Non-US Trading Platform and CCP White Paper
The increase in multilateral trading and central clearing of swaps markets since Congress enacted the Dodd-Frank Act increases the need for U.S. firms to have effective access to non-U.S. swaps trading venues and central counterparties (“CCPs”). Most of the recent efforts of the Commodity Futures Trading Commission (“CFTC”) in this area have focused on addressing when and to what extent it will defer to comparable foreign regulation of a non-U.S. trading venue or CCP that is subject to registration with the CFTC as a swap execution facility (“SEF”) or derivatives clearing organization (“DCO”), respectively. This paper complements those efforts by addressing when a non-U.S. swaps trading venue or CCP has a sufficient U.S. nexus to trigger registration as a SEF or DCO in the first place.
Excerpt
Introduction
The increase in multilateral trading and central clearing of swaps markets since Congress enacted the Dodd-Frank Act increases the need for U.S. firms to have effective access to non-U.S. swaps trading venues and central counterparties (“CCPs”). Most of the recent efforts of the Commodity Futures Trading Commission (“CFTC”) in this area have focused on addressing when and to what extent it will defer to comparable foreign regulation of a non-U.S. trading venue or CCP that is subject to registration with the CFTC as a swap execution facility (“SEF”) or derivatives clearing organization (“DCO”), respectively. This paper complements those efforts by addressing when a non-U.S. swaps trading venue or CCP has a sufficient U.S. nexus to trigger registration as a SEF or DCO in the first place.
The CFTC initially developed its approach to regulating non-U.S. swaps trading venues and CCPs through staff no-action letters and guidance adopted during the early stages of Dodd-Frank Act implementation. That initial approach led to several problems. U.S. firms were forced off swaps trading venues in numerous jurisdictions stretching across the European Union (“EU”) and Asia. U.S. banks were forced to subsidiarize their operations in order to access certain local CCPs. U.S. customers can access only five non-U.S. swaps CCPs, only one of which is located outside the EU.
Recent steps by the CFTC—most notably the adoption of a common approach with the European Commission (“EC”) toward trading venue regulation1—signal a positive new direction toward robust mutual recognition of comparable regulation. Mutual recognition is essential to preventing fragmentation between jurisdictions that apply overlapping mandatory trading or clearing requirements, such as the U.S. and EU. We strongly support the decision by the CFTC and EC to adopt their new common approach.