United States: CFTC Issues Cross-Border Proposal

On October 11, 2016, the U.S. Commodity Futures Trading Commission ("CFTC") issued proposed rules to address certain issues related to the cross-border application of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"), the comprehensive framework for swaps regulation enacted by Congress in 2010. If adopted, the proposed rules would supersede the CFTC's Cross-Border Guidance, the interpretative statement adopted by the CFTC in 2013 to address cross-border application of Dodd-Frank, with respect to these issues.1

Among other things, the proposed rules would:

  • provide definitions of "U.S. person" and "foreign consolidated subsidiary," which would apply for purposes of subsequent rulemakings addressing cross-border application of Dodd-Frank;
  • clarify in certain respects the treatment of transactions that are "arranged, negotiated, or executed" in the United States by non-U.S. persons; and
  • address the cross-border application of swap dealer and major swap participant registration thresholds and the cross-border applicability of the external business conduct standards.

The proposal will be open for public comment until December 19, 2016, and is available here.2


The proposed rules would define the terms "U.S. Person" and "Foreign Consolidated Subsidiary" ("FCS") in line with the definitions contained in the cross-border uncleared swaps margin rules adopted by the CFTC last May.3 The proposed definition of the term U.S. person would, as under the cross-border uncleared swaps margin rules, eliminate the "including, but not limited to" language contained in the U.S. person definition in the Cross-Border Guidance, which created legal uncertainty for market participants as to who is and who is not a U.S. person. Also eliminated is the prong for commodity pools, investment funds, or other collective investment vehicles majority-owned by U.S. persons, which was included in the U.S. person definition contained in the Cross-Border Guidance, but which created difficulties in identifying and tracking fund ownership. The prong for a legal entity owned by one or more U.S. persons bearing unlimited responsibility for such entity's obligations and liabilities, which under the Cross-Border Guidance applied to such entities majority-owned by U.S. persons, has also been modified to remove the majority-U.S. person ownership requirement.4

The proposed definition of the term FCS, like the definition under the cross-border uncleared swaps margin rules, would denote a non-U.S. person in which an ultimate parent entity that is a U.S. person has a controlling financial interest, and as a result of that controlling interest the ultimate parent includes the non-U.S. person's operating results, financial position and statement of cash flows in the ultimate parent's consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles.

These definitions would be used for purposes of the other rules contained in the proposal, and for purposes of any subsequent rulemakings addressing the cross-border application of Dodd-Frank requirements.


In addition to these definitions, the proposal contains an interpretation regarding the scope of transactions between non-U.S. persons that are "arranged, negotiated, or executed" in the United States ("ANE") that would be subject to Dodd-Frank.5 CFTC staff in 2013, in its Advisory 13-69, took the position that non-U.S. swap dealers registered with the CFTC had to comply with the Transaction-Level Requirements for transactions with non-U.S. persons that were ANE.6 The staff subsequently issued a series of no-action letters delaying compliance with the terms of Advisory 13-69 pending CFTC consideration, after the CFTC had issued a request for comment, of whether the advisory should be adopted as Commission policy.

The proposed interpretation adopts the view that ANE transactions between non-U.S. persons implicate regulatory concerns intended to be addressed by Dodd-Frank and that applying specific Dodd-Frank swap requirements to such transactions may be appropriate. The proposed rules discussed below address whether such transactions would count toward the swap dealer and major swap participant thresholds, as well as how the CFTC's external business conduct standards would apply to such transactions.

In addition, the proposed interpretation would provide guidance regarding the meaning of the terms "arranged," "negotiated," and "executed," terms not defined in Advisory 13-69. The interpretive guidance regarding these terms is substantively identical to the interpretation adopted by the Securities and Exchange Commission ("SEC") defining these terms earlier this year in connection with cross-border security-based swap dealing.7

Specifically, the proposed interpretation provides that the terms "arrange" and "negotiate" refer to market-facing activity normally associated with sales and trading, as opposed to internal, back-office activities, such as ministerial or clerical tasks, performed by personnel not involved in the actual sale or trading of the relevant swap. The terms would not encompass activities such as swap processing, preparation of the underlying swap documentation (including negotiation of a master agreement and related documentation), or the mere provision of research information to sales and trading personnel located outside the United States. The term "executed" would refer to the market-facing act of becoming legally and irrevocably bound to the terms of a swap under applicable law.


The proposal includes rules for counting dealing swaps, in the cross-border context, toward the swap dealer de minimis thresholds, as well as counting cross-border swaps toward the major swap participant thresholds. These proposed rules, if adopted, would supersede the counting rules contained in the Cross-Border Guidance.

Swap Dealer De Minimis Thresholds

In general, a market participant is exempt from registration as a swap dealer if its aggregate gross notional value of swap dealing over the prior 12-month period does not exceed the de minimis threshold, which currently is set at $8 billion (except for certain special entities, where the threshold is $25 million) and will be reduced to $3 billion on December 31, 2018 (recently extended from December 2017),8 absent further CFTC action. The proposed rules address, based on a counterparty's status as either a U.S. person, U.S. Guaranteed Entity, FCS, or a non-U.S. person that is neither an FCS nor a U.S. Guaranteed Entity ("Other Non-U.S. Person"), which swaps in the cross-border context count toward the de minimis thresholds.

Under the proposed rules, in making its swap dealer de minimis calculation:

  • A U.S. person would include all of its swap dealing transactions.
  • A non-U.S. person would include all swap dealing transactions with respect to which it is a "U.S. Guaranteed Entity." For purposes of the proposed rules, the proposal notes in a footnote that "guarantee" has the same meaning as in the cross-border margin rules, except that application of the term would not be limited to uncleared swaps.
  • An FCS would include all of its swap dealing transactions.
  • An Other Non-U.S. Person would include all of its swap dealing transactions with counterparties that are U.S. persons (including their non-U.S. branches), U.S. Guaranteed Entities, or FCSs, unless the swap is executed anonymously on a designated contract market, swap execution facility, or foreign board of trade and cleared. 9

Other Non-U.S. Persons would not, however, include any of their swap dealing transactions with Other Non-U.S. Persons, even if they constitute ANE transactions. This approach differs from the SEC's, which generally requires that ANE transactions be included in a non-U.S. person's security-based swap dealing de minimis calculation. The SEC also does not exclude ANE transactions that are executed anonymously on an exchange or swap execution facility from the security-based swap dealing de minimis calculation, but such transactions would not be required to be counted under the CFTC's proposed rules.10

Notably, the proposal does not address "conduit affiliates," which, under the Cross-Border Guidance, are required to count all of their swap transactions toward the de minimis threshold, although it includes a series of questions requesting comment regarding conduits. Another notable difference is the treatment of FCSs, which were not a recognized category under the Cross-Border Guidance. Currently under the Cross-Border Guidance, only U.S. persons, guaranteed affiliates of U.S. persons, and conduit affiliates of U.S. persons are required to count all of their dealing swap transactions, whether with U.S. or non-U.S. counterparties. FCSs, which by definition are non-U.S. persons and are not guaranteed affiliates of U.S. persons, and unless they meet the requirements for conduit affiliates would not be such affiliates either, would not be required to count all of their swaps under the Cross-Border Guidance. Such FCSs would be required, however, to count all of their swaps under the proposed rules. Another change to the counting rules from the Cross-Border Guidance, about which the CFTC requests comment, is that under the proposed rules, Other Non-U.S. Persons would be required to count swaps with non-U.S. branches of U.S. persons, which is not required under the Cross-Border Guidance.

Consistent with the approach taken in the Cross-Border Guidance, the proposed rules provide that potential swap dealers, whether U.S. or non-U.S. persons, would aggregate their swap dealing transactions with those of persons controlling, controlled by, or under common control with the potential swap dealer to the extent that those affiliates are themselves required to include those swaps in their own de minimis thresholds, unless the affiliated person is a registered swap dealer.

Major Swap Participant Thresholds

An entity that is not a swap dealer would count swap positions toward the major swap participant threshold calculations to the same extent as potential swap dealers count swap dealing transactions toward the swap dealer de minimis calculation discussed above, with the exception of the aggregation requirement. In addition, all swap positions that are subject to recourse would be attributed to a guarantor, whether it is a U.S. person or a non-U.S. person, unless the guarantor, the guaranteed entity, and its counterparty are Other Non-U.S. Persons.11


The proposed rules would apply the CFTC's external business conduct ("EBC") standards to cross-border transactions, as follows:

  • U.S. swap dealers and major swap participants (SD/MSPs) would comply with applicable EBC standards, without substituted compliance, except with respect to transactions conducted through a foreign branch of the U.S. SD/MSP.
  • Non-U.S. SD/MSPs and foreign branches of U.S. SD/MSPs would comply with applicable EBC standards, without substituted compliance, if the counterparty is a U.S. person (other than a foreign branch of a U.S. SD/MSP).
  • Non-U.S. SD/MSPs and foreign branches of U.S. SD/MSPs would not be subject to EBC standards for their swaps with non-U.S. persons and foreign branches of a U.S. SD/MSP, except that non-U.S. SDs and foreign branches of U.S. SDs that enter into transactions ANE would be required to comply with CFTC Reg. 23.410 (Prohibition on Fraud, Manipulation, and other Abusive Practices) and 23.433 (Fair Dealing), without substituted compliance.12


The proposal represents a first step toward addressing the cross-border issues raised by Advisory 13-69 and transactions that are ANE. However, it is only a first step, because the proposal is silent about whether additional Dodd-Frank requirements will apply to ANE transactions, stating that the application of other Dodd-Frank requirements will be considered in subsequent rulemakings as necessary and appropriate. It also represents a first step toward codification of the Cross-Border Guidance with respect to the counting rules and applicability of the external business conduct standards, but does not codify other requirements. Nonetheless, market participants may welcome certain aspects of the proposal, including the proposed codification of the U.S. person definition that promotes legal certainty, as well as the interpretive guidance providing greater clarity regarding ANE transactions. Market participants may, however, question the treatment of FCSs for purposes of the counting rules, which appears to mark a significant change from the Cross-Border Guidance that could impact many U.S. companies that consolidate their foreign subsidiaries on their financial statements. It is also unclear whether existing no-action relief from Advisory 13-69 will be extended as the CFTC considers whether to apply additional Dodd-Frank requirements to ANE transactions.13 Treatment of conduit affiliates, while not included in the proposed counting rules, remains a subject about which the CFTC has requested comment, as well as whether the CFTC should conform to the SEC's approach toward ANE transactions for purposes of the counting rules. Market participants may wish to file comments during the comment period to assist the CFTC in its consideration of these issues.


1 See Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations, 78 Fed. Reg. 45,292 (July 26, 2013) ("Cross-Border Guidance").

2 Cross-Border Application of the Registration Thresholds and External Business Conduct Standards Applicable to Swap Dealers and Major Swap Participants, 81 Fed. Reg. 71,946 (Oct. 18, 2016).

3 See Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants—Cross-Border Application of the Margin Requirements, 81 Fed. Reg. 34,818 (May 31, 2016). For more information on the cross-border uncleared swaps margin rules, please see our client alert here.

4 See generally Proposed Reg. 1.3(aaaaa) for these definitions.

5 See generally 81 Fed. Reg. at 71,952-54.

6 See CFTC Staff Advisory No. 13-69, Applicability of Transaction-Level Requirements to Activity in the United States (Nov. 13, 2013).

7 See Security-Based Swap Transactions Connected With a Non-U.S. Person's Dealing Activity That Are Arranged, Negotiated, or Executed by Personnel Located in a U.S. Branch or Office or in a U.S. Branch or Office of an Agent; Security-Based Swap Dealer De Minimis Exception, 81 Fed. Reg. 8,597 (Feb. 19, 2016).

8 See Order Establishing De Minimis Threshold Phase-In Termination Date, 81 Fed. Reg. 71,605 (Oct. 18, 2016).

9 See Proposed Reg. 1.3(ggg)(7). 

10 For more information about the SEC's rules, see our client alert here.

11 See Proposed Reg. 1.3(nnn).

12 See Proposed Reg. 23.452.

13 Currently, under CFTC Staff Letter 16-64 (Aug. 4, 2016), that relief is set to expire on September 30, 2017.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions