United States: CFTC Update: Final Guidance On Cross-Border Application Of Swaps Provisions Of The Dodd-Frank Act And Exemptive Order Regarding Phased Compliance With Certain Swaps Provisions Of The Dodd-Frank Act

On July 12, 2013, the Commodity Futures Trading Commission (the "CFTC" or "Commission") approved a final version of its interpretive guidance and policy statement (the "Guidance") and an exemptive order (the "Exemptive Order") regarding the application of certain swaps provisions under The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act")1 to U.S. and non-U.S. swap dealers ("SDs"), major swap participants ("MSPs") and their affiliates and branches, other market participants, and various related issues. The Guidance sets forth the Commission's general policy regarding the cross-border application of certain swaps provisions of the Dodd-Frank Act. The Exemptive Order provides time-limited relief for non-U.S. SDs, non-U.S. MSPs, and foreign branches of a U.S. SD or MSP from certain swaps provisions of the Dodd-Frank Act. The Exemptive Order became effective on July 13, 2013 and the Commission is soliciting comments for thirty days.2

Background

The Dodd-Frank Act amended the Commodity Exchange Act (the "CEA") to establish a comprehensive new regulatory framework for swap transactions. Section 722(d) of the Dodd-Frank Act added Section 2(i) of the CEA, which states that the CEA swaps provisions enacted by Title VII of the Dodd-Frank Act do not apply to activities outside the United States:

unless those activities (1) have a direct and significant connection with activities in, or effect on, commerce of the United States; or (2) contravene such rules or regulations as the Commission may prescribe or promulgate as are necessary and appropriate to prevent the evasion of any provision of [the CEA] that was enacted by [Title VII of the Dodd-Frank Act].

For over a year, the Commission has been developing a policy to interpret the applicability of CFTC swap provisions and related requirements to cross-border transactions in light of Section 2(i) of the CEA. On June 29, 2012, the Commission issued its proposed interpretive guidance and policy statement on the cross-border application of certain swaps provisions (the "Proposed Guidance"). See 77 Fed. Reg. 41214 (July 12, 2012). In the Proposed Guidance, the Commission addressed, among other things:

  1. how it would consider

    1. whether a non-U.S. person's swap dealing activities require registration as an SD,
    2. whether a non-U.S. person's swap positions require registration as an MSP, and
    3. the treatment of foreign branches, agencies, affiliates, and subsidiaries of U.S. SDs and U.S. branches of non-U.S. SDs;
  2. the framework for determining whether and to what extent compliance with a foreign jurisdiction's regulatory requirements would be deemed to constitute substituted compliance with the requirements of the CFTC's swaps provisions ("Substituted Compliance"); and
  3. the manner by which the CFTC would interpret the application of Section 2(i) of the CEA to clearing, trade execution, and certain reporting requirements with respect to counterparties that are not SDs or MSPs.

The Commission issued its further proposed guidance clarifying certain aspects of the Proposed Guidance on December 21, 2012. See 78 Fed. Reg. 909 (January 7, 2013).

On June 29, 2012, the CFTC also issued its notice of proposed exemptive order concurrently with the Proposed Guidance to promote an orderly transition to the new swaps regulatory regime and to provide market participants with greater certainty regarding the application of swaps rules to cross-border transactions (the "Proposed Exemptive Order"). See 77 Fed. Reg. 41110 (July 12, 2012). The Proposed Exemptive Order established a phased compliance program with respect to swap dealing by non-U.S. SDs and MSPs, U.S. SDs and MSPs, and foreign branches of U.S. SDs and MSPs. The CFTC issued a final exemptive order on December 21, 2012 (the "January Exemptive Order"). See 78 Fed. Reg. 858 (January 7, 2013). In the January Exemptive Order, the Commission:

  1. applied a narrow definition of "U.S. person" for purposes of the January Exemptive Order;
  2. provided relief regarding SD de minimis and MSP threshold calculations;
  3. classified Dodd-Frank Act swap provisions and related CFTC regulations applicable to SDs and MSPs as "Entity-Level Requirements" or "Transaction-Level Requirements" for purposes of the January Exemptive Order;
  4. permitted non-U.S. persons registered as SDs or MSPs to delay compliance with certain Entity-Level and Transaction-Level Requirements; and
  5. permitted foreign branches of U.S. SDs or MSPs to delay compliance with certain Transaction-Level Requirements.

The January Exemptive Order expired on July 12, 2013.

On July 12, 2013, the Commission approved the Guidance and the Exemptive Order by a three-to-one vote of the Commissioners, with Commissioner O'Malia dissenting. In conjunction with these determinations, the Commission staff issued four no-action letters.3 Together, the Guidance, the Exemptive Order, and the no-action letters establish the framework by which swap market participants must transition to and comply with the Dodd-Frank Act swap requirements in the cross-border context. These determinations reflect, in part, an agreement reached on July 11, 2013 between the CFTC and the European Commission regarding how they will address cross-border swap transactions that fall under the regulatory purview of both the CFTC and the European authorities.4 The analysis and interpretations set forth in the Guidance, the Exemptive Order, and the four no-action letters pertain exclusively to the application of the CFTC swap rules under the Dodd-Frank Act, and thus do not affect the application of CEA provisions and CFTC rules regarding futures contracts or options on futures contracts.

Guidance Regarding Cross-Border Application of Certain Swaps Provisions

Definition of "U.S. Person"

In the Guidance, the Commission sets forth its territorial-based interpretation of the term "U.S. person." In this regard, the Commission explains that its interpretation of the term "U.S. person" encompasses persons whose activities individually or in the aggregate have the requisite "direct and significant" connection with activities in, or effect on, U.S. commerce within the meaning of Section 2(i) of the CEA.

Under this interpretation, the term "U.S. person" would include, but not be limited to:5

(i) any natural person who is a resident of the U.S.; (ii) any estate of a decedent who was a resident of the U.S. at the time of death; (iii) any corporation, partnership, limited liability company, business or other trust, association, joint-stock company, fund, or any form of enterprise similar to any of the foregoing (other than an entity described in prongs (iv) or (v), below) (a "legal entity"), in each case that is organized or incorporated under the laws of a state or other jurisdiction in the United States or having its principal place of business in the United States; (iv) any pension plan for the employees, officers, or principals of a legal entity described in prong (iii), unless the pension plan is primarily for foreign employees of such entity; (v) any trust governed by the laws of a state or other jurisdiction in the United States, if a court within the United States is able to exercise primary supervision over the administration of the trust; (vi) any commodity pool, pooled account, investment fund, or other collective investment vehicle that is not described in prong (iii) and that is majority-owned by one or more persons described in prong (i), (ii), (iii), (iv), or (v), except any commodity pool, pooled account, investment fund, or other collective investment vehicle that is publicly offered only to non-U.S. persons and not offered to U.S. persons; (vii) any legal entity (other than a limited liability company, limited liability partnership, or similar entity where all of the owners of the entity have limited liability) that is directly or indirectly majority-owned by one or more persons described in prong (i), (ii), (iii), (iv), or (v) and in which such person(s) bears unlimited responsibility for the obligations and liabilities of the legal entity; and (viii) any individual account or joint account (discretionary or not) where the beneficial owner (or one of the beneficial owners in the case of a joint account) is a person described in prong (i), (ii), (iii), (iv), (v), (vi), or (vii). (Emphasis added).

The Commission clarified a number of significant issues in the Guidance. For example, the principal place of business of an operating company – such as an energy producer or refiner – is located where its "high level officers" direct, control, and coordinate the corporation's activities (i.e., the nerve center). In practice, such location is where the corporation maintains its headquarters, assuming that such headquarters acts as the actual "nerve center" of direction, control, and coordination. Notably, the term "U.S. person" also includes collective investment vehicles ("CIVs") – including hedge funds – that have their principal place of business in the U.S. The determination of a CIV's principal place of business depends on the location of its "actual center of direction, control and coordination" (i.e., its nerve center), which in turn, centers on the location where "high level officers" implement investment selections, risk management decisions, portfolio management, trade execution, and other key functions of the CIV, or where promoters form the CIV. Generally, if "senior personnel" who (i) form and promote the CIV or (ii) implement the CIV's investment strategy are located in the U.S., the Commission will consider the CIV's principal place of business to be in the U.S.

For example, the Commission indicates that it will consider a CIV's principal place of business to be in the U.S. in the following scenario: An asset management firm located in the U.S. establishes CIV-A located outside of the U.S.; the asset management firm selects several firms to act as CIV-A's administrator, prime broker, custodian, and placement agent; legal entities comprising CIV-A retain the asset management firm as the investment manager; and the asset management firm's personnel who are located in the U.S. implement CIV-A's investment, trading, and risk management strategies. Based on these facts, CIV-A's principal place of business is in the U.S. and therefore, the legal entities that comprise CIV-A fall within the definition of U.S. person for purposes of the Dodd-Frank Act.

In contrast, the Commission indicates that it will consider a CIV's principal place of business to be outside of the U.S. in the following scenario: An asset management firm located outside of the U.S. establishes CIV-B, also located outside of the U.S.; the asset management firm's personnel who are located outside of the U.S. implement CIV-B's investment, trading, and risk management strategies; the asset management firm has personnel located in two offices (one inside and one outside of the U.S.) who manage CIV-B's investment portfolio; personnel in the U.S. office operate autonomously on a daily basis, however, they operate under the direct supervision of "senior" personnel in the non-U.S. office regarding implementing CIV-B's investment objectives; personnel in the U.S. office report to personnel in the non-U.S. office, who hold more senior positions. Based on these facts, CIV-B's principal place of business is outside of the U.S. and the legal entities that comprise CIV-B therefore fall outside the definition of U.S. person for purposes of the Dodd-Frank Act, assuming that CIV-B is not majority-owned by U.S. persons, as discussed below.

Although these examples provide some useful guidance as to the applicability of the definition to CIVs, it is likely that other fact patterns will present more difficult issues for investment managers and dealer counterparties, such as in the context of sub-advised funds. In this regard, in determining whether a counterparty is a U.S. person, swap market participants may reasonably rely on a written representation pursuant to the Guidance.

For purposes of the Guidance, a CIV is "majority-owned" by a specified U.S. person(s) if such person owns more than fifty percent of the equity or voting interest of the CIV. To make such determination, a CIV should (1) identify whether its direct beneficial owners are specified U.S. persons, set forth in the definition above, and (2) "look through" the "beneficial ownership of any other legal entity invested in the [CIV] that is controlled by or under common control with the [CIV] in determining whether the [CIV] is majority-owned by U.S. persons." The Commission considers a CIV to be a U.S. person in the following scenario: A limited company is formed as a CIV under the laws of the Cayman Islands (Cayman CIV); Cayman CIV engages in swaps activities; Cayman CIV has a single investor that is an investment company registered with the Securities and Exchange Commission (Registered Investment Company); only U.S. persons own the shares of Registered Investment Company; the same investment adviser sponsored both Cayman CIV and Registered Investment Company; and Cayman CIV is a "controlled foreign corporation" of the Registered Investment Company. Because the same investment adviser controls both Cayman CIV and Registered Investment Company, Cayman CIV must "look through" the Registered Investment Company to the U.S. shareholders of the Registered Investment Company under the Guidance. Thus, Cayman CIV is a U.S. person because U.S. persons (i.e., Registered Investment Company's shareholders) own more than fifty percent of the equity or voting interests in Registered Investment Company, which in turn, is the sole investor in Cayman CIV. Importantly, the location of a CIV's organization or incorporation is not determinative of its status as a U.S. person for purposes of the Dodd-Frank Act swaps provisions.

However, the Commission also clarified that a non-U.S. legal entity (or person) falling outside the definition of U.S. person generally does not become a U.S. person solely by retaining an asset management firm in the U.S. to manage the non-U.S. legal entity's assets in a separate account or to provide other financial services. Rather, a non-U.S. entity would become a U.S. person by falling within the definition of U.S. person because, for example, its principal place of business is in the United States.

The term "U.S. person" does not include a non-U.S. person that is guaranteed by and is an affiliate of a U.S. person. However, the Commission treats both "guaranteed affiliates" and "conduit affiliates" as a U.S. person for certain purposes under the Guidance. The Commission interprets a guaranteed affiliate as a non-U.S. person that is an affiliate of a U.S. person and that is guaranteed by a U.S. person. The term guarantee includes both (i) traditional guarantees of payment or performance of related swaps and (ii) other arrangements which support the non-U.S. person's ability to pay or perform its obligations under its swaps. Guarantees include arrangements and structures that transfer risk back to the U.S. Further, the Commission considers several factors in determining whether a non-U.S. person is a conduit affiliate, including, among others, whether: (i) the non-U.S. person is a majority-owned affiliate of a U.S. person; (ii) the non-U.S. person is controlling, controlled by, or under common control with a U.S. person; (iii) the non-U.S. person's financial results are included on the consolidated financial statements of the U.S. person; and (iv) the non-U.S. person (a) engages, in the regular course of business, in swaps with third parties to hedge or mitigate the risks of, or to take positions on behalf of, its U.S. affiliates and (b) enters offsetting swaps with its U.S. affiliates to transfer the risks and benefits of such swaps.

In response to the Guidance, it is likely that SDs will seek to obtain representations from their counterparties as to their U.S. person status. Similarly, investment managers may seek to obtain such representations from their clients.

Registration Thresholds

Generally, a non-U.S. person must register as an SD with the CFTC if the aggregate notional value of its swap dealing activities with U.S. persons as counterparties, or of its swap dealing activities with non-U.S. persons where the dealing non-U.S. person's obligations are guaranteed by a U.S. person, exceed the de minimis threshold of swap dealing, subject to certain exceptions (i.e., $8 billion of swaps constituting swap dealing activity during the prior 12 months (regardless of whether such swaps are collateralized or not) during an initial phase-in period not to exceed 5 years, and $3 billion thereafter).6

Thus, when determining whether their swap transactions exceed the de minimis SD threshold, both U.S. and non-U.S. persons generally should include "all relevant dealing swaps of all [their] U.S. and non-U.S. affiliates under common control," with the exception that such persons may exclude the dealing swaps of a U.S. or non-U.S. affiliate registered as an SD. In this regard, the dealing swaps of an affiliate under common control with a person must include:

  1. in the case of a U.S. person or a guaranteed or conduit affiliate, all its swap dealing transactions; and
  2. in the case of a non-U.S. person that is not a guaranteed or conduit affiliate (x) all dealing swaps with counterparties that are U.S. persons (except foreign branches of U.S. SDs) and (y) all dealing swaps with guaranteed affiliates (except those that are (i) SDs; (ii) not SDs but are affiliated with SDs and where the guaranteed affiliate engages in de minimis swap dealing; and (iii) guaranteed by a non-financial entity).

Furthermore, a non-U.S. affiliate that is not a guaranteed or conduit affiliate may exclude swaps entered into anonymously on a registered Designated Contract Market ("DCM"), Swap Execution Facility ("SEF"), or Foreign Board of Trade ("FBOT") and cleared.

Note that, under this interpretation of the de minimis SD threshold, which the Commission refers to as the "aggregation" principle, both U.S. and non-U.S. persons in an affiliated group may engage in unregistered swap dealing activity up to the de minimis level for the entire group. However, when unregistered swap dealing activity approaches the de minimis SD threshold for the affiliated group, the group must register a sufficient number of affiliates (either inside or outside the U.S.) as SDs to ensure that the swap dealing activity of the remaining unregistered affiliates is below the de minimis SD threshold.

Similarly, a non-U.S. person must register as an MSP if its swap trading activity with U.S. persons as counterparties (plus any swap positions between another non-U.S. person and a U.S. person that it guarantees on behalf of the non-U.S. person) exceeds the thresholds delineated in the CFTC's final rules defining the term MSP.7 When determining whether a non-U.S. person holds swap positions above the MSP thresholds, such non-U.S. person should include the aggregate notional value of any swap position between:

  1. it and a U.S. person;
  2. it and a guaranteed affiliate (its swap positions guaranteed by a U.S. person are attributable to the U.S. person and are not included in the non-U.S. person's threshold calculation); and
  3. another (U.S. or non-U.S.) person and a U.S. person or guaranteed affiliate, where it guarantees the obligations of the other person thereunder.

A non-U.S. person that (1) is not a guaranteed affiliate and is a "financial entity," as defined, may exclude its exposure under swaps with foreign branches of U.S. SDs or guaranteed affiliates that are SDs, subject to certain conditions, and that (2) is not a guaranteed affiliate and is not a "financial entity," as defined, may exclude its exposure under swaps with a foreign branch or guaranteed affiliate of a U.S. person, in each case that is a swap dealer.

Entity-Level and Transaction-Level Requirements

In general, the Commission bifurcates Dodd-Frank Act swap provisions applicable to SDs and MSPs into two categories: Entity-Level Requirements and Transaction-Level Requirements. Entity-Level Requirements apply on a firm-wide basis and relate to capital adequacy, chief compliance officer, risk management, swap data recordkeeping, swap data repository ("SDR") reporting, and physical commodity large swaps trader reporting ("Large Trader Reporting"). The Commission further separates the Entity-Level Requirements into two subcategories: First Category, which includes capital adequacy, chief compliance officer, risk management, and swap data recordkeeping (with the exception of certain aspects of swap data recordkeeping related to complaints and sales materials), and Second Category, which includes SDR reporting, certain aspects of swap data recordkeeping related to complaints and sales materials, and Large Trader Reporting.

Conversely, Transaction-Level Requirements apply on a transaction-by-transaction basis and relate to required clearing and swap processing, margining and segregation for uncleared swaps, trade execution, swap trading relationship documentation, portfolio reconciliation and compression, real-time public reporting, trade confirmation, daily trading records, and external business conduct standards. The Commission further separates the Transaction-Level Requirements into two subcategories: Category A, which includes all Transaction-Level Requirements except external business conduct standards, and Category B, which includes only external business conduct standards.

Application of Entity-Level and Transaction-Level Requirements and Substituted Compliance

The Commission generally interprets CEA Section 2(i) to require registered non-U.S. SDs and MSPs to comply with all Entity-Level Requirements with respect to their swaps, subject to substituted compliance as discussed below. Similarly, non-U.S. SDs and MSPs (including affiliates of a U.S. person) must comply with all Category A Transaction-Level Requirements for all of their swaps with U.S. persons (other than foreign branches of a U.S. SD or MSP); such entities also must comply with the Category A Transaction-Level Requirements for swaps with a non-U.S. person that is a guaranteed or conduit affiliate, subject to substituted compliance as discussed below.8

Swaps between a non-U.S. SD or MSP and a non-U.S. counterparty that is not a guaranteed or conduit affiliate are not subject to the Category A Transaction-Level Requirements. However, the Category A Transaction-Level Requirements would apply to swaps between (1) non-U.S. SDs and MSPs (including affiliates of a U.S. person) and a non-U.S. counterparty guaranteed or otherwise supported by a U.S. person and (2) non-U.S. SDs and MSPs and non-U.S. conduit affiliates. Notably, for a swap between a non-U.S. person and a U.S. person, the Commission deems both parties to satisfy the Category A Transaction-Level Requirements if such swap is executed anonymously on a DCM, SEF or FBOT and cleared. Additionally, Category B Transaction-Level Requirements apply to swap transactions involving a non-U.S. SD or MSP only if the counterparty is a U.S. person or the non-U.S. SD or MSP is acting through a U.S. branch.

Notwithstanding the foregoing, the Commission permits non-U.S. SDs and MSPs (once registered with the Commission), foreign branches of a U.S. bank that is an SD or MSP, and non-U.S. non-registrants that are guaranteed or conduit affiliates (discussed below) to substitute compliance with the applicable corresponding requirements of such entity's relevant home jurisdiction's law and regulations in lieu of the CEA and the CFTC's regulations, provided that the CFTC finds such requirements comparable to and as comprehensive as analogous requirements under the CEA and the CFTC's regulations. In determining whether a foreign jurisdiction's requirements achieve the same regulatory objectives as the Dodd-Frank Act, the Commission will rely on an "outcomes-based" approach that does not require the foreign jurisdiction's requirements to be identical to those under the Dodd-Frank Act. The Commission will make comparability determinations on a requirement-by-requirement basis, rather than based on the foreign regime as a whole (i.e., the Commission may allow market participants listed above to comply with regulations in their home jurisdiction where the comparability standard is met, but may require them to adhere to certain Dodd-Frank Act requirements where the CFTC finds that the relevant home jurisdiction regulations are inadequate and thus not comparable). The Commission will make comparability determinations with respect to each of the thirteen categories of Entity-Level and Transaction-Level Requirements. The Commission expects to enter into memoranda of understanding or similar arrangements with foreign supervisors with respect to substituted compliance and comparability determinations.9

Furthermore, although substituted compliance is not available for certain swap transactions (i.e., swaps between a non-U.S. SD or MSP and a U.S. person), the Commission will deem a market participant to be in compliance with specific Dodd-Frank Act swap requirements if the market participant is in compliance with the "essentially identical" requirements of its home jurisdiction. In determining whether the corresponding U.S. and foreign jurisdiction swap requirements are essentially identical, the Commission will evaluate such requirements on a "provision-by-provision" basis and make an "essentially identical" finding through Commission action, including staff no-action letters. For example, in one of the no-action letters issued on July 11, 2013, the Commission staff found that the CFTC's business conduct standards for SDs and MSPs and the EU's risk mitigation rules under the European Market Infrastructure Regulation (EMIR) are essentially identical in the areas of confirmation, portfolio reconciliation, portfolio compression, valuation, and dispute resolution. Therefore, the Commission staff determined that, in swap transactions subject to both U.S. and EU risk mitigation rules, compliance with EMIR rules constitutes compliance with the corresponding CFTC rules because the two sets of rules are essentially identical.

With respect to Entity-Level Requirements, the Commission generally permits substituted compliance where a non-U.S. SD or MSP is subject to comparable and comprehensive requirements in its home jurisdiction. However, with respect to SDR reporting requirements, non-U.S. SDs and MSPs are eligible for substituted compliance only on a more limited basis, subject to the conditions that (i) the swaps are with non-U.S. counterparties that are not guaranteed or conduit affiliates and (ii) the Commission has direct access to the swap data for such non-U.S. SD or MSP that is stored at a foreign trade repository. Also, only with respect to swap data recordkeeping related to complaints and sales materials, non-U.S. SDs and MSPs are eligible for substituted compliance only with respect to swaps with non-U.S. counterparties. Moreover, the Commission will not recognize substituted compliance for Large Trader Reporting because such reporting facilitates the Commission's surveillance and monitoring of markets in swaps that are "economically equivalent" to a discrete list of U.S.-listed physical commodity futures contracts. Large Trader Reporting provides the Commission with data regarding large positions in swaps linked to certain U.S.-listed physical commodity futures contracts. To survey and monitor trading across swaps and futures markets, swap positions must be converted to equivalent positions of related U.S. futures contracts for reporting purposes. Large Trader Reporting contemplates that the reporting entities perform such conversions, thereby saving the Commission time and resources, and which otherwise could "significantly impede its market surveillance efforts."

In addition, with respect to Category A Transaction-Level Requirements, the Commission generally does not permit substituted compliance for transactions (1) directly between a non-U.S. SD or MSP (including an affiliate of a U.S. person) and a U.S. person (other than a foreign branch of a U.S. SD or MSP) or (2) involving a U.S. SD or MSP (other than a foreign branch of a U.S. SD or MSP), regardless of whether the counterparty is a U.S. person or non-U.S. person.10 However, the Commission will permit substituted compliance for swaps between (i) a non-U.S. SD or MSP (including an affiliate of a U.S. person) and a foreign branch of a U.S. bank that is an SD or MSP; (ii) a non-U.S. SD or MSP (including an affiliate of a U.S. person) and a non-U.S. person that is a guaranteed or conduit affiliate; and (iii) a non-U.S. SD and MSP (including an affiliate of a U.S. person) and a non-U.S. counterparty guaranteed or otherwise supported by a U.S. person. The Commission generally will not recognize substituted compliance for Category B Transaction-Level Requirements, where these requirements are applicable.

The Commission clarifies in the Guidance that Category A Transaction-Level Requirements apply to certain swap transactions involving foreign branches of a U.S. bank that is an SD or MSP. In these swap transactions, substituted compliance is not available when the other counterparty is (i) a U.S. SD or MSP (including those that are affiliates of a non-U.S. person) other than the foreign branch of a U.S. bank that is an SD or MSP or (ii) a U.S. person. Conversely, substituted compliance is available for swap transactions between (i) two foreign branches of U.S. banks that are both SDs or MSPs and (ii) the foreign branch of a U.S. bank that is an SD or MSP and a non-U.S. person. Furthermore, in swap transactions between the foreign branch of a U.S. SD or MSP and a non-U.S. person (other than a guaranteed or conduit affiliate) that occur in a foreign jurisdiction other than Australia, Canada, the European Union, Hong Kong, Japan, and Switzerland, the counterparties may comply with the transaction-level requirements of the applicable foreign jurisdiction, subject to two conditions: First, the aggregate notional value of the swaps of all the U.S. SD's foreign branches in foreign jurisdictions other than those listed above may not exceed five percent of the aggregate notional value of all of the swaps of the U.S. SD. Second, the U.S. person must maintain records verifying compliance with condition one above and to identify, define, and address any significant risks from the non-application of the Transaction-Level Requirements. This "exception" is not available to swap transactions in the six jurisdictions listed above.

Please refer to the charts below for a summary of requirements for SDs and MSPs.

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Footnotes

1 See Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010).

2 See 78 Fed. Reg. 43785 (July 22, 2013) (Exemptive Order Regarding Compliance With Certain Swaps Regulations). It is expected that the Guidance will be published in the Federal Register shortly.

3 See CFTC Letter No. 13-43 (July 11, 2013); CFTC Letter No. 13-44 (July 11, 2013); CFTC Letter No. 13-45 (July 11, 2013); and CFTC Letter No. 13-46 (July 11, 2013).

4 See CFTC Press Release, No. PR6640-13, The European Commission and the CFTC Reach a Common Path Forward on Derivatives, available at http://www.cftc.gov/PressRoom/PressReleases/pr6640-13.

5 Despite requests from commenters that the Commission delete the prefatory phrase "includes, but is not limited to" from its interpretation of the term "U.S. person," the Commission declined to do so.

6 See 77 Fed. Reg. 30596, 30634 (May 23, 2012); see generally 77 Fed. Reg. 30596 (May 23, 2012) (setting forth the final definitions of the terms "Swap Dealer," "Security-Based Swap Dealer," "Major Swap Participant," "Major Security-Based Swap Participant" and "Eligible Contract Participant").

7 See Id. at 30661-30697 (providing final definition of MSP).

8 The Commission generally does not intend to provide relief or substituted compliance for U.S. SDs or MSPs with respect to transactions with U.S. or with non-U.S. counterparties.

9 Note that entities that are eligible for substituted compliance remain subject to the Commission's examination and enforcement authority.

10 The Commission explained that, consistent with its strong supervisory interest in regulating dealing activities that occur in the United States, a U.S. branch of a non-U.S. SD or MSP is subject to Transaction-Level Requirements without substituted compliance, despite the fact that the Commission would still consider it a non-U.S. person.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.