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UNITED STATES OF AMERICA 

COMMODITY FUTURES TRADING COMMISSION

OPEN MEETING TO CONSIDER CROSS-BORDER FINAL 

GUIDANCE AND CROSS-BORDER PHASE-IN 

EXEMPTIVE ORDER

Washington, D.C. 

Friday, July 12, 2013 
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PARTICIPANTS: 

Commission Members:

GARY GENSLER, Chairman 

BART CHILTON, Commissioner 

SCOTT D. O'MALIA, Commissioner

 MARK P. WETJEN, Commissioner 

Staff Present: 

LAURA BADIAN, Office of General Counsel

GARY BARNETT, Division of Swap 

Dealer and Intermediary Oversight 

SARAH JOSEPHSON, Office of International 

Affairs 

MELISSA JURGENS, Secretary of the 

Commission 

 CARLENE KIM, Office of General Counsel 

CHRISTOPHER KIRKPATRICK, Deputy 

 Secretary of the Commission 

JONATHAN MARCUS, Office of General Counsel 

ERIK REMMLER, Division of Swap Dealer and 

Intermediary Oversight 

Also Present:

DAVID VAN WAGNER 

SUSAN NATHAN 

NORA FLOOD
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P R O C E E D I N G S

(9:34 a.m.) 

CHAIRMAN GENSLER: Good morning, 

this meeting will come to order. This is a 

public meeting of the Commodity Futures 

Trading Commission to consider Interpretive 

Guidance and Policy Statement Regarding 

Compliance with Certain Swap Regulations, 

or what we call cross-border guidance, and 

an exemptive order regarding compliance 

with these provisions, or phase-in of these 

provisions under Dodd-Frank.

I'd like to welcome members of the 

public, market participants, members of the 

media, as well as those listening to this 

meeting on the phone or watching the 

webcast. This is our 30th meeting to 

implement Dodd-Frank, and I would like to 

thank Commissioners Chilton, O'Malia, and 

Wetjen for their significant contribution 

to the efforts here today, as well as their 

efforts over the three years since 
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Dodd-Frank passed.

I do note with, after Commissioner 

Sommers' long and very dedicated service, 

that she is not with us, and they've 

rearranged the chairs, and I see, 

Commissioner O'Malia, you're back on my 

right.

COMMISSIONER O'MALIA: I've always 

been on your right.

CHAIRMAN GENSLER: Yeah, I know, I 

know, it feels good. And I've got 

Commissioner Chilton on my left. And 

Commissioner Wetjen on my far left, now. 

(Laughter) So, it's good. I wonder who 

arranged this seating. But this meeting is 

just shy of the third anniversary of 

President Obama signing the Dodd-Frank Act, 

and the law was historic, and it was an 

historic answer to an historic problem -

the near collapse of the American economy 

driven, in part, by the unregulated 

derivatives marketplace. Congress and the 
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President were clear in their intention to 

bring transparency to this marketplace, to 

lower risk to the public, and ensure that 

the regulation of swap dealers and major 

swap participants.

And, in 2008, when both the 

financial system and the financial 

regulatory system failed the public, 

Americans paid the price with this crisis 

with their jobs, their pensions, and their 

homes. We lost 8 million jobs in that 

crisis and thousands of businesses 

shuttered. The swaps market was one of the 

central features of the crisis, and 

financial institutions operating 

complicated swaps businesses and offshore 

entities nearly toppled the economy. 

Congress responded. Americans are 

remarkably resilient, but the public really 

does expect us to learn from the lessons of 

the crisis. I think that they expect us to 

do everything possible to prevent this from 
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happening to any of us again.

And it's really straightforward, I 

think, even though we oversee, here at the 

Commodity Futures Trading Commission, a 

complex and sometimes difficult to 

understand market. My mom consistently 

asks me, Gary, what are swaps? But the 

questions the American people are looking 

for us to answer, really, are - have we 

lowered risk, have we brought about 

transparency to these markets, have we 

promoted competition and openness in these 

markets so that end users can get the 

greatest benefit when they seek to lower 

their risk and focus on what they do well -

is employing people, innovating, and moving 

our economy forward? That's why reform 

matters.

Five years after the crisis and 

three years after Dodd-Frank passed, market 

participants are coming into compliance 

with common sense reforms that Congress and 
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the President laid out. Through Dodd-Frank 

and the rules that this agency has been 

able to put in place, no longer will the

markets be closed and dark, and we will 

have transparency in the markets. In fact, 

throughout this year, for the first time, 

the public and regulators have benefitted 

from reporting the data repositories and 

reporting to the public. And later this 

year, starting, actually, in August, 

facilities called swap execution facilities 

will start so that the public can benefit 

from greater openness and competition 

before the transaction occurs. And by the 

end of this year, there's likely to be 

trade execution mandates for interest rate 

and credit derivative index products, as 

well.

The broad market has moved into 

central clearing earlier this year, with 

key phase-in dates later this year, as 

well, and we have 80 swap dealers, and, 
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yes, two major swap participants now 

provisionally registered. And with this 

new oversight, they're responsible for 

sales practice, recordkeeping and other 

business conduct that helps lower the risk 

to the public.

Yesterday, we too, we stepped 

forward and did another significant step 

when the European Commission and we 

announced a path forward regarding joint 

understandings with regard to cross-border 

derivatives.

And I want to publicly thank 

Commissioner Barnier, his Director General 

Jonathan Faull, and all of their staffs, 

and the staffs at the European Securities 

Market Authority and Steven Maijoor's 

leadership for the constructive 

collaboration throughout the reform 

process. We have different cultures and 

different political systems, and we're at 

times at different stages of development of 
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reforms, but I think this was a significant 

step forward in harmonizing and giving 

clarity to the markets as when there might 

be jurisdictional overlaps with regard to 

this reform.

Today, we are considering two 

important actions, the final guidance, as 

well as an exemptive order. And as you 

probably heard me say, if you, I recognize 

many of you here in this audience, the 

nature of modern finance is that financial 

institutions commonly set up hundreds, if 

not thousands, of legal entities around the 

globe. In fact, the U.S.'s largest banks 

each have somewhere between 2,000 and 3,000 

legal entities around the globe, some of 

them have hundreds of them just in the 

Cayman Islands alone. We have to remind 

ourselves that the largest banks and 

institutions are global in nature, and when 

a run starts on any part of an overseas 

affiliate or branch of a modern financial 
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institution, risk comes crashing right back 

to our shores.

Or, in the other direction, if 

it's an EU financial institution and it has 

some guaranteed affiliate in the U.S. or 

overseas, that risk can go back, as well, 

to their shores. And that's why, together, 

in this path forward yesterday, both Europe 

and we recognize the importance of covering 

guaranteed affiliates, whether they're 

guaranteed affiliates of a U.S. Person or 

of an EU person. There's no question to 

me, at least, that the words of Dodd-Frank 

addressed this when they said that a direct 

and significant connection with activities 

and/or effect on commerce in the United 

States covers these risks that may come 

back to us.

And I want to publicly thank 

Chairman Barney Frank, who he and his 

staff, along with Spencer Bachus, Frank 

Lucas, and Collin Peterson's staffs reached 
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out to this Commission and reached out to 

the public to ask what was the best way to 

address this in statute, because they 

understood that risk can wash back to these 

shores. Lest we forget AIG that nearly 

brought down the U.S. economy. Lest we 

forget Lehman Brothers and its 3,300 legal 

entities, including a London affiliate that 

was guaranteed here in the U.S. and had 

130,000 outstanding swap transactions.

Lest we forget Citigroup that had 

structured investment vehicles that were 

set up in the Cayman Islands, run out of 

London, and yet were at the center of the 

bailout - not one bailout but two bailouts 

of that institution. Lest we forget Bear 

Stearns that started us on this path in 

2007, that had two sinking hedge funds that 

had to be bailed out by Bear Stearns, and, 

yes, those hedge funds were organized in 

the jurisdiction of the Cayman Islands. A 

decade earlier, I happened to be the, I'd 
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say, somewhat lonely Assistant Secretary of 

the Treasury and making a call to then 

Treasury Secretary Rubin from Connecticut 

to report that Long-Term Capital 

Management's $1.2 trillion swaps book was 

not only going to go down within a day or 

two, and though I was in Connecticut and 

sure thought that's where this business was 

operated and run, it was incorporated in 

the Cayman Islands in a PO Box facility.

Lest we forget even last year, the 

reminder that branches of big U.S. banks 

can bring risk back here, and though they 

were not the risks as large as I've just 

relayed, JP Morgan Chase's Chief Investment 

Officer, credit default swaps were executed 

primarily in the U.K. branch. Each of 

those examples clearly had a direct and 

significant connection with activities 

and/or effect on commerce in the United 

States. Congress knew this painful history 

when it crafted the cross-border provisions 
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swaps market reform, and it's market 

participants asked the CFTC to provide 

interpretive guidance on Congress's word, 

we, too, I believe, have kept this painful 

history in mind.

And at the request of market 

participants - and, yes, it was at the 

request of market participants two and a 

half years ago - the CFTC started working 

on guidance, which was published for notice 

and comment last June, which we went out 

for further questions on in December, and I 

think we have greatly benefitted from that 

public input. But I think the guidance 

before us today adequately addresses those 

comments, those concerns, and I think 

appropriately interprets these key 

provisions of Dodd-Frank. And if I could 

just say four areas that I think really are 

important - that the requirements do cover 

swaps between non-U.S. swap dealers and 

guaranteed affiliates of U.S. persons, as 
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well as swaps between two guaranteed 

affiliates that are not swap dealers. In 

essence, the issue of risk importation.

The guidance does, as was 

proposed, recognize and embrace the concept 

of substituted compliance where there's 

comparable and comprehensive rules abroad 

where they exist. But the history of AIG, 

Lehman Brothers, Citigroup and the others, 

and the guaranteed affiliates, I think, is 

a strong lesson that Congress knew when we 

were approaching these issues. Secondly, 

the definition of U.S. person in this 

guidance captures the offshore hedge funds 

and collective investment vehicles that 

have their principal place of business here 

in the U.S., are majority owned by U.S. 

persons. Addressing ourselves to guidance, 

and yet forgetting the lessons of LongTerm Capital Management or Bear Stearns I 

don't think is what Congress wanted, and 

I'm pleased that the staff's recommendation 
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includes coverage of these types of 

entities.

Under the guidance, also foreign 

branches, like the JP Morgan's U.K. branch, 

of U.S. swap dealers possibly may also 

comply with Dodd-Frank through substituted 

compliance. I think we looked very closely 

at this, took a lot of public feedback, and 

have appropriately ring-fenced that it's 

truly in a branch where employees and the 

booking and the taxes are truly offshore in 

a branch, but this allows, if there is 

comparable and comprehensive regimes 

overseas and supervisory authorities 

overseas looking at those branches, that 

those branches, as well, can avail 

themselves to substituted compliance as 

offshore guaranteed affiliates would, as 

well.

And, lastly, that swap dealers, 

foreign or U.S., transacting with U.S. 

persons, whether they be in New Jersey, 
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Maryland, Michigan, Arkansas, Iowa -- I 

have to get all the right states --

anywhere, really, in the United States, 

they comply with Dodd-Frank's swap market 

reform. The guidance does provide, though, 

that U.S. persons can meet international 

people anonymously on, and not only our 

exchanges called designated contract 

markets, but also on the new swap execution 

facilities, as well as foreign boards of 

trade, and that international people can 

look to those trading platforms rather than 

concerning themselves or getting caught up 

in counting towards a swap dealer 

definition or the rules of Dodd-Frank. And 

I think that that was important to maintain 

and promote the liquidity of these three 

very important types of platforms - foreign 

boards of trade, swap execution facilities, 

and designated contract markets.

In conclusion, I will be voting in 

support of the guidance and the exemptive 
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order today. I'll say more about the 

exemptive order, but I think these are 

critical steps. They add to the nearly, I 

think it's 56 final guidance and rules that 

this Commission has adopted. We're well 

over 90 percent through the various rule 

and guidance writing. The markets are 

probably well towards halfway implementing 

these markets, and I have a deep respect 

for how much work market participants are 

doing to come into compliance.

With that, I think I'm going to 

turn it over to Commissioner Chilton.

COMMISSIONER CHILTON: Thank you, 

Mr. Chairman. And, yeah, we've done a 

whole lot because of your leadership. 

We've done a whole lot. And we've done all 

these rules, but without what we have the 

possibility to do today, it won't be, it 

won't reach its full effectiveness, 

everything that we have done. I'm just 

saying. It won't matter as much if we 
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don't do this thing, if we don't provide 

the guidance with the phased-in effective 

dates. Just saying.

So, I think it's really critical, 

and the reason is, the reason it wouldn't 

be effective is, as effective as it should, 

these other rules, is because, of course, 

we're interconnected, interrelated, 

interdependent, a bunch of inter markets, 

and there's more commonality of connections 

in the financial world than ever before. 

And so we learn that, as you say, Mr. 

Chairman, risk is a click of a mouse away, 

can shoot all around the globe, and that 

came home to roost in 2008. So my takeaway 

for the things we can do here today are 

twofold.

One, we can add certainty above 

everything else, that's what people said. 

We want, give us the rules. I mean, we 

want them done appropriately, but give us 

rules, let us know, we don't want to be 
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hanging out there any longer. So this 

provides certainty, and it provides a 

financial regulatory structure in a 

changing world with morphing markets. And 

the second thing that it does is that it's 

more cognizant of what's going on outside 

of our little universe here in the States, 

because these are interconnected markets, 

and that's why the phase-in of the 

effective dates is so critical. I don't 

think it can support this thing without it.

And so we've worked a lot, and I 

appreciate the effort of all my colleagues 

in this regard. I think we've come to a 

good place where we will have, this will 

result in more harmonized global 

regulations. A couple of times I've talked 

about the movie, Field of Dreams, you know 

where Kevin Costner hears the voice from 

the cornfields. Anybody? Nobody saw Field 

of Dreams? And the voice says, "If you 

build it, he will come." And that's how I 
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view what we're doing here and what the 

European union is doing. If we build it, 

and if the EU builds it, the rest of the 

financial world will come. The rest of the 

global regulators will come. They'll have 

similar and more harmonized regulatory 

regimes.

And that's good, not just for 

individual countries. It's good for the 

world. It's good for consumers. It's good 

for our economies. The last point I wanted 

to make is that I know there's a lot of 

naysayers out there, and we shouldn't do 

this, we couldn't do this, we don't have 

enough time, we didn't do this. But, look, 

the economic collapse was in 2008, 

Dodd-Frank was 2011, Dodd-Frank mandated we 

do this stuff by 2011, the G20 agreed that 

we should have the swaps reforms in place 

by December of 2012. As the Chairman said, 

we've had this guidance out there for a 

long time. It's been hanging around in 
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various forms. It didn't just sneak up on 

us. It's been here, and so, you know, we 

shouldn't have any reguphobia. Paranoia 

will destroy ya.

So, one of the things, out of an 

abundance of caution -- that famous 

Washington phrase, right -- out of an 

abundance of caution, we have inserted, and 

I am really pleased with this, the comment 

period for 75 days. And it's not window 

dressing. It's not a whoop-de-do. We need 

it. We want it. We got to have it. And I 

look forward to receiving comments and 

listening to them carefully, and if we have 

left a thread hanging loose, if we've got 

some kinks that we've got to work out, then 

we can address it.

Finally, I just wanted to thank 

the Chairman, and truly, Gary, for your 

leadership on this. I mean, the thing with 

the EU is just miraculous, very critical 

and important and time sensitive, but all 
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of your leadership has been just exemplary, 

and I thank you. It's an honor to work 

with you. But that also goes for 

Commissioner Sommers, who we miss, and 

Commissioner O'Malia and Commissioner 

Wetjen, who is always thoughtful and has 

been very thoughtful in the last couple of 

days, spending hours and hours on this, and 

I really do consider it an honor and 

personal privilege to work with each of 

you.

And, finally, and your staffs, by 

the way, who -- I mean, this has got to be 

the most complicated guidance, the most 

complicated thing we've done in the three 

years, at least from my experience, and all 

of our staffs have done just a super job, 

so thank them. And, finally, the 

professional staff at the table behind you 

and up in your offices watching. Just a 

mammoth undertaking. I couldn't thank you, 

I can't thank you more, and I think the 
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right thing to do is to honor your tireless 

work by approving this thing today. If we 

don't do so, it means that we go back to 

having markets that are unprotected and 

consumers and our economy is unprotected, 

and that's not the right thing to do. Just 

saying.

CHAIRMAN GENSLER: Thank you, 

Commissioner Chilton, very much. 

Commissioner O'Malia, welcome back from 

vacation.

COMMISSIONER O'MALIA: Thank you 

to the staff and my fellow Commissioners, 

and obviously the international regulators 

for all the hard work that they took to get 

here and develop this document. But, 

first, I'd like to say a few words. 

Despite the elaborate confusion of the 

chairs in order to cover up Jill's absence, 

it is important we do recognize, as the 

Chairman and Commissioner Chilton have 

done, she was obviously our ambassador to 
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the international regulatory body for a 

number of years and did an outstanding job 

working through these international issues, 

led the GMAC, she's very disciplined, 

careful, thoughtful, and knowledgeable. 

And, most recently, she led the successful 

investigation of the MF Global, which I 

think we'll all be thankful for as that 

proceeds.

So I do want to recognize her, and 

we'll certainly miss her, and it leaves not 

only a hole at the table, but a hole in the 

policy debate when you have somebody as 

experienced as Jill Sommers not 

participating in this discussion about 

cross-border regulation, which she has so 

much experience in. So, again, thank you 

to the staff and the Commission, and 

obviously, the international regulators for 

all the work to modify the cross-border 

document and the attendant exemptive relief 

and no-action letters that enabled us to 
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avert the regulatory train wreck that might 

have occurred had we not engaged our 

European colleagues in these last minute 

negotiations.

While the agreement is far from 

perfect and requires extensive no-action 

relief, it will take away, I will take away 

the positive experiences from this process, 

which is obviously to validate the ability 

and the desire to harmonize our rules with 

home country regulators who have the same 

goals, and, in fact, many of the same rules 

as the U.S. does. Mr. Chairman, as you 

well know, I consistently advocated for 

close engagement between the full 

Commission and fellow regulators to 

harmonize our rules, and in my discussion 

with the various international regulatory 

bodies, it's clear to me that the varying 

degrees of reform that are comparable, some 

are less, but some also exceed our own 

rules. And I would have preferred that the 
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Commission take the past year following the 

release of our proposed guidance that 

Commissioner Chilton noticed it was hanging 

around for the past year, to actually sit 

down and engage international colleagues 

and possibly engage IOSCO to determine how 

we could harmonize our rules and really 

engage in that substituted compliance 

determination that we're going to put after 

the rulemaking, or after the guidance 

process, not before.

But if we had done this in 

reverse, we could have put in place 

guidance that would have filled the gaps 

with the holes that we have recognized, 

taking into account where there might be 

shortcomings. Instead, we have chosen to 

impose statutorily weak guidance with all 

of its no-action riders and exemptions, 

with the promise of further negotiations. 

Given this process, however, it is my hope 

that the work lying ahead will be 
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undertaken in a more transparent manner and 

not done through the abused no-action 

process that lacks any formal Commission 

process or rigor. And, further, I hope 

that this process of substituted compliance 

will offer the opportunity for other 

regulatory bodies to engage directly with 

the full Commission so that we can better 

understand how our rules and theirs will 

work, and we can minimize the likelihood of 

regulatory retaliation, inconsistency, and 

duplication.

I believe the Commission has 

worked too hard to develop the principles 

and the standards that will encourage 

greater transparency, open access to 

clearing and trading, and improved market 

data. I want to work with other home 

country regulators to ensure that there is 

not the opportunity for entities to exploit 

regulatory loopholes. The stark reality is 

that the Commission is not the global 
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regulatory authority that it may think it 

is, and it does not have the resources to 

support such a mission. Therefore, our 

best and our most effective solution is to 

engage in a fully transparent discussion in 

the substituted compliance, and to do so 

immediately.

When I voted in 2012 to issue for 

public comment the proposed guidance, I 

made it clear that if I had been asked to 

vote on the proposed guidance as final, my 

vote would have been no. I then laid out 

my concerns relating to the Commission's 

unsound interpretation of 2(i) of the CEA, 

which covers the extraterritorial 

application of the CEA swaps provisions. 

Regrettably, the final guidance fails to 

address these concerns as I have discussed, 

and it represents a regulatory overreach 

based on a weak foundation of thin 

statutory and legal authority. Just as the 

proposed guidance, the final guidance 
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misinterprets section 2(i) of the CEA, is 

inconsistently applied in different 

activities, and blurs the lines between 

interpretive guidance and rulemaking, and 

gives insignificant consideration to 

international law and comity.

Section 2(i) of the CEA, as 

amended by Dodd-Frank, provides, in part, 

that the Commission's swap authority "shall 

not apply" to foreign activities unless 

these activities "have a direct and 

significant connection with activities in, 

or effect on, the commerce of the United 

States." This provision is clearly a 

limitation on the Commission's authority, 

and it follows that the Commission must 

properly articulate how and when the 

"direct and significant" standard is met in 

order to apply the Commission rules to swap 

activities that take place outside the 

United States. The final guidance, 

however, fails to do so. Instead, it 
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treats section 2(i) as a ready tool to 

expand authority rather than as a 

limitation.

And the statutory analysis section 

of the final guidance is insufficient, 

relying heavily on a comparison with other 

statutory language whose wholly different 

context renders the comparison useless, 

because the proper foundation for the 

standard has never been laid. The rest of 

the document includes sporadic references 

to direct and significant, without 

explaining or justifying the various 

requirements being placed on market 

participants. In an effort to mitigate the 

broad reach of the guidance, and in a 

moment of humility, the Commission will 

agree to delay the application of certain 

agreement elements of the swap regulation, 

largely to accommodate the last minute 

finalization of this guidance.

The exemptive order, in broad 
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terms, provides relief ranging from 75 days 

to apply the expanded U.S. persons to 

December 21st for entity-level and 

transaction-level requirements for U.S. 

Swap dealers in specific jurisdictions as 

well as further extensions for 

transaction-based rules. And in its 

failure to address this matter earlier, the 

Commission has included a 75-day comment 

period on the exemptive order, seemingly as 

an acknowledgment of the Administrative 

Procedure Act, but clearly not in 

compliance with this binding Federal 

statute. I support the additional time to 

allow market participants to comply with 

the last minute guidance, but I cannot 

support a final order that blatantly 

ignores the statutory required comment 

periods for Commission action, especially 

when I advocated for a relief package that 

would have provided for public comment over 

a month ago.
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Mr. Chairman, I've prepared a more 

thorough dissent that I ask be included in 

the Federal Register and the record of this 

meeting. Let me close by thanking the 

staff again, and the Commission, and our 

fellow international regulators for their 

cooperation in avoiding regulatory disaster 

that should have never been contemplated, 

let alone narrowly averted. I will look 

forward to a more transparent and inclusive 

discussion between the Commission and other 

home country regulators to harmonize our 

rules before the next deadline of December 

21st. Thank you.

CHAIRMAN GENSLER: Thank you, 

Commissioner O'Malia. Commissioner Wetjen, 

before I turn over, I just want to thank 

you, particularly, for all that we've done 

together on this guidance. I think it is 

far better, given the many hours that we 

have spent since last June and July. Some 

people in the media focused on this week, 
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but I can't imagine how many hundreds of 

hours you and I have spent together, but I 

knew we were going to make a breakthrough 

when, earlier this week, Commissioner 

Wetjen shared with me his own nicknames for 

his staff, and I knew that's when we were 

absolutely, we were going to get to this 

day. So I thank you.

I'm not going to share those 

nicknames, but it's up to you, Commissioner 

Wetjen.

COMMISSIONER WETJEN: I've 

embarrassed my staff enough. Thanks, Mr. 

Chairman, and forgive me for my cough, but 

I'm trying to get through this statement. 

Several weeks ago in London, as the 

Commission intensified discussions on a 

number of cross-border issues, I spoke 

about three key objectives that must be 

achieved in a workable cross-border 

framework. First and foremost, I said that 

the Commission's cross-border policy must 
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protect U.S. taxpayers and the stability of 

the U.S. financial system.

Second, I said it must embrace a 

substituted compliance approach that 

supports an efficient and sound derivatives 

market structure, while also ensuring a 

level competitive landscape for the firms 

operating within it. And, finally, I said 

the cross-border guidance must be clear and 

workable. I am confident that the guidance 

and exemptive order before us today will 

adequately meet these objectives. I am 

therefore prepared to support them. Risk 

associated with derivatives is mobile. It 

can migrate rapidly across borders and 

modern financial markets.

All of us have observed that, 

while financial activities abroad may be 

confined to local markets, the rights and 

responsibilities that flow from these 

activities often are not. In light of this 

fact and in reaction to the financial 
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crisis, Congress authorized the Commission 

to oversee activities conducted beyond U.S. 

borders in appropriate cases. Congress was 

purposefully less clear about what the 

appropriate cases might be, leaving it 

instead to this Commission to make those 

judgments. The guidance makes rational 

policy judgments about what those 

appropriate cases are today.

The foreign branches of U.S. banks 

operating overseas and other foreign 

entities benefitting from the credit 

support of a U.S. firm will be required to 

register if they are active dealers in the 

swap markets. With registration, of 

course, the public is assured that such 

entities implement risk management 

programs, report their swap activities, 

abide by capital standards, and manage 

credit risk in compliance with margin and 

clearing requirements. I noted in London 

that it is paramount that the Commission 
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seek to achieve its regulatory objectives 

in a manner that respects the limits of 

U.S. law and the resource constraints of 

U.S. and global regulators.

I acknowledged then, and I 

acknowledge now, that the Commission must 

tread carefully with respect to activities 

occurring solely on foreign soil, 

especially those involving only foreign 

firms or foreign affiliates of U.S. firms. 

I am persuaded, however, that affiliates 

benefitting from the financial support of a 

guarantor in the aggregate do carry the 

potential to directly and significantly 

affect the health of the U.S. Financial 

system. In many credit arrangements, risk 

flows directly back to the U.S. firm 

providing the guarantee. I think it 

appropriate for the Commission to seek to 

contain the risks associated with swap 

dealing where those activities occur.

In many cases, the guarantor 
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itself is prudentially regulated. That 

might argue in favor of simply applying 

additional risk regulation to that entity. 

Prudential regulation, though, has taken 

into account risk importation issues for 

decades. It alone has not always prevented 

risk management failures, and the resulting 

threats to the stability of the financial 

system. The guidance, therefore, brings 

guaranteed affiliates within the Dodd-Frank 

regime. It also takes the practical 

approach of allowing that non-U.S. 

Affiliate to abide by risk management 

practices required by the jurisdiction in 

which it is located, so long as the 

Commission deems those practices comparable 

to U.S. law and sufficiently comprehensive.

This approach strikes an 

appropriate balance between asserting the 

Commission's regulatory interests and 

recognizing the interests of other 

regulators. The swap markets, as we all 
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know, are global. The guidance, therefore, 

supports an efficient and sound market 

structure by permitting U.S. persons to 

trade and clear swaps with non-U.S. persons 

through markets and clearinghouses outside 

the U.S. so long as they are regulated in a 

manner that is "essentially identical" to 

Dodd-Frank. This enormously consequential 

policy adjustment translates to open 

competitive derivatives markets. It will 

mean efficient and liquid markets.

A global regime such as the one 

now contemplated in the guidance is the 

best means to avoid Balkanization of risk 

and risk management that would have 

benefitted no one. In fact, the 

fragmentation and regionalization of 

markets that I believe likely would have 

developed under the earlier proposals also 

would have exposed the U.S. financial 

system to risks that are unnecessary, 

needlessly complex, and difficult to 
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predict and contain. I want to thank 

Chairman Gensler for his flexible thinking 

on this particular topic during the past 

several weeks. Indeed, perhaps more than 

any other policy decision in this guidance, 

the Commission's resolution of this 

important policy issue best explains the 

accord we just reached with the Europeans 

on the cross-border regulation of 

derivatives.

There are two technical points I 

would like to mention, however. First, 

while I support the practical outcomes of 

the no-action letters that allow Eurex and 

LCH SA to clear U.S. dealer swaps pending 

completion of their applications to 

register with the Commission, I believe 

this relief should have been delivered 

through formal Commission action. 

Likewise, the no-action letter that finds 

the various risk-mitigation requirements 

under EMIR to be "essentially identical" 
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should have been a Commission action. In 

the future, I expect these determinations 

will receive the full input and legal force 

of the Commission.

Second, while for now we are 

requiring the European clearinghouses or 

foreign boards of trade to register with 

the Commission, the final guidance 

contemplates a mutual recognition framework 

in which trading and clearing venues may 

compete fairly for U.S. business if they 

operate under "essentially identical" 

regimes. For instance, in the European 

Union, it is expected that European law 

will soon provide for the registration of 

new trading venues called organized trading 

facilities. The Commission will have the 

flexibility under the guidance to examine 

the requirements applicable to these new 

platforms and determine whether they are 

"essentially identical" to U.S. law, and 

therefore suitable for U.S. participants. 
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Similarly, the guidance clarifies that such 

trading venues may register as swap 

execution facilities or petition for 

recognition as exempt SEFs.

Toward this end, the Commission 

should undertake a rulemaking soon to 

implement a petition process for regulated 

trading venues abroad that might seek 

recognition as exempt SEFs. The Commission 

staff is also developing a rulemaking to 

govern the process for recognizing exempt 

DCOs. In addition to providing for an 

efficient market structure, the guidance 

avoids creating unfair advantages for 

certain firms over others, or for certain 

legacy business structures over others. 

The guidance now reflects the policy that 

if the activities of, and risk presented 

by, firms or business structures are not 

materially different, the Commission will 

not treat such firms or business structures 

differently. Foreign branches and 
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guaranteed affiliates that are registered 

dealers will abide by the same policies 

under the same circumstances.

For markets to operate 

efficiently, competitively, transparently, 

and safely, market participants must know 

whether U.S. law applies, whether U.S. law 

conflicts with the laws of foreign 

jurisdictions, and whether they are doing 

what the law requires. Based on the 

Commission's joint statement with the 

European Union yesterday, together with the 

Commission's documents today, market 

participants now should have a good 

understanding of the rules of the road for 

conducting swap activities on our two 

continents, which continue to host the vast 

majority of swap activity globally. 

Although some call for more time, the 

Commission was not in a good position to 

delay these policy judgments any longer. 

Global market participants deserve 
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regulatory certainty, and today's guidance 

and exemptive order provide it.

This week's accord with our 

friends and partners in Europe, moreover, 

empowered the Commission to adopt this 

policy even before the important work of 

delivering on the G20 commitments was 

complete on that continent. Inevitably, 

there will be questions arising from the 

guidance and exemptive order, and perhaps 

issues unaddressed in these documents that 

should have been. But I am convinced that, 

in sum, the most important questions have 

been answered clearly enough for now.

Finally, and based on today's 

facts and circumstances, the exemptive 

order provides sufficient adjustment time 

for the marketplace and appropriate 

incentives for foreign regulators to bring 

their regimes in line with Dodd-Frank. It 

could turn out that these compliance dates 

are too aggressive with respect to certain 
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requirements. In that case, the Commission 

must listen and respond to market 

participants and other regulators who bring 

legitimate compliance challenges to its 

attention.

Again, I want to thank the 

Chairman for his flexibility and tireless 

work over the last several weeks. It was 

only a short while ago that I publicly 

expressed skepticism that the Commission 

would be able to finalize these documents 

today. The Commission was able to pull off 

this impressive feat under a relatively 

truncated timeline -- how's that for an 

understatement -- only because of the 

Chairman's leadership and 

consensus-building. And I want to thank 

the Commission's professional staff, who 

have worked day and night to bring the 

guidance and exemptive order over the 

finish line today. I appreciate your 

efforts, and the American public owes you a 
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debt of gratitude for the important service 

you have provided that is now reflected in 

these important policies. Thank you very 

much.

CHAIRMAN GENSLER: Thank you, 

Commissioner Wetjen, Commissioner O'Malia, 

and Commissioner Chilton for all of your 

input. And I just want to say, 

Commissioner O'Malia, though it doesn't 

sound like today you'll be able to support 

this, your input throughout this 14 months 

has been so valued, and I think the 

guidance is better for that input, even if 

we weren't able to bridge the gap.

Before we turn to the staff to 

present, I want to just turn to one other 

item which is important. I hope this is 

all right. But, at this point, I'd like to 

just raise an issue. With Commissioner 

Sommers not being with us now, the matter 

of the leadership of the Global Markets 

Advisory Committee, or what we sometimes 
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call it, GMAC, here. We have a number of 

advisory committees, as you may know. 

Commissioner O'Malia has shown great 

leadership on the Technology Advisory 

Committee. Commissioner Sommers did so on 

the Global Market Advisory Committee. But 

now with her no longer being on the 

Commission, I'd like, I'm pleased to 

announce today that Commissioner Chilton 

will be taking on her responsibilities.

And under the charter of the 

Global Markets Advisory Committee, the 

Commission must vote on the designation of 

Commissioner Chilton as what's technically 

called the sponsor of this advisory 

committee, so I would appreciate and 

entertain a motion to designate 

Commissioner Chilton as the sponsor.

COMMISSIONER O'MALIA: Before we 

start that, can I ask a question of 

Commissioner Chilton on his priorities for 

the GMAC, and now that we have the 
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important substituted compliance 

requirement before us, we have a vague 

process, but it certainly could benefit 

through a formal, open, transparent 

process, which invites foreign regulators, 

home country regulators, to participate in 

defending their regulatory regimes before 

the Commission before we, the Commission, 

not the staff, but the Commission, makes a 

decision on this.

Are you going to put that on the 

agenda as an immediate objective?

COMMISSIONER CHILTON: Yeah, we 

spoke about it briefly before the meeting, 

and I think it's a super thing that we 

should do. I mean, this substituted 

compliance isn't going to be something that 

we look at one time, take a snapshot, and 

then call it quits. It's going to be an 

evolving and morphing thing, and I think 

the GMAC can play a really important role 

in that regard. In general, these markets 
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are changing so fast that we need to think 

anew about them, and so I look forward to 

doing that with my colleagues, but with the 

GMAC. I mean, it's really an epic endeavor 

in which we're involved here, we've never 

done anything like this before globally. 

So, yeah, we'll do that, Commissioner 

O'Malia, and we'll do a lot more, too.

COMMISSIONER O'MALIA: Well, I'm 

happy to move his nomination.

COMMISSIONER WETJEN: Second.

CHAIRMAN GENSLER: And I am 

delighted and support Commissioner Chilton 

filling the big shoes of Commissioner 

Wetjen on this. So do I hand it to you, 

Melissa, or do I do it? I hand it to you. 

Thank you.

MS. JURGENS: This is a vote on 

the designation of Commissioner Bart 

Chilton as a sponsor of the Global Markets 

Advisory Committee. Commissioner Wetjen?

COMMISSIONER WETJEN: Aye.
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MS. JURGENS: Commissioner Wetjen, 

aye. Commissioner O'Malia?

COMMISSIONER O'MALIA: Aye.

MS. JURGENS: Commissioner 

O'Malia, aye. Commissioner Chilton?

COMMISSIONER CHILTON: Aye.

MS. JURGENS: Commissioner 

Chilton, aye. Mr. Chairman?

CHAIRMAN GENSLER: Aye.

MS. JURGENS: Mr. Chairman, aye. 

Mr. Chairman, on this matter, the ayes have 

four, the noes have zero.

CHAIRMAN GENSLER: We have matters 

of two other advisory committees, as well, 

and with all respect, I'm just going to go 

through those, as well, because that's 

where we are. But I want to say we're also 

considering establishing a new advisory 

committee to be headed by Commissioner 

Wetjen, and it's to be named the Market 

Risk Advisory Committee. We're not able to 

take a vote today, because we're working 
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with the General Services Administration 

Committee Management Secretariat to approve 

this new committee, but I think that we 

will greatly benefit as a Commission by 

pulling together a group of outside 

individuals of diverse backgrounds to give 

us advice on broad issues of market risk.

But I thought I'd just turn to 

Commissioner Wetjen if he wanted to say any 

comments. There's not actually a vote, but 

just --

COMMISSIONER WETJEN: I just 

appreciate your support, Chairman, in our 

discussions about this advisory committee, 

your willingness to consider the creation 

of a new one. And I also want to thank the 

folks in OGC who have been advising me on 

how best to go through this process, and 

we're hoping to get this up and running 

very soon. Thank you.

COMMISSIONER CHILTON: I think 

you'll do a great job at this, Commissioner 
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Wetjen, and one of the things I talked 

about back in April was listening to end 

users more, and I suggested we do an 

end-user advisory committee, but, really, 

the effort of what we're looking at with an 

end-user advisory committee can be consumed 

by the risk committee, because it's all 

about risks, so I look forward to working 

with you on the end-user component, which I 

know you care deeply about also, as part of 

your work with that advisory committee.

CHAIRMAN GENSLER: And just so I 

can finish the trio, here, our Agricultural 

Advisory Committee will meet in this room 

on Thursday, July 25th, from 9:00 a.m. 

until the early afternoon. The committee 

is now, though I am technically the sponsor 

under the charter, and am proud to be the 

sponsor, the committee is chaired by Dr. 

Randall Fortenbery, and we look forward to 

that meeting.

Now, with that, I think it is time 
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for me to turn over to the excellent --

MEGAN WALLACE: Page 3.

CHAIRMAN GENSLER: Oh, I have to 

do page 3. I'm apparently told I'm 

supposed -- the staff will make 

presentations concerning the 

recommendations on the cross-border 

guidance and cross-border phase-in 

exemptive order. After each presentation, 

the floor will be open for questions and 

comments from each of the Commissioners. 

Following these discussions, the Commission 

may take votes on the recommendations as 

presented. All final votes conducted in 

this public meeting shall be recorded 

votes, and the results of these votes will 

be included in their relevant Federal 

Register release, including your longer 

piece.

I first just ask unanimous consent 

to allow staff to make technical 

corrections to the documents voted on today 
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prior to sending them to the Federal 

Register. Without objection? So ordered.

COMMISSIONER O'MALIA: No 

objection.

CHAIRMAN GENSLER: And then, at 

this time --

COMMISSIONER WETJEN: Mr. 

Chairman?

CHAIRMAN GENSLER: I'm sorry.

COMMISSIONER WETJEN: On the 

technical corrections, we talked about this 

a little bit. There might be a number of 

them, given the short time frame that we've 

had to have the staff draft all this up, so 

we look forward to continuing to work with 

the staff, and we'll get those changes 

based on our review that reflect the 

agreement to the staff as quickly as 

possible.

CHAIRMAN GENSLER: Absolutely. 

And so, for the public, that means, though 

we normally do put these things on the 
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website today, if one of the documents goes 

on the website and the other doesn't, and 

it's over the weekend and so forth, you'd 

understand. We just want to make sure that 

it's technically exactly what we have. I 

mean, we all have a voting document from 

last night, and my review is, I think 

that's pretty much there, but, of course, 

we want to make sure. And everybody will 

see that.

At this time, I'd like to welcome 

Jonathan Marcus, our General Counsel; 

Carlene Kim, Deputy General Counsel; Laura 

Badian all from the Office of General 

Counsel; Sarah Josephson, our Director of 

Office of International Affairs; Gary 

Barnett, who runs our Division of Swap and 

Intermediary Oversight; Erik Remmler, who 

is the Deputy Director to present their 

thoughts and recommendation on 

cross-border.

But before I do, I just want to 
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thank not only the six of you, but probably 

the couple of dozen or three dozen other 

people that, for these last really 18 to 20 

months of thinking through these issues, 

have just put an enormous bit of 

dedication, energy and thought into this, 

including many late nights this week. So 

thank you.

MS. KIM: Good morning, Mr. 

Chairman and Commissioners. Today staff is 

recommending that the Commissioner approve 

interpretive guidance and policy statement 

regarding the cross-border application of 

the swaps provisions of Title VII of the 

Dodd-Frank Act.

First, before we get into the 

details, on behalf of my colleagues in the 

Office of General Counsel, I would like to 

thank staff in the Division of Swap Dealer 

and Intermediary Oversight, Office of 

International Affairs, Division of Market 

Oversight, and Division of Clearing and 
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Risk for all of their hard work, advice, 

and support during the drafting process. 

My special thanks goes to Mark Fajfar and 

Laura Badian in the OGC Office for their 

exceptional dedication and hard work in 

bringing us to here today. And I would be 

remiss if I did not acknowledge the special 

contributions of Dan Berkovitz, Jackie 

Mesa, and Terry Arbit. They're no longer 

with the agency, but each played a critical 

role in developing the guidance.

This Interpretive Guidance and 

Policy Statement is intended to provide 

greater legal certainty and clarity to U.S. 

and non-U.S. market participants regarding 

their obligations under the Commodity 

Exchange Act with respect to their 

cross-border activities. In particular, 

the guidance addresses the circumstances 

under which a non-U.S. Entity would be 

required to register as a swap dealer or 

MSP, and the extent to which Dodd-Frank 
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requirements would apply to such 

registrants. It also provides a general 

framework for a substituted compliance 

regime under which the Commission would 

permit a non-U.S. registrant to comply with 

comparable and comprehensive requirements 

in its home jurisdiction.

The guidance also addresses the 

extent to which Dodd-Frank provisions would 

apply to transactions between 

non-registrants. I'll now pass the 

microphone to Laura Badian who will 

describe the key elements of the guidance.

MS. BADIAN: Good morning, thank 

you. Let me first turn to the 

interpretation of the term "U.S. person," a 

foundational element of the guidance. As 

proposed, the term was intended to 

encompass those persons whose activities, 

either individually or in the aggregate, 

have a direct and significant nexus to U.S. 

commerce within the meaning of section 
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2(i). In addition, the term "U.S. person" 

is a useful concept when considering the 

extent to which U.S. transaction-level 

requirements should apply to swap 

transactions.

The term "U.S. person" is largely 

territorial-based. The definition would 

include natural persons that are U.S. 

residents, as well as corporations, 

business entities, and funds that are 

organized in the United States or have 

their principal place of business here. In 

addition, collective investment vehicles, 

such as hedge funds and commodity pools, 

are included in the interpretation of the 

term "U.S. person" if they have their 

principal place in the United States. Such 

collective investment vehicles or funds 

also would fall within the term "U.S. 

person" if they are majority owned by "U.S. 

persons," but there is an exception for 

collective investment vehicles that are 
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publicly offered but not offered to U.S. 

Persons.

Turning to the Dodd-Frank 

requirements, for purposes of applying the 

swap provisions of the Dodd-Frank Act to 

cross-border swap transactions, the 

guidance divides these requirements into 

two basic categories. First, entity-level 

requirements apply to a swap dealer or 

major swap participant firm as a whole. 

For example, entity level requirements 

would include such things as capital 

adequacy, chief compliance officer, and 

swap data repository reporting. In 

contrast, transaction-level requirements 

generally apply on a 

transaction-by-transaction basis, and 

include, for example, clearing margin, real 

time reporting, and trade execution 

requirements.

Transaction-level requirements 

generally apply to swaps between non-U.S. 
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swap dealers and MSPs with U.S. persons and 

with guaranteed affiliates, but these swaps 

would generally be eligible for substituted 

compliance in the case of swaps with 

guaranteed affiliates. Dodd-Frank Act 

transaction-level requirements generally do 

not apply when the swap is between a 

non-U.S. swap dealer or major swap 

participant and a non-U.S. Person that is 

not a guaranteed affiliate. Where a swap 

is executed anonymously between any 

non-U.S. swap dealer or major swap 

participant and a U.S. person on a 

registered DCM or SEF and cleared, the 

non-U.S. person generally will be 

considered to have satisfied the 

transaction-level requirements that apply 

to such a swap transaction.

As Carlene mentioned, and many of 

you have mentioned, there's a substituted 

compliance regime set forth in the 

guidance. Under the substituted compliance 
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regime, if the Commission issues a 

comparability determination for a given 

entity- or transaction-level requirement, 

the Commission generally would permit an 

applicant to substitute compliance with the 

requirements of the relevant home 

jurisdiction's law and regulations -- or in 

the case of foreign branches of U.S. swap 

dealers, the foreign location of the branch 

-- in lieu of compliance with the 

corresponding requirement under the 

Commodity Exchange Act and our regulations.

The guidance broadly describes the 

process and the factors that it would 

consider in making this comparability 

assessment. A couple of things to 

emphasize here. First, comparable and 

comprehensive does not mean that we would 

look for identical regulations abroad. 

Rather, we would take into account all 

relevant factors, including the scope and 

objectives of the relevant regulatory 
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requirements, and the comprehensiveness of 

the foreign regulators' supervisory 

compliance program when you make this 

assessment. Second, this assessment does 

not entail a rule-by-rule analysis, but 

rather the Commission would make this 

assessment on a category-by-category basis.

With respect to guaranteed 

affiliates, the guidance recognizes that 

non-U.S. persons, which are affiliated with 

a U.S. person, may present the potential 

for systemic risk to the U.S. financial 

system because such swaps are guaranteed by 

a U.S. person. So, for example, swaps 

entered into by non-U.S. swap dealers with 

guaranteed affiliates of U.S. persons would 

be subject to Dodd-Frank Act requirements, 

as are swaps with U.S. persons, but the 

transaction with the guaranteed affiliate 

would be eligible for substituted 

compliance. Swaps between two guaranteed 

affiliates that are not swap dealers would 
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also be subject to certain Dodd-Frank 

requirements that apply to non-swap 

dealers, but with substituted compliance 

available.

A swap between a non-U.S. person 

and a foreign branch of a U.S. swap dealer, 

or between two foreign branches, is 

eligible for substituted compliance and is 

not counted towards the de minimus 

threshold for swap dealer registration if 

the swap is bona fide with a foreign branch 

based on factors such as whether the 

employees negotiating and agreeing to the 

terms of the swap, other than employees 

with ministerial functions, are located in 

the foreign branch, or another foreign 

branch of the U.S. bank. Another factor 

would be whether the foreign branch or 

another foreign branch is the office 

through which the U.S. bank makes and 

receives payments and deliveries under the 

swap.
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With respect to the swap dealer de 

minimis calculation, the Commission's 

policy under the guidance is that a U.S. 

person or a non-U.S. Person that is a 

guaranteed affiliate should generally count 

in its swap dealer de minimis calculation 

all of its dealing swaps, whether with U.S. 

or non-U.S. counterparties. However, a 

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

affiliate should generally count swaps with 

U.S. persons and swaps with certain 

guaranteed affiliates. However, a non-U.S. 

person that is not a guaranteed affiliate 

may exclude any swaps that are entered into 

anonymously on a registered DCM, SEF, or 

foreign board of trade and cleared.

Stated in general terms, the 

Commission's interpretation on aggregation 

allows 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. The swaps of an affiliate, 
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either U.S. or non-U.S., that is a 

registered swap dealer are excluded. When 

the affiliated group meets the de minimis 

threshold in the aggregate, one or more 

affiliates inside or outside the United 

States would generally have to register as 

a swap dealer so that the relevant swap 

dealing activity of the unregistered 

affiliates remains below the de minimis 

threshold.

CHAIRMAN GENSLER: I didn't know 

if there was more presentation or not. No? 

OK. So, the Chair will now entertain a 

motion to accept the staff recommendation 

concerning the cross-border guidance.

COMMISSIONER CHILTON: So moved.

COMMISSIONER WETJEN: Second.

CHAIRMAN GENSLER: Thank you. I 

support this guidance, given all that I 

said earlier, so I won't repeat it again, 

but I think this guidance appropriately 

balances the international harmonization 
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efforts. What I've come to learn is this 

word about international comity, but most 

importantly, the protection of the American 

public in bringing transparency to these 

markets, and the reality of modern finance 

that global financial institutions 

guaranteed, in any jurisdiction, can bring 

risk back to that jurisdiction. And I 

think that's what's critical and the core 

of what is direct and significant 

connection to or effect on U.S. commerce.

So I support this guidance, and I 

also want to thank publicly the Securities 

and Exchange Commission for tireless and 

consistent input over these last 18 or 20 

months of considering these issues. 

Commissioner Chilton?

COMMISSIONER CHILTON: I'm fine, 

thank you.

CHAIRMAN GENSLER: Commissioner 

O'Malia?

COMMISSIONER O'MALIA: Thank you. 
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Very interested in the substituted 

compliance program on page, I think --

well, I don't know what the new draft, last 

night's draft says, but I think one draft I 

had is page 208 had a statement in there, 

there's going to be an outcomes-based, and 

Laura, you basically indicated that it 

would be outcomes-based. You didn't say 

those words, but is that what you meant in 

your summary of your description of the 

process?

MS. BADIAN: Right. But, of 

course, we would look to see whether the 

requirements in the other jurisdictions are 

comparable and comprehensive to ours.

COMMISSIONER O'MALIA: So one area 

that I'm kind of wondering about is data 

reporting. As I understand it, we will 

require direct electronic access for every, 

in order to be, as the first test, direct 

electronic access without any legal 

barriers; is that correct?
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MS. KIM: Yes, unfettered access.

COMMISSIONER O'MALIA: Do we 

provide the same for international and the 

same unfettered access to our SDRs, to 

every other regulatory entity?

MS. KIM: I'm going to look to my 

colleagues in the Division of Market 

Oversight.

MS. NATHAN: Morning.

COMMISSIONER O'MALIA: Good 

morning.

MS. NATHAN: Our ability to 

provide direct unfettered access to our 

foreign counterparts is somewhat 

constrained by the statutory provisions of 

Dodd-Frank, which require, in Section 728 

of Dodd-Frank, 21(d) of the CEA, that such 

access must be accompanied by an 

indemnification agreement. We have done, 

at the staff and at the Commission level, 

as much as we believe we're able to do, 

consistent with the Dodd-Frank Act, to find 
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ways to accommodate foreign regulators 

where we think we can.

COMMISSIONER O'MALIA: Now, thank 

you very much. Now, it also says as a 

second condition that we will insist on a 

comparable form and format of the data. 

Does that mean we get to dictate to foreign 

SDs, I mean TRs that they have to develop, 

they have to collect the same data we are 

and in the same format that we're 

collecting it in order to be comparable?

MS. NATHAN: I don't know that 

that's strictly true, and because I'm not a 

data expert, I may not be able to give you 

the answer that you're looking for, but I 

think the idea is that the data has to be 

sufficiently comparable so that it has some 

utility to our surveillance staff and ODR, 

ODT/ODR, I forget what the division is 

called, so that they can use it 

appropriately and so that it can be 

aggregated.
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COMMISSIONER O'MALIA: So I'm 

trying to understand how an outcomes-based 

and a form and format requirement is 

consistent. Because demanding a foreign 

entity meet our form and format doesn't 

sound like an outcomes-based, that sound 

like a very much more granular specific. 

How do we reconcile these two?

MS. NATHAN: It is, by definition, 

I think, a more technical requirement than 

some of the others. However, we think and 

we are working with Srini and John Rogers 

to come up with a protocol that would allow 

us to find, say, that, while their data is 

not identical to ours, it can be made 

useful in some way so that it does not have 

to be identical.

COMMISSIONER O'MALIA: That goes 

right up until we get to large trader 

reporting, correct? And that we will 

demand -- there is no substituted 

compliance in this proposal for large 
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trader reporting?

MS. NATHAN: That's correct.

COMMISSIONER O'MALIA: How are we 

going to compel non-U.S. persons to report, 

to comply with our large trader reports?

MS. KIM: My understanding is, and 

my colleague in DMO, she will correct me if 

I misstate anything, but my understanding 

is that, currently, non-U.S. persons do 

report, submit to the extent that they 

trigger reporting requirements under Part 

20. They do so report.

COMMISSIONER O'MALIA: That wasn't 

the question. How are we going to enforce 

somebody else who doesn't feel like they 

need to comply with large trader reporting 

under this guidance?

CHAIRMAN GENSLER: I think that if 

Laura and Susan turn your mic off, it would 

help, just the feedback. But, now, David 

Van Wagner.

MR. VAN WAGNER: Yeah. I mean, 
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just the premise, of course, is, the 

requirement in the first instance is only 

going to be going out to SDs and clearing 

members. So that's, as a threshold, you'll 

have do that, and they are actually 

reporting this data already.

COMMISSIONER O'MALIA: So you're 

saying that you would use the registration 

as the hook to compel them to report?

MR. VAN WAGNER: I think that's 

right.

COMMISSIONER O'MALIA: But it 

doesn't, the large trader language doesn't 

-- I think it's on, I don't know what it's 

on, I keep -- 236, it says for non-U.S. 

persons. It doesn't limit it, and there's 

a variety and --

MR. VAN WAGNER: Right, right, for 

the overlays --

COMMISSIONER O'MALIA: A variety 

of different large trader references 

sprinkled throughout this document --
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MR. VAN WAGNER: Correct.

COMMISSIONER O'MALIA: That it's 

tough to understand.

MR. VAN WAGNER: Granted. But the 

overlay, of course, is part 20 itself. I 

suppose we could frame within that, I mean, 

we would bring forth the part 20 references 

and make it clear that part 20 --

COMMISSIONER O'MALIA: So it's 

only clearing members and swap dealers. 

But, I mean, it is possible that you could 

have somebody who is neither one of these 

entities that is of significant size to 

trigger the reporting, couldn't you?

MR. VAN WAGNER: Sorry.

MS. FLOOD: So, in terms of 

periodic reporting obligations of large 

positions under part 20, the requirements 

are for clearing members, swap dealers and 

also DCOs have reporting obligations. 

There are certain recordkeeping 

requirements that would be applicable to 
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non-clearing member, non-swap dealer 

entities that have large positions, there 

are recordkeeping requirements. And I 

believe that the way that the rule works --

COMMISSIONER O'MALIA: Large 

trader rule part 20?

MS. FLOOD: Part 20.

COMMISSIONER O'MALIA: Yeah.

MS. FLOOD: The, in terms of the 

recordkeeping requirements for those 

entities -- so these would be non-clearing 

members, non-swap dealers who have these 

recordkeeping obligations -- they are able 

to maintain those records generally in the 

form that they would in the normal course 

of business. So the thought is that, if 

you have these recordkeeping requirements, 

the burden shouldn't be too onerous.

But, in addition to that, I just 

want to clarify that part 20 applies to 

physical commodity swaps that have a 

linkage, either directly or indirectly, to 
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a specified list of U.S. listed physical 

commodity futures, so --

COMMISSIONER O'MALIA: So somebody

trading on the Matif wheat contract could 

be currently a non-swap dealer, a regional 

bank, for example, that could have a 

sizable position of a linked contract. How 

do we compel them to report? Is that the 

linkage, or does it have to be actually 

linked to the U.S. contract?

MS. FLOOD: Well, the linkage is 

to the U.S. contract. That triggers the 

reporting obligation under part 20. And 

the view as expressed in the guidance, as I 

understand it, is that that linkage, the 

fact that these swaps are deemed to be 

economically equivalent to U.S.-listed 

physical commodity futures, that is a 

direct and significant connection to 

activities in the U.S. market. Anybody, my 

colleagues can correct me if I'm wrong, but 

I do not believe that, under the Futures 
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Large Trading program, there is a concept 

of substituted compliance, for example.

I think that the threshold is if 

you have the large reportable positions in 

the covered futures contracts, you are 

required to report under the Futures Large 

Trader Reporting regime.

COMMISSIONER O'MALIA: Thank you. 

Sarah, have we shared the requirement for 

direct electronic access in the form and 

format with the EU, and have they agreed 

that this is fine in order to achieve 

substituted compliance?

MS. JOSEPHSON: Have we shared --

can you --

COMMISSIONER O'MALIA: Have we 

shared the requirement that we're going to 

insist on direct electronic access without 

any legal barriers and insist on the same 

form and format?

MS. JOSEPHSON: Right. I think 

the best way to answer that question about 
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direct unfettered access is to step back 

for a moment and explain just how much work 

we've been doing in this area with our 

colleagues internationally, both on a 

multilateral level and bilaterally in terms 

of being able to get to a good 

understanding of access to the data, but 

then also you'll see reflected in the path 

forward document that went out yesterday 

morning that we do have certain issues 

around data.

But, generally speaking, we're 

working through those collaboratively with 

our colleagues in terms of being able to 

use that data in a meaningful way to be 

able to sort through, understand, analyze 

it, aggregate it where that's possible. 

And I think there's a broad understanding 

right now about issues related to that, 

we've had numerous, numerous conversations, 

and my colleagues both at this table and 

behind us can tell you about many of those 
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conversations, and I think we're working 

through that.

COMMISSIONER O'MALIA: But on the 

issue of direct electronic access, they 

don't have any problems, as far as you're 

aware of?

MS. JOSEPHSON: That I'm aware of, 

no, I think that the --

COMMISSIONER O'MALIA: Saving the 

privacy laws --

MS. JOSEPHSON: Yes.

COMMISSIONER O'MALIA: Which was 

the answer I was looking for.

MS. JOSEPHSON: With the exception 

of privacy blocking and secrecy laws that 

have been well documented, yes.

COMMISSIONER O'MALIA: Thank you. 

Jonathan, can we talk a little bit about 

our legal and enforcement authority under 

the cross-border guidance, as opposed to 

rulemaking. What enforcement and legal 

authority does guidance give us?
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CHAIRMAN GENSLER: You might want 

to your button.

COMMISSIONER O'MALIA: Turn on 

your mic.

MR. MARCUS: The guidance reflects 

the Commission's interpretation of 2(i) and 

it also reflects what the, I saw a 

statement from the agency as to how it 

intends, at this time, to apply and enforce 

section 2(i). And when the enforcement 

authority comes from the statute, from 

2(i), and also from the rules that would, 

the rules the Commission has already 

promulgated that would then apply based on 

the interpretation of section 2(i). So 

that's, but the guidance itself is not 

binding strictly. We couldn't go into 

court and counter the complaint, list a 

violation of the guidance as an actionable 

claim.

But the guidance does tell market 

participants what the Commission's current 
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views are about how 2(i) applies in the 

cross-border context, and the statute gives 

us that enforcement authority.

COMMISSIONER O'MALIA: Susan, can 

I ask you to come back to the table, I 

forgot a question on data. There's a 

footnote, it was 472, I have no idea what 

it is now, it's certainly not 472 in the 

latest, the last two documents I was 

looking at. But it said swap dealers have 

to report to an SDR. We went through this 

with CME rule 1001. Does that mean are we 

going to revisit the same problems that we 

had before?

CHAIRMAN GENSLER: And, again, 

Jonathan, you might want to turn off your 

mic. I'm just helping.

MS. NATHAN: I'm not sure I 

understand your question.

COMMISSIONER O'MALIA: So before 

rule 1001, where we said the clearinghouse 

could be the party reporting to the SDR. I 
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believe an earlier footnote said that -- it 

was 472, it's not there anymore, it's 

changed but it says that swap dealers have 

to report to an SDR. Are we going to have 

the same problem -- maybe you guys know 

what the new footnote is.

MS. NATHAN: I don't know the 

answer.

CHAIRMAN GENSLER: Which footnote 

is it now, Susan?

MS. NATHAN: It's, I'm sorry, it's 

501.

CHAIRMAN GENSLER: Is it 468? 

Because I'm reading 468.

MS. NATHAN: No, it's on page 219.

CHAIRMAN GENSLER: I think 

Commissioner O'Malia might be referring to 

what was now --

MS. NATHAN: Perhaps we're not 

referring to this same thing, but --

CHAIRMAN GENSLER: It's on page 

203, footnote 468.
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MS. NATHAN: All right.

COMMISSIONER O'MALIA: It seems as 

though it's changed, but does this fix that 

issue?

CHAIRMAN GENSLER: I think, 

because this, Commissioner O'Malia, I think 

this looks that this is now --

COMMISSIONER O'MALIA: It doesn't 

say swap dealer.

CHAIRMAN GENSLER: Yeah. Because 

your point is well taken that it shouldn't 

say swap dealer, because in those other 

circumstances, it might be somebody else. 

So let's make sure just, if there's another 

footnote, as well, that we just ensure that 

Commissioner O'Malia's, what I'll call 

clean-up, is addressed.

COMMISSIONER O'MALIA: And I would 

also, footnote 501 also may have some 

bearing on this, as well.

CHAIRMAN GENSLER: So you look at 

footnote -- Carlene and Susan, if you look 
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at footnotes 501 and 468 and just ensure 

that what Commissioner O'Malia is 

suggesting --

COMMISSIONER O'MALIA: Can I ask 

on the timetable in process for substituted 

compliance, I guess this goes to Erik or 

Gary. Since, Erik, I think you're 

reviewing the submissions thus far from 

which countries?

MR. REMMLER: We've received 

submissions now as of this morning from all 

six jurisdictions where we have registered 

swap dealers. That includes the EU, 

Switzerland, Hong Kong, Australia, Canada 

and I think -- did I forget any -- Japan.

COMMISSIONER O'MALIA: And what is 

your timetable for reviewing those and 

making a determination on substituted 

compliance?

MR. REMMLER: We received, the 

first one we received was in late April, 

but most of them have come in very 
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recently, and so we're in the process of

reviewing them. I expect that the reviews, 

it's a process of first the staff reviewing 

the submissions, developing an 

understanding of the regulations, 

guidelines, and laws of each jurisdiction, 

that are referenced in the submissions and 

then having conversations with, consulting 

with market participants and regulators in 

each of the jurisdictions. So that 

process, I expect, will take a matter of 

months.

COMMISSIONER O'MALIA: And what 

role will the Commission play in that 

process?

MR. REMMLER: My understanding is 

that, as the staff works through their 

review of these submissions and comes up 

with recommendations for the Commission, 

the Commission will then consider them and 

make a determination with regard to 

substituted compliance.
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COMMISSIONER O'MALIA: How will 

you brief the Commission if we have 

questions for the international regulators, 

how will we be in contact with them? Will 

there be an open meeting, other than 

possibly what Commissioner Chilton is going 

to organize through GMAC?

CHAIRMAN GENSLER: Can I make a 

suggestion? I think that each of the 

Commissioners should be as active as they 

wish with Erik, time permitting, but with 

Erik, Gary Barnett, Sarah, and getting 

briefings and advice and sharing 

Commissioner's advice to the staff. This 

is ultimately a Commission determination, 

so I think that should be welcomed, and I 

hope that Erik and the team, in terms of 

the regulators-to-regulators what many of 

the international regulators have asked is 

for there to be collaboration and ongoing 

consultation, which there will be, 

naturally, really spearheaded by Sarah, 
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Gary, and Erik directly at the staff 

levels. But I think Commissioners should 

--

COMMISSIONER O'MALIA: Well, I 

want to make sure there is a process, and 

if they want to come up with a process to 

continuously kind of update the Commission 

on what they're working on and where they 

are in terms of the submissions, because I 

think, in some regards, you're going to 

have some probably very disappointed 

regulators that believe they are 

equivalent, and that might have a different 

outcome than they expect, and we will have 

a problem, and I don't want to be facing 

that at the 11th hour.

I'd want to know it in maybe the 

5th or 6th hour before we get to some 

deadline that forces us to make a bad 

decision or a rush decision, when none of 

this has to happen if we engage publicly 

and transparently.
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CHAIRMAN GENSLER: I think that 

we're on a similar path to have regular 

updates, Commission briefings or 

Commissioner briefings, because it's within 

the Sunshine Act, but to have briefings in 

writing and oral. Now that we have all 

six, if Erik and Gary, you can come up with 

a process within the next two weeks, that's 

a real process that we all know on how 

you're going to keep us updated on the six 

jurisdictions, and your initial thoughts, 

and then as they are ongoing.

COMMISSIONER O'MALIA: Sarah, I'd 

also recommend that you ask foreign 

regulators if they'd like to participate in 

some sort of dialogue, if they want to come 

defend their submissions or talk about

their submissions. I think that would be 

very helpful to have an understanding of 

what they're thinking and how they execute 

their own regulations and where they 

believe they're comparable. So I would 
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welcome that opportunity, so when you speak 

to them, please pass on that request.

MS. JOSEPHSON: Yes, we will do 

that.

COMMISSIONER O'MALIA: 

Commissioner -- last question, I apologize. 

Commissioner Wetjen mentioned the no-action 

letter that went out, I believe yesterday, 

regarding the risk management. Now, this 

is an indefinite letter of no-action, which 

comes right before what Erik and everybody 

are working on to find comparability. And 

I know we're under some deadline of some 

sort we've created, but why did we give 

indefinite relief when we're about to make 

a comparability determination going 

forward? And, furthermore, this guidance 

requires us to review every four years all 

of our substituted compliance, yet this is 

a permanent kind of relief.

So I'm trying to understand how 

this process works, and when the Commission 
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gets to make the decision, and when 

no-action letters substitute for Commission 

decision, and especially when it's 

permanent.

CHAIRMAN GENSLER: Can I try to 

address it? I think that document 

appropriately reflects, I apologize, I 

can't remember the page number, but 

appropriately reflects that such actions 

where foreign regimes are essentially 

identical be brought to this Commission 

and, I can't remember the exact words, but 

that that's the presumptive approach. This 

negotiation with Europe, this was an 

important feature of this negotiation that 

they requested, and we've done this 

elsewhere in other circumstances where 

we've done no-action letters, so it was a 

part of it. But it's definitely the 

intention and I think in the guidance to do 

such things at a Commission level.

COMMISSIONER O'MALIA: Well, I 
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think we've taken the no-action process and 

what should have been limited relief, 

carefully chosen selective relief, and 

turned it into an abused process that is, 

frankly, creating regulation and 

undermining the Commission decisions, 

frankly reversing some Commission rules. 

And that's a dangerous precedent, 

especially in one document, you give us 

ultimate decision to make substituted 

compliance, and then take it away through a 

no-action letter. So I think we definitely 

need some processes here, to understand 

what, when, and how we're going to be using 

these things, because these are usurping 

the Commission decision process right here.

MS. KIM: Can I just add a 

statement? The guidance that's being 

considered for approval today acknowledges 

your concern about the use of no-action 

letter, and it states that, it acknowledges 

the concern that you just articulated. So 
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it expressly states that, going forward, 

any prospective, essentially identical 

findings will be made largely by Commission 

order, but we also retain the flexibility 

to do so through Commission staff no-action 

process. So --

COMMISSIONER O'MALIA: So, you say 

you don't like the no-action process, but 

you reserve --

MS. KIM: No, no, I didn't say --

COMMISSIONER O'MALIA: It anyway 

to protect our ability to do it.

MS. KIM: Anything about not 

liking the no-action letter process --

COMMISSIONER O'MALIA: Well, I 

thought you said that you raised the same 

concerns I did --

MS. KIM: No --

COMMISSIONER O'MALIA: Which is --

no?

MS. KIM: I'm agreeing, I'm 

agreeing with your concern about 
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inappropriate use of no-action letter, I 

didn't say anything about whether, in this 

context, as used in the "essentially 

identical" finding, was inappropriate. But 

we also have to, I think we all agree that 

there is need for Commission staff to 

retain the flexibility to use no-action 

process to address certain specific 

situations. And I think, when I say I 

acknowledge your concern, and it's 

reflected in the guidance, is that the 

Commission commits to minimize the 

potential for abuse by committing to use 

the Commission level order, as opposed to 

staff no-action letter, in any future 

findings regarding essentially identical.

COMMISSIONER O'MALIA: Well, then 

--

MS. JOSEPHSON: Can I --

COMMISSIONER O'MALIA: Would it 

make more sense if we went, in this news 

release, talking about the agreement with 
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Europe, which is a positive, we list two 

other no-actions regarding FBOTs and other 

things that we're going to be doing. Why 

don't we do those in either substituted 

compliance or rule change?

MS. JOSEPHSON: Perhaps it would 

make sense for me to just jump in for a 

moment, here, and --

CHAIRMAN GENSLER: Would you bring 

the mic closer?

MS. JOSEPHSON: Okay. To mention 

the specific letter that you reference does 

build off of a very close and collaborative 

and very constructive relationship that we 

have had with the European Union and 

specifically the European Commission and 

the ESMA, the Markets authority in Europe, 

to look at the rules that have been 

finalized under EMIR. So their statutory 

and regulatory framework, so both the 

legal, the law and the regulations to do 

the side-by-side comparison of those rules. 
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And I would compliment and thank very much 

our colleagues at both the European 

Commission and also ESMA for the work that 

they have done to basically be able to 

demonstrate to us, and we were in 

discussions about looking at specific 

requirements, and they were reflected in 

that letter.

So it's the trade confirmation 

rules, portfolio reconciliation and 

compression, documentation in terms of 

valuation and dispute resolution, and 

looking at rules that have been finalized 

under EMIR and under Dodd-Frank, our rules 

in part 23 for swap dealers and major swap 

participants and recognize that they're 

essentially identical, so when you have 

that sort of joint jurisdiction, that you 

can recognize that. And, again, that's not 

inconsistent with a substituted compliance 

determination, which will occur in due 

course, and has been --
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COMMISSIONER O'MALIA: But it 

makes the substituted compliance irrelevant 

when you precede it with a no-action 

letter.

MS. JOSEPHSON: It doesn't, I 

don't think it makes it irrelevant, I think 

they're separable concepts, both legally 

and intellectually.

COMMISSIONER O'MALIA: But what 

is, if it's a Commission decision and a 

no-action -- what is, you've got dual path, 

here, that you could either do it no-action 

or you could do it, you know, in the 

guidance, the important guidance we have 

that is going to define how we deal with 

people internationally, it says that it's a 

Commission decision through substituted 

compliance.

MS. JOSEPHSON: I think where we 

are today reflects the reality of the 

situation, and as we look at the markets 

and we have two sets of rules that have --
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COMMISSIONER O'MALIA: Who looks 

at the markets, who gets to make this 

decision?

MS. JOSEPHSON: I think the 

decision is being made, you know, again, as 

we move forward --

COMMISSIONER O'MALIA: Who?

MS. JOSEPHSON: Well, at times, as 

Carlene was mentioning, I think we have the 

authority to use staff no-action where 

appropriate, we also have, in the 

Commission decision making process, which 

we are all very much familiar with.

CHAIRMAN GENSLER: I would also 

note two things, Commissioner O'Malia. 

Often, and probably pretty consistently, 

regulatory bodies would want this 

Commission to act as the full Commission. 

So I think that, too, tends to that. This 

circumstance was one where the European 

Commission wanted us, at least at the staff 

level, to do something sooner than could 
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possibly be done, but it's fully described 

and discussed in the guidance. Secondly, 

regulatory commissions, not just this one, 

have used staff no-action type letters 

probably for a few decades. When I was 

asked to chair this Commission, one of the 

things Congress asked, the Senate asked is 

could we inventory. And you remember this 

inventory of 700 no-action letters that, 

over the last 20 or so years, we couldn't 

go back 35 years, but probably over the 

last 20 years that we inventoried and put 

it all on our website, that was 700 before. 

And, yes, over these last four years, we've 

probably added another 100 to 150, but it 

is something that is a tool of regulatory 

agencies like ours.

COMMISSIONER CHILTON: Mr. 

Chairman, two things. One, I almost chimed 

in on your previous concern, Commissioner 

O'Malia, about not learning about these 

things at the 11th hour, and I agree, we 
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need some process, whatever people come up 

with, whether or not it's showing us a list 

every week and telling us where people are, 

who's come in, sort of like we're doing on 

this SEF rule, every week, they tell us 

who's applied, et cetera, so that we do 

find out ahead of time. But then, to this 

point about the no-actions, the no-actions 

actually allow us, I think, to be more 

nimble and quick, because it delegates it 

to the staff.

Now, we can, at any time, say, 

hold on, we're not comfortable with that at 

all. It requires diligence on our part, 

but I think that will avoid the no-action 

process, will avoid your previous concern 

about finding things out at the 11th hour 

about substituted compliance. So I guess 

it's in the eye of the beholder, but all of 

it comes back to the job that we're 

supposed to do to ensure that the 

appropriate authority is granted, 
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designated as staff, but not too much at 

times if they're going astray.

COMMISSIONER O'MALIA: Well, I'd 

be interested to know -- I'm told that the 

no-action process is just that, no action 

by the Commission, as well, and that we 

don't have a say, it's not a Commission 

decision, therefore, it's not subject to 

notice and comment, it's not subject to 

other things. So it does have a lower 

standard in terms of kind of the 

Administrative Procedure Act. So, on one 

hand, it's a very nimble tool, but on the 

other hand, it is an end-run around some of 

these transparent and rulemaking processes. 

We do have, in just Dodd-Frank alone, over 

100 exemptions, 20 of them, I believe, are 

indefinite, which turns that into a 

rulemaking, if, in my opinion. If you say 

the rule is X and then say except for Y, 

and you make that indefinite, that turns 

into reversing Commission action, that is a 
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rulemaking, in my mind, and that is 

probably something we need to be very 

careful with.

So we have a process, you know, 

we're engaging with them, they're 

submitting it, and to on and off, turn on 

and off the Commission's authority to use a 

rulemaking or a no-action relief, I don't, 

I don't feel as comfortable with the 

no-action relief. And I think we've 

crossed a line in how we've used them, and 

the frequency in which we use them, 

especially in terms of how you understand 

what the rules and times and conditions. 

Because it's not in the rule, right, you've 

got to go to our website, you've got to 

check it out, you've got to go through the 

100 or so ones that we found, like, oh, 

does this apply to the rule that I'm 

looking at in the Code of Federal 

Regulations or not?

It's not as transparent, it is 
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confusing, at worst, and in some cases, I 

think, it undermines the Commission's rule, 

so I'm going to leave it there for now. 

I'm not letting this thing go. The 

Commission has a role, Congress appointed, 

the President appointed us, Congress 

approved us to make these decisions. I've 

voted on hundreds of things. I'm around. 

I'm happy to vote on things. Put them 

before us and let us vote. But to have 

things taken away from us, or not put in 

front of us and just provided indefinite 

relief or fixes is not a good policy, in my 

mind.

CHAIRMAN GENSLER: Mark?

COMMISSIONER WETJEN: I don't have 

any questions.

CHAIRMAN GENSLER: I thank you 

all, and now I turn to Melissa.

MS. JURGENS: This is a vote on 

the interpretive --

CHAIRMAN GENSLER: What's that?
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MS. JURGENS: Mr. Chairman?

CHAIRMAN GENSLER: Hold on, 

Melissa. I'm supposed to turn to you 

because these are two separate votes --

COMMISSIONER O'MALIA: Wait, oh, I 

thought we were separating them. I have 

one question on the exemptive relief.

CHAIRMAN GENSLER: Oh, I'm not, I 

haven't --

COMMISSIONER O'MALIA: Okay, 

that's what I thought.

CHAIRMAN GENSLER: Yeah, this is a 

vote just on the guidance.

COMMISSIONER O'MALIA: Okay.

CHAIRMAN GENSLER: And then we 

will have a motion and a second on the 

second one.

COMMISSIONER O'MALIA: That's 

fine.

CHAIRMAN GENSLER: And then, after 

the motion and second, there will be 

questions. So, if there are no further 
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questions, I would like to thank the 

presenters, but now also ask if Melissa, 

Ms. Jurgens, will call the roll.

MS. JURGENS: This is a vote on 

the interpretive guidance and policy 

statement regarding compliance with certain 

swap regulations, also known as the 

cross-border final guidance.

Commissioner Wetjen?

COMMISSIONER WETJEN: Aye.

MS. JURGENS: Commissioner Wetjen, 

aye. Commissioner O'Malia?

COMMISSIONER O'MALIA: No.

MS. JURGENS: Commissioner 

O'Malia, no. Commissioner Chilton?

COMMISSIONER CHILTON: Aye.

MS. JURGENS: Commissioner 

Chilton, aye. Mr. Chairman?

CHAIRMAN GENSLER: Aye.

MS. JURGENS: Mr. Chairman, aye. 

Mr. Chairman, on this matter, the ayes have 

three, the noes have one.
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CHAIRMAN GENSLER: Thank you. The 

majority, the ayes having it, the staff 

recommendation is accepted, along with the 

technical corrections, which everybody will 

see as these hours proceeded today, and 

maybe into the weekend, will be sent to the 

Federal Register. I can turn over now to 

the second presentation presenting the 

cross-border phase-in exemptive order. And 

after you present, I'll take a motion and a 

second, and we'll have questions.

MS. BADIAN: The staff is also 

recommending that the Commission issue an 

exemptive order, which would provide 

temporary conditional relief from certain 

swap provisions of the Dodd-Frank Act to 

non-U.S. swap dealers and MSPs, as well as 

foreign branches of U.S. swap dealers. 

Among other things, the exemptive order 

recognizes that market participants may 

need additional time to facilitate their 

transition to the interpretation of the 
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term "U.S. person" in the guidance. Under 

the exemptive order, the definition of the 

term "U.S. person" contained in the 

Commission's January order of last year 

will continue to apply from July 13, 2013, 

which is the date that the exemptive order 

is effective, until 75 days after the final 

guidance is published in the Federal 

Register.

In addition, market participants 

may continue to apply the swap dealer and 

major swap participant calculation 

provisions contained in the Commission's 

January exemptive order from July 13, 2013 

until 75 days after the guidance is 

published in the Federal Register. The 

exemptive order also would provide non-U.S. 

swap dealers and non-U.S. MSPs in six 

jurisdictions that have submitted a request 

for a substituted compliance determination 

with conditional relief from certain 

entity-level and transaction-level 
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requirements until the earlier December 21, 

2013, or 30 days following the issuance of 

a substituted compliance determination.

CHAIRMAN GENSLER: I will now 

entertain a motion to accept the staff 

recommendation on cross-border phase-in 

exemptive order.

COMMISSIONER O'MALIA: So moved.

COMMISSIONER WETJEN: Second.

CHAIRMAN GENSLER: I support the 

exemptive order, and with this important 

step that has been taken, I think, to 

provide market participants a time to 

phase-in to this new market reality. I 

will have a longer statement of support, 

but the reason I support this, I think that 

it provides an adequate period of time, 

this 75 days from when it's in the Federal 

Register, added to the last year of 

discussions and dialogue with the 

marketplaces for the market to adjust to 

this guidance, but provides further time, 
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approximately five months additional time 

to work with foreign regulators in these 

six key jurisdictions.

And I'm glad to hear, Erik, that 

as of this morning or last night, we did 

get the last submissions. But we've been 

working actively with Australia, Canada, 

Japan, and the European Union for some time 

now, and as Erik reported, we got the, 

there's one swap dealer registered from 

Switzerland and one from Hong Kong, and I 

gather we just received those; is that 

right? And it aligns with what, at least 

Europe and Japan had asked for, to proceed 

afoot, to proceed promptly, but to give an 

additional five months for dialogue, 

collaboration, to look at outcomes as is 

appropriate.

But it does mean that, and after 

three years of Dodd-Frank having been 

passed, and a year of discussion on 

cross-border, that I'm just going to use 
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one example, but a hedge fund that has its 

principal place of business in the U.S., a 

nerve center in the U.S., but just happens 

to have a PO Box in the Cayman Islands 

should probably be getting ready to do 

their central clearing as a U.S. person, 

come about 75 days after this is in the 

Federal Register, and I think that's 

appropriate. I also look forward to the 

comments that the public would send us on 

this exemptive relief.

Commissioner Chilton?

COMMISSIONER CHILTON: I don't 

have any questions other than to continue 

to thank you guys, but I want to make one 

comment about the phase-in. I mean, it is 

the key component of getting this done in, 

I think, a more streamlined, efficient, and 

effective fashion. Without the phase-in, 

we'd be going not just first, and I don't 

mind going first, but we might be going 

first by a significant length of time on 
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some things, and we don't have a real good 

visual on anything that might come out 

sideways; would there be market migration, 

would we be poking a stick in another 

regulator's eye.

So I think that the phase-in is 

really the core concept that allows us to 

go forward, even though we're going first, 

in an appropriate way that, as I said in my 

opening remarks, will lead to a better 

networking of global regulatory regimes. 

So, again, thanks to staff, and thank you, 

Mr. Chairman, for including this concept, 

which I think is really key to moving 

forward. Thank you.

CHAIRMAN GENSLER: I thank you, 

Commissioner Chilton. I know that you 

called for this, in fact, all the 

Commissioners called for this, but you 

happened to call for it in a speech about a 

month ago, then Commissioner Wetjen called 

for it in another speech. But I thank you 
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for all your input, because I do think, I 

mean, this gets consistent with, really, 

we've been consistently phasing in 

compliance. And it may well be even as we 

make substituted compliance determinations, 

and I think we will be making those, this 

Commission might phase even some of those 

in further beyond this December date. This 

is really a date to keep us moving afoot to 

make the substituted compliance 

determinations, but there may be phasing, 

phasing that I would certainly support 

beyond that, as we phase-in the substituted

compliance itself.

Commissioner O'Malia?

COMMISSIONER O'MALIA: Jonathan, 

section 553(c) of the APA, 5 USC 553(c), 

states in part that, after notice required 

by this section, the agency shall give 

interested parties an opportunity to 

participate in the rulemaking through 

submission of written data, views, or 
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arguments with or without the opportunity 

for oral presentation. This is regarding 

the Administrative Procedures Act in a memo 

you sent me saying why my request over a 

month ago to provide a 15-day comment 

period was too narrow.

Now we've gone to a, execute the 

order, and have a simultaneous comment 

period, which does not seem to meet --

because it says, "after notice required by 

this section." It seems, though, in your 

memo, here, you said case law does not set 

a minimum floor for comment period, 

although the Supreme Court in dicta has 

suggested it may view a 30-day as the 

minimum period for allowing meaningful 

opportunity to comment. Why did we go with 

zero comment before the Commission 

decision?

MR. MARCUS: Commissioner O'Malia, 

this is an interim final exemptive order 

that provides for an opportunity for 
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comment, a 30-day period for comment. 

Agencies do have the authority to issue 

interim rules, interim orders under the APA 

for good cause, and, here, I believe there 

is a basis to do so, in light of the --

COMMISSIONER O'MALIA: Where did 

you put that, for good, that discussion, I 

don't think it's in the, I didn't read it 

in the exemptive order. Why we --

MR. MARCUS: It's on the, on pages 

6 --

CHAIRMAN GENSLER: You might pull 

the mic closer to you.

MR. MARCUS: Sorry. Pages 6 

through 8 of the exemptive order, go 

through some of the reasons the Commission 

is issuing the order in this context, 

including the rapidly evolving nature of 

the legal regimes, and we've had, of 

course, the ongoing discussions with 

foreign regulators that, where the picture 

really has been changing virtually every 
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day up until today. So there is, this 

really was a rapidly evolving situation, so 

we believe it is a basis, in this case, in 

light of the, perhaps, the substituted 

compliance program is not, perhaps, as far 

as long as anticipated before this day, to 

alleviate uncertainty in the markets and 

possible disruption in the markets.

COMMISSIONER O'MALIA: I'm reading 

the first page in this, and it says in this 

final exemptive order, the Commission 

provides temporary conditional relief, 

effective upon the expiration of the 

January order. It doesn't say interim 

final anywhere.

MR. MARCUS: Well, my 

understanding is it is an interim final 

order.

COMMISSIONER O'MALIA: It doesn't 

say that.

MS. KIM: No, I believe, we'll 

have to verify that, the Federal Register 
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doesn't recognize interim final orders, so 

it has the effect of an interim final 

order, that it is --

COMMISSIONER O'MALIA: The Federal 

Register does not recognize interim final 

orders? Because my next question was, 

where in the APA are interim final orders 

discussed?

MS. KIM: When I say, well, I 

think we're sort of stuck on labeling, 

here. The reason, if the question is why 

are we not calling this document --

COMMISSIONER O'MALIA: I'm stuck 

on the comment period in what the APA 

provides.

MS. KIM: Okay.

COMMISSIONER O'MALIA: If you want 

to label it something different, I'd just 

like to understand --

MS. KIM: No, I thought the 

question was why are we not calling --

COMMISSIONER O'MALIA: What the 
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context was.

MR. MARCUS: Yeah. Well, it's in, 

whatever you title the document, it's in 

the nature of a rule, regulation, order 

that, where, generally under the APA, there

are circumstances in which this type of 

agency action can be issued on an interim 

final basis.

COMMISSIONER O'MALIA: Is there, 

you've listed for me in this memo why a 

15-day was perilously dangerous in terms of 

APA, citing Hollingsworth v. Perry, 

legislative history on Administrative 

Procedures Act, Forrester v. Consumer 

Protection Safety Commission, you know, a 

variety of things here, Florida Power & 

Light, all these other kind of things, on 

why a minimum comment period is necessary. 

So I'm concerned --

MR. MARCUS: Well, that's, right, 

I mean, that generally wasn't addressing 

the interim final authority that an agency 
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has.

COMMISSIONER O'MALIA: And so, I 

suspect there's some core case around 

interim final which we are on solid ground?

MR. MARCUS: There are a lot of 

cases that have interpreted the authority 

of agencies to issue interim final orders, 

and we believe, in the circumstances here, 

it was justified, again, in light of the 

rapidly evolving nature of the legal 

regime, the novelty of that regime, the 

global reach of the swaps market in that 

regime that there was a justification, 

here, to do that. And then to give 30 --

again, to give 30 days for comment and --

COMMISSIONER O'MALIA: But it's 30 

days simultaneous with implementation, 

right? It's not a 30-day comment period 

and then implementation. It's implemented 

effective upon publication of the Federal 

Register and simultaneously accepting 

comment. There's no commitment that we 
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will go back and answer the comment 

letters, is there, or change our rule? 

It's just a comment period, right?

MR. MARCUS: That's right, it's a 

comment period --

COMMISSIONER O'MALIA: With no 

commitment to do any of the, you know, 

digest it, put it before the Commission 

again.

MR. MARCUS: I think we can assume 

that the Commission will act in good faith 

and will take the comments seriously. And 

the comment period does close before the 

other dates set out, the other deadlines 

set out, for example, substituted 

compliance in December, so we'll have the 

comments well before that time that the 

Commission can consider.

COMMISSIONER O'MALIA: Can you 

provide me the case law when you get a 

chance on this to support the interim final 

guidance strategy?
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MR. MARCUS: Yes.

COMMISSIONER O'MALIA: And you 

might want to relabel this thing because it 

doesn't say that today.

MR. MARCUS: Okay.

MS. NATHAN: Commissioner O'Malia 

--

CHAIRMAN GENSLER: I'd just note 

-- I'm sorry -- we, at Commission request, 

I remember, even, discussions with probably 

at least two of you in December. We did 

this similarly around business conduct 

application of external and internal 

business conduct rules that we did, what I 

would colloquially call an interim final 

exemptive order there, providing four 

months and six months time for phasing in 

the compliance, to do it as a Commission 

action, to have the Commission speak as a 

Commission, rather than no-action letter, 

back to the discussions earlier, and this 

is very similar to provide the markets with 
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clarity and confidence that they have this 

relief as a full Commission action, not 

dissimilar from what we did in December on 

that one.

COMMISSIONER O'MALIA: I'm for 

clarity and certainty and transparency, but 

we've got to abide by the laws, and APA is 

not something you get to ignore. We are an 

administrative agency, we have to follow 

that law.

CHAIRMAN GENSLER: And we are 

following that. Susan?

MS. NATHAN: Yeah, I just wanted 

to point out, to the extent it's helpful, 

Commissioner O'Malia, that interim final 

rules are also not specifically mentioned 

in the APA. They are a creature of agency 

action that developed in response to a 

particular need. This interim final order 

appears, to me, and to all of us, I think, 

to be an analog to the interim final rule, 

it follows the same process where the 
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action becomes final when published or when 

voted on, however that works, with a 

comment period to follow so that if there 

are egregious errors that need to be 

addressed, they can be addressed after the 

fact. That's all, thank you.

CHAIRMAN GENSLER: Commissioner 

Wetjen?

COMMISSIONER WETJEN: I don't have 

any questions.

CHAIRMAN GENSLER: Then I think --

let me just make sure I read the script 

properly. If the Commissioners are now 

prepared to vote, Ms. Jurgens, will you 

please call the roll?

MS. JURGENS: This vote is on the 

exemptive order regarding compliance with 

certain swap regulations, also called the 

cross-border phase-in exemptive order. 

Commissioner Wetjen?

COMMISSIONER WETJEN: Aye.

MS. JURGENS: Commissioner Wetjen, 
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aye. Commissioner O'Malia?

COMMISSIONER O'MALIA: No.

MS. JURGENS: Commissioner 

O'Malia, no. Commissioner Chilton?

COMMISSIONER CHILTON: Aye.

MS. JURGENS: Commissioner 

Chilton, aye. Mr. Chairman?

CHAIRMAN GENSLER: Aye.

MS. JURGENS: Mr. Chairman, aye. 

Mr. Chairman, on this matter, the ayes have 

three, the noes have one.

CHAIRMAN GENSLER: The ayes have 

it, and the staff recommendation is 

accepted, along with technical edits will 

be sent to the Federal Register. Before we 

adjourn, I just wanted to mention, as often 

Commissioner O'Malia asks me, so I was 

anticipating "What's next?" And it's 

always a terrific question. I thought I 

would just mention some of the things that 

we currently have in front of the 

Commission that, hopefully, we will finish 
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up this summer.

Commodity pool operator 

harmonization final rule, this was a matter 

that we proposed, I see Amanda Olear here, 

but we proposed about a year-and-a-half 

ago, and the final, pens down version, I 

think, has really benefitted from each of 

the Commissioners' offices. I don't know 

if there is further input, but if there is, 

it would be terrific to get that in and 

whether we can move that by seriatim 

promptly, or if you all think it's 

appropriate, we can have a public 

Commission meeting to do that.

There's the final, it's called 

exemptive relief for cooperatives, which I 

think we'll move on promptly. There's also 

something that is very important to the 

Europeans, and though it was not put in the 

joint statement for various reasons, but we 

move on systemically important 

clearinghouses, these provisions of 
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covering the two largest of their members 

if they were to default in something called 

two-hour recovery time. I think those are 

the three, I might be mistaken, that are in 

final shape before us. Right now, we do 

have some proposed for finals, as well. We 

have a proposed on position limit 

aggregation that is in front of us. We're 

still working, I think all the 

Commissioners have that, but we're still 

working, and I'm looking forward to the 

Division of Market Oversight, the Office of 

Chief Economist and Office of General 

Counsel to sort of hopefully, promptly, in 

the next few weeks, to get something to the 

Commissioners to consider on proposing on 

position limits.

And I look forward to, I'm going 

to look at Gary Barnett in the Division of 

Swap and Intermediary Oversight, and 

obviously working with the Chief Economist 

and General Counsel and Clearing and Risk 
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on customer protection rules, to move that 

up in front of us. And I think there's 

also in front of Commissioners the concept 

release on, I sometimes call it testing and 

supervision, but I can't recall what we 

labeled that. And I know that we made very 

good progress between your office, 

Commissioner O'Malia, and the Division of 

Market Oversight, I don't know if it's all 

looped --

COMMISSIONER CHILTON: Almost.

CHAIRMAN GENSLER: Almost? 

Almost. So, hopefully, when Commissioner 

O'Malia and Commissioner Chilton tell me 

that it's there, we can do that, that would 

be terrific. And there's something on 

ownership and control, and the ownership

and control, to finalize that rule, I'm 

just making a plug for it, but it really is 

important for surveillance, and I think it 

really works together with all that you've 

done, and the Technology Advisory 
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Committee, to go from paper to data, I 

think that's an important one.

I may have missed one or two. In 

the near term, we continue to work with our 

fellow agencies on the Volcker Rule, and 

that one has so many other agencies, the 

Federal Reserve, the FDIC, Office of the 

Comptroller of the Currency, the SEC, 

Treasury's involvement, but to the extent 

Commissioners have input, I don't have a 

full document or staff, I don't think, has 

a full document, unless anybody in the room 

knows from the other agencies, but if 

there's input or thoughts and 

considerations, I think it would be 

helpful, and maybe we should feed input 

from all of us back to the other agencies 

on the Volcker Rule.

So those are some of the things. 

I don't know if Commissioner Chilton, 

O'Malia, or Wetjen have anything you want 

to add on that?
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COMMISSIONER CHILTON: Thank you 

for mentioning limits, and I agree and 

appreciate you pushing to get that done. I 

want to get limits done, and then for, 

we've talked about the Volcker Rule, but I 

think, on Volcker, this agency has a really 

key role. Because I continue to be 

concerned that the exemption for 

proprietary trading that's allowed under 

the law could be, it could be a huge 

loophole if we don't define what, actually 

what hedging is. And so I hope that we do, 

either individually, put something forward 

or even perhaps, as a Commission, if we can 

agree on -- we know something about 

hedging, Hedging R Us, so it seems to me 

that we should reengage.

I know we've been involved in it 

and we've been focusing on some other 

things, but I look forward to doing that 

and working with my colleagues on it.

CHAIRMAN GENSLER: And I thank 
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you, Commissioner O'Malia, for always 

spurring me to do this. With that, I think 

I will take a motion to adjourn the 

meeting.

COMMISSIONER CHILTON: So moved.

COMMISSIONER O'MALIA: Second.

CHAIRMAN GENSLER: I want to say 

the meeting is adjourned, but first I want 

to give a big thank you to this incredible 

staff that pulled this together. So I 

thank you, and this meeting is adjourned.

(Whereupon, the PROCEEDINGS 

were adjourned.)

* * * * * 
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CERTIFICATE OF NOTARY PUBLIC

DISTRICT OF COLUMBIA 

I, Irene Gray, notary public in and for the 

District of Columbia, do hereby certify that 

the forgoing PROCEEDING was duly recorded 

and thereafter reduced to print under my 

direction; that the witnesses were sworn to 

tell the truth under penalty of perjury; 

that said transcript is a true record of the 

testimony given by witnesses; that I am 

neither counsel for, related to, nor 

employed by any of the parties to the action 

in which this proceeding was called; and, 

furthermore, that I am not a relative or 

employee of any attorney or counsel employed 

by the parties hereto, nor financially or 

otherwise interested in the outcome of this 

action.

(Signature and Seal on File) 

----------------------------------- Notary 

Public in and for the District of Columbia My 

Commission Expires: April 30, 2016