FIA and SIFMA released a white paper setting out recommendations for improving US access to international swap markets. Currently, US firms have not been able to access non-US swap trading venues or central counterparties unless the Commodity Futures Trading Commission makes a case-by-case assessment of the relevant regulatory frameworks in Europe or Asia to determine whether to defer to home country regulators. This approach has led to several problems for US swap dealers and their customers and has resulted in the fragmentation of international swap markets into separate pools of liquidity.
FIA and SIFMA welcome the CFTC’s recent announcement allowing an exemption for certain European derivative trading platforms based on recognition of comparable regulation by the European Commission. FIA and SIFMA strongly support the decision to grant this exemption but believe that more should be done to build on the CFTC’s work and fully address the problem of market fragmentation at the global level.
In their white paper, FIA and SIFMA propose a revised approach that is clear and predictable, consistent with Dodd-Frank, and founded on the CFTC’s tried and true approach to regulating US access to non-US futures markets. Under this approach, a non-US swap trading venue or CCP would not be required to register with the CFTC, or obtain an exemption from registration, unless it a) permitted direct, un-intermediated participation by a US person (other than foreign branches of US banks), or b) directly solicited such US participation. In addition, U.S. firms subject to mandatory trading and clearing requirements in Dodd-Frank could not use a non-U.S. trading venue or CCP to satisfy those requirements, unless that venue or CCP was registered with the CFTC or exempt from such registration.
The revised approach proposed in the FIA-SIFMA white paper is designed to meet the public policy goals of Dodd-Frank — reducing systemic risk and protecting US customers — while also expanding the opportunities for US customers to access non-US markets for their hedging and investment needs. This approach also will make more efficient use of the CFTC’s regulatory resources and avoid incentives for foreign regulation of US markets.