On June 25, 2014, the Securities and Exchange Commission finalized new rules and interpretive guidance addressing the cross-border application of a security-based swap regulatory framework called for under the Dodd-Frank Act.  These final rules are the first of a series of rules and guidance on cross-border security-based swap activities for market participants.  According to the SEC, these new rules will be key to finalizing the remaining outstanding proposals on security-based swaps.   The rules finalized on June 25 focus primarily on when a cross-border transaction must be counted toward the requirement to register as a security-based swap dealer or major security-based swap participant.  The rules also address the scope of the SEC’s cross-border anti-fraud authority.  Notably, in this release, the SEC can be seen to be actively moving toward a “substituted compliance” model with respect to cross-border swaps transactions. According to the SEC’s press release:   The SEC also adopted a procedural rule regarding the submission of “substituted compliance” requests.  This rule represents a first step in the SEC’s efforts to establish a framework to address the possibility that market participants may be subject to more than one set of comparable regulations across different jurisdictions as a result of their cross-border swaps activity.  If the SEC were to grant a request for substituted compliance, it would permit market participants to satisfy certain Title VII security-based swap regulatory requirements by complying with comparable non-U.S. rules. This move toward a substituted compliance approach may have some multinational swaps participants and dealers breathing a sigh of relief.   The new cross-border rules also have some teeth to them.  The final rules provide for anti-fraud enforcement authority; however, the release language is clear that...

In their latest client memo, the Blank Rome law firm alerts directors and trustees of financial firms about their role in new swaps regulations.  In particular, the firm puts public companies on notice that their boards must take action in order to take advantage of the CFTC's end-user exception.   The end-user exception for swaps frees certain swaps transactions from the new requirement that all swaps be centrally cleared.

Newly proposed cross-border regulations issued by the US Commodity Futures Trading Commission have made waves across the globe, with nine overseas finance officials urging US Treasury Secretary Jacob J. Lew to limit the cross-border reach of Dodd-Frank Act swaps rules. In an April 18, letter, finance officials from Brazil, France, Germany, Italy, Japan, Russia, South Africa, Switzerland, the UK, and Michel Barnier, the European Commissioner for Internal Market and Services, said that new US swaps regulations are fragmenting the $639 trillion global market.  They worry that a lack of coordination of regulators' efforts without clear direction from global policymakers and regulators will cause derivatives markets to "recede into localized and less efficient structures, impairing the ability of business across the globe to manage risk."