU.S. person’s obligations under the swap are 

guaranteed by a U.S. person. 

77See section V, infra, for a discussion of the 

Commission’s proposed cross-border approach to 

applying the MSP registration thresholds. 

participants have means of identifying 

personnel involved in market-facing 

activity, either for regulatory 

compliance purposes or to facilitate 

compensation.70 The Commission 

further expects that, to the extent that 

the Proposed Rule applies to ANE 

transactions, additional burdens on 

potential SDs could be reduced given 

that the Commission’s proposed 

approach to determining whether a 

swap falls within the scope of ANE 

transactions is substantively identical to 

the SEC’s approach to ANE 

transactions.71

The Commission’s treatment of ANE 

transactions is intended to capture 

activity that raises a substantial 

regulatory interest while still promoting 

a framework that is clear and workable 

for market participants. By focusing on 

market-facing activity carried out by 

personnel located in the United States, 

the Commission believes its 

interpretation adequately captures the 

Commission’s inherently strong 

regulatory interest in dealing activity 

occurring within its jurisdiction while 

enabling market participants to apply 

the definition in a relatively efficient 

manner. 

Request for Comment. The 

Commission invites comment on all 

aspects of the Proposed Rule, including 

the following: 

1. The Commission invites comment 

on whether its interpretation of ANE 

transactions is appropriately tailored to 

capture activity that raises a substantial 

regulatory interest and sufficiently clear 

and workable for market participants. Is 

the Commission’s focus on and 

discussion of market-facing activity 

understandable and effective in 

excluding activities that are merely 

incidental to the swap transaction? Will 

the Commission’s interpretation pose 

any operational challenges? Please 

explain and provide specific 

recommendations for modifications or 

clarifications. 

2. Under what other circumstances, if 

any, should the Commission determine 

that U.S. personnel are directing a 

system for the algorithmic trading 

within the scope of its interpretation of 

ANE transactions? 

IV. Cross-Border Application of the 

Swap Dealer Registration Threshold 

In accordance with CEA section 

1a(49)(D), the Commission has 

exempted from designation as an SD 

any entity that engages in a de minimis 

quantity of swap dealing with or on 

behalf of its customers.72 Specifically, 

Commission regulation 1.3(ggg)(4) 

provides that a person shall not be 

deemed to be an SD as a result of its 

swap dealing activity involving 

counterparties unless, during the 

preceding 12 months, the aggregate 

gross notional amount of the swap 

positions connected with those dealing 

activities exceeds the de minimis 

threshold.73 Commission regulation 

1.3(ggg)(4) further requires that, in 

determining whether its swap dealing 

activity exceeds the de minimis 

threshold, a person must include the 

aggregate notional value of the swap 

positions connected with the dealing 

activities of its affiliates under common 

control (‘‘aggregation requirement’’).74

The Commission is now proposing 

rules to address how the de minimis 

threshold should apply to the crossborder swap dealing transactions of U.S. 

and non-U.S. persons.75 Specifically, 

the proposed rule identifies when a 

potential SD’s cross-border dealing 

activities should be included in its de 

minimis calculation and when they may 

properly be excluded. As discussed in 

the sections below, whether a potential 

SD would include a particular swap in 

its de minimis calculation would 

depend on whether the potential SD is 

classified as either a U.S. person or a 

non-U.S. person whose obligations 

under the relevant swap are guaranteed 

by a U.S. person (‘‘U.S. Guaranteed 

Entity’’) 76 (section A); a Foreign 

Consolidated Subsidiary (section B); or 

a non-U.S. person that is neither an FCS 

nor a U.S. Guaranteed Entity (‘‘Other 

Non-U.S. Person’’) (section C). Section D 

addresses the cross-border application 

of the aggregation requirement. Section 

E provides an overall summary of the 

Commission’s proposed approach. If 

adopted, the Proposed Rule would 

supersede the Guidance with respect to 

the cross-border application of the SD 

de minimis threshold. 

In developing the proposed crossborder approach to applying the SD and 

MSP registration thresholds,77 the 

Commission attempted to target those 

entities that—due to the nature of their 

relationship with a U.S. person or U.S. 

financial market—most directly 

implicate the purposes of the DoddFrank registration scheme. The 

proposed rule is also designed to apply 

the registration thresholds in a 

consistent manner to differing 

organizational structures that serve 

similar economic functions so as to 

avoid creating substantial regulatory 

loopholes. At the same time, the 

Commission is mindful of the impact of 

its choices on market efficiency and 

competition, as well as the importance 

of international comity when exercising 

the Commission’s authority. The 

Commission believes that the proposed 

rule reflects a measured approach that 

advances the goals underlying the SD 

and MSP registration schemes, 

consistent with the Commission’s 


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78See Guidance, 78 FR at 45326. 

79For purposes of this proposed rulemaking, 

‘‘guarantee’’ has the same meaning as defined in 

Commission regulation 23.160(a)(2) (cross-border 

application of the Commission’s margin 

requirements for uncleared swaps), except that 

application of the proposed definition of 

‘‘guarantee’’ would not be limited to uncleared 

swaps. Under this definition, a ‘‘guarantee’’ would 

include arrangements, pursuant to which one party 

to a swap has rights of recourse against a guarantor, 

with respect to its counterparty’s obligations under 

the swap. For these purposes, a party to a swap has 

rights of recourse against a guarantor if the party 

has a conditional or unconditional legally 

enforceable right to receive or otherwise collect, in 

whole or in part, payments from the guarantor with 

respect to its counterparty’s obligations under the 

swap. This ‘‘guarantee’’ definition also 

encompasses any arrangement pursuant to which 

the guarantor itself has a conditional or 

unconditional legally enforceable right to receive or 

otherwise collect, in whole or in part, payments 

from any other guarantor with respect to the 

counterparty’s obligations under the swap. See 

Cross-Border Margin Rule, 81 FR 34818. 

80To the extent that a non-U.S. person is both an 

FCS and a U.S. Guaranteed Entity with respect to 

a particular swap, the non-U.S. person would only 

be required to include the swap in its SD de 

minimis calculation once. See proposed rule 

§ 1.3(ggg)(7). 

81As discussed above, the definition of ‘‘U.S. 

person’’ includes any foreign branch. See proposed 

rule § 1.3(aaaaa)(5)(iii), (vi) (defining ‘‘U.S. person’’ 

to include ‘‘any branch of the legal entity’’). 

statutory authority, while mitigating 

market distortions and inefficiencies. 

A. U.S. Persons and U.S. Guaranteed 

Entities 

Under the Proposed Rule, a U.S. 

person would include all of its swap 

dealing transactions in its de minimis 

threshold calculation without 

exception. As discussed in section II.A 

above, the term ‘‘U.S. person’’ 

encompasses a person who, by virtue of 

being domiciled or organized in the 

United States (or in the case of the 

unlimited U.S. responsibility prong, 

because U.S. person owner(s) serve as a 

financial backstop for all of the legal 

entity’s obligations and liabilities), 

raises the concerns intended to be 

addressed by the Dodd-Frank Act, 

regardless of the U.S. person status of its 

counterparty. Additionally, a person’s 

status as a U.S. person would be 

determined at the entity level and thus 

a U.S. person would include the swap 

dealing activity of foreign branches or 

operations that are part of the same legal 

person. The Commission notes that the 

proposed rule’s requirement that a U.S. 

person include all of its swap dealing 

transactions in its de minimis 

calculation is consistent with the 

Guidance.78

The proposed rule would also require 

a non-U.S. person that is not an FCS to 

include in its de minimis calculation 

swap dealing transactions with respect 

to which it is a U.S. Guaranteed Entity. 

The Commission believes that this 

result is appropriate because the swap 

of a non-U.S. person whose swap 

obligations are guaranteed by a U.S. 

person is identical, in relevant aspects, 

to a swap entered into directly by a U.S. 

person.79 As a result of the guarantee, 

the U.S. guarantor bears risk arising out 

of the swap as if it had entered into the 

swap directly. The U.S. guarantor’s 

financial resources in turn enable the 

non-U.S. affiliate to engage in dealing 

activity, because the affiliate’s 

counterparties will look to both the U.S. 

Guaranteed Entity and its U.S. guarantor 

to ensure performance of the swap. 

Absent the guarantee from the U.S. 

person, a counterparty may choose not 

to enter into the swap or may not do so 

on the same terms. In this way, the U.S. 

Guaranteed Entity and the U.S. 

guarantor effectively act together to 

engage in the dealing activity. 

Furthermore, treating U.S. Guaranteed 

Entities differently from U.S. persons 

could create a substantial regulatory 

loophole, incentivizing U.S. persons to 

conduct their dealing business with 

non-U.S. counterparties through nonU.S. affiliates, with a U.S. guarantee, to 

avoid application of the Dodd-Frank 

swap dealer requirements. Allowing 

transactions that have a similar 

economic reality with respect to U.S. 

commerce to be treated differently 

depending on how the parties structure 

their transactions could undermine the 

effectiveness of the Dodd-Frank swap 

provisions and related Commission 

regulations. Applying the same standard 

to similar transactions instead helps to 

limit those incentives and regulatory 

implications. 

B. Foreign Consolidated Subsidiaries 

Under the proposed rule, a Foreign 

Consolidated Subsidiary would include 

all of its swap dealing transactions in its 

de minimis threshold calculation, 

without exception.80 The Commission 

believes that the swap dealing 

transactions of an FCS should be treated 

in the same manner as swap dealing 

transactions of a U.S. person (and U.S. 

Guaranteed Entity) for purposes of the 

de minimis threshold calculation, given 

the nature of the relationship between 

the FCS and its U.S. ultimate parent 

entity. As discussed in section II.B. 

above, an FCS is under the financial 

control of its U.S. ultimate parent entity. 

Further, by virtue of consolidated 

reporting under U.S. GAAP, the swap 

activity of an FCS creates a direct risk 

for the U.S. ultimate parent entity. The 

Commission is also concerned that 

offering FCSs disparate treatment 

compared to U.S. persons could 

incentivize U.S. entities to conduct 

swap activities with non-U.S. 

counterparties through consolidated 

non-U.S. subsidiaries in order to avoid 

application of the Dodd-Frank Act SD 

requirements, creating the potential for 

a substantial regulatory loophole. 

C. Other Non-U.S. Persons 

Under the proposed rule, whether an 

Other Non-U.S. Person would include a 

particular swap in its de minimis 

calculation would depend on the status 

of the counterparty. Specifically, as 

further explained below, an Other NonU.S. Person would be required to 

include in its de minims threshold 

calculation its dealing activities with 

U.S. Persons, U.S. Guaranteed Entities, 

and FCSs, but not with Other Non-U.S. 

Persons (‘‘Other Non-U.S. 

counterparties’’). Additionally, Other 

Non-U.S. Persons would not be required 

to include in their de minimis threshold 

calculation any transaction that is 

executed anonymously on a swap 

execution facility (‘‘SEF’’), designated 

contract market (‘‘DCM’’), or foreign 

board of trade (‘‘FBOT’’) and cleared 

through a registered or exempt 

derivatives clearing organization 

(‘‘DCO’’). 

1. U.S. Counterparties that are U.S. 

Persons or U.S. Guaranteed Entities 

Under the proposed rule, an Other 

Non-U.S. Person would generally 

include in its de minimis calculation all 

swap dealing transactions with U.S. 

counterparties, subject to the exception 

for transactions executed anonymously 

on a SEF, DCM, or FBOT and cleared 

(discussed in section 4 below). As a 

general rule, the Commission believes 

that all potential SDs should include in 

their de minimis calculations any swap 

with a U.S. counterparty.81 As discussed 

in section II.A. above, the term ‘‘U.S. 

person’’ encompasses persons that 

inherently raise the concerns intended 

to be addressed by the Dodd-Frank Act 

regardless of the U.S. person status of 

their counterparty. In the event of a 

default or insolvency of an Other NonU.S. SD with more than a de minimis 

level of swap dealing, the SD’s U.S. 

counterparties could be adversely 

affected. A credit event, including 

funding and liquidity problems, 

downgrades, default or insolvency at an 

Other Non-U.S. Person SD could 

therefore have a direct adverse impact 

on its U.S. counterparties, which could 

in turn create the risk of disruptions to 

the U.S. financial system. 

The Commission notes that the 

proposed rule’s requirement that an 

Other Non-U.S. Person include in its de 

minimis calculation all swap dealing 


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82See Guidance, 78 FR at 45318, n.257–58. The 

Guidance uses the terms ‘‘conduit affiliate’’ and 

‘‘affiliate conduit’’ interchangeably. 

83See id. at 45318–19. 

84See id. at 45324. 

85To the extent that the swap is with a non-U.S. 

counterparty that is both an FCS and a U.S. 

Guaranteed Entity with respect to a particular swap, 

the Other Non-U.S. Person would only be required 

to include the swap in its SD de minimis 

calculation once. See proposed rule § 1.3(ggg)(7). 86 Id. 

87The Commission clarifies that an Other NonU.S. Person would also be able exclude from its de 

minimis threshold calculation any swap that is 

executed anonymously on a foreign trading 

platform that is subject to relief from the 

requirement to register as a SEF or DCM, provided 

the swap is cleared through a registered or exempt 

DCO. 

transactions with U.S. person 

counterparties (subject to the exception 

for swaps executed anonymously on a 

SEF, DCM, or FBOT and cleared, 

discussed in section 4 below) is largely 

consistent with the Guidance, except 

with respect to the treatment of swaps 

with foreign branches of U.S. SDs. 

Under the Guidance, a non-U.S. person 

that is not a ‘‘guaranteed affiliate’’ or a 

‘‘conduit affiliate’’ (as those terms are 

interpreted in the Guidance) 82 would 

generally include in its de minimis 

threshold calculations all swap 

transactions with counterparties that are 

U.S. persons, except transactions with 

foreign branches of U.S. SDs.83 This 

exception was primarily driven by 

concerns that, absent such an exception, 

non-U.S. counterparties would avoid 

transacting with U.S. SDs.84

Upon further consideration, however, 

the Commission believes that 

incorporating a similar exception into 

the proposed rule could create a 

substantial regulatory loophole. As 

discussed above, a foreign branch is an 

integral part of a U.S. person, such that 

a transaction involving a foreign branch 

of a U.S. SD poses risk to the U.S. SD 

itself and, consequently, the U.S. 

financial system. Allowing Other NonU.S. Persons to engage in potentially 

unlimited swap dealing with foreign 

branches of U.S. SDs without having to 

register as SDs could therefore result in 

a substantial amount of dealing activity 

with U.S. counterparties occurring 

outside the comprehensive Dodd-Frank 

swap regime, undermining the 

effectiveness of the proposed rule. 

Under the proposed rule, an Other 

Non-U.S. Person would also include in 

its de minimis threshold calculation 

swap dealing transactions with a nonU.S. person that is a U.S. Guaranteed 

Entity, subject to an exception for 

transactions executed anonymously on a 

SEF, DCM, or FBOT and cleared.85 The 

Commission notes that the guarantee of 

a swap is an integral part of the swap 

and that, as discussed above, 

counterparties may not be willing to 

enter into a swap with a U.S. 

Guaranteed Entity in the absence of the 

guarantee. The Commission also 

recognizes that, given the highlyintegrated corporate structures of global 

financial groups described above, 

financial groups may elect to conduct 

their swap dealing activity in a number 

of different ways, including through a 

U.S. person or through a non-U.S. 

affiliate that benefits from a recourse 

guarantee from a U.S. person. Therefore, 

in order to avoid creating a substantial 

regulatory loophole, the Commission 

believes that swaps of an Other NonU.S. Person with a U.S. Guaranteed 

Entity should receive the same 

treatment as swaps with a U.S. person 

and should therefore be included in the 

Other Non-U.S. Person’s SD de minimis 

calculation. If Other Non-U.S. Persons 

were not required to include such 

transactions in their SD de minimis 

threshold calculations, they could 

engage in a significant level of swap 

dealing activity with U.S. Guaranteed 

Entities without being required to 

register as SDs. Treating swaps of Other 

Non-U.S. Persons with U.S. Guaranteed 

Entities differently than their swaps 

with U.S. persons could thereby 

undermine the effectiveness of the 

Dodd-Frank swap provisions and 

related Commission regulations. 

2. Counterparties That Are FCSs 

Under the proposed rule, an Other 

Non-U.S. Person would include in its de 

minimis threshold calculation swap 

dealing transactions with a non-U.S. 

person that is an FCS, subject to an 

exception for transactions executed 

anonymously on a SEF, DCM, or FBOT 

and cleared. As discussed above, the 

default or insolvency of an Other NonU.S Person could have a direct adverse 

effect on an FCS, which through the 

interconnection to its U.S. ultimate 

parent, could have knock-on effects, 

potentially leading to disruptions to the 

U.S. financial system. The Commission 

believes that such risk would be 

significant to the extent that the Other 

Non-U.S. Person’s dealing activities 

with FCSs, U.S. persons and U.S. 

Guaranteed Entities 86 exceed the de 

minimis threshold. 

3. Other Non-U.S. Counterparties 

Under the proposed rule, an Other 

Non-U.S. Person would not include in 

its de minimis calculation its swap 

dealing transactions with an Other NonU.S. Person. This approach reflects the 

Commission’s recognition of foreign 

jurisdictions’ strong supervisory interest 

in the swap transactions between Other 

Non-U.S. Persons, both of which are 

domiciled and operate abroad. 

Consistent with comity principles, the 

Commission believes that it would be 

appropriate to except this class of swap 

transactions from counting against the 

de minimis threshold. 

Further, the proposed rule would not 

require an Other Non-U.S. Person to 

include a swap transaction with an 

Other Non-U.S. Person counterparty in 

its de minimis threshold calculation 

even if the swap is arranged, negotiated, 

or executed by personnel located in the 

United States. Although, as stated 

above, a non-U.S. person that engages in 

ANE transactions is performing dealing 

activity in the United States, the 

Commission preliminarily does not 

believe that requiring Other Non-U.S. 

Persons to include ANE transactions in 

their de minimis threshold calculations 

would be necessary to advance the 

policy objectives of the Dodd-Frank 

swap regime when taking the proposed 

rule in context. In particular, the 

Commission preliminarily believes that 

the proposal to require FCSs to include 

all of their swap dealing transactions in 

their de minimis threshold calculations 

would capture a substantial portion of 

dealing activity engaged in by non-U.S. 

persons in which the Commission has a 

strong regulatory interest, such that the 

level of ANE transactions engaged in by 

Other Non-U.S. Persons may be 

comparatively insignificant. 

Additionally, Other Non-U.S. Persons 

that engage in ANE transactions could 

either be registered already by virtue of 

their swap transactions with U.S. 

persons or, if the proposed rule is 

adopted, be required to register as SDs 

by virtue of their swap transactions with 

U.S. persons, U.S. Guaranteed Entities 

or FCSs. 

4. Swaps Executed Anonymously on a 

SEF, DCM, or FBOT and Cleared 

The Commission believes that when 

an Other Non-U.S. Person enters into a 

swap that is executed anonymously on 

a registered SEF, DCM, or FBOT and the 

swap is cleared through a registered or 

exempt DCO, the Other Non-U.S. Person 

may exclude the swap from its de 

minimis threshold calculation.87 The 

Commission recognizes that, under 

these circumstances, the Other Non-U.S. 

Person would not have the necessary 

information about its counterparty to 

determine whether the swap should be 

included in its de minimis threshold 

calculation. The Commission therefore 

believes that in this case the practical 


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88The Commission also believes that when an 

Other Non-U.S. Person clears a swap through a 

registered or exempt DCO, such Other Non-U.S. 

Person would not have to include the resulting 

swap (i.e., the novated swap) in its de minimis 

threshold calculation. A swap that is submitted for 

clearing is extinguished upon novation and 

replaced by new swap(s) that result from novation. 

See Commission regulation 39.12(b)(6). See also 

Derivatives Clearing Organization General 

Provisions and Core Principles, 76 FR 69334, 69361 

(Nov. 8, 2011). Where a swap is created by virtue 

of novation, such swap does not implicate swap 

dealing, and therefore it would not be appropriate 

to include such swaps in determining whether a 

non-U.S. person should register as an SD. 

89The Commission clarifies that for this purpose, 

the term ‘‘affiliates under common control’’ would 

include parent companies and subsidiaries. 

90See 78 FR at 45323. 91See SEC ANE Rule, 81 FR at 8621. 

92See 78 FR at 45324 (providing that non-U.S. 

persons that are not guaranteed or conduit affiliates 

would generally not count toward their de minimis 

threshold calculations their swap dealing 

transactions with (i) a foreign branch of a U.S. swap 

dealer, (ii) a guaranteed affiliate of a U.S. person 

that is a swap dealer, and (iii) a guaranteed or 

conduit affiliate that is not a swap dealer and itself 

engages in de minimis swap dealing activity and 

which is affiliated with a swap dealer). 

93See id. at 45328–31 (discussing the scope of the 

term ‘‘foreign branch’’ and Commission’s 

consideration of whether a swap is with a foreign 

branch of a U.S. bank). 

94The SEC defined the term ‘‘foreign branch’’ in 

Exchange Act rule 3a71–3(a)(2), 17 CFR 240.3a71– 

3(a)(2), to mean any branch of a U.S. bank if (i) the 

branch is located outside the United States; (ii) the 

branch operates for valid business reasons; and (iii) 

the branch is engaged in the business of banking 

and is subject to substantive banking regulation in 

the jurisdiction where located. The SEC defined the 

term ‘‘transaction conducted through a foreign 

branch’’ in Exchange Act rule 3a71–3(a)(3), 17 CFR 

240.3a71–3(a)(3), to mean a security-based swap 

transaction that is arranged, negotiated, and 

executed by a U.S. person through a foreign branch 

of such U.S. person if (A) the foreign branch is the 

counterparty to such security-based swap 

transaction; and (B) the security-based swap 

transaction is arranged, negotiated, and executed on 

behalf of the foreign branch solely by persons 

Continued 

difficulties make it reasonable for the 

swap to be excluded altogether.88

D. Aggregation Requirement 

As stated above, Commission 

regulation 1.3(ggg)(4) requires that, in 

determining whether its swap dealing 

transactions exceed the de minimis 

threshold, a person must include the 

aggregate notional value of any swap 

dealing transactions entered into by its 

affiliates under common control. 

Consistent with CEA section 2(i), the 

Commission interprets the aggregation 

requirement in Commission regulation 

1.3(ggg)(4) in a manner that applies the 

same aggregation principles to all 

affiliates in a corporate group, whether 

they are U.S. or non-U.S. persons. 

Accordingly, under the proposed rule, a 

potential SD, whether a U.S. or non-U.S. 

person, would aggregate all swaps 

connected with its dealing activity with 

those of persons controlling, controlled 

by, or under common control with 89 the 

potential SD to the extent that these 

affiliated persons are themselves 

required to include those swaps in their 

own de minimis thresholds, unless the 

affiliated person is itself a registered SD. 

The Commission notes that this 

interpretation, which mirrors the 

approach taken in the Guidance,90

ensures that the aggregate notional value 

of applicable swap dealing transactions 

of all such unregistered U.S. and nonU.S. affiliates does not exceed the de 

minimis level. 

Stated in general terms, the 

Commission interprets the aggregation 

requirement to allow both U.S. persons 

and non-U.S. persons in an affiliated 

group to engage in swap dealing activity 

up to the de minimis threshold. When 

the affiliated group meets the de 

minimis threshold in the aggregate, one 

or more affiliate(s) (a U.S. affiliate or a 

non-U.S. affiliate) would have to register 

as an SD so that the relevant swap 

dealing activity of the unregistered 

affiliates remains below the threshold. 

The Commission recognizes the 

borderless nature of swap dealing 

activities, in which a dealer may 

conduct swap dealing business through 

its various affiliates in different 

jurisdictions, and believes that this 

interpretation would address the 

concern that an affiliated group of U.S. 

and non-U.S. persons engaged in swap 

dealing transactions with a significant 

connection to the United States may not 

be required to register solely because 

such swap dealing activities are divided 

among affiliates that all individually fall 

below the de minimis threshold. 

E. Summary 

In summary, under the proposed rule, 

in making its de minimis calculation: 

• A U.S. person would include all of 

its swap dealing transactions. 

• A non-U.S. person would include 

all swap dealing transactions with 

respect to which it is a U.S. Guaranteed 

Entity. 

• A Foreign Consolidated Subsidiary 

would include all of its swap dealing 

transactions. 

• An Other Non-U.S. Person would 

include all of its swap dealing 

transactions with counterparties that are 

U.S. persons, U.S. Guaranteed Entities, 

or FCSs, unless the swap is executed 

anonymously on a registered SEF, DCM, 

or FBOT and cleared. It would not, 

however, include any of its swap 

dealing transactions with Other NonU.S. Persons, even if they constitute 

ANE transactions. 

• All potential SDs, whether U.S. or 

non-U.S. persons, would aggregate their 

swap dealing transactions with those of 

persons controlling, controlled by, or 

under common control with the 

potential SD to the extent that those 

affiliates are themselves required to 

include those swaps in their own de 

minimis thresholds, unless the affiliated 

person is a registered SD. 

Request for Comment. The 

Commission invites comment on all 

aspects of Proposed Rule, including the 

following: 

1. The Commission invites comment 

on the appropriateness, necessity, and 

potential impact of requiring Other NonU.S. Persons to include ANE 

transactions in their de minimis 

threshold calculations. Should the 

Commission further harmonize with the 

SEC by requiring Other Non-U.S. 

Persons to include ANE transactions in 

their de minimis threshold 

calculations? 91 What effect would a 

determination not to impose such a 

requirement have on market liquidity 

and competitiveness? To what degree 

would U.S. swap dealers be adversely 

affected? Would a determination not to 

impose such a requirement create a 

substantial loophole or otherwise 

expose the U.S. financial system to 

unregulated risk? Do ANE transactions 

conducted by Other Non-U.S. Persons, 

particularly those not currently 

registered as SDs by virtue of their 

transactions with U.S. persons, form a 

significant segment of the U.S. swap 

market? The Commission is particularly 

interested in data or estimates regarding 

the current level of ANE transactions 

entered into by Other Non-U.S. Persons, 

including whether and how many Other 

Non-U.S. Persons that are not currently 

registered as SDs would exceed the 

current de minimis threshold as a result 

of being required to include ANE 

transactions in their de minimis 

threshold calculations. 

2. The Commission invites comment 

on whether and to what extent the 

Proposed Rule should incorporate 

certain exceptions for non-U.S. persons 

that were included in the Guidance.92

Specifically, should the proposed rule 

permit Other Non-U.S. Persons to 

exclude from their de minimis threshold 

calculations: 

a. Swap transactions with foreign 

branches of U.S. SDs? If so, why and 

how should the Commission interpret 

the term ‘‘foreign branch of a U.S. swap 

dealer’’ (e.g., consistent with the 

Guidance,93 consistent with the SEC’s 

definitions of ‘‘foreign branch’’ and 

‘‘transaction conducted through a 

foreign branch’’ in Exchange Act rules,94

or an alternative approach)? 


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located outside the United States. See also SEC 

Cross-Border Rule, 79 FR 47278. 

95The Commission notes that the Commission’s 

final margin rule requires CSEs to collect initial 

margin from certain affiliates that are not subject to 

comparable initial margin collection requirements 

on their own outward-facing swaps with financial 

end-users, which addresses some of the credit risks 

associated with the outward-facing swaps. See 

Margin Requirements for Uncleared Swaps for 

Swap Dealers and Major Swap Participants, 81 FR 

636, 703 (Jan. 6, 2016) (‘‘Final Margin Rule’’). 

96See 7 U.S.C. 1a(33)(A) (defining ‘‘major swap 

participant’’ to mean any person who is not an SD 

and either (i) maintains a substantial position in 

swaps for any of the major swap categories, subject 

to certain exclusions; (ii) whose outstanding swaps 

create substantial counterparty exposure that could 

have serious effects on the U.S. financial system; or 

(iii) is a highly leveraged financial entity that is not 

subject to prudential capital requirements and that 

maintains a substantial position in swaps for any 

of the major swap categories. See also 17 CFR 

1.3(hhh)(1); 156 Cong. Rec. S5907 (daily ed. July 15, 

2010) (colloquy between Senators Hagen and 

Lincoln, discussing how the goal of the major 

participant definitions was to ‘‘focus on risk factors 

that contributed to the recent financial crisis, such 

as excessive leverage, under-collateralization of 

swap positions, and a lack of information about the 

aggregate size of positions’’). 

97See 17 CFR 1.3(hhh)–(mmm). See also Dodd 

Frank Act section 712(d)(1) (directing the 

Commission and the SEC, in consultation with the 

Board of Governors of the Federal Reserve System, 

to jointly further define, among other things, the 

term ‘‘major swap participant’’); 7 U.S.C. 1a(33)(B) 

(directing the Commission to further define 

‘‘substantial position’’ at the threshold the 

Commission deems prudent for the effective 

monitoring, management, and oversight of entities 

that are systemically important or can significantly 

impact the U.S. financial system); Entities Rule, 77 

FR 30596. 98See 77 FR at 30666 (discussing the guiding 

principles behind the Commission’s definition of 

‘‘substantial position’’ in 17 CFR 1.3(jjj)); id. at 

30683 (noting that the Commission’s definition of 

‘‘substantial counterparty exposure’’ in 17 CFR 

1.3(lll) is founded on similar principles as its 

definition of ‘‘substantial position’’). 

99 Id. at 30689. 

100See proposed rule § 1.3(nnn). 

101See notes 76 and 79, supra. 

102As indicated above, for purposes of the 

Proposed Rule, an ‘‘Other Non-U.S. Person’’ refers 

to a non-U.S. person that is neither an FCS nor a 

U.S. Guaranteed Entity. See section IV, supra. 

b. Any swap transactions with U.S. 

Guaranteed Entities? If so, why and 

under what circumstances? 

3. The Commission is concerned that 

a non-U.S. person that is affiliated with 

a U.S. SD could act as a conduit or an 

extension of the affiliated U.S. SD by 

entering into market-facing swaps in a 

foreign jurisdiction and then 

transferring some or all of the risk of 

such swaps to its affiliated U.S. SD 

through one or more inter-affiliate 

swaps. Furthermore, under the 

Proposed Rule, an Other Non-U.S. 

Person would not be required to include 

its market-facing swaps with Other NonU.S. counterparties in its SD de minimis 

threshold. The Commission invites 

comment as to whether Other Non-U.S. 

Persons should be required to include 

market-facing swaps with non-U.S. 

persons in their de minimis threshold 

calculations if any of the risk of such 

swaps is transferred to an affiliated U.S. 

SD through one or more inter-affiliate 

swaps and as to whether it would be too 

complex or costly to monitor and 

implement.95 If so: 

a. Should an Other Non-U.S. Person 

that is consolidated with an affiliated 

U.S. SD for financial reporting purposes 

and that transfers some or all of the risk 

of a swap with an Other Non-U.S. 

counterparty, directly or indirectly, to 

its affiliated U.S. SD (an ‘‘SD conduit’’) 

be required to count outward-facing 

swap as to which it acts as a conduit 

toward its SD or MSP registration 

threshold? 

b. Should an Other Non-U.S. Person 

be considered an SD Conduit only when 

it ‘‘regularly’’ acts as an SD Conduit, 

and if so, how would the Commission 

determine whether it ‘‘regularly’’ acts as 

an SD Conduit? 

c. Would it be appropriate to require 

an SD Conduit to include a marketfacing swap in its de minimis threshold 

calculation in its entirety, for ease of 

calculation, even if not all of the risk 

arising out of that swap is transferred to 

an affiliated U.S. SD through interaffiliate swaps? Is the Commission’s 

assumption that a formula to calculate 

the percentage of risk would be too 

costly and burdensome to implement 

correct? If not, please propose such a 

workable formula. Alternatively, should 

an SD Conduit be required to include all 

of its swap dealing transactions (and not 

just those as to which it acts as an SD 

conduit) in its SD or MSP registration 

threshold? 

d. The Commission understands that 

a non-U.S. person may aggregate all or 

a group of its market-facing swaps and 

then transfer all or a portion of the risk 

of such swaps as one position to the 

affiliated U.S. SD. In that case, the 

Commission understands that it would 

not be burdensome for the non-U.S. 

person to disaggregate the netted swap, 

as the non-U.S. person’s trading system 

would aggregate these trades initially, 

and therefore should be able to perform 

a disaggregation function. Is the 

Commission’s understanding correct? 

e. Should the proposed rule be 

modified to require that Other Non-U.S. 

Persons include swaps in their SD or 

MSP registration thresholds if their 

counterparty is acting as an SD Conduit? 

f. Should swaps where either one of 

the counterparties is acting as an SD 

conduit be subject to other Dodd-Frank 

requirements (in addition to SD and 

MSP registration thresholds) in future 

rulemakings? 

V. Cross-Border Application of the 

Major Swap Participant Registration 

Thresholds 

CEA section 1a(33) defines ‘‘major 

swap participant’’ to include persons 

that are not SDs but that nevertheless 

pose a high degree of risk to the U.S. 

financial system by virtue of the 

‘‘substantial’’ nature of their swap 

positions.96 In accordance with the 

Dodd-Frank Act and CEA section 

1a(33)(B), the Commission adopted 

rules further defining ‘‘major swap 

participant’’ and providing that a person 

would not be deemed an MSP unless its 

swap positions exceed one of several 

thresholds.97 The thresholds were 

designed to take into account defaultrelated credit risk, the risk of multiple 

market participants failing close in time, 

and the risk posed by a market 

participant’s swap positions on an 

aggregate level.98 The Commission also 

adopted interpretive guidance that, for 

purposes of the MSP analysis, an 

entity’s swap positions would be 

attributable to a parent, other affiliate, or 

guarantor to the extent that the 

counterparty has recourse to the parent, 

other affiliate, or guarantor and the 

parent or guarantor is not subject to 

capital regulation by the Commission, 

SEC, or a prudential regulator 

(‘‘attribution requirement’’).99

The Commission is now proposing 

rules to address the cross-border 

application of the MSP thresholds to the 

swap positions of U.S. and non-U.S. 

persons.100 Applying CEA section 2(i) 

and principles of international comity, 

the proposed rule identifies when a 

potential MSP’s cross-border swap 

positions should apply toward the MSP 

thresholds and when they may be 

properly excluded. As discussed in the 

sections below, whether a potential 

registrant would include a particular 

swap in its MSP calculations would 

depend on whether the potential 

registrant is a U.S. person, a U.S. 

Guaranteed Entity,101 or a Foreign 

Consolidated Subsidiary (section A) or 

an Other Non-U.S. Person 102 (section 

B). Section C addresses the cross-border 

application of the attribution 

requirement. Section D provides an 

overall summary of the rule. If adopted, 

the Proposed Rule would supersede the 

Commission’s Cross-Border Guidance 

with respect to the cross-border 

application of the MSP thresholds. 

A. U.S. Persons, U.S. Guaranteed 

Entities, and Foreign Consolidated 

Subsidiaries 

Under the proposed rule, all of a U.S. 

person’s swap positions would apply 


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103To the extent that a non-U.S. person is both 

an FCS and a U.S. Guaranteed Entity with respect 

to a particular swap, the non-U.S. person would 

only be required to include the swap position in its 

MSP calculations once. See proposed rule 

§ 1.3(nnn). 

104To the extent that the Other Non-U.S. Person’s 

swap position is with a non-U.S. counterparty that 

is both an FCS and a U.S. Guaranteed Entity with 

respect to a particular swap, the Other Non-U.S. 

Person would only be required to include the swap 

position in its MSP calculations once. See proposed 

rule § 1.3(nnn). 

105See section IV.C.4, supra. 

106The Commission notes that the Guidance 

provided that non-U.S. persons that are not 

guaranteed affiliates generally could exclude from 

their MSP threshold calculations swap positions 

with either a foreign branch of a U.S. SD or a 

guaranteed affiliate that is an SD if either (i) the 

potential non-U.S. MSP is a non-financial entity or 

(ii) the potential non-U.S. MSP is a financial entity 

and the swap is either cleared or the swap 

documentation requires the foreign branch or 

guaranteed affiliate to collect daily variation margin 

with no threshold. See Guidance, 78 FR at 45324– 

25. The Commission has determined that a similar 

exception in the Proposed Rule with regard to the 

swap positions of Other Non-U.S. Persons would be 

unnecessary and inappropriate because (1) two of 

the three prongs of the statutory MSP definition 

apply regardless of whether the potential MSP is a 

financial entity, see 7 U.S.C. 1a(33)(A)(i)–(ii), and 

(2) although subjecting a swap to the clearing or 

margin requirements may mitigate some of the risk 

of the swap, the risk is not entirely eliminated, and 

the mitigation effect of the clearing and margin 

requirements is taken into account in calculating 

the relevant MSP thresholds. See 17 CFR 

1.3(jjj)(3)(iii) (defining ‘‘substantial position’’ such 

that the potential future exposure associated with 

positions that are subject to central clearing by a 

registered or exempt DCO is equal to 0.1 times the 

potential future exposure that would otherwise be 

calculated). Accordingly, the Commission believes 

that such swaps create the potential for systemic 

risk within the meaning of the MSP definition and 

that allowing such exclusion would allow market 

participants to inappropriately avoid the DoddFrank registration and other associated 

requirements that are designed to mitigate that risk. 

The Commission further believes that the Proposed 

Rule has the added benefit of aligning more closely 

with the SEC in this regard, which should serve to 

reduce compliance costs associated with MSP 

registration. 

toward the MSP thresholds without 

exception. As discussed in the context 

of the Proposed Rule’s approach to 

applying the SD de minimis registration 

threshold, by virtue of it being 

domiciled or organized in the United 

States, or the inherent nature of its 

connection to the United States, all of a 

U.S. person’s activities have a 

significant nexus to U.S. markets, giving 

the Commission a particularly strong 

regulatory interest in their swap 

activities. Accordingly, the Commission 

believes that all of a U.S. person’s swap 

positions, regardless of where they 

occur or the U.S. person status of the 

counterparty, present risk to the 

stability of the U.S. financial system and 

U.S. entities, including those that may 

be systemically important, and thus 

should apply toward the MSP 

thresholds. 

For related reasons, the proposed rule 

would also require a non-U.S. person 

that is not an FCS to include in its MSP 

calculations each swap position with 

respect to which it is a U.S. Guaranteed 

Entity. As explained in context of the 

SD de minimis threshold calculation, 

the Commission believes that the swap 

positions of a non-U.S. person whose 

swap obligations are guaranteed by a 

U.S. person are identical, in relevant 

aspects, to those entered into directly by 

a U.S. person and thus present risks to 

the stability of the U.S. financial system 

or of U.S. entities. Treating U.S. 

Guaranteed Entities differently from 

U.S. persons could also create a 

substantial regulatory loophole, 

allowing transactions that have a similar 

connection to or impact on U.S. 

commerce to be treated differently 

depending on how the parties are 

structured and thereby undermining the 

effectiveness of the Dodd-Frank swap 

provisions and related Commission 

regulations. 

The proposed rule would also require 

an FCS to include all of its swap 

positions in its MSP calculations.103 As 

discussed in the context of applying the 

SD de minimis threshold, by virtue of 

its relationship to its U.S. ultimate 

parent, the risk associated with an FCS’s 

swap positions have a direct impact on 

the financial position and risk profile of 

its U.S. parent. Accordingly, should the 

FCS or its counterparty default on a 

swap, the financial stability of the U.S. 

ultimate parent entity would be directly 

impacted, raising the types of regulatory 

concerns that MSP registration is 

intended to address. The Commission is 

also concerned that offering disparate 

treatment to FCSs compared to U.S. 

persons could create a substantial 

regulatory loophole, incentivizing U.S. 

financial groups to conduct their swap 

activities with non-U.S. counterparties 

through non-U.S. subsidiaries and 

thereby undermining the effectiveness 

of the Dodd-Frank swap provisions and 

related Commission regulations. 

B. Other Non-U.S. Persons 

Under the proposed rule, an Other 

Non-U.S. Person would include all of its 

swaps with U.S. persons, U.S. 

Guaranteed Entities, and Foreign 

Consolidated Subsidiaries in its MSP 

calculations, with a limited exception 

for transactions executed anonymously 

on a SEF, DCM, or FBOT and cleared.104

As discussed above, the default or 

insolvency of the Other Non-U.S. Person 

would have a direct adverse effect on a 

U.S. counterparty and, by virtue of the 

U.S. person’s significant nexus to the 

U.S. financial system, potentially could 

result in adverse effects or disruption to 

the U.S. financial system as a whole, 

particularly if the Other Non-U.S. 

Person’s swap positions are substantial 

enough to exceed an MSP registration 

threshold. 

The default or insolvency of the Other 

Non-U.S. Person would also present a 

financial impact to the U.S. financial 

system where the counterparty is an 

FCS because its U.S. ultimate parent 

would be directly impacted. The Other 

Non-U.S. Person’s default could also 

impact the United States through a U.S. 

Guaranteed Entity. Although the default 

on that swap may not directly affect the 

U.S. guarantor on that swap, the default 

could affect the U.S. Guaranteed Entity’s 

ability to meet its other obligations, for 

which the U.S. guarantor may also be 

liable. The Commission is also 

concerned that offering Other Non-U.S. 

Persons disparate treatment with respect 

to their swap positions with U.S. 

Guaranteed Entities compared to their 

swap positions with FCSs could 

incentivize Other Non-U.S. Persons to 

favor transacting with U.S. Guaranteed 

Entities solely in order to avoid 

application of the Dodd-Frank swap 

provisions. 

The Commission therefore has a 

strong regulatory interest in ensuring 

that Other Non-U.S. Persons are subject 

to the Dodd-Frank MSP requirements to 

the extent that their swap positions with 

U.S. Guaranteed Entities and FCSs 

exceed a registration threshold. 

Accordingly, the Commission believes 

that requiring Other Non-U.S. Persons to 

include their swap positions with FCSs 

and U.S. Guaranteed Entities as well as 

U.S. persons appropriately captures 

swap positions that present a risk to the 

U.S. financial system, ensuring that 

MSP regulation applies once that risk 

exceeds the relevant thresholds. 

However, as discussed in the context of 

the SD de minimis threshold, where the 

swap is executed anonymously on a 

SEF, DCM, or FBOT and cleared, the 

Commission believes that the practical 

difficulties involved in determining the 

status of the potential MSP’s 

counterparty would make it reasonable 

for the swap position to be excluded 

altogether.105

Where the counterparty is an Other 

Non-U.S. Person, however, the proposed 

rule would not require an Other NonU.S. Person to include the swap 

position in its MSP calculations, as the 

Commission does not believe the swap 

would present the type of risk to the 

U.S. financial system that MSP 

registration is intended to address.106

Further, the Commission clarifies that 

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107See 77 FR at 30689. 108 Id. (positions of U.S. entities regulated as 

banks in the United States would be subject to 

capital and other requirements, making it 

unnecessary to separately address the risks 

associated with guarantees of those positions via 

MSP regulation). See also id. at n.1134 (‘‘As a result 

of this interpretation, holding companies will not 

be deemed to be major participants as a result of 

guarantees to certain U.S. entities that already are 

subject to capital regulation. The Commissions 

intend to address guarantees provided to non-U.S. 

entities, and guarantees by non-U.S. holding 

companies, in separate releases.’’). 

109See SEC Cross-Border Rule, 79 FR at 47346– 

48. 

110The Commission further clarifies that the 

swap positions of an entity that is required to 

register as an MSP, or whose MSP registration is 

pending, would not be subject to the attribution 

requirement. 

111See Entities Rule, 77 FR at 30689 (attribution 

is intended to reflect the risk posed to the U.S. 

financial system when a counterparty to a position 

has recourse against a U.S. person). 112See note 106, supra. 

U.S. Person would not be required to 

include its swap position with an Other 

Non-U.S. Person counterparty in its 

MSP calculations solely by reason of 

such swap being arranged, negotiated, 

or executed by personnel located in the 

United States. As stated above, 

arranging, negotiating, or executing 

swaps are functions that fall within the 

scope of the ‘‘swap dealer’’ definition. 

In contrast, the definition of MSP 

focuses primarily on credit risk and 

thus, the Commission does not believe 

that including ANE transactions in this 

context would address the regulatory 

concerns underlying the MSP 

registration requirement. 

C. Attribution Requirement 

In the Entities Rule, the Commission 

and the SEC (collectively, 

‘‘Commissions’’) provided a joint 

interpretation that an entity’s swap 

positions in general would be attributed 

to a parent, other affiliate, or guarantor 

for purposes of the MSP analysis to the 

extent that the counterparties to those 

positions have recourse to the parent, 

other affiliate, or guarantor in 

connection with the position, such that 

no attribution would be required in the 

absence of recourse.107 Even in the 

presence of recourse, however, the 

Commissions stated that attribution of a 

person’s swap positions to a parent, 

other affiliate, or guarantor would not be 

necessary if the person is already 

subject to capital regulation by the 

Commission or the SEC or is a U.S. 

entity regulated as a bank in the United 

States (and is therefore subject to capital 

regulation by a prudential regulator).108

The Commission is also proposing to 

address the cross-border application of 

the attribution requirement in a manner 

consistent with the Entities Rule and 

CEA section 2(i) and generally 

comparable to the approach adopted by 

the SEC.109 Specifically, the 

Commission believes that the swap 

positions of an entity, whether a U.S. or 

non-U.S. person, should not be 

attributed to a parent, other affiliate, or 

guarantor for purposes of the MSP 

analysis in the absence of recourse. 

Even in the presence of recourse, 

attribution would not be required if the 

entity that entered into the swap 

directly is subject to capital regulation 

by the Commission or the SEC or is 

regulated as a bank in the United 

States.110

If recourse is present, however, and 

the entity subject to a recourse 

guarantee (‘‘guaranteed entity’’) is not 

subject to capital regulation (as 

described above), whether the 

attribution requirement would apply 

would depend on the U.S. person status 

of the person to whom there is recourse 

(i.e., the U.S. person status of the 

guarantor). Specifically, a U.S. person 

guarantor would attribute to itself any 

swap position of a guaranteed entity, 

whether a U.S. person or a non-U.S. 

person, for which the counterparty to 

the swap has recourse against that U.S. 

person guarantor. The Commission 

believes that when a U.S. person acts as 

a guarantor of a swap position, the 

recourse guarantee creates risk within 

the United States of the type that MSP 

regulation is intended to address, 

regardless of the U.S. person status of 

the guaranteed entity or its 

counterparty.111

A non-U.S. person would attribute to 

itself any swap position of an entity for 

which the counterparty to the swap has 

recourse against the non-U.S. person 

unless all relevant persons (i.e., the nonU.S. person guarantor, the entity subject 

to the recourse guarantee, and its 

counterparty) are Other Non-U.S. 

Persons. In this regard, the Commission 

believes that when a non-U.S. person 

provides recourse with respect to the 

swap position of a particular entity, the 

economic reality of the swap position is 

substantially identical, in relevant 

respects, to a position entered into 

directly by the non-U.S. person. 

Additionally, the Commission believes 

that guaranteed entities would be able to 

enter into significantly more swap 

positions (and take on significantly 

more risk) as a result of the guarantee 

than they would otherwise, amplifying 

the risk of the non-U.S. person 

guarantor’s inability to carry out its 

obligations under the guarantee. Given 

that, as discussed above, the 

Commission believes that the swap 

positions of U.S. persons, FCSs, and 

U.S. Guaranteed Entities present the 

types of risk that MSP regulation is 

intended to address, the Commission 

has a strong regulatory interest in 

ensuring that the attribution 

requirement applies to non-U.S. persons 

that provide recourse guarantees to U.S. 

persons, FCSs, and U.S. Guaranteed 

Entities. Accordingly, the Commission 

believes that a non-U.S. person should 

be required to attribute to itself the swap 

positions of any entity for which it 

provides a recourse guarantee unless it, 

the guaranteed entity, and its 

counterparty are Other-Non-U.S. 

Persons. 

D. Summary 

In summary, under the proposed rule, 

in making its MSP threshold 

calculations: 

• A U.S. person would include all of 

its swap positions. 

• A non-U.S. person would include 

all swap positions with respect to which 

it is a U.S. Guaranteed Entity. 

• A Foreign Consolidated Subsidiary 

would include all of its swap positions. 

• An Other Non-U.S. Person would 

include all of its swap positions with 

counterparties that are U.S. persons, 

U.S. Guaranteed Entities, or FCSs, 

unless the swap is executed 

anonymously on a registered SEF, DCM, 

or FBOT and cleared. It would not, 

however, include any of its swap 

positions with Other Non-U.S. 

counterparties. 

• All swap positions that are subject 

to recourse should also be attributed to 

a guarantor, whether it is a U.S. person 

or a non-U.S. person, unless the 

guarantor, the guaranteed entity, and its 

counterparty are Other Non-U.S. 

Persons. 

Request for Comment. The 

Commission invites comment on all 

aspects of the proposed rule, including 

the following: 

1. The Commission invites comment 

on whether it should provide an 

exception for Other Non-U.S. Persons 

similar to that included in the Guidance 

for non-U.S. persons that are not 

guaranteed affiliates trading with either 

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

guaranteed affiliate that is an SD.112

Would such an exception be appropriate 

or otherwise consistent with the 

proposed rule? Why or why not? 

2. In its rulemaking addressing the 

cross-border application of the MSP 

thresholds, the SEC determined not to 

require a non-U.S. person to include in 

its major security-based swap 

participant threshold calculations any 

security-based swap positions for which 

they (as opposed to their counterparty) 


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113See SEC Cross-Border Rule, 79 FR at 47345 & 

n.593. 

114See 78 FR at 45326. 

115See SEC Cross-Border Rule, 79 FR at 47347– 

48. 

116See Business Conduct Standards for Swap 

Dealers and Major Swap Participants With 

Counterparties, 77 FR 9734 (Feb. 17, 2012); 17 CFR 

23.400–51. 

117The term ‘‘counterparty’’ is defined for 

purposes of the external business conduct standards 

in 17 CFR 23.401 to include any person who is a 

prospective counterparty to a swap, as appropriate 

to subpart H. 

118Note that certain external business conduct 

standards apply only to SDs and not MSPs. See, 

e.g., 17 CFR 23.434 (recommendations to 

counterparties—institutional suitability); § 23.440 

(requirements for swap dealers acting as advisors to 

Special Entities). 

119The rule text for the cross-border application 

of external business conduct standards is proposed 

as § 23.452. 

120As used in this preamble, the term ‘‘U.S. SD/ 

MSP’’ refers to a U.S. person that is an SD or MSP 

and the term ‘‘Non-U.S. SD/MSP’’ refers to a nonU.S. person that is an SD or MSP. 

121The Commission observes that, where a swap 

between a non-U.S. SD/MSP (or foreign branch of 

a U.S. SD/MSP) and a U.S. person is executed 

anonymously on a registered DCM or SEF and 

cleared by a registered or exempt DCO, the external 

business conduct standards are not applicable. See, 

e.g., 17 CFR 23.402(b)–(c) (requiring swap dealers 

and MSPs to obtain and retain certain information 

only about each counterparty whose identity is 

known to the swap dealer or MSP prior to the 

execution of the transaction); § 23.430(e) (not 

requiring SD/MSPs to verify counterparty eligibility 

when a transaction is entered on a DCM or SEF and 

the swap dealer or MSP does not know the identity 

of the counterparty prior to execution); § 23.431(c) 

(not requiring disclosure of material information 

about a swap if initiated on a DCM or SEF and the 

swap dealer or MSP does not know the identity of 

the counterparty prior to execution). Because a 

registered FBOT is analogous to a DCM, the 

Commission is of the view that the requirements 

likewise would not be applicable where such a 

swap is executed anonymously on a registered 

FBOT and cleared. 

122Although the Commission recognizes that 

foreign branches of U.S. SD/MSPs are part of the 

same legal entity as their U.S. principal, and that, 

from the standpoint of risk, there is no difference 

between a swap with a U.S. SD/MSP and a swap 

with its foreign branch, the Commission believes 

that for purposes of the external business conduct 

standards, which are oriented toward customer 

protection, a foreign branch of a U.S. SD/MSP 

should be treated the same as a non-U.S. SD/MSP. 

The Commission proposes to interpret the term 

‘‘foreign branch of a U.S. person’’ that is a swap 

dealer (or MSP) as used in proposed rule § 23.452 

in a manner that is consistent with the Guidance. 

See Guidance, 78 FR at 45328–31 (discussing the 

scope of the term ‘‘foreign branch’’ and the 

Commission’s consideration of whether a swap is 

with a foreign branch of a U.S. bank). 

123See section III for a discussion of the terms 

arrange, negotiate, and execute. The Commission 

notes that the external business conduct standards 

apply in connection with transactions in swaps as 

well as in connection with swaps that are offered 

but not entered into. See 17 CFR 23.400. 

Accordingly, Commission regulations 23.410 and 

23.433 would apply where a non-U.S. SD uses 

personnel located in the United States to offer a 

swap even if that swap is not ultimately entered 

into. 

benefit from a guarantee creating a right 

of recourse against a U.S. person.113 The 

SEC argued that if the non-U.S. person 

were to default, it would not pose a 

direct risk to its counterparty’s U.S. 

guarantor, as the non-U.S. person’s 

failure under the swap would not trigger 

any obligations under the guarantee of 

the swap. The Commission invites 

comment on whether it should adopt a 

similar approach and whether such an 

approach would be consistent with the 

Proposed Rule. 

3. Should the Commission modify its 

interpretation with regard to the 

attribution requirement to further 

harmonize with the approach presented 

in the Guidance 114 and adopted by the 

SEC 115 and provide that attribution of a 

person’s swap positions to a parent, 

other affiliate, or guarantor would not be 

required if the person is subject to 

capital standards that are comparable to 

and as comprehensive as the capital 

regulations and oversight by a home 

country supervisor or regulator? If so, 

should the home country capital 

standards be deemed comparable and 

comprehensive if they are consistent in 

all respects with the Capital Accord of 

the Basel Committee on Banking 

Supervision (‘‘Basel Accord’’)? 

VI. Cross-Border Application of the 

External Business Conduct Standards 

for Swap Dealers and Major Swap 

Participants 

Pursuant to CEA section 4s(h), the 

Commission has adopted rules 

establishing business conduct standards 

governing the conduct of SD/MSPs in 

transacting with swap counterparties.116

Broadly speaking, the external business 

conduct standards are designed to 

enhance counterparty protections by 

expanding the obligations of SD/MSPs 

with respect to their counterparties.117

Among other things, SDs and/or MSPs 

are required to conduct due diligence on 

their counterparties to verify their 

eligibility to trade; provide disclosure of 

material information about the swap to 

their counterparties; provide a daily 

mid-market mark for uncleared swaps; 

and, when recommending a swap to a 

counterparty, make a determination as 

to the suitability of the swap for the 

counterparty based on reasonable 

diligence concerning the 

counterparty.118

The Commission is now proposing a 

rule to address the cross-border 

application of the external business 

conduct standards, including the extent 

to which they would apply to ANE 

transactions.119 Specifically, under the 

proposed rule, U.S. SD/MSPs, other 

than with respect to transactions 

conducted through foreign branches of 

U.S. SD/MSPs, would be required to 

comply with the Commission’s 

applicable external business conduct 

standards regardless of the status of the 

counterparty as a U.S. person (or as a 

foreign branch of a U.S. SD/MSP) 120

without substituted compliance. This 

requirement reflects the Commission’s 

view that the Dodd-Frank’s external 

business conduct standards should 

apply fully to registered SD/MSPs 

domiciled and operating in the United 

States because their swap activities are 

particularly likely to affect the integrity 

of the swaps market in the United States 

and give rise to concerns about the 

protection of participants in those 

markets.121

Foreign branches of U.S. SD/MSPs as 

well as non-U.S. SD/MSPs (including 

FCSs and U.S. Guaranteed Entities) 

would be required to comply with all of 

the Commission’s applicable external 

business conduct standards, without 

substituted compliance, to the extent 

that the counterparty is a U.S. person 

(other than a foreign branch of a U.S. 

SD/MSP).122 Given the focus of the 

Dodd-Frank counterparty protection 

mandate on U.S. persons, the 

Commission believes that the external 

business conduct standards should 

apply fully to all swap transactions with 

U.S. persons that are not foreign 

branches of a U.S. SD/MSP. 

With respect to transactions with 

counterparties that are foreign branches 

of U.S. SD/MSPs or non-U.S. persons 

(including FCSs and U.S. Guaranteed 

Entities), however, non-U.S. SD/MSPs 

and foreign branches of U.S. SD/MSPs 

would generally not be required to 

comply with the external business 

conduct rules, subject to one narrow 

exception: foreign branches of U.S. SDs 

and non-U.S. SDs that use personnel 

located in the United States to arrange, 

negotiate, or execute such transactions 

would be required to comply with 

Commission regulations 23.410 

(Prohibition on Fraud, Manipulation, 

and other Abusive Practices) and 23.433 

(Fair Dealing), without substituted 

compliance.123 This position reflects the 

Commission’s belief that, in general, 

imposing its customer protection 

standards on transactions between a 

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

non-U.S. SD/MSP, on the one hand, and 

a counterparty that is a non-U.S. person 

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

on the other, would generally not be 

necessary to advance the goals of the 

Dodd-Frank customer protection regime. 

However, to the extent that such SDs 

use personnel located in the United 

States to arrange, negotiate, or execute 

the swap transaction, the Commission 

believes that its interest in ensuring the 


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124See note 122, supra. 

125See note 94, supra. 

126See note 122, supra. 

127See note 94, supra. 128See 5 U.S.C. 601 et seq. 129See 47 FR 18618 (Apr. 30, 1982) (finding that 

designated contract markets, future commission 

merchants, commodity pool operators and large 

traders are not small entities for RFA purposes). 130See proposed rule § 1.3(aaaaa), (ggg)(7), and 

(nnn). 

131See proposed rule § 23.452. 

132See Entities Rule, 77 FR at 30701; Registration 

of Swap Dealers and Major Swap Participants, 77 

FR 2613, 2620 (Jan. 19, 2012) (noting that like 

future commission merchants, swap dealers will be 

subject to minimum capital requirements, and are 

expected to be comprised of large firms, and that 

major swap participants should not be considered 

to be small entities for essentially the same reasons 

that it previously had determined large traders not 

to be small entities). 

132See 77 FR at 30701. 133The SBA’s Small Business Size Regulations, 

codified at 13 CFR 121.201, identifies (through 

North American Industry Classification System 

codes) a small business size standard of $38.5 

million or less in annual receipts for Sector 52, 

Subsector 523—Securities, Commodity Contracts, 

and Other Financial Investments and Related 

Activities. Entities affected by the Proposed Rule 

are generally large financial institutions or other 

large entities that would be required to include 

their cross border dealing transactions or swap 

positions towards the SD and MSP registration 

thresholds, respectively, as specified in the 

Proposed Rule. 

134The proposed regulation addresses the crossborder application of the registration and external 

business conduct regulations. The Proposed Rule 

does not change the current registration 

requirements or external business conduct 

requirements. 

integrity of U.S. markets is implicated. 

By limiting application of the external 

business conduct standards to ANE 

transactions to the antifraud and fair 

dealing requirements, the proposed rule 

is tailored to ensure a basic level of 

counterparty protections while, 

consistent with the principles of 

international comity, recognizing the 

supervisory interests of the relevant 

foreign jurisdictions in applying their 

own sales practices requirements to 

transactions involving counterparties 

that are non-U.S. persons or foreign 

branches of a U.S. SD/MSP. This 

approach recognizes the supervisory 

interests of the local jurisdiction with 

respect to swaps conducted within that 

jurisdiction and that broadly imposing 

U.S. external business conduct 

standards with respect to such 

transactions would not be necessary to 

advance the goals of the Dodd-Frank 

customer protection regime. 

If adopted, the proposed rule would 

supersede the Guidance with respect to 

the cross-border application of the 

external business conduct standards. 

Request for Comment. The 

Commission invites comment on all 

aspects of the proposed rule, including 

the following: 

1. The Commission invites comment 

regarding its determination to 

distinguish transactions entered into by 

foreign branches of U.S. persons that are 

SDs (or MSPs) for purposes of the crossborder application of the external 

business conduct standards.124 Should 

transactions involving foreign branches 

of U.S. SD/MSPs be treated in the same 

manner as transactions involving U.S. 

persons with respect to these 

requirements? Why or why not? Should 

the Commission, as proposed, interpret 

the term ‘‘foreign branch of a U.S. 

person’’ that is an SD (or MSP) in a 

manner consistent with the Guidance or 

incorporate an alternative approach, 

such as the definition of ‘‘foreign 

branch’’ in the SEC’s Exchange Act 

rules? 125

2. The Commission invites comment 

regarding the circumstances under 

which a swap transaction should be 

considered as being ‘‘with a foreign 

branch of a U.S. person’’ that is an SD 

(or MSP) as opposed to being with the 

U.S. person itself. Specifically, should 

the Commission, as proposed, adopt an 

interpretation consistent with the 

Guidance 126 or should it incorporate an 

alternative approach, such the how the 

SEC defines ‘‘transaction conducted 

through a foreign branch’’ in the context 

of its Exchange Act rules? 127

3. The Commission invites comment 

on the proposed treatment of non-U.S. 

SD/MSPs and foreign branches of U.S. 

SD/MSPs. Whether and to what extent 

should their swap transactions with 

foreign branches of U.S. SD/MSPs and 

non-U.S. persons be subject to the 

external business conduct standards? 

Should they be required to comply with 

the external business conduct standards 

with respect to their transactions with 

foreign branches of U.S. SD/MSPs or 

non-U.S. persons? If so, should 

substituted compliance be available? 

Relatedly, should transactions 

conducted through foreign branches of 

U.S. SD/MSPs receive the same 

treatment as other transactions 

conducted by U.S. SD/MSPs? Is limiting 

the scope of applicable requirements for 

ANE transactions entered into by 

foreign branches of U.S. SDs or non-U.S. 

SDs to the antifraud and fair dealing 

requirements appropriate, or should 

other external business conduct 

requirements in subpart H of part 23 of 

the Commission’s regulations also 

apply? Why or why not? 

VII. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) requires that agencies consider 

whether the regulations they propose 

will have a significant economic impact 

on a substantial number of small 

entities.128 The Commission previously 

established definitions of ‘‘small 

entities’’ to be used in evaluating the 

impact of its regulations on small 

entities in accordance with the RFA.129

The proposed regulation addresses 

when U.S. persons and non-U.S. 

persons would be required to include 

their cross-border swap dealing 

transactions or swap positions in their 

SD or MSP registration threshold 

calculations, respectively, as specified 

in the Proposed Rule,130 and the extent 

to which SDs or MSPs would be 

required to comply with the 

Commission’s external business conduct 

standards in connection with their 

cross-border swap transactions or swap 

positions.131

The Commission previously 

determined that SDs and MSPs are not 

small entities for purposes of the 

RFA.132 The Commission believes, 

based on its information about the swap 

market and its market participants, that 

(1) the types of entities that may engage 

in more than a de minimis amount of 

swap dealing activity such that they 

would be required to register as an SD— 

which generally would be large 

financial institutions or other large 

entities—would not be ‘‘small entities’’ 

for purposes of the RFA; and (2) the 

types of entities that may have swap 

positions such that they would be 

required to register as an MSP would 

not be ‘‘small entities’’ for purposes of 

the RFA. Thus, to the extent such 

entities are large financial institutions or 

other large entities that would be 

required to register as SDs or MSPs with 

the Commission by virtue of their crossborder swap dealing transactions and 

swap positions, they would not be 

considered small entities.133

Under the proposed rule, to the extent 

that there are any affected small entities 

under the proposed rule, they will need 

to assess how they are classified under 

the proposed rule (i.e., U.S. person, 

FCS, U.S. Guaranteed Entity, and Other 

Non-U.S. Person) and monitor their 

swap activities in order to determine 

whether they are required to register as 

an SD under the proposed rule. The 

Commission believes that market 

participants would only incur 

incremental costs, which are expected 

to be marginal, in modifying their 

existing systems and policies and 

procedures resulting from changes to 

the status quo made by the proposed 

rule.134

Accordingly, for the foregoing 

reasons, the Commission finds that 


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135 44 U.S.C. 3501 et seq. 

136See 44 U.S.C. 3502. 

137See 5 CFR 1320.3. 

138See the Appendix to Cost-Benefit 

Considerations, infra, for an explanation of the 

Commission’s estimate. 

139Although the Guidance is non-binding, the 

Commission understands that market participants 

have developed policies and practices consistent 

with the views expressed therein. 

there will not be a substantial number 

of small entities impacted by the 

proposed rule. Therefore, the Chairman, 

on behalf of the Commission, hereby 

certifies pursuant to 5 U.S.C. 605(b) that 

the proposed regulations will not have 

a significant economic impact on a 

substantial number of small entities. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act of 

1995 135 (‘‘PRA’’) imposes certain 

requirements on Federal agencies, 

including the Commission, in 

connection with conducting or 

sponsoring any ‘‘collection of 

information,’’ as defined by the PRA. 

Among its purposes, the PRA is 

intended to minimize the paperwork 

burden to the private sector, to ensure 

that any collection of information by a 

government agency is put to the greatest 

possible uses, and to minimize 

duplicative information collections 

across the government. The PRA applies 

to all information, ‘‘regardless of form or 

format,’’ whenever the government is 

‘‘obtaining, causing to be obtained, [or] 

soliciting’’ information, and includes 

required ‘‘disclosure to third parties or 

the public, of facts or opinions,’’ when 

the information collection calls for 

‘‘answers to identical questions posed 

to, or identical reporting or 

recordkeeping requirements imposed 

on, ten or more persons.’’ 136 The PRA 

requirements have been determined to 

include not only mandatory but also 

voluntary information collections, and 

include both written and oral 

communications.137

The proposed rule would result in an 

amendment to existing collections of 

information, ‘‘Registration of Swap 

Dealers and Major Swap Participants,’’ 

Office of Management and Budget 

(‘‘OMB’’) Control No. 3038–0072, as 

discussed below. The Commission, 

therefore, is submitting this proposed 

rulemaking to OMB for its review and 

approval in accordance with 44 U.S.C. 

3507(d) and 5 CFR 1320.11. If the 

proposed rule is adopted, the responses 

to these collections of information 

would be mandatory. An agency may 

not conduct or sponsor, and a person is 

not required to respond to, a collection 

of information unless it displays a 

currently valid control number issued 

by OMB. 

The proposed rule provides for the 

cross-border application of the SD/MSP 

registration thresholds and external 

business conduct standards. The 

Commission estimates that if the 

proposed rule is adopted, 14 

unregistered non-U.S. persons may be 

classified as FCSs and required to 

register as new SDs because their swap 

dealing transactions would be in excess 

of the SD de minimis threshold.138 The 

Commission would increase the number 

of respondents under collection 3038– 

0072 accordingly. The proposed rule 

would not otherwise trigger any new 

recordkeeping, disclosure, or reporting 

requirements or cause any incremental 

burden under the PRA. 

Information Collection Comments. 

The Commission invites the public and 

other Federal agencies to comment on 

any aspect of the reporting burdens 

discussed above. Pursuant to 44 U.S.C. 

3506(c)(2)(B), the Commission solicits 

comments in order to: (1) Evaluate 

whether the proposed collection of 

information is necessary for the proper 

performance of the functions of the 

Commission, including whether the 

information will have practical utility; 

(2) evaluate the accuracy of the 

Commission’s estimate of the burden of 

the proposed collection of information; 

(3) determine whether there are ways to 

enhance the quality, utility, and clarity 

of the information to be collected; and 

(4) minimize the burden of the 

collection of information on those who 

are to respond, including through the 

use of automated collection techniques 

or other forms of information 

technology. 

Comments may be submitted directly 

to the Office of Information and 

Regulatory Affairs, by fax at (202) 395– 

6566 or by email at OIRAsubmissions@

omb.eop.gov. Please provide the 

Commission with a copy of submitted 

comments so that all comments can be 

summarized and addressed in the final 

rule preamble. Refer to the ADDRESSES

section of this notice of proposed 

rulemaking for comment submission 

instructions to the Commission. A copy 

of the supporting statements for the 

collections of information discussed 

above may be obtained by visiting 

http://RegInfo.gov. OMB is required to 

make a decision concerning the 

collections of information between 30 

and 60 days after publication of this 

document in the Federal Register. 

Therefore, a comment is best assured of 

having its full effect if OMB receives it 

within 30 days of publication. 

C. Cost-Benefit Considerations 

As detailed above, the Commission is 

proposing rules that would define 

certain key terms for purposes of the 

Dodd-Frank swap provisions and 

address the cross-border application of 

the SD and MSP registration thresholds 

and the Commission’s external business 

conduct standards, including the extent 

to which such requirements would 

apply to ANE transactions. 

The baseline against which the costs 

and benefits of this proposed rule are 

compared is the status quo, i.e., the 

swap market as it exists today, with SD/ 

MSP registration thresholds and 

external business conduct rules applied 

to cross-border transactions in a manner 

consistent with the Guidance and the 

Cross-Border Margin Rule.139 In 

considering the costs and benefits of the 

proposed rule against this baseline, the 

Commission notes that the 

Commission’s existing swap 

requirements, including the registration 

thresholds and external business 

conduct standards, were adopted 

pursuant to the requirements of the 

Dodd-Frank Act and have cross-border 

application by virtue of CEA section 

2(i). A significant portion of the costs 

and benefits associated with the 

proposed rule are therefore inherent in 

the statute itself and were addressed in 

the cost-benefit considerations of the 

underlying registration rules and 

external business conduct standards at 

the time they were adopted. This costbenefit discussion accordingly focuses 

on the central purpose and effect of the 

proposed rule, determining whether and 

to what extent the underlying SD/MSP 

registration thresholds and external 

business conduct standards should 

apply in a cross-border context, 

consistent with CEA section 2(i), the 

regulatory objectives of the Dodd-Frank 

Act, and principles of international 

comity. 

The costs associated with the key 

elements of the Commission’s proposed 

cross-border approach to the SD and 

MSP registration thresholds—requiring 

market participants to classify 

themselves as U.S. persons, U.S. 

Guaranteed Entities, Foreign 

Consolidated Subsidiaries, or Other 

Non-U.S. Persons and to apply the rule 

accordingly—fall into a few categories. 

Market participants would incur costs 

determining which category of market 

participant (e.g., an FCS or an Other 

Non-U.S. Person) they fall into 

(‘‘assessment costs’’), tracking their 

swap activities or positions to determine 

whether they should be included in 

their registration threshold calculations 

(‘‘monitoring costs’’), and, to the degree 


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140The Commission’s discussion of programmatic 

costs and registration costs does not address MSPs. 

No entities are currently registered as MSPs, and 

the Commission does not expect that this status quo 

would change as a result of the Proposed Rule given 

the general similarities between the Proposed Rule’s 

approach to the MSP registration threshold 

calculations and the Guidance. For an estimate of 

the number of market participants that may be 

required to register as SDs as a result of the 

Proposed Rule, see the accompanying Appendix 

below. 

141 Dodd-Frank swap requirements may impose 

significant direct costs on participants falling 

within the SD/MSP definitions that are not borne 

by other market participants, including costs related 

to capital and margin requirements, regulatory 

reporting requirements, and business conduct 

requirements. To the extent that foreign 

jurisdictions adopt comparable requirements, these 

costs would be mitigated. 

that their activities or positions exceed 

the relevant threshold, registering with 

the Commission as an SD or MSP 

(‘‘registration costs’’). 

Entities required to register as SDs as 

a result of the proposed rule would also 

incur costs associated with complying 

with the relevant Dodd-Frank 

requirements applicable to registrants, 

such as the capital, margin, and 

business conduct requirements 

(‘‘programmatic costs’’).140 While only 

new registrants would be assuming 

these programmatic costs for the first 

time, the obligations of entities that are 

already registered as SDs may also 

change in the future as an indirect 

consequence of the proposed rule. 

Although the Proposed Rule does not 

address the cross-border application of 

any Dodd-Frank requirements other 

than the registration thresholds and 

external business conduct standards, the 

Commission expects that the proposed 

rule’s classification scheme for market 

participants (as U.S. Persons, FCSs, etc.) 

and associated definitions (which 

closely track the approach adopted in 

the Cross-Border Margin Rule) would 

apply for purposes of future crossborder rulemakings. Accordingly, 

existing SDs may find that their crossborder compliance obligations with 

respect to other substantive Dodd-Frank 

requirements change in the future 

compared to the status quo as a result 

of having to adjust their classification 

(e.g., from non-U.S. person to FCS). As 

a result, the full extent of the 

programmatic costs associated with the 

proposed rule would be influenced by 

the scope and effect of future 

rulemakings addressing the cross-border 

application of substantive requirements 

under the Dodd-Frank Act. 

In developing the proposed rule, the 

Commission took into account the 

potential for creating or accentuating 

competitive disparities between market 

participants, which could contribute to 

market inefficiencies, including market 

fragmentation or decreased liquidity, as 

more fully discussed below. 

Significantly, competitive disparities 

may arise between U.S.-based financial 

groups and non-U.S. based financial 

groups as a result of differences in how 

the SD/MSP registration thresholds 

apply to the various classifications of 

market participants. For instance, 

dealing subsidiaries with a U.S. ultimate 

parent entity (i.e., FCSs)—which would 

be required to include all of their swap 

dealing transactions in their de minimis 

threshold calculations and therefore be 

more likely to trigger the SD registration 

threshold relative to Other Non-U.S. 

Persons—may be at a competitive 

disadvantage compared to Other NonU.S. Persons when trading with nonU.S. counterparties, as non-U.S. 

counterparties may prefer to trade with 

non-registrants in order to avoid 

application of the Dodd-Frank swaps 

regime.141 Again, the full competitive 

impact of the Proposed Rule will be 

influenced by future cross-border 

rulemakings, as well as the scope and 

implementation timelines associated 

with any related rules adopted by other 

jurisdictions. 

Other factors also create inherent 

challenges associated with attempting to 

assess costs and benefits of the Proposed 

Rule. To avoid the prospect of being 

regulated as an SD or MSP, or otherwise 

falling within the Dodd-Frank swap 

regime, some market participants may 

restructure their businesses or take other 

steps (e.g., limiting their counterparties 

to Other Non-U.S. Persons) to avoid 

exceeding the relevant registration 

thresholds. The degree of comparability 

between the approaches adopted by the 

Commission and foreign jurisdictions 

and the potential availability of 

substituted compliance, whereby a 

market participant may comply with a 

Dodd-Frank swap dealer requirement by 

complying with a comparable 

requirement of a foreign financial 

regulator, may also affect the 

competitive impact of the proposed 

rule. 

The Commission nevertheless 

believes that the proposed rule’s 

approach is necessary and appropriately 

tailored, consistent with CEA section 

2(i) and principles of international 

comity, to ensure that the regulatory 

objectives of the Dodd-Frank 

registration requirements and external 

business conduct standards are 

preserved while still establishing a 

workable approach that recognizes 

foreign regulatory interests and 

minimizes competitive disparities and 

market inefficiencies to the degree 

possible. Furthermore, as mentioned 

above, the Commission expects to apply 

the definitions and classification 

scheme for market participants resulting 

from the proposed rule in future crossborder rulemakings; having a uniform 

set of definitions should mitigate the 

costs of cross-border compliance with 

the Dodd-Frank swap regime in the long 

run. 

In the sections that follow, the 

Commission discusses the costs and 

benefits associated with the proposed 

rule, as well as reasonable alternatives. 

Section 1 begins by addressing the 

assessment costs associated with the 

rule, which derive in part from the 

defined terms used in the proposed rule 

(the proposed definitions of ‘‘U.S. 

Person’’ and ‘‘Foreign Consolidated 

Subsidiary,’’ as well as the definition of 

‘‘guarantee’’ adopted in the CrossBorder Margin Rule) and which, as 

mentioned above, are expected to be 

relevant outside the context of the crossborder application of the registration 

thresholds. Sections 2 and 3 consider 

the costs and benefits associated with 

the proposed rule’s determinations 

regarding how each classification of 

market participants (U.S. Persons, U.S. 

Guaranteed Entities, FCSs, and Other 

Non-U.S. Persons) should apply to the 

SD and MSP registration thresholds, 

respectively. Sections 4, 5, and 6 

address the monitoring, registration, and 

programmatic costs associated with the 

proposed cross-border approach to the 

SD (and, as appropriate, MSP) 

registration thresholds, respectively. 

Section 7 addresses the costs and 

benefits associated with the proposed 

cross-border approach to the external 

business conduct standards, while 

Section 8 discusses the factors 

established in section 15(a) of the CEA. 

Discussion of the Commission’s costbenefit considerations concludes with 

an Appendix providing an estimate of 

the number of new SDs that are 

expected to register as a result of the 

Proposed Rule as well as the number of 

currently registered non-U.S. SDs that 

the Commission estimates would be 

classified as FCSs. 

The Commission invites comment 

regarding the nature and extent of any 

costs and benefits that could result from 

adoption of the Proposed Rule and, to 

the extent they can be quantified, 

monetary and other estimates thereof. 

1. Assessment Costs 

As discussed above, in applying the 

proposed cross-border approach to the 

SD and MSP registration thresholds, 

market participants would be required 

to first classify themselves as either a 

U.S. person, an FCS, a U.S. Guaranteed 


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142The proposed rule’s cross-border application 

of the external business conduct standards would 

also require SD/MSPs to determine whether a swap 

is a transaction through a foreign branch. See 

section VI, supra. 

143The Commission believes that these 

assessment costs for the most part have already 

been incurred by potential SD/MSPs as a result of 

adopting policies and procedures consistent with 

the Guidance and Cross-Border Margin Rule (which 

had similar classifications), both of which 

permitted counterparty representations. 

144As discussed further in section II.A, the 

proposed U.S. person definition does not include 

the U.S. majority-owned funds prong that was 

included in the U.S. person interpretation in the 

Guidance, which should lower assessment costs. 

The proposed definition also includes a modified 

version of the unlimited U.S. responsibility prong 

in the Guidance, which applied only to legal 

entities whose unlimited U.S. owners were majority 

owners. Removing the majority ownership 

requirement from the unlimited U.S. responsibility 

prong may lower assessment costs, as compared to 

the Guidance. Additionally, the Proposed Rule also 

makes clear that the ‘‘U.S. person’’ definition does 

not capture international financial institutions. 

Further, the proposed definition does not include 

the catchall provision that was included in the 

Guidance, which should further increase legal 

certainty and reduce assessment costs. 

145The ‘‘Foreign Consolidated Subsidiary’’ 

definition is discussed further in section II.B. 

146The Commission also considered certain 

alternatives to the proposed FCS definition—such 

as relying on International Financial Reporting 

Standards in addition to or instead of U.S. GAAP 

or including a non-U.S. person whose U.S. parent 

meets standards for consolidation, but does not 

prepare consolidated financial statements under 

U.S. GAAP—but believes these alternatives add 

complexity, without any substantial benefits. 

147See note 79, supra. 

148Because a guarantee has a significant effect on 

pricing terms and on recourse in the event of a 

counterparty default, the Commission believes that 

the guarantee would already be in existence and 

that a non-U.S. person therefore would have 

knowledge of its existence before entering into a 

swap. 

149The Commission recognizes that this benefit 

would not be fully realized until such future 

rulemakings are adopted. 

150As discussed in the Appendix, the 

Commission is not estimating the number of new 

U.S. SDs, as the methodology for including swaps 

in a U.S. person’s SD registration calculation does 

not diverge from the approach included in the 

Guidance (i.e., a U.S. person must include all of its 

swap dealing transactions in its de minimis 

threshold calculation). As further explained in the 

Appendix, the Commission does not expect an 

increase in the number of SDs resulting from the 

Proposed Rule’s definition of U.S. person and 

therefore assumes that no new U.S. SDs would 

register as U.S. SDs as a result of the Proposed Rule. 

151 In order to avoid double counting, in the event 

that the swap of an FCS is guaranteed by a U.S. 

person, the swap would only be counted under the 

provision of the Proposed Rule that applies to FCSs. 

See proposed rule § 1.3(ggg)(7)(i)(B) and (C). 

152Under the Guidance, a ‘‘guaranteed affiliate’’ 

would generally include all swap dealing activities 

in its de minimis threshold calculation without 

exception. The Guidance interpreted ‘‘guarantee’’ to 

generally include ‘‘not only traditional guarantees 

of payment or performance of the related swaps, but 

also other formal arrangements that, in view of all 

the facts and circumstances, support the non-U.S. 

person’s ability to pay or perform its swap 

obligations with respect to its swaps.’’ See the 

Guidance at 45320. In contrast, the term 

‘‘guarantee’’ in this proposed rulemaking has the 

same meaning as defined in Commission regulation 

23.160(a)(2) (cross-border application of the 

Commission’s margin requirements for uncleared 

Continued 

Entity, or an Other Non-U.S. Person. 

This classification scheme is also 

generally applicable in the context of 

the proposed approach to the external 

business conduct standards,142 and the 

Commission further expects to rely on a 

similar classification scheme in the 

context of future rulemakings relating to 

the cross-border application of other 

substantive Dodd-Frank requirements. 

The Commission expects that the 

costs to affected market participants of 

assessing which classification they and 

their counterparties fall into would 

generally be marginal and incremental. 

In most cases, the Commission believes 

an entity will have performed an initial 

determination or assessment of its status 

under either the Cross-Border Margin 

Rule (which uses substantially similar 

definitions of ‘‘U.S. person,’’ ‘‘Foreign 

Consolidated Subsidiary,’’ and 

‘‘guarantee’’) or the Guidance (which 

interprets ‘‘U.S. person’’ in a manner 

that is similar but not identical to the 

proposed definition of ‘‘U.S. person’’). 

Additionally, the proposed rule would 

allow market participants to rely on 

representations from their 

counterparties with regard to their 

classifications.143

Even with respect to market 

participants that have not previously 

determined their status under the CrossBorder Margin Rule or the Guidance, or 

that may need to reevaluate their status, 

the Commission believes that their 

assessment costs would be small as a 

result of the Proposed Rule’s reliance on 

relatively clear, objective definitions of 

the terms ‘‘U.S. person,’’ ‘‘Foreign 

Consolidated Subsidiary,’’ and 

‘‘guarantee.’’ Specifically, the 

Commission believes that the costs of 

assessing whether a market participant 

is a ‘‘U.S. person’’ would be small as a 

result of certain key differences between 

the Proposed Rule’s U.S. person 

definition and the ‘‘U.S. person’’ 

interpretation in the Guidance.144

Similarly, with respect to the 

determination of whether a market 

participant falls within the ‘‘Foreign 

Consolidated Subsidiary’’ definition,145

the Commission believes that 

assessment costs would be small as the 

definition relies on a familiar 

consolidation test already used by 

affected market participants in 

preparing their financial statements 

under U.S. GAAP.146

Additionally, the proposed rule relies 

on the definition of ‘‘guarantee’’ 

provided in the Cross-Border Margin 

Rule, which is limited to arrangements 

in which one party to a swap has rights 

of recourse against a guarantor with 

respect to its counterparty’s obligations 

under the swap.147 Although non-U.S. 

persons that are not FCSs will need to 

know whether they are U.S. Guaranteed 

Entities with respect to the relevant 

swap on a swap-by-swap basis for 

purposes of the SD and MSP registration 

calculations, the Commission believes 

that this information will already be 

known by non-U.S. persons.148

Accordingly, the Commission believes 

that the costs associated with assessing 

whether an entity or its counterparty is 

a U.S. Guaranteed Entity (for the 

purpose of the registration calculations 

or any subsequent rulemakings) would 

be small. 

Finally, the Commission believes that 

proposing consistent U.S. person and 

Foreign Consolidated Subsidiary 

definitions, which would apply across 

all of the Commission’s future crossborder rulemakings (unless the specific 

rule or regulation otherwise provides or 

the context otherwise requires), would 

also further reduce costs (including 

assessment costs) over time by applying 

a consistent definition across all of the 

Commission’s cross-border swaps 

rules.149

2. Cross-Border Application of the Swap 

Dealer Registration Threshold 

a. U.S. Persons and U.S. Guaranteed 

Entities 

Under the proposed rule, a U.S. 

person would include all of its swap 

dealing transactions in its de minimis 

calculation, without exception. As 

discussed above, that would include 

any swap dealing transactions 

conducted through a U.S. person’s 

foreign branch, as such swaps are 

directly attributed to, and therefore 

impact, the U.S. person. Given that this 

requirement mirrors the Guidance in 

this respect, the Commission believes 

that the proposed rule would have a 

minimal impact on the status quo with 

regard to the number of registered or 

potential U.S. SDs.150

The proposed rule would also require 

U.S. Guaranteed Entities (that are not 

FCSs) 151 to include all of their dealing 

transactions in their de minimis 

threshold calculation without 

exception. This approach, which 

recognizes that a U.S. Guaranteed 

Entity’s swap dealing transactions may 

have the same potential to impact the 

U.S. financial system as a U.S. person’s 

dealing transactions, closely parallels 

the approach taken in the Guidance 

with respect to ‘‘guaranteed 

affiliates.’’ 152 However, as explained in 


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swaps), except that application of the proposed 

definition of ‘‘guarantee’’ would not be limited to 

uncleared swaps. See note 79, supra. 

153The proposed rule would require U.S. 

Guaranteed Entities that are not FCSs to include all 

of their dealing transactions in their de minimis 

calculation. However, the Commission believes that 

there are few U.S. Guaranteed Entities (that are not 

FCSs). The Commission notes that the Proposed 

Rule uses a narrower definition of guarantee 

(compared to the Guidance), which would result in 

relatively fewer U.S. Guaranteed Entities than if a 

broader definition were used. In addition, the 

Commission believes that, as a practical matter, few 

non-U.S. persons that are not FCSs obtain 

guarantees of their obligations under swaps (which 

would generally need to be obtained from an 

unaffiliated U.S. person). Although the Commission 

believes that there are few U.S. Guaranteed Entities 

at this time, the Commission has covered this 

infrequent situation in the Proposed Rule as a 

prophylactic measure. 

154The Commission believes that some FCSs 

would have been ‘‘guaranteed affiliates’’ as 

described in the Guidance at the time that it was 

initially issued, but the Commission understands 

that many financial groups ceased providing 

guarantees with regard to their affiliated entities’ 

swap activities subsequent to the issuance of the 

Guidance, such that FCSs would have adopted 

policies and practices consistent with the 

Guidance’s treatment of non-U.S. persons (that are 

not guaranteed or conduit affiliates). 

155Additionally, some unregistered dealers may 

opt to withdraw from the market, thereby 

contracting the number of dealers competing in the 

swaps market, which may have an effect on 

competition and liquidity. 

the accompanying Appendix, the 

Commission believes that there are few 

U.S. Guaranteed Entities at this time.153

Accordingly, the Commission believes 

that, in this respect, any increase in 

costs associated with the Proposed Rule 

would be small. 

b. Foreign Consolidated Subsidiaries 

Under the proposed rule, a Foreign 

Consolidated Subsidiary would include 

all of its swap dealing transactions in its 

de minimis threshold calculation 

without exception. The Guidance did 

not differentiate FCSs from Other NonU.S. Persons, and therefore FCSs would 

generally only include in their de 

minimis threshold calculations their 

swap dealing transactions with U.S. 

persons (excluding foreign branches of 

U.S. SDs) and with certain guaranteed 

affiliates.154

However, as noted in section II.B, the 

Commission believes that it would be 

appropriate to distinguish FCSs from 

Other Non-U.S. Persons in determining 

the cross-border application of the SD 

de minimis threshold to such entities, as 

well as with respect to the Dodd-Frank 

swap provisions more generally. As 

discussed above, by virtue of the close 

integration between the FCS and its U.S. 

ultimate parent, counterparties look to 

both the FCS and its U.S. parent for 

fulfillment of the FCS’s obligations 

under the swap, even without any 

explicit guarantee. Therefore, the 

Commission believes that it is 

appropriate to require FCSs to include 

all of their swap dealing transactions in 

their SD de minimis calculation. In 

addition, allowing an FCS to exclude 

non-U.S. swap dealing transactions from 

its calculation could incentivize U.S. 

financial groups to book their non-U.S. 

dealing transactions into an FCS, 

avoiding swap regulation. 

Under the Proposed Rule, the FCS 

definition is used to distinguish nonU.S. persons with a U.S. ultimate parent 

entity from Other Non-U.S. Persons for 

purposes of determining how DoddFrank swap provisions should apply. 

The full market impact of the Proposed 

Rule’s shift of some non-U.S. persons to 

FCSs cannot be determined at this time 

in the absence of further rulemakings 

addressing the cross-border application 

of substantive requirements under the 

Dodd-Frank Act. However, to the extent 

that future cross-border rulemakings 

apply more stringent requirements to 

swap transactions with FCSs, non-U.S. 

counterparties may seek to avoid 

transacting with such dealers, 

fragmenting swaps market liquidity into 

two pools—one for U.S. persons and 

FCSs and the other for non-U.S. persons 

(that are not FCSs). Nevertheless, as 

discussed above, the Commission 

believes that the proposal to require 

FCSs to include all of their swap dealing 

activity in their de minimis threshold 

calculations is necessary and 

appropriate to ensure the policy 

objectives of the Dodd-Frank Act are 

preserved and not undermined by a 

substantial regulatory loophole. 

c. Other Non-U.S. Persons 

Under the proposed rule, Other NonU.S. Persons would be required to 

include in their de minimis threshold 

calculations swap dealing activities 

with U.S. persons (including foreign 

branches of U.S. SDs), U.S. Guaranteed 

Entities, and FCSs. The proposed rule 

would not, however, require Other NonU.S. Persons to include swap dealing 

transactions with Other Non-U.S. 

Persons. Additionally, Other Non-U.S. 

Persons would not be required to 

include in their de minimis calculation 

any transaction that is executed 

anonymously on a SEF, DCM, or FBOT 

and cleared. 

The Commission believes that 

requiring Other Non-U.S. Persons to 

include their swap dealing transactions 

with U.S. persons in their de minimis 

calculations is necessary to advance the 

goals of the Dodd-Frank SD registration 

regime, which focuses on U.S. market 

participants and the market. As 

discussed above, the Commission 

considered incorporating an exception 

from the Guidance allowing non-U.S. 

persons to exclude from their de 

minimis thresholds transactions with 

foreign branches of U.S. SDs but 

determined that, given the integral 

nature of the foreign branch to a U.S. 

person, such an exception would create 

a potentially significant regulatory 

loophole, allowing a substantial amount 

of dealing activity with U.S. 

counterparties to occur outside the 

comprehensive Dodd-Frank swap 

regime. 

Under the proposed rule, Other NonU.S. Persons would not be required to 

include any swap dealing transactions 

with Other Non-U.S. Persons in their SD 

de minimis threshold calculations, 

including ANE transactions. Although a 

non-U.S. person that engages in ANE 

transactions is performing dealing 

activity in the United States, the 

Commission does not believe that 

requiring non-U.S. persons to include 

ANE transactions in their de minimis 

threshold calculations would be 

necessary to advance the policy 

objectives of the Dodd-Frank swap 

regime when taking the Proposed Rule 

in context, particularly the proposal to 

require FCSs to include all of their swap 

dealing transactions in their de minimis 

threshold calculations. 

The Commission recognizes that the 

proposed rule’s cross-border approach 

to the de minimis threshold calculation 

could contribute to competitive 

disparities arising between U.S.-based 

financial groups and non-U.S. based 

financial groups. Potential SDs that are 

U.S. persons or that have a U.S. ultimate 

parent entity (FCSs) would be required 

to include all of their swap transactions. 

In contrast, potential non-U.S. SDs with 

a non-U.S. ultimate parent entity whose 

obligations under the relevant swap are 

not subject to a U.S. guarantee (Other 

Non-U.S. Persons) would be permitted 

to exclude swaps with Other Non-U.S. 

Persons, including ANE transactions. As 

a result, potential SDs with a U.S. 

ultimate parent entity may be at a 

competitive disadvantage, as more of 

their swap activity would apply toward 

the de minimis threshold and trigger the 

SD registration threshold relative to 

Other Non-U.S. Persons. To the extent 

that a currently unregistered non-U.S. 

person would be required to register as 

an SD under the proposed rule, its nonU.S. counterparties (clients and dealers) 

may possibly cease transacting with it in 

order to operate outside the Dodd-Frank 

swap regime.155 Additionally, 

unregistered non-U.S. dealers may be 

able to offer swaps on more favorable 

terms to non-U.S. counterparties than 

U.S. competitors (i.e., U.S. SDs, FCSs, 


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156These non-U.S. dealers also may be able to 

offer swaps on more favorable terms to U.S. 

persons, giving them a competitive advantage over 

U.S. competitors with respect to U.S. 

counterparties. 

157 In addition, the Commission considered 

whether to include an exclusion similar to that 

discussed in the Guidance (which provides that 

non-U.S. persons that are not ‘‘guaranteed 

affiliates’’ generally could exclude from their MSP 

threshold calculations swap positions with either a 

foreign branch of a U.S. SD or a guaranteed affiliate 

that is an SD if either (i) the potential non-U.S. MSP 

is a non-financial entity or (ii) the potential nonU.S. MSP is a financial entity and the swap is either 

cleared or the swap documentation requires the 

foreign branch or guaranteed affiliate to collect 

daily variation margin with no threshold). Although 

including corollary exclusions in the Proposed Rule 

might result in reduced compliance costs, the 

Commission preliminarily believes that such 

exclusions are unnecessary and inappropriate for 

the reasons discussed above. See note 106, supra. 

The Commission further does not believe that the 

decision not to include such an exception would 

result in any new MSPs. The Commission is also 

seeking comment in section V with regard to 

whether to adopt the SEC approach of not requiring 

a non-U.S. person to include in its MSP threshold 

calculations any swap positions for which they (as 

opposed to the non-U.S. person’s counterparty) 

benefit from a guarantee creating a right of recourse 

against a U.S. person. See note 113, supra, and 

accompanying text. 

158See also note 157, supra. 159Although the cross-border approach to the 

MSP registration threshold calculation in the 

Proposed Rule is not identical to the approach 

included in the Guidance, see note 106, supra, the 

Commission believes that any resulting increase in 

monitoring costs resulting from the Proposed Rule 

would be incremental and de minimis. 

160Although the Guidance provided that non-U.S. 

persons (that are not guaranteed or conduit 

affiliates) should generally include all of their swap 

dealing transactions with U.S. persons (excluding 

foreign branches of a U.S. SD) as well as swaps with 

certain guaranteed affiliates in their de minimis 

threshold calculations, the Commission 

understands that at the current time guaranteed 

affiliates, as defined in the Guidance, likely no 

longer exist or are few in number. 

161See section VII.C.1, supra, for a discussion of 

assessment costs. 

162See Registration of Swap Dealers and Major 

Swap Participants, 77 FR 2613, 2623–25 (Jan. 19, 

2012). 

and U.S. Guaranteed Entities) because 

they are not required to register (and 

therefore would not be subject to the 

Dodd-Frank swap dealer regime).156 As 

noted above, however, the Commission 

believes that these competitive 

disparities would be mitigated to the 

extent that foreign jurisdictions impose 

comparable requirements. Furthermore, 

the Commission reiterates its belief that 

the cross-border approach to the SD 

registration threshold taken in the 

Proposed Rule is appropriately tailored 

to further the policy objectives of the 

Dodd-Frank Act while mitigating 

unnecessary burdens and disruption to 

market practices to the extent possible. 

3. Cross-Border Application of the Major 

Swap Participant Registration 

Thresholds 

As described in section V, the 

Proposed Rule would approach the 

cross-border application of the MSP 

registration thresholds in a similar 

manner as the SD de minimis 

registration threshold. Specifically, the 

proposed rule would require U.S. 

persons, U.S. Guaranteed Entities, and 

FCSs to include all of their swap 

positions in their MSP calculations 

without exception. As further explained 

in section V, in the Commission’s view 

this result is appropriate because the 

Commission believes that swap 

positions with U.S. persons, U.S. 

Guaranteed Entities, and FCSs can in 

each case have a significant effect on the 

U.S. financial system and therefore 

should be treated in a similar manner 

for purposes of the MSP registration 

calculation. 

For related reasons discussed in 

section V.B, the proposed rule would 

also require Other Non-U.S. Persons to 

include in their MSP calculations all of 

their swap positions with U.S. persons, 

U.S. Guaranteed Entities, and FCSs, 

with a limited exception for transactions 

executed anonymously on a SEF, DCM, 

or FBOT and cleared. The Commission 

believes that swap positions with U.S. 

persons, U.S. Guaranteed Entities, and 

FCSs can in each case have a significant 

effect on the U.S. financial system and 

therefore should be treated in a similar 

manner.157 Other Non-U.S. Persons 

would not, however, be required to 

include swap positions with Other NonU.S. Persons in their MSP calculations, 

as the Commission does not believe 

these swaps would present the type of 

risk to the U.S. financial system that the 

MSP definition and registration 

requirements are intended to address. 

The Commission notes that no entities 

are currently registered as MSPs. The 

Commission also does not believe that 

the proposed cross-border approach to 

the MSP registration thresholds would 

result in significant costs to market 

participants compared to the status quo 

(i.e., would not cause any market 

participants to register as MSPs) given 

the general similarities between the 

proposed rule’s approach to the MSP 

registration threshold calculations and 

the corollary approach provided in the 

Guidance.158

4. Monitoring Costs 

Under the proposed rule, market 

participants would need to continue to 

monitor their swap activities in order to 

determine whether they are, or continue 

to be, required to register as an SD or 

MSP. Given that market participants are 

believed to have developed policies and 

practices consistent with the crossborder approach to the SD/MSP 

registration thresholds expressed in the 

Guidance, the Commission believes that 

market participants would only incur 

incremental costs in modifying their 

existing systems and policies and 

procedures in response to the proposed 

rule (e.g., determining which swaps 

activities or positions would be required 

to be included in the registration 

threshold calculations).159

For example, the Commission notes 

that FCSs are likely to have adopted 

policies and practices in line with the 

Guidance approach to non-U.S. persons 

that are not guaranteed or conduit 

affiliates and therefore may only be 

currently counting (or be provisionally 

registered by virtue of) their swap 

dealing transactions with U.S. persons, 

other than foreign branches of U.S. 

SDs.160 Although an FCS would be 

required under the proposed rule to 

include all swaps connected with its 

dealing activities in its de minimis 

calculation, without exception, the 

Commission believes that any increase 

in monitoring costs for FCSs would be 

de minimis, both initially and on an 

ongoing basis, because they already 

have systems that track swap dealing 

transactions with certain counterparties 

in place, which includes an assessment 

of their counterparties’ status.161

5. Registration Costs 

As a result of the proposed rule’s 

classification scheme for market 

participants (e.g., as U.S. persons, FCSs, 

U.S. Guaranteed Entities, and Other 

Non-U.S. Persons, as described above) 

and the proposed requirement that they 

apply the SD registration threshold 

accordingly, the Commission recognizes 

that some market participants would be 

required to register as SDs with the 

Commission who were previously not 

required to register. In considering the 

costs and benefits of the proposed rule, 

the Commission has estimated that 

approximately 14 unregistered non-U.S. 

persons may be required to register as 

SDs as a result of the proposed rule. The 

basis for this estimated increase in the 

number of SDs is discussed below in the 

accompanying Appendix. The 

Commission previously estimated 

registration costs in its rulemaking on 

registration of SDs; 162 however, the 

costs that may be incurred should be 

mitigated to the extent that these new 

SDs are affiliated with an existing SD, 

as most of these costs have already been 

realized by the consolidated group. The 

Commission has not included any 

discussion of registration costs for MSPs 

because it believes that few (if any) 

market participants will be required to 


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163As noted above, the Commission believes that, 

if the Proposed Rule is adopted, few (if any) market 

participants would be required to register as an 

MSP under the Proposed Rule, and therefore it has 

not included a separate discussion of programmatic 

costs for registered MSPs in this section. 

164As discussed below in the accompanying 

Appendix, the Commission has estimated that out 

of a total of 54 provisionally registered non-U.S. 

SDs entities, 17 would be classified as an FCS 

under the Proposed Rule. 

165See Business Conduct Standards for Swap 

Dealers and Major Swap Participants With 

Counterparties, 77 FR 9734 (Feb. 17, 2012). The 

Commission’s discussion of cost-benefit 

considerations is at 77 FR at 9805–22. 

166See 17 CFR 23.410. 

167See 17 CFR 23.433. 

168Under the approach described in the 

Guidance, non-U.S. SD/MSPs and foreign branches 

of U.S. SD/MSPs generally would not comply with 

the business conduct standards to the extent that 

their counterparty is a foreign branch of a U.S. SD/ 

MSP or a non-U.S. person. 

register as an MSP under the Proposed 

Rule, as noted above. 

6. Programmatic Costs 

As noted above, if the proposed rule 

is adopted, certain market participants 

would likely be required to register as 

SDs and would become subject to 

various requirements imposed on swap 

dealers under the Dodd-Frank Act and 

related Commission’s regulations. To 

the extent that the proposed rule acts as 

a ‘‘gating’’ rule by affecting which 

entities engaged in cross-border swaps 

activities must comply with the SD 

requirements, the Proposed Rule could 

result in increased costs for particular 

entities that otherwise would not 

register as an SD and comply with the 

swap provisions.163

Market participants that are already 

registered (or provisionally registered) 

as SDs or MSPs prior to adoption of the 

proposed rule (if it is adopted) could 

also be affected by the proposal. In 

particular, the Commission is proposing 

rules that would define certain key 

terms for purposes of the Dodd-Frank 

swaps provisions (including future 

cross-border rulemakings). Therefore, 

the proposal could affect the treatment 

of market participants that are already 

registered (or provisionally registered) 

across the Commission’s entire crossborder framework and attendant costs 

and benefits in addition to those that are 

registering for the first time. The 

proposal also addresses the cross-border 

application of the Commission’s 

external business conduct standards, 

including the extent to which such 

requirements would apply to swap 

transactions that are arranged, 

negotiated, or executed by registered 

SDs or MSPs using personnel located in 

the United States. 

Further, as a result of the proposed 

rule, certain other market participants 

would be categorized differently under 

the proposal than they were under the 

Guidance, which could affect how they 

are treated across the Commission’s 

entire cross-border framework and 

attendant costs and benefits.164

Although the exact treatment of market 

participants across the Commission’s 

cross-border framework is not set out in 

this proposal, the Commission will 

address specific costs that market 

participants will incur in each specific 

future rulemaking. 

7. Cross-Border Application of External 

Business Conduct Requirements 

As discussed in section VI above, the 

proposed rule addresses the crossborder application of the Commission’s 

external business conduct standards to 

transactions in which at least one of the 

counterparties is an SD/MSP, including 

the extent to which they would apply to 

ANE transactions. Under the proposed 

rule, U.S. SD/MSPs (other than foreign 

branches of U.S. SD/MSPs) would be 

required to comply with the 

Commission’s external business conduct 

standards without substituted 

compliance. As discussed above, this 

requirement reflects the Commission’s 

view that the Dodd-Frank external 

business conduct standards should 

apply fully to registered SDs and MSPs 

domiciled and operating in the United 

States because their swap activities are 

particularly likely to affect the integrity 

of the swaps market in the United States 

and raise concerns about the protection 

of participants in those markets. The 

Commission does not expect that this 

requirement would impose any 

additional costs on market participants 

in comparison to the status quo given 

that the Commission’s external business 

conduct standards already apply to U.S. 

SD/MSPs under the Commission’s 

external business conduct standards 

rulemaking.165

Non-U.S. SD/MSPs and foreign 

branches of U.S. SD/MSPs would only 

be required to comply with the external 

business conduct standards if (1) the 

counterparty is a U.S. person (other than 

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

(2) a non-U.S. SD or foreign branch of 

a U.S. SD uses personnel located in the 

United States to arrange, negotiate, or 

execute the transaction (or a swap that 

is offered but not entered into), in which 

case the antifraud 166 and fair dealing 167

requirements would apply. The 

proposal to require non-U.S. SD/MSPs 

and foreign branches of U.S. SD/MSPs 

to comply with the external business 

conduct standards where the 

counterparty is a U.S. person (other than 

a foreign branch of a U.S. SD/MSP) 

reflects the Commission’s recognition 

that the Dodd Frank Act’s counterparty 

protection mandate focuses on 

protecting U.S. market participants, 

such that the external business 

requirements should apply fully to U.S. 

persons without substituted compliance 

regardless of the location from which 

the SD/MSP may be operating. The 

exception for counterparties that are 

foreign branches of U.S. SD/MSPs 

reflects the Commission’s belief that, 

even though the foreign branch is an 

integral part of the U.S. SD/MSP, a 

foreign regulatory regime may have a 

heightened interest in enforcing its own 

sales practice requirements to 

transactions occurring within its 

jurisdiction. Furthermore, this limited 

exception should reduce competitive 

disparities between such foreign 

branches and FCSs when transacting 

with non-U.S. clients. Again, the 

Commission does not expect that, in 

this regard, the proposed rule would 

impose any additional costs on market 

participants in comparison to the status 

quo, particularly given that the 

proposed rule does not significantly 

deviate from the Commission’s existing 

cross-border policy in this respect, as 

described in the Guidance.168

The proposed rule goes beyond the 

scope of the Guidance, however, by 

making clear that non-U.S. SDs and 

foreign branches of U.S. SDs would be 

required to comply with the antifraud 

and fair dealing external business 

conduct standards with respect to ANE 

transactions. This requirement would 

therefore impose additional compliance 

costs relative to the status quo not only 

on existing non-U.S. SDs and foreign 

branches of U.S. SDs, which likely 

currently do not comply with the 

external business conduct standards 

with respect to their transactions with 

non-U.S. persons or foreign branches of 

U.S. SD/MSPs, but any non-U.S. 

persons that are required to register by 

virtue of the proposed rule’s approach 

to the SD registration threshold. As 

discussed above, where swaps are 

arranged, negotiated or executed in the 

United States, the Commission has a 

strong supervisory interest both in 

protecting involved counterparties 

against fraud, manipulation and other 

abusive practices of an SD and in 

requiring that the SD communicate in a 

fair and balanced manner with these 

counterparties based on principles of 

fair dealing and good faith. Taking the 

proposed rule as a whole, however, the 

Commission does not believe that 

application of the remaining external 

business conduct standards would be 

necessary to advance the goals of the 


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Dodd-Frank Act. Accordingly, by 

limiting application of the external 

business conduct standards to ANE 

transactions to the antifraud and fair 

dealing requirements, the Proposed Rule 

is appropriately tailored to ensure a 

basic level of counterparty protections 

while, consistent with the principles of 

international comity, recognizing the 

supervisory interests of the relevant 

foreign jurisdictions in applying their 

own sales practices requirements to 

transactions involving counterparties 

that are non-U.S. persons (or foreign 

branches of U.S. SD/MSPs) and 

avoiding potentially unnecessarily 

duplicative requirements. 

8. Section 15(a) Factors 

Section 15(a) of the CEA requires the 

Commission to consider the costs and 

benefits of its actions before 

promulgating a regulation under the 

CEA or issuing certain orders. Section 

15(a) further specifies that the costs and 

benefits shall be evaluated in light of 

five broad areas of market and public 

concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness, and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission considers the costs and 

benefits resulting from its discretionary 

determinations with respect to the 

section 15(a) factors. 

a. Protection of Market Participants and 

the Public 

The Commission believes the 

proposed rule would support protection 

of market participants and the public. 

By focusing on and capturing swap 

dealing transactions and swap positions 

involving U.S. persons and non-U.S. 

persons with a strong nexus to the 

United States (e.g., FCSs and U.S. 

Guaranteed Entities), the Proposed 

Rule’s approach to the cross-border 

application of the SD and MSP 

registration threshold calculations 

works to ensure that, consistent with 

CEA section 2(i) and the policy 

objectives of the Dodd-Frank Act, 

significant participants in the U.S. 

market are subject to the CEA’s swap 

regime. The proposed cross-border 

approach to the external business 

conduct standards, including applying 

the antifraud and fair dealing 

requirements to ANE transactions, 

similarly ensures that the Dodd-Frank 

market protections apply to swap 

activities that are particularly likely to 

affect the integrity of and raise concerns 

about the protection of participants in 

the U.S. market while, consistent with 

principles of international comity, 

recognizing the supervisory interests of 

the relevant foreign jurisdictions in 

applying their own sales practices 

requirements to transactions involving 

non-U.S. SD/MSPs and foreign branches 

of U.S. SD/MSPs with non-U.S. persons 

and foreign branches of U.S. SD/MSPs. 

b. Efficiency, Competitiveness, and 

Financial Integrity of the Markets 

To the extent that the proposed rule 

leads additional entities to register as 

SDs, the Commission believes that the 

proposed rule could enhance the 

financial integrity of the markets by 

bringing significant U.S. swaps market 

participants under Commission 

oversight, which may reduce market 

disruptions and foster confidence and 

transparency in the U.S. market. The 

Commission recognizes that the 

Proposed Rule’s cross-border approach 

to the SD and MSP registration 

thresholds may create competitive 

disparities among market participants, 

based on the degree of their connection 

to the United States, that could 

contribute to market inefficiencies, 

including market fragmentation and 

decreased liquidity, as certain market 

participants may reduce their exposure 

to the U.S. market. As a result of 

reduced liquidity, counterparties may 

pay higher prices, in terms of bid-ask 

spreads (or in the case of swaps, the cost 

of the swap and the cost to hedge). Such 

competitive effects and market 

inefficiencies may, however, be 

mitigated by global efforts to harmonize 

approaches to swap regulation and by 

the large inter-dealer market, which may 

link the fragmented markets and 

enhance liquidity in the overall market. 

On balance, the Commission believes 

that the proposed rule’s approach is 

necessary and appropriately tailored to 

ensure that the purposes of the DoddFrank swap regime and its registration 

requirements are advanced while still 

establishing a workable approach that 

recognizes foreign regulatory interests 

and minimizes competitive disparities 

and market inefficiencies to the degree 

possible. The Commission further 

believes that the proposed rule’s crossborder approach to the external business 

conduct standards will promote the 

financial integrity of the markets by 

fostering transparency and confidence 

in the major participants in the U.S. 

swap markets. 

c. Price Discovery 

The Commission recognizes that the 

proposed rule’s approach to the crossborder application of the SD and MSP 

registration thresholds could also have 

an effect on liquidity, which may in 

turn influence price discovery. As 

liquidity in the swaps market is 

lessened and fewer dealers compete 

against one another, bid-ask spreads 

(cost of swap and cost to hedge) may 

widen and the ability to obtain the ‘true’ 

price of a swap may be hindered. 

However, as noted above, these negative 

effects would be mitigated as 

jurisdictions harmonize their swaps 

initiative and global financial 

institutions continue to manage their 

swaps books (i.e., moving risk with little 

or no cost, across an institution to 

market centers, where there is the 

greatest liquidity). The Commission 

does not believe that the proposed rule’s 

approach to the external business 

conduct standards, however, will have a 

measurable impact on price discovery. 

d. Sound Risk Management Practices 

The Commission believes that the 

proposed rule’s approach could promote 

the development of sound risk 

management practices by ensuring that 

significant participants in the U.S. 

market are subject to Commission 

oversight (via registration), including in 

particular important counterparty 

disclosure and recordkeeping 

requirements that will encourage 

policies and practices that promote fair 

dealing while discouraging abusive 

practices in U.S. markets. 

e. Other Public Interest Considerations 

The Commission has not identified 

any public interest considerations 

related to the costs and benefits of the 

proposed rule. 

Request for Comment. The 

Commission invites comment on all 

aspects of the costs and benefits 

associated with the proposed rule, 

including the following: 

1. Is the Commission’s assumption 

that few, if any, market participants will 

be required to register as MSPs as a 

result of the proposed rule (as compared 

to the status quo) correct? If not, please 

provide an estimate of the number of 

market participants that are likely to 

have to register as MSPs as a result of 

the proposed rule, including an 

explanation for the basis of the estimate, 

and associated costs and benefits of the 

Proposed Rule’s provisions for MSPs 

(including potential MSPs). 

2. The Commission preliminarily 

believes that a requirement that Other 

Non-U.S. Persons include ANE 

transactions in their SD registration 

threshold calculations would not be 

likely to increase the scope of entities 

that would be covered under its swap 

requirements, but may result in 

significant burdens. Is that belief 

correct? If not, please provide an 


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169Additional sources are referenced below. See 

note 174, infra. 

170There may be a decrease in the number of 

funds or other entities that fall within the U.S. 

person definition as compared to the Guidance 

because the proposed U.S. person definition does 

not include the U.S. majority-owned funds 

provision or the catchall provision that were 

included in the U.S. person interpretation in the 

Guidance, and the Commission is clarifying that the 

proposed definition does not capture international 

financial institutions. On the other hand, because 

the unlimited U.S. responsibility prong does not 

include a majority ownership requirement (in a 

modification from the Guidance), this could 

increase the number of entities that fall within the 

U.S. person definition resulting in a concomitant 

increase in the number of SDs as compared to the 

Guidance. In addition, the Commission is not 

providing a safe harbor for funds that are only 

solicited to non-U.S. persons, which is a difference 

from the policy discussed in the Guidance. 

Therefore, overall the Commission does not expect 

any increase in the number of SDs resulting from 

changes to the U.S. person definition. 

171As explained in the preamble, the Commission 

believes that there are few U.S. Guaranteed Entities 

at this time. See note 153, supra. Accordingly, the 

Commission does not expect an increase in the 

number of new SDs that would be required to 

register as a result of the Proposed Rule’s 

requirement that a U.S. Guaranteed Entity include 

all of its swaps in its SD de minimis calculation. 

172The Commission is unable to quantify certain 

swaps that may fall under the Proposed Rule. 

Specifically, there are dealing transactions entered 

into by potential FCSs with non-U.S. counterparties 

that would be included in the SD de minimis 

calculation of potential FCSs in this rulemaking 

that are not reported. Therefore, an estimate based 

solely on the SDR data for inter-affiliate trades 

would be under-inclusive because it only covers 

inter-affiliate trades between potential FCSs and 

their affiliated U.S. SDs. Accordingly, as detailed 

below, the Commission has scaled the inter-affiliate 

trade data to the global swaps market. 

173The Commission understands that risk may 

move in either direction in an inter-affiliate trade, 

and therefore, the Commission’s use of SDR data on 

inter-affiliate trades between a potential FCS and an 

affiliated U.S. SD may also be over-inclusive in 

estimating the number of SDs. However, for the 

reasons discussed in this section, the Commission 

believes that SDR data on potential FCSs’ interestimate of the potential costs and 

benefits associated with including such 

a requirement? 

3. The Commission invites 

information regarding whether and the 

extent to which specific foreign 

requirement(s) may affect the costs and 

benefits of the proposed rule, including 

information identifying the relevant 

foreign requirement(s) and any 

monetary or other quantitative estimates 

of the potential magnitude of those costs 

and benefits. 

4. The Commission is estimating that 

17 currently registered non-U.S. SDs 

would be classified as FCSs and that 14 

unregistered non-U.S. persons may be 

classified as FCSs and required to 

register as new SDs because their swap 

dealing transactions are in excess of the 

SD de minimis threshold. The basis for 

these estimates is set forth below in the 

accompanying Appendix. The 

Commission seeks comments regarding 

its estimates of the scope and number of 

market participants potentially affected 

by the proposed rule, including its 

methodology for arriving at the 

estimates in the Appendix to Cost 

Benefit Considerations. 

9. Appendix to Cost-Benefit 

Considerations 

In this Appendix, the Commission 

explains its methodology for estimating, 

as a result of the proposed rule, the 

number of new entities that may be 

required to register with the 

Commission as SDs and the number of 

currently registered non-U.S. SDs that 

would be classified as an FCS. In 

arriving at this estimate, the 

Commission relied on SDR data and 

other data sources.169 However, the 

Commission faced a number of 

challenges in conducting a quantitative 

analysis. In particular, the Commission 

does not have SDR data on trades 

between two non-U.S. persons, and its 

estimate with regard to the number of 

non-U.S. persons that may be required 

to register as SDs by virtue of being 

FCSs is based on certain assumptions 

and adjustments, as explained further 

below. 

a. Estimates Regarding U.S. Persons and 

U.S. Guaranteed Entities 

The Commission is estimating that 

overall there will not be an increase in 

the number of persons that will be 

required to register as U.S. SDs as a 

result of the proposed rule, as the 

proposed rule’s approach to the swaps 

of U.S. persons mirrors the approach in 

the Guidance (i.e., all swap dealing 

transactions must be included). 

Furthermore, the Commission does not 

expect any increase in the number of 

SDs resulting from changes to the U.S. 

person definition.170

The Commission is also estimating 

that there will be no increase in the 

number of new SDs that are U.S. 

Guaranteed Entities, as the proposed 

rule uses a narrower definition of a 

guarantee (compared to the Guidance), 

which the Commission believes will 

result in few, if any, U.S. Guaranteed 

Entities.171 Therefore, for purposes of 

this cost-benefit analysis, the 

Commission estimates that currently 

there are no U.S. Guaranteed Entities 

(that are not FCSs) with over $8 billion 

in swaps dealing transactions. 

b. Estimates Regarding Foreign 

Consolidated Subsidiaries 

If the proposed rule is adopted, the 

Commission estimates that 17 currently 

registered non-U.S. SDs would be 

classified as FCSs and that 14 

unregistered non-U.S. persons may be 

classified as FCSs and required to 

register as new SDs because their swap 

dealing transactions are in excess of the 

SD de minimis threshold. The basis for 

these estimates is set forth below. 

(1) Estimate of the Number of Non-U.S. 

Swap Dealers That Would Be Classified 

as FCSs 

In estimating the number of SDs that, 

as a result of the proposed rule, would 

shift from a category of non-U.S. SDs to 

the new category, FCS, the Commission 

reviewed its current list of registered 

SDs. As the definition of an FCS is 

dependent on whether the SD is a nonU.S. person that has an ultimate U.S. 

parent entity, the Commission was able 

to isolate those entities from a list of 

non-U.S. SDs. From this list, the 

Commission estimated that out of a total 

of 54 provisionally registered non-U.S. 

SDs, 17 would be classified as an FCS 

under the proposed rule. 

(2) Estimate of Potential FCSs That May 

Be Required To Register as Swap 

Dealers 

The Commission estimates that 

approximately 14 unregistered non-U.S. 

persons with a U.S. ultimate parent 

entity under U.S. GAAP (‘‘potential 

FCSs’’) may be required to register as 

SDs as a result of the proposed rule. The 

Commission does not currently collect 

data on trades between non-U.S. 

persons (including those of potential 

FCSs with non-U.S. persons). Therefore, 

in estimating the number of potential 

FCSs that may be required to register as 

SDs, the Commission relied on SDR data 

regarding inter-affiliate trades between 

potential FCSs and their affiliated U.S. 

SDs (‘‘inter-affiliate trades’’). 

The Commission believes that SDR 

data on inter-affiliate trades provide a 

reasonable basis upon which to estimate 

the outward-dealing trades of potential 

FCSs with non-U.S. persons, provided 

that the estimate is scaled to the global 

swap market (as detailed below).172 As 

described in section I.B, global financial 

groups commonly carry out swap 

dealing activities in multiple 

jurisdictions through branches or 

affiliates that effectively operate as a 

single business under the control of the 

ultimate parent entity. Under this 

model, where a non-U.S. branch or 

affiliate in the global financial group 

enters into a swap with a non-U.S. 

client in a local market, it will then 

offset the risk associated with the 

outward-facing swap via an interaffiliate swap, which is likely to be with 

an affiliated dealer or market maker in 

the particular swap in the group.173


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affiliate swaps with affiliated U.S. SDs is much 

more likely to be under-inclusive as a means of 

estimating the number of potential FCSs that would 

be required to register as a result of the Proposed 

Rule. 174The factor of 2 that the Commission is using 

to scale the data upon which it is basing its estimate 

to the global swaps market is based on the inverse 

of the 57% scaling factor used in the cost-benefit 

analysis for the Commission’s Final Margin Rule, 

rounded up to 2. In the Final Margin Rule, the 

Commission applied a 57% scale factor to the 

global notional amount of margin estimated in ISDA 

and BCBS–IOSCO surveys in order to better align 

its estimate of the global impact of margin 

requirements for uncleared swaps with the impact 

of the U.S. rules. The Commission utilized SDR 

data on uncleared interest rate swaps, which 

represent the majority of the notional value 

associated with uncleared swaps, to compute the 

57% scale factor. The 57% scale factor was 

designed to represent the notional amount of 

uncleared interest rate swaps reported to the SDRs 

as a fraction of the global notional amount of 

uncleared interest rate swaps. See Final Margin 

Rule, 81 FR at 690–91 (Appendix A). 175The Commission believes that any increase in 

the number of Other Non-U.S. SDs that are required 

to register as an SD as a result of the proposed rule’s 

requirement that an Other Non-U.S. Person include 

swaps with a U.S. Person in its SD de minimis 

calculation would be de minimis because the 

Guidance expresses a similar policy. Under the 

Guidance, non-U.S. persons that are not guaranteed 

or conduit affiliates generally include swaps with 

U.S. persons, excluding foreign branches of U.S. 

SDS, in their SD de minimis calculation. To the 

extent this reflects current industry practice, the 

Commission believes that few, if any, additional 

Other Non-U.S. Persons would be required to 

register as SDs as a result of deviation from the 

Guidance by the proposed rule with regard to 

counting swaps with U.S. persons. 

In addition, as explained in the preamble, the 

Commission believes that there are few U.S. 

Guaranteed Entities at this time. See note 153, 

supra. Accordingly, the Commission does not 

expect an increase in the number of new SDs that 

would be required to register as a result of the 

proposed rule’s requirement that an Other Non-U.S. 

Person include swaps with a U.S. Guaranteed Entity 

in its SD de minimis calculation. 

Accordingly, the Commission believes 

that inter-affiliate trades provide a 

reasonable means of estimating a 

substantial portion of a potential FCS’s 

outward-facing swap dealing with nonU.S. counterparties. 

However, there is an important 

limitation on the use of this interaffiliate data which is likely to cause it 

to be under-inclusive as a proxy for the 

outward-facing trades of these potential 

FCSs with non-U.S. persons, as the 

Commission’s SDR data only includes 

swaps that are between a potential FCS 

and an affiliated U.S. SD. Potential FCSs 

may also transfer the risk of some of 

their outward-facing dealing activities to 

affiliated non-U.S. SDs located in 

market centers outside the United States 

(e.g., London and Tokyo) or retain the 

risk in their dealer portfolio (and an FCS 

must count all of its outward-facing 

dealing transactions toward its SD de 

minimis threshold under the proposed 

rule). Consequently, the Commission 

believes that using SDR data on interaffiliate trades (which only includes a 

potential FCS’s inter-affiliate swaps 

with an affiliated U.S. SD) as a proxy for 

swap dealing between a potential FCS 

and non-U.S. persons is likely to be 

under-inclusive. Therefore, the 

Commission has scaled the SDR data on 

inter-affiliate trades between a potential 

FCS and an affiliated U.S. SD to the 

global swaps market by applying a 

factor of 2 (which represents the 

approximate ratio between total U.S. 

swaps market and that of the global 

swaps market),174 in order to estimate 

the number of potential FCSs that may 

be required to register as SDs as a result 

of the proposed rule. 

Based on the foregoing assumptions, 

the Commission obtained SDR data on 

inter-affiliate swaps for each potential 

FCS with affiliated U.S. SDs during the 

period between March 5, 2015 and 

March 4, 2016 (the ‘‘Reference Period’’). 

Because this inter-affiliate trade data 

only includes open trades as of the end 

of the Reference Period (i.e., trades that 

were closed out during the Reference 

Period are not accounted for in the 

data), the Commission used a $1 billion 

notional amount as a screening 

threshold to identify those potential 

FCSs that may be required to register as 

an SD under the proposed rule, rather 

than the current $8 billion SD de 

minimis threshold. Seven of the nonU.S. persons identified as potential 

FCSs had inter-affiliate trades with U.S. 

SDs that exceeded this $1 billion 

screening threshold. The Commission 

then multiplied its estimate of 7 by a 

scaling factor of 2 (as described above) 

to estimate that approximately 14 

potential FCSs may be required to 

register as SDs as a result of the 

proposed rule. 

c. Other Non-U.S. Persons 

The Commission is unable to estimate 

the number of new SDs that may be 

required to register as a result of the 

proposed rule’s requirement that an 

Other Non-U.S. Person include swaps 

with an FCS for SD registration 

threshold purposes due to the lack of 

SDR data regarding transactions 

between non-U.S. persons. The 

Commission also is not estimating the 

number of new SDs that may be 

required to register as a result of the 

proposed rule’s requirement that an 

Other Non-U.S. Person include swaps 

with a U.S. Person or U.S. Guaranteed 

Entity in its SD de minimis registration 

threshold. The Commission believes 

that few, if any, additional Other NonU.S. Persons would be required to 

register as an SD as a result of changes 

made by the proposed rule (as compared 

to the Guidance) with respect to either 

U.S. persons or U.S. Guaranteed 

Entities.175

As noted above, the Commission 

requests comment regarding its 

estimates of the scope and number of 

market participants potentially affected 

by the proposed rule, including its 

methodology for arriving at the 

estimates included in this Appendix. 

VIII. Preamble Summary Tables 

TABLE A—CROSS-BORDER APPLICATION OF THE SWAP DEALER DE MINIMIS THRESHOLD

[Table A should be read in conjunction with the text of the proposed rule] 

Counterparty → Non-U.S. person 

U.S. Person U.S. Guaranteed Other Non-U.S. 

Potential SD ↓ entity 1/FCS person 

U.S. Person ..................................................................... Include ............................... Include ............................... Include. 

Non-U.S. Person: 

U.S. Guaranteed Entity 1/FCS .................................. Include ............................... Include ............................... Include. 

Other Non-U.S. Person ............................................ Include 2 ............................. Include 2 ............................. Exclude. 

1A non-U.S. person that is a U.S. Guaranteed Entity with respect to a swap would include the swap in its de minimis calculation if its swap 

counterparty has rights of recourse against a U.S. person with respect to its obligations under the swap. 2An Other Non-U.S. Person would include all swaps connected with its dealing activity with counterparties that are U.S. persons, U.S. Guaranteed Entities, or FCSs unless the swap is executed anonymously on a registered SEF, DCM, or FBOT and cleared. 


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Additionally, a potential SD, whether a U.S. or non-U.S. person, would aggregate all swaps connected with its dealing activity with those of 

persons controlling, controlled by, or under common control with such potential SD to the extent that these affiliated persons are themselves required to include those swaps in their own de minimis thresholds, unless the affiliated person is a registered SD. 

TABLE B—CROSS-BORDER APPLICATION OF THE MAJOR SWAP PARTICIPANT REGISTRATION THRESHOLDS

[Table B should be read in conjunction with the text of the proposed rule] 

Counterparty → Non-U.S. person 

U.S. Person U.S. Guaranteed Other Non-U.S. 

Potential MSP ↓ entity 1/FCS person 

U.S. Person ..................................................................... Include ............................... Include ............................... Include. 

Non-U.S. Person: 

U.S. Guaranteed Entity a/FCS .................................. Include ............................... Include ............................... Include. 

Other Non-U.S. Person ............................................ Include b ............................. Include b ............................. Exclude. 

aA non-U.S. person that is a U.S. Guaranteed Entity with respect to the relevant swap would include the swap in its MSP threshold calculations if its swap counterparty has rights of recourse against a U.S. person with respect to its obligations under the swap. Additionally, all swap 

positions that are subject to recourse should be attributed to the guarantor, whether it is a U.S. person or a non-U.S. person, unless the guarantor, the guaranteed entity, and its counterparty are Other Non-U.S. Persons. bAn Other Non-U.S. Person would include all of its swap positions with counterparties that are U.S. persons, U.S. Guaranteed Entities, or 

FCSs unless the swap is executed anonymously on a registered SEF, DCM, or FBOT and cleared. 

TABLE C—CROSS-BORDER APPLICATION OF THE EXTERNAL BUSINESS CONDUCT STANDARDS

[Table C should be read in conjunction with the text of the proposed rule] 

Counterparty → U.S. Person 

Not a foreign branch Foreign branch of Non-U.S. person 

Potential SD ↓ of an SD/MSP an SD/MSP 

U.S. Person: 

Not a Foreign Branch ............................................... Apply .................................. Apply .................................. Apply. 

Foreign Branch ......................................................... Apply .................................. Do Not Apply * ................... Do Not Apply.* 

Non-U.S. Person ............................................................. Apply .................................. Do Not Apply * ................... Do Not Apply.* 

* An SD that uses personnel located in the United States to arrange, negotiate, or execute a swap transaction (or a swap that is offered but 

not entered into) would nevertheless be subject to Commission regulations 23.410 (Prohibition on Fraud, Manipulation, and other Abusive Practices) and 23.433 (Fair Dealing). 

List of Subjects 

17 CFR Part 1 

Counterparties, Cross-border, Major 

swap participants, Swap dealers, Swaps. 

17 CFR Part 23 

Business conduct standards, 

Counterparties, Cross-border, Major 

swap participants, Swap dealers, Swaps. 

For the reasons discussed in the 

preamble, the Commodity Futures 

Trading Commission proposes to amend 

17 CFR chapter I as follows: 

PART 1—GENERAL REGULATIONS 

UNDER THE COMMODITY EXCHANGE 

ACT 

■ 1. The authority citation for part 1 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 

6d, 6e, 6f, 6g, 6h, 6i, 6k, 6l, 6m, 6n, 6o, 6p, 

6r, 6s, 7, 7a–1, 7a–2, 7b, 7b–3, 8, 9, 10a, 12, 

12a, 12c, 13a, 13a–1, 16, 16a, 19, 21, 23, and 

24 (2012). 

■ 2. Amend § 1.3 as follows: 

■ a. Add paragraphs (ggg)(7) and (nnn); 

■ b. Reserve paragraphs (ooo)–(www) 

and (tttt)–(zzzz); and 

■ c. Add paragraph (aaaaa). 

The additions to read as follows: 

§ 1.3 Definitions. 

* * * * * 

(ggg) * * * 

(7) Cross-border application of de 

minimis registration threshold 

calculation. 

(i) For purposes of determining 

whether an entity engages in more than 

a de minimis quantity of swap dealing 

activity under § 1.3(ggg)(4)(i), a person 

shall include the following swaps 

(subject to § 1.3(ggg)(6)): 

(A) If such person is a U.S. person, all 

swaps connected with the dealing 

activity in which such person engages; 

(B) If such person is a Foreign 

Consolidated Subsidiary, all swaps 

connected with the dealing activity in 

which such person engages; 

(C) If such person is a non-U.S. person 

that is not a Foreign Consolidated 

Subsidiary, and its obligations under the 

relevant swap(s) are guaranteed by a 

U.S. person, all swaps connected with 

the dealing activity in which such 

person engages as to which its 

obligations under the relevant swap(s) 

are guaranteed by a U.S. person (in 

addition to any swaps that it is required 

to include pursuant to paragraph 

(ggg)(7)(i)(D) of this section); 

(D) If such person is a non-U.S. 

person that is not a Foreign 

Consolidated Subsidiary, and its 

obligations under the relevant swap(s) 

are not guaranteed by a U.S. person, all 

of the following swaps connected with 

the dealing activity in which such 

person engages (in addition to any 

swaps that it is required to include 

pursuant to paragraph (ggg)(7)(i)(C) of 

this section) (unless the swap is entered 

into anonymously on a registered 

designated contract market, registered 

swap execution facility, or registered 

foreign board of trade and cleared 

through a registered or exempt 

derivatives clearing organization): 

(1) Swaps with a counterparty that is 

a U.S. person; 

(2) Swaps with a counterparty that is 

a Foreign Consolidated Subsidiary; and 

(3) Swaps with a counterparty that is 

a non-U.S. person that is not a Foreign 

Consolidated Subsidiary and whose 

obligations under the relevant swap(s) 

are guaranteed by a U.S. person. 

(ii) [Reserved] 

* * * * * 


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(nnn) Application of major swap 

participant tests in the cross-border 

context. 

(1) For purposes of determining a 

person’s status as a major swap 

participant as defined in section 1a(33) 

of the Act, 7 U.S.C. 1(a)(33) and the 

rules and regulations thereunder, a 

person shall include the following swap 

positions: 

(i) If such person is a U.S. person, all 

swap positions that are entered into by 

the person; 

(ii) If such person is a Foreign 

Consolidated Subsidiary, all swap 

positions that are entered into by the 

person; and 

(iii) If such person is a non-U.S. 

person that is not a Foreign 

Consolidated Subsidiary, and its 

obligations under the relevant swap(s) 

are guaranteed by a U.S. person, all 

swap positions that are entered into by 

the person as to which its obligations 

under the relevant swap(s) are 

guaranteed by a U.S. person (in addition 

to any swap positions that it is required 

to include pursuant to paragraph 

(nnn)(1)(iv) of this section); 

(iv) If such person is a non-U.S. 

person that is not a Foreign 

Consolidated Subsidiary, and its 

obligations under the relevant swap(s) 

are not guaranteed by a U.S. person, all 

of the following swap positions that are 

entered into by the person (in addition 

to any swap positions that it is required 

to include pursuant to paragraph 

(nnn)(1)(iii) of this section) (unless the 

swap position is entered into 

anonymously on a registered designated 

contract market, registered swap 

execution facility, or registered foreign 

board of trade and cleared through a 

registered or exempt derivatives clearing 

organization): 

(A) Swap positions with a 

counterparty that is a U.S. person; 

(B) Swap positions with a 

counterparty that is a Foreign 

Consolidated Subsidiary; and 

(C) Swap positions with a 

counterparty that is a non-U.S. person 

that is not a Foreign Consolidated 

Subsidiary and whose obligations under 

the relevant swap are guaranteed by a 

U.S. person. 

(2) [Reserved] 

(ooo)–(www) [Reserved] 

* * * * * 

(tttt)–(zzzz) [Reserved] 

(aaaaa) Cross-border definitions. The 

following terms, as used in the rules and 

regulations in this chapter, with respect 

to the cross-border application of the 

swap provisions of the Act (or of the 

rules and regulations in this chapter 

prescribed or promulgated thereunder), 

shall have the meanings hereby assigned 

to them, unless the specific rule or 

regulation in this chapter otherwise 

provides or the context otherwise 

requires: 

(1) Foreign Consolidated Subsidiary 

means a non-U.S. person in which an 

ultimate parent entity that is a U.S. 

person (‘‘U.S. ultimate parent entity’’) 

has a controlling financial interest, in 

accordance with U.S. generally accepted 

accounting principles, such that the 

U.S. ultimate parent entity includes the 

non-U.S. person’s operating results, 

financial position and statement of cash 

flows in the U.S. ultimate parent entity’s 

consolidated financial statements, in 

accordance with U.S. generally accepted 

accounting principles. 

(2) Non-U.S. person means any person 

that is not a U.S. person. 

(3) Ultimate parent entity means the 

parent entity in a consolidated group in 

which none of the other entities in the 

consolidated group has a controlling 

interest, in accordance with U.S. 

generally accepted accounting 

principles. 

(4) United States means the United 

States of America, its territories and 

possessions, any State of the United 

States, and the District of Columbia. 

(5) U.S. person means: 

(i) A natural person who is a resident 

of the United States; 

(ii) An estate of a decedent who was 

a resident of the United States at the 

time of death; 

(iii) A corporation, partnership, 

limited liability company, business or 

other trust, association, joint-stock 

company, fund or any form of entity 

similar to any of the foregoing (other 

than an entity described in paragraph 

(aaaaa)(5)(iv) or (v) of this section) 

(‘‘legal entity’’), in each case that is 

organized or incorporated under the 

laws of the United States or that has its 

principal place of business in the 

United States, including any branch of 

the legal entity; 

(iv) A pension plan for the employees, 

officers or principals of a legal entity 

described in paragraph (aaaaa)(5)(iii) of 

this section, unless the pension plan is 

primarily for foreign employees of such 

entity; 

(v) A trust governed by the laws of a 

state or other jurisdiction in the United 

States, if a court within the United 

States is able to exercise primary 

supervision over the administration of 

the trust; 

(vi) A legal entity (other than a 

limited liability company, limited 

liability partnership or similar entity 

where all of the owners of the entity 

have limited liability) that is owned by 

one or more persons described in 

paragraphs (aaaaa)(5)(i) through (v) of 

this section and for which such 

person(s) bears unlimited responsibility 

for the obligations and liabilities of the 

legal entity, including any branch of the 

legal entity; or 

(vii) An individual account or joint 

account (discretionary or not) where the 

beneficial owner (or one of the 

beneficial owners in the case of a joint 

account) is a person described in 

paragraphs (aaaaa)(5)(i) through (vi) of 

this section. 

PART 23—SWAP DEALERS AND 

MAJOR SWAP PARTICIPANTS 

■ 3. The authority citation for part 23 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b– 

1, 6c, 6p, 6r, 6s, 6t, 9, 9a, 12, 12a, 13b, 13c, 

16a, 18, 19, 21. 

Section 23.160 also issued under 7 U.S.C. 

2(i); Sec. 721(b), Public Law 111–203, 124 

Stat. 1641 (2010). 

■ 4. Add § 23.452 in subpart H to read 

as follows: 

§ 23.452 Cross-border application. 

(a) Except as provided in paragraph 

(b) of this section, anything else to the 

contrary in this subpart 

notwithstanding, a swap dealer or major 

swap participant that is a non-U.S. 

person or a foreign branch of a U.S. 

person shall not be subject to the 

requirements of this subpart with 

respect to any transaction in swaps (or 

any swap that is offered but not entered 

into) where its counterparty is a foreign 

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

dealer or major swap participant or is a 

non-U.S. person. 

(b) Notwithstanding paragraph (a) of 

this section, a swap dealer that is a nonU.S. person or a foreign branch of a U.S. 

person shall be subject to the 

requirements set forth in §§ 23.410 and 

23.433 if the swap dealer uses personnel 

located in the United States to arrange, 

negotiate, or execute a transaction in 

swaps or a swap that is offered but not 

entered into. 

Issued in Washington, DC, on October 11, 

2016, by the Commission. 

Christopher J. Kirkpatrick, 

Secretary of the Commission. 

Note: The following appendices will 

not appear in the Code of Federal 

Regulations. 


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1Also, if we find the jurisdiction where the 

transaction occurs comparable, none of these swaps 

would have to be margined either. 

2 ‘‘Remarks of Chairman Gary Gensler at Swap 

Execution Facility Conference: Bringing 

Transparency and Access to Markets’’ (Nov. 18, 

2013), available at http://www.cftc.gov/PressRoom/ 

SpeechesTestimony/opagensler-152 (‘‘[A] U.S. swap 

dealer on the 32nd floor of a New York building 

and a foreign-based swap dealer on the 31st floor 

of the same building, have to follow the same rules 

when arranging, negotiating or executing a swap. 

One elevator bank . . . one set of rules.’’). 

Appendices to Cross-Border 

Application of the Registration 

Thresholds and External Business 

Conduct Standards Applicable to Swap 

Dealers and Major Swap Participants— 

Commission Voting Summary, 

Chairman’s Statement, and 

Commissioners’ Statements 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Massad and 

Commissioners Bowen and Giancarlo voted 

in the affirmative. No Commissioner voted in 

the negative. 

Appendix 2—Statement of Chairman 

Timothy G. Massad 

I am pleased to support this proposal, 

which addresses several important aspects of 

the cross-border application of our swaps 

rules. 

First, it seeks to enhance clarity and 

consistency in the application of our rules by 

proposing to define certain key terms, 

including the terms ‘‘U.S. person’’ and 

‘‘Foreign Consolidated Subsidiary’’ (FCS), 

consistent with how they are defined in the 

Commission’s cross-border margin rule. 

Second, the proposal provides a clear 

standard for determining whether a swap 

dealing transaction should be included in an 

entity’s calculation of whether it must 

register as a swap dealer. The proposal states 

that for U.S. persons, as well as those nonU.S. persons whose swaps are guaranteed by 

a U.S. person or that are a financially 

consolidated subsidiary of a U.S. ultimate 

parent (FCS), all swap dealing transactions 

must be included. All other persons would 

include swap dealing transactions with 

counterparties that are U.S. persons or FCSs, 

as well as swaps that have a U.S. guarantee, 

unless the swap is executed anonymously on 

a registered platform and cleared. The 

Proposed Rule provides a similar counting 

framework for the major swap participant 

registration threshold. 

We are also proposing the application of 

external business conduct (EBC) standards 

for cross-border transactions, including those 

transactions that are arranged, negotiated, or 

executed by personnel in the U.S. 

Specifically, U.S. swap dealers would be 

required to comply with applicable 

standards, with the exception of their foreign 

branches. Non-U.S. swap dealers and foreign 

branches of U.S. swap dealers would be 

required to comply with applicable EBC 

standards for transactions with a U.S. 

counterparty—other than the foreign branch 

of a U.S. entity. For all other transactions, 

these dealers would not be subject to EBC 

standards, unless they use personnel located 

in the United States to arrange, negotiate, or 

execute such transactions. In that case, they 

would be required to comply with those EBC 

standards prohibiting fraud and other 

abusive conduct. 

This aspect of our proposal follows up on 

a staff advisory and a Commission request for 

comment relating to non-U.S. swap dealers 

using personnel located in the United States 

to arrange, negotiate, or execute swap 

transactions. We will address whether other 

requirements should apply to such 

transactions at a later date. 

This is just the latest in a number of steps 

we have taken to address cross-border issues 

in swaps rules. We have harmonized 

clearinghouse regulation through our accord 

with the European Commission—as well as 

through our work to address recovery and 

resolution internationally. We have given 

exemptions from registration to several 

foreign clearinghouses, and granted ‘‘foreign 

board of trade’’ status to several exchanges. 

We are actively working on harmonizing data 

reporting standards, and we are looking at 

whether we can do the same regarding 

trading requirements. And we harmonized 

requirements on margin for uncleared swaps, 

adopted a cross-border approach to that rule, 

and recently issued our first comparability 

determination for margin. 

I wish to express my appreciation for the 

hard work of the CFTC staff in putting 

together these important rules. I thank 

Commissioner Bowen and Giancarlo for their 

support. And I encourage market participants 

to give us their comments on this proposed 

rule. 

Appendix 3—Concurring Statement of 

Commissioner Sharon Y. Bowen 

The rule proposal we have before us is 

significant. It addresses a number of 

important issues including: (i) The ‘‘US 

Person’’ definition; (ii) the treatment of 

foreign affiliates of US Persons (‘‘Foreign 

Consolidated Subsidiaries’’ or ‘‘FCS’’); (iii) 

the application of the de minimis threshold 

and business conduct standards to non-US 

registered dealers; and (iv) the treatment of 

swap trades that are ‘‘arranged, negotiated, or 

executed’’ in the US by foreign-based dealers 

but booked elsewhere. 

I intend to vote ‘‘yes’’ for this proposed 

rule. Although I do not agree with every part 

of the proposal, I believe the proposal and 

questions lay out the key issues to allow for 

meaningful comments from the public. In 

that vein, I strongly urge market participants 

and members of the general public to 

comment on this rule proposal before the 

Commission makes a final decision. Its 

importance to our overall effort to regulate 

the swaps market requires us to take special 

care in considering how average investors 

and interested citizens feel about this 

proposal before we decide to finalize it. 

I like many aspects of this rule. First, I am 

happy to see that it largely adopts the US 

Person and FCS definitions from the cross 

border margin rule. Whenever possible, we 

should try to make our rules consistent with 

each other; so this is a move in the right 

direction. 

Second, it proposes that three important 

groups: US-based dealers, non-US entities 

guaranteed by US persons, and FCS—each 

count all of their swaps—those with US 

persons and non-US persons—towards the de 

minimis threshold. It is important that we 

subject non-US entities guaranteed by US 

persons, and FCS to this standard, because 

their swap risks have a material effect on the 

related US entity, and therefore, poses risks 

to our US financial system. Thus, it makes 

sense that we count all of their dealing 

activity in determining whether they engage 

in enough dealing to require registration. 

However, I especially invite robust 

comment on certain aspects of the proposal: 

Conduit Affiliates: I am concerned that the 

current proposal does not capture the dealing 

activity of ‘‘conduit affiliates.’’ A conduit 

affiliate is (i) a non-US affiliate that is 

consolidated with a US entity (or where a 

non-US affiliate and a US entity are 

consolidated) where there is no ultimate US 

parent and (ii) which transfers, through back 

to back swaps, the risk of swaps it enters into 

with non-US counterparties to that US 

person. They, in essence, serve as conduits 

for US entities to engage in, and ultimately 

assume the risk of, non-US swap activity. 

One would assume that these conduit 

affiliates would be captured by our rules and 

therefore would have to count this activity 

towards the de minimis threshold. However, 

this is not the case. That US entity could 

engage in billions of dollars of swap activity 

through its conduit affiliate and avoid all of 

our swap requirements.1 This is a market risk 

concern. This issue is clearly highlighted in 

the questions, and I would be very interested 

in hearing comments about whether we 

should close this loophole, and require that 

conduit affiliates count all their trades, in 

which the risk is transferred to a US dealer, 

towards the de minimis threshold. 

Arranged, Negotiated, or Executed: While 

I am believe it is good that the proposal 

requires that all US trading desk personnel of 

non-US dealers are held to conduct 

standards, I am not certain that we have gone 

far enough. Specifically, I encourage 

comment on whether the dealing activity that 

occurs in the US with US personnel from the 

trading desk of a non-US dealer should be 

counted towards that non-US dealer’s 

threshold, even though the transactions are 

between two non-US counterparties and are 

booked outside the US. The FCS definition 

rightly requires non-US consolidated 

subsidiaries with a US parent to count all of 

their swap dealing activity towards the 

threshold, regardless of where it is booked. 

Does it make sense then that non-US dealers 

can use their US desks to engage in billions 

of dollars of swap dealing and never have 

that counted because the swaps are booked 

elsewhere? Are we, unnecessarily, putting 

US dealers at a serious competitive 

disadvantage to other dealers who are doing 

the very same thing sometimes just a few 

offices away? 2 Moreover, our fellow 

regulator, the Securities and Exchange 

Commission has answered ‘‘yes’’ to that 

question: Under their rules, non-US dealers 

must count security-based swap transactions 

that are arranged, negotiated or executed by 

US personnel toward their de minimis 


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Federal Register / Vol. 81, No. 201 / Tuesday, October 18, 2016 / Proposed Rules 71975 

3 17 CFR 240.3a71–3(b)(1)(iii)(C). See also 

‘‘Security-Based Swap Transactions Connected 

With a Non-U.S. Person’s Dealing Activity That Are 

Arranged, Negotiated, or Executed by Personnel 

Located in a U.S. Branch or Office or in a U.S. 

Branch or Office of an Agent; Security-Based Swap 

Dealer De Minimis Exception; Final Rule,’’ 81 FR 

8598 (Feb. 19, 2016). 

4 Interpretive Guidance and Policy Statement 

Regarding Compliance With Certain Swap 

Regulations, 78 FR 45292 (Jul. 26, 2013), http://

www.cftc.gov/idc/groups/public/@lrfederalregister/ 

documents/file/2013-17958a.pdf. 

5CFTC Staff Advisory No. 13–69 (Nov. 14, 2013), 

http://www.cftc.gov/idc/groups/public/@

lrlettergeneral/documents/letter/13-69.pdf. 

6CFTC Letter No. 16–64 (Aug. 4, 2016), http://

www.cftc.gov/idc/groups/public/@lrlettergeneral/ 

documents/letter/16-64.pdf. 

threshold.3 Thus, if we choose not to do so, 

we would not be harmonized with our fellow 

regulator, which governs an important part of 

the swaps markets. 

For these reasons, and others, I would 

strongly encourage the public and market 

participants, particularly our US dealers, to 

comment on this proposal. Thank you. 

Appendix 4—Statement of 

Commissioner J. Christopher Giancarlo 

I support issuing today’s proposed rule in 

order to hear commenters’ considered views, 

especially with respect to the Commission’s 

approach on the issue of U.S. personnel 

arranging, negotiating or executing 

transactions for two non-U.S. persons. 

I have been a critic of the Commission’s 

2013 over-expansive cross-border 

interpretative guidance 4 and its avoidance of 

the rulemaking process to implement the 

sweeping policies contained therein. I 

consider both of these failings as having been 

compounded by the Division of Swap Dealer 

and Intermediary Oversight (DSIO) Advisory 

No. 13–69 5 stating that CFTC transactionlevel requirements apply to swaps between a 

non-U.S. swap dealer and a non-U.S. person 

if the swap is arranged, negotiated or 

executed by personnel or agents of the nonU.S. swap dealer located in the U.S. (ANE 

Transactions). Today the Commission is 

proposing a rulemaking on the cross-border 

application of the registration thresholds and 

external business conduct standards to swap 

dealers and major swap participants and the 

ANE Transactions in DSIO Advisory No. 13– 

69. I commend the Commission for at last 

putting the guidance and advisory through 

the formal rulemaking process. 

The proposed rule provides that these ANE 

Transactions fall within the scope of the 

Dodd-Frank Act and that it may be 

appropriate to apply specific swap 

requirements to such transactions to advance 

Dodd-Frank’s regulatory objectives. Yet, it 

also preliminarily determines that applying 

registration thresholds and external business 

conduct standards to such ANE Transactions 

would not further Dodd-Frank’s regulatory 

objectives, except for certain abusive 

practices and fair dealing rules with respect 

to external business conduct standards. 

While this limited application seems 

appropriate, I am interested to hear 

commenters’ thoughts about the 

Commission’s approach and rationale before 

reaching a decision. 

Since this proposal only addresses 

registration thresholds and external business 

conduct standards, the Commission says it 

intends to address the application of other 

Dodd-Frank swap requirements to ANE 

Transactions in subsequent rulemakings as 

necessary and appropriate. Until that 

happens, I urge the staff to commit to extend 

no-action letter 16–64 6 in order to provide 

clarity that those swap requirements do not 

apply to ANE Transactions. This will provide 

the marketplace with certainty that all the 

swap requirements not addressed in today’s 

rulemaking will not apply to ANE 

Transactions until the Commission takes 

further action. 

[FR Doc. 2016–24905 Filed 10–17–16; 8:45 am] 

BILLING CODE 6351–01–P 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALS