[Federal Register Volume 78, Number 140 (Monday, July 22, 2013)]
[Rules and Regulations]
[Pages 43785-43796]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-17467]



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COMMODITY FUTURES TRADING COMMISSION

17 CFR Chapter I

RIN 3038-AE05


Exemptive Order Regarding Compliance With Certain Swap 
Regulations

AGENCY: Commodity Futures Trading Commission.

ACTION: Exemptive order; request for comments.

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SUMMARY: On January 7, 2013, the Commodity Futures Trading Commission 
(``Commission'' or ``CFTC'') issued a final order (``January Order'') 
that granted market participants temporary conditional relief from 
certain provisions of the Commodity Exchange Act (``CEA''), as amended 
by Title VII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (``Dodd-Frank Act'' or ``Dodd-Frank'') (and Commission 
regulations thereunder). The January Order expires on July 12, 2013. In 
this Exemptive Order (``Exemptive Order''), the Commission provides 
temporary conditional relief effective upon the expiration of the 
January Order in order to facilitate transition to the Dodd-Frank swaps 
regime.

DATES: The Exemptive Order is effective July 13, 2013, and will expire 
December 21, 2013, or such earlier date specified in the Exemptive 
Order.

ADDRESSES: You may submit comments, identified by RIN number 3038-AE05, 
by any of the following methods:
     The agency's Web site: at http://comments.cftc.gov. Follow 
the instructions for submitting comments through the Web site.
     Mail: Melissa D. Jurgens, Secretary of the Commission, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street NW., Washington, DC 20581.
     Hand Delivery/Courier: Same as mail above.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.

Please submit your comments using only one method.
    All comments must be submitted in English, or if not, accompanied 
by an English translation. Comments will be posted as received to 
www.cftc.gov. You should submit only information that you wish to make 
available publicly. If you wish the Commission to consider information 
that you believe is exempt from disclosure under the Freedom of 
Information Act, a petition for confidential treatment of the exempt 
information may be submitted according to the procedures established in 
Sec.  145.9 of the Commission's regulations.\1\
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    \1\ See 17 CFR 145.9.
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    The Commission reserves the right, but shall have no obligation, to 
review, pre-screen, filter, redact, refuse or remove any or all of your 
submission from www.cftc.gov that it may deem to be inappropriate for 
publication, such as obscene language. All submissions that have been 
redacted or removed that contain comments on the merits of the proposal 
will be retained in the public comment file and will be considered as 
required under the Administrative Procedure Act \2\ and other 
applicable laws, and may be accessible under the Freedom of Information 
Act.\3\
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    \2\ 5 U.S.C. 551, et seq.
    \3\ 5 U.S.C. 552.

FOR FURTHER INFORMATION CONTACT: Gary Barnett, Director, Division of 
Swap Dealer and Intermediary Oversight, (202) 418-5977, 
[email protected]; Sarah E. Josephson, Director, Office of 
International Affairs, (202) 418-5684, [email protected]; Mark 
Fajfar, Assistant General Counsel, Office of General Counsel, (202) 
418-6636, [email protected]; Laura B. Badian, Counsel, Office of General 
Counsel, (202) 418-5969, [email protected]; Evan H. Winerman, Attorney-
Advisor, Office of General Counsel, (202) 418-5674, [email protected]; 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
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Street NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

    On July 21, 2010, President Obama signed the Dodd-Frank Act,\4\ 
which amended the CEA \5\ to establish a new regulatory framework for 
swaps. The legislation was enacted to reduce systemic risk, increase 
transparency, and promote market integrity within the financial system 
by, among other things: (1) Providing for the registration and 
comprehensive regulation of swap dealers (``SDs'') and major swap 
participants (``MSPs''); (2) imposing clearing and trade execution 
requirements on standardized derivative products; (3) creating rigorous 
recordkeeping and data reporting regimes with respect to swaps, 
including real-time public reporting; and (4) enhancing the 
Commission's rulemaking and enforcement authorities over all registered 
entities, intermediaries, and swap counterparties subject to the 
Commission's oversight. Section 722(d) of the Dodd-Frank Act also 
amended the CEA to add section 2(i), which provides that the swaps 
provisions of the CEA apply to cross-border activities when certain 
conditions are met, namely, when such activities have a ``direct and 
significant connection with activities in, or effect on, commerce of 
the United States'' or when they contravene a Commission rulemaking.\6\
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    \4\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (July 21, 2010).
    \5\ 7 U.S.C. 1 et seq. (amended 2010).
    \6\ 7 U.S.C. 2(i).
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    In the nearly three years since its enactment, the Commission has 
finalized 69 actions to implement Title VII of the Dodd-Frank Act. The 
finalized actions include rules promulgated under CEA section 4s,\7\ 
which address registration of SDs and MSPs and other substantive 
requirements applicable to SDs and MSPs. Notably, many section 4s 
requirements applicable to SDs and MSPs are tied to the date on which a 
person is required to register, unless a later compliance date is 
specified.\8\ A number of other rules specifically applicable to SDs 
and MSPs have been proposed but are not finalized.\9\
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    \7\ 7 U.S.C. 6s.
    \8\ Examples of section 4s implementing rules that become 
effective for SDs and MSPs at the time of their registration include 
requirements relating to swap data reporting (Commission regulation 
23.204) and conflicts of interest (Commission regulation 23.605(c)-
(d)). The chief compliance officer requirement (Commission 
regulations 3.1 and 3.3) is an example of those rules that have 
specific compliance dates. The compliance dates are summarized on 
the Compliance Dates page of the Commission's Web site. (http://www.cftc.gov/LawRegulation/DoddFrankAct/ComplianceDates/index.htm). 
The Commission's regulations are codified at 17 CFR Ch. 1.
    \9\ These include rules under CEA section 4s(e),7 U.S.C. 6s(e) 
(governing capital and margin requirements for SDs and MSPs), and 
CEA section 4s(l), 7 U.S.C. 6s(l) (governing segregation 
requirements for uncleared swaps).
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    Further, the Commission published for public comment the Proposed 
Guidance,\10\ which set forth the manner in which it proposed to 
interpret section 2(i) of the CEA as it applies to the requirements 
under the Dodd-Frank Act and the Commission's regulations promulgated 
thereunder regarding cross-border swaps activities. Specifically, in 
the Proposed Guidance, the Commission described the general manner in 
which it proposed to consider: (1) Whether a non-U.S. person's swap 
dealing activities are sufficient to require registration as a ``swap 
dealer,'' \11\ as further defined in a joint release adopted by the 
Commission

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and the Securities and Exchange Commission (``SEC'') (collectively, the 
``Commissions''); \12\ (2) whether a non-U.S. person's swap positions 
are sufficient to require registration as a ``major swap participant,'' 
\13\ as further defined in the Final Entities Rules; and (3) the 
treatment of foreign branches, agencies, affiliates, and subsidiaries 
of U.S. SDs and U.S. branches of non-U.S. SDs. The Proposed Guidance 
also generally described the policy basis and procedural framework 
underlying the Commission's determination to allow compliance with a 
comparable regulatory requirement of a foreign jurisdiction to 
substitute for compliance with the requirements of the CEA and 
Commission regulations thereunder. Last, the Proposed Guidance set 
forth the manner in which the Commission proposed to interpret section 
2(i) of the CEA as it applies to the clearing, trading, and certain 
reporting requirements under the Dodd-Frank Act with respect to swaps 
between counterparties that are not SDs or MSPs.
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    \10\ Cross-Border Application of Certain Swaps Provisions of the 
Commodity Exchange Act, 77 FR 41214 (Jul. 12, 2012) (``Proposed 
Guidance'').
    \11\ 7 U.S.C. 1a(49) (defining the term ``swap dealer'').
    \12\ See Further Definition of `Swap Dealer,' `Security-Based 
Swap Dealer,' `Major Swap Participant,' `Major Security-Based Swap 
Participant' and `Eligible Contract Participant,' 77 FR 305969 (May 
23, 2012) (``Final Entities Rules'').
    \13\ 7 U.S.C. 1a(33) (defining the term ``major swap 
participant'').
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    Contemporaneously with the Proposed Guidance, the Commission 
published the Exemptive Order Regarding Compliance With Certain Swap 
Regulations (``Proposed Order'') \14\ pursuant to section 4(c) of the 
CEA, in order to foster an orderly transition to the new swaps 
regulatory regime and to provide market participants greater certainty 
regarding their obligations with respect to cross-border swaps 
activities prior to finalization of the Proposed Order. The Proposed 
Order would have granted temporary relief from certain swaps provisions 
of Title VII of the Dodd-Frank Act.
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    \14\ 77 FR 41110 (Jul. 12, 2012).
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    On January 7, 2013, the Commission published the Final Exemptive 
Order Regarding Compliance with Certain Swap Regulations (``January 
Order''),\15\ which finalized the Proposed Order, with modifications, 
and granted temporary relief from certain swaps provisions of Title VII 
of the Dodd-Frank Act. In particular, the January Order: (1) Applies, 
for purposes of the January Order, a definition of the term ``U.S. 
person'' based on the counterparty criteria set forth in CFTC Letter 
No. 12-22,\16\ with certain modifications; (2) provides relief 
concerning SD de minimis and MSP threshold calculations; (3) 
classifies, for purposes of the January Order, requirements of the CEA 
and Commission regulations as either ``Entity-Level Requirements'' or 
``Transaction-Level Requirements;'' (4) allows non-U.S. persons that 
register as SDs or MSPs to delay compliance with certain Entity-Level 
Requirements and Transaction-Level Requirements; and (5) allows foreign 
branches of U.S. SDs or MSPs to delay compliance with certain 
Transaction-Level Requirements. The January Order was effective 
December 21, 2012, and expires July 12, 2013.
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    \15\ 78 FR 858 (Jan. 7, 2013).
    \16\ CFTC Division of Swap Dealer and Intermediary Oversight, 
Re: Time-Limited No-Action Relief: Swaps Only With Certain Persons 
to be Included in Calculation of Aggregate Gross Notional Amount for 
Purposes of Swap Dealer De Minimis Exception and Calculation of 
Whether a Person is a Major Swap Participant, No-Action Letter No. 
12-22 (Oct. 12, 2012).
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II. Need for Further Exemptive Relief With Request for Comments

    In issuing the January Order, the Commission attempted to be 
responsive to industry's concerns regarding implementation and thereby 
ensure that market practices would not be unnecessarily disrupted 
during the transition to the new swaps regulatory regime. At the same 
time, however, the Commission endeavored to comply with the 
Congressional mandate to implement the new SD and MSP regulatory scheme 
in a timely manner. Accordingly, the January Order was carefully 
tailored both in scope and duration in order to strike the proper 
balance between these competing demands.
    Following the issuance of the January Order, Commission staff 
addressed various implementation issues through no-action letters and 
interpretative letters in order to ensure a smooth transition to the 
new swaps regulatory regime. Furthermore, the Commission and its staff 
have closely consulted with SEC staff and with foreign regulators in an 
effort to harmonize cross-border regulatory approaches. As a result, 
significant progress has been made towards implementation of the Dodd-
Frank swaps regime. Under these circumstances, the Commission does not 
believe that an extension of the January Order is necessary or 
appropriate. The Commission believes, however, that further 
transitional relief is necessary in order to avoid unnecessary market 
disruptions and to facilitate market participants' transition to the 
new Dodd-Frank swaps regime. Specifically, with the expiration of the 
January Order, the temporary definition of the term ``U.S. person'' 
will no longer be available. As a result, market participants will need 
additional time to adjust their operational and compliance systems in 
order to incorporate the revised scope of the term ``U.S. person.''
    The Commission also recognizes that implementation of the 
Commission's substituted compliance program would benefit from 
additional time.\17\ Under this ``substituted compliance program,'' the 
Commission may determine that certain laws and regulations of a foreign 
jurisdiction are comparable to, and as comprehensive as, a 
corresponding category of U.S. laws and regulations.\18\ A finding of 
comparability, however, may not be possible at this time for a number 
of reasons, including that the foreign jurisdiction has not yet 
implemented or finalized particular requirements and that the 
Commission does not have sufficient information to make the 
comparability determinations (``Substituted Compliance 
Determinations''). Moreover, the Commission has only recently received 
requests for Substituted Compliance Determinations from parties located 
in Australia, Canada, the European Union, Hong Kong, Japan, and 
Switzerland.\19\
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    \17\ See Interpretive Guidance and Policy Statement Regarding 
Compliance with Certain Swap Regulations, (``Guidance''), adopted 
concurrently with the Exemptive Order.
    \18\ As stated in the Guidance, any comparability analysis will 
be based on a comparison of specific foreign requirements against 
specific related CEA provisions and Commission regulations in 13 
categories of regulatory obligations, considering certain factors 
described in the Guidance.
    \19\ The Commission notes that of 78 SDs and two MSPs registered 
as of June 14, 2013, 33 SDs are from six non-U.S. jurisdictions: 
Twenty from the European Union; five from Australia; five from 
Canada; one from Japan; one from Hong Kong; and one from 
Switzerland.
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    The Commission is issuing the Exemptive Order today, with a request 
for comments, as it is cognizant that, in the absence of immediate 
exemptive relief, market participants will be faced with significant 
legal uncertainty and the risk of adverse consequences to their global 
business, especially in light of the ongoing discussions with foreign 
regulatory entities and their evolving regulatory regimes. For all of 
the foregoing reasons, the Commission finds that public notice and 
comment on this Exemptive Order would be impracticable, unnecessary, 
and contrary to the public interest.\20\
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    \20\ See 5 U.S.C. 553(b)(B).
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    Because the Commission understands that the transition to the 
Guidance is complex and could apply in varied ways to different 
situations, the Commission is seeking public comment on any issues that 
are not fully addressed by the Exemptive Order. Thus, the Exemptive 
Order is effective as of July 13, 2013, and the Commission is 
soliciting comments for 30 days. The

[[Page 43787]]

Commission will take into consideration arguments made in all comments 
received and make adjustments to the Exemptive Order, as necessary.
    In summary, like the January Order, the Exemptive Order will 
provide targeted, time-limited relief from certain Dodd-Frank 
requirements to facilitate an orderly transition to the Dodd-Frank 
regulatory regime, while, at the same time, ensuring that the Dodd-
Frank swaps market reform is implemented without undue delay.

III. Scope of Exemptive Order

A. Definition of ``U.S. Person'' and Phase-In of Guaranteed Affiliates 
and ``Affiliate Conduits''

    As discussed above, the Commission recognizes that market 
participants may need additional time to facilitate their transition to 
the interpretation of the term ``U.S. person.'' Accordingly, under the 
Exemptive Order, the definition of the term ``U.S. person'' contained 
in the January Order will continue to apply from July 13, 2013 (the 
date on which the Exemptive Order is effective) until 75 days after the 
Final Guidance is published in the Federal Register. The Commission 
expects that this step, and the other relief provided in this Exemptive 
Order, will substantially address concerns regarding the complexity of 
implementing the swap requirements for the interim period during which 
the Exemptive Order is in effect. In addition, guaranteed affiliates 
and affiliate conduits do not need to comply with Transaction-Level 
Requirements relating to swaps with non-U.S. persons and foreign 
branches of U.S. swap dealers and MSPs until 75 days after the Final 
Guidance is published in the Federal Register.

B. De Minimis Calculation

    The Commission has adopted final rules and interpretive guidance 
implementing the statutory definitions of the terms ``swap dealer'' and 
``major swap participant'' in CEA sections 1a(49) and 1a(33).\21\ The 
Final Entities Rules delineate the activities that cause a person to be 
an SD and the level of swap positions that cause a person to be an MSP. 
In addition, the Commission has adopted rules concerning the statutory 
exceptions from the definition of an SD, including the de minimis 
exception.\22\ Commission regulation 1.3(ggg)(4) sets forth a de 
minimis threshold of swap dealing, which takes into account the 
notional amount of a person's swap dealing activity over the prior 12 
months.\23\ When a person engages in swap dealing transactions above 
that threshold, the person meets the SD definition in section 1a(49) of 
the CEA.\24\ Commission regulations 1.3(jjj)(1) and 1.3(lll)(1) set 
forth swap position thresholds for the MSP definition in Commission 
regulation 1.3(hhh). When a person holds swap positions above those 
thresholds, such person meets the MSP definition in section 1a(39) of 
the CEA.
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    \21\ 7 U.S.C. 1a(49) and 1a(33). See Final Entities Rules.
    \22\ Section 1a(49)(D) of the CEA, 7 U.S.C. 1a(49)(D), provides 
that ``[t]he Commission shall exempt from designation as a swap 
dealer an entity that engages in a de minimis quantity of swap 
dealing in connection with transactions with or on behalf of its 
customers. The Commission shall promulgate regulations to establish 
factors with respect to the making of this determination to 
exempt.'' This provision is implemented in Commission regulation 
1.3(ggg)(4).
    \23\ As used in the Exemptive Order, the meaning of the term 
``swap dealing'' is consistent with that used in the Final Entities 
Rules.
    \24\ Under Commission regulations 3.10(a)(1)(v)(C) and 23.21, a 
person is required to register as an SD when, on or after October 
12, 2012, the person falls within the definition of an SD. However, 
the rule defining ``swap dealer'' includes a de minimis threshold so 
that an entity is not an SD if it, together with the entities 
controlling, controlled by, and under common control with it, 
engages in swap dealing activity during the prior 12 months in an 
aggregate gross notional amount of less than the specified 
thresholds. The rule further specifies that swap dealing activity 
engaged in before the effective date of both the ``swap dealer'' and 
``swap'' definition rules (i.e., before October 12, 2012) does not 
count toward the de minimis threshold. The rule also provides that 
an entity that exceeds the de minimis threshold must register as an 
SD two months after the end of the month in which it exceeds the 
threshold. See Commission regulation 1.3(ggg)(4).
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    As described in the January Order, the Commission believed it 
appropriate to provide, during the pendency of the Commission's cross-
border interpretive guidance, temporary relief for non-U.S. persons 
(regardless of whether the non-U.S. persons' swap obligations are 
guaranteed by U.S. persons) from the requirement that a person include 
all its swaps in its calculation of the aggregate gross notional amount 
of swaps connected with its swap dealing activity for SD purposes or in 
its calculations for MSP purposes.\25\ In order to facilitate an 
orderly transition to the revised scope of the term ``U.S. person,'' 
the Exemptive Order provides that until 75 days after the Guidance is 
published in the Federal Register, a non-U.S. person (regardless of 
whether the non-U.S. person's swaps obligations are guaranteed by U.S. 
persons) does not need to include in its calculation of the aggregate 
gross notional amount of swaps connected with its swap dealing activity 
for purposes of Commission regulation 1.3(ggg)(4) or in its calculation 
of whether it is an MSP for purposes of Commission regulation 1.3(hhh), 
any swaps where the counterparty is a non-U.S. person, or any swap 
where the counterparty is a foreign branch of a U.S. person that is 
registered as a swap dealer.
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    \25\ On the other hand, the Commission believes that it is not 
appropriate to provide a non-U.S. person with relief from the 
registration requirement when the aggregate level of its swap 
dealing with U.S. persons, as that term is defined in the Guidance, 
exceeds the de minimis level of swap dealing, or when the level of 
its swap positions with U.S. persons, again as that term is defined 
above, exceeds one of the MSP thresholds. In the Commission's view, 
such relief from the registration requirement is inappropriate when 
a level of swaps activities that is substantial enough to require 
registration as an SD or an MSP when conducted by a U.S. person, is 
conducted by a non-U.S. person with U.S. persons as counterparties.
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C. Aggregation

    Commission regulation 1.3(ggg)(4) requires that a person include, 
in determining whether its swap dealing activities exceed the de 
minimis threshold, the aggregate notional value of swap dealing 
transactions entered by its affiliates under common control. Under the 
January Order, a non-U.S. person that is engaged in swap dealing 
activities with U.S. persons as of the effective date of the January 
Order is not required to include, in its calculation of the aggregate 
gross notional amount of swaps connected with its swap dealing activity 
for purposes of Commission regulation 1.3(ggg)(4), the aggregate gross 
notional amount of swaps connected with the swap dealing activity of 
its U.S. affiliates under common control.\26\ Further, a non-U.S. 
person that is engaged in swap dealing activities with U.S. persons as 
of the effective date of the January Order and is an affiliate under 
common control with a person that is registered as an SD is also not 
required to include, in its calculation of the aggregate gross notional 
amount of swaps connected with its swap dealing activity for purposes 
of Commission regulation 1.3(ggg)(4), the aggregate gross notional 
amount of swaps connected with the swap dealing activity of any non-
U.S. affiliate under common control that is either (i) engaged in swap 
dealing activities with U.S. persons as of the effective date of the 
January Order or (ii) registered as an SD. Also, under the January 
Order, a non-U.S. person is not required to include, in its calculation 
of the aggregate gross notional amount of swaps connected with its swap 
dealing

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activity for purposes of Commission regulation 1.3(ggg)(4), the 
aggregate gross notional amount of swaps connected with the swap 
dealing activity of its non-U.S. affiliates under common control with 
other non-U.S. persons as counterparties.
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    \26\ For this purpose, the Commission construes ``affiliates'' 
to include persons under common control as stated in the 
Commission's final rule further defining the term ``swap dealer,'' 
which defines control as ``the possession, direct or indirect, of 
the power to direct or cause the direction of the management and 
policies of a person, whether through the ownership of voting 
securities, by contract or otherwise.'' See Final Entities Rules, 77 
FR at 30631 n. 437.
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    In order to facilitate transition to the expanded scope of the term 
``U.S. person,'' the Exemptive Order allows all non-U.S. persons to 
apply the aggregation principle applied in the January Order until 75 
days after the Guidance is published in the Federal Register.

D. Swap Dealer Registration

    A non-U.S. person that was previously exempt from registration as 
an SD because of the temporary relief extended to such person under the 
Commission's January Order, but that is required to register as an SD 
under Commission regulation 1.3(ggg)(4) because of changes to the scope 
of the term ``U.S. person'' or changes in the de minimis SD calculation 
or aggregation for purposes of the de minimis calculation, is not 
required to register as an SD until two months after the end of the 
month in which such person exceeds the de minimis threshold for SD 
registration.

E. Entity-Level and Transaction-Level Requirements

1. Categorization
    For purposes of the Exemptive Order, the Dodd-Frank swaps 
provisions applicable to SDs and MSPs are categorized as Entity-Level 
or Transaction-Level Requirements in the same way as they are 
categorized in the Guidance.\27\ In particular, for purposes of the 
Exemptive Order, Entity-Level Requirements consist of: (1) Capital 
adequacy; (2) chief compliance officer; \28\ (3) risk management; \29\ 
(4) swap data recordkeeping; \30\ and (5) swap data repository 
(``SDR'') Reporting.\31\ The Transaction-Level Requirements consist of: 
(1) Clearing and swap processing; \32\ (2) margin and segregation 
requirements for uncleared swaps; (3) trade execution; \33\ (4) swap 
trading relationship documentation; \34\ (5) portfolio reconciliation 
and compression; \35\ (6) real-time public reporting; \36\ (7) trade 
confirmation; \37\ (8) daily trading records; \38\ and (9) external 
business conduct standards.\39\ Under the Guidance, Transaction-Level 
Requirements (1) to (8) are the ``Category A Transaction-Level 
Requirements,'' while external business conduct standards are the 
``Category B Transaction-Level Requirements.''
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    \27\ Because, as described in the Guidance, substituted 
compliance is not possible with respect to Large Trader Reporting 
(``LTR'') requirements (i.e., non-U.S. persons that are subject to 
part 20 of the Commission's regulations would comply with it in the 
same way that U.S. persons comply), LTR requirements are not 
included within the term ``Entity-Level Requirements'' for purposes 
of the Exemptive Order.
    \28\ 17 CFR 3.3.
    \29\ 17 CFR 23.600, 23.601, 23.602, 23.603, 23.605, 23.606, 
23.608, and 23.609.
    \30\ 17 CFR 1.31, 23.201 and 23.203.
    \31\ 17 CFR parts 45 and 46.
    \32\ 17 CFR 23.506, 23.610, and part 50.
    \33\ The Commission has adopted regulations for determining when 
a swap is ``available to trade'' and a compliance schedule for the 
trade execution requirement that applies when a swap subject to 
mandatory clearing is available to trade. At the present time, no 
swap either has been determined to be made available to trade or is 
subject to the trade execution requirement. See Process for a 
Designated Contract Market or Swap Execution Facility To Make a Swap 
Available to Trade, Swap Transaction Compliance and Implementation 
Schedule, and Trade Execution Requirement Under the Commodity 
Exchange Act, 78 FR 33606 (Jun. 4, 2013). See CEA section 2(h)(8) 
and 17 CFR 37.12 or 38.11.
    \34\ 17 CFR 23.504 and 23.505.
    \35\ 17 CFR 23.502 and 23.503.
    \36\ 17 CFR 23.205 and part 43.
    \37\ 17 CFR 23.501.
    \38\ 17 CFR 23.202.
    \39\ 17 CFR 23.400 to 23.451.
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    The Commission notes that it has not yet finalized regulations 
regarding capital adequacy or margin and segregation for uncleared 
swaps. In the event that the Commission finalizes regulations regarding 
capital adequacy or margin and segregation for uncleared swaps before 
December 21, 2013, non-U.S. SDs and non-U.S. MSPs would comply with 
such requirements in accordance with any compliance date provided in 
the relevant rulemaking.
2. Application of Entity-Level Requirements
i. Application to non-U.S. SDs and non-U.S. MSPs
    As described in the Guidance, non-U.S. SDs and non-U.S. MSPs can 
generally comply with specified Entity-Level Requirements by complying 
with regulations of the jurisdiction in which the non-U.S. SD or non-
U.S. MSP is established, assuming the Commission has made a Substituted 
Compliance Determination with respect to the particular regulatory 
regime.\40\ In addition to SDs in the United States, there are 
provisionally registered SDs that are established in Australia, Canada, 
the European Union, Hong Kong, Japan, and Switzerland. Market 
participants or regulators in all of these jurisdictions have recently 
submitted requests for Substituted Compliance Determinations. Given 
that the Guidance is being issued now, and that the Commission did not 
receive any submissions in support of Substituted Compliance 
Determinations with sufficient time to review them and reach a final 
determination, the Commission has determined to temporarily delay 
compliance with Entity-Level Requirements in these jurisdictions. 
Accordingly, under the Exemptive Order, a non-U.S. SD or non-U.S. MSP 
established in Australia, Canada, the European Union, Hong Kong, Japan 
or Switzerland may defer compliance with any Entity-Level Requirement 
for which substituted compliance would be possible, as described in the 
Commission's Guidance, until the earlier of December 21, 2013 or 30 
days following the issuance of a Substituted Compliance Determination 
for the relevant regulatory requirements of the jurisdiction in which 
the non-U.S. SD or non-U.S. MSP is established.\41\
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    \40\ As detailed in the Guidance, non-U.S. SDs and MSPs may 
generally rely on substituted compliance with respect to capital 
adequacy, chief compliance officer, risk management, and certain 
swap data recordkeeping. Non-U.S persons may also generally rely on 
substituted compliance with respect to SDR reporting and certain 
aspects of swap data recordkeeping relating to complaints and 
marketing and sales materials, but only for transactions with non-
U.S. counterparties.
    \41\ The Commission anticipates that non-U.S. SDs/MSPs may 
require additional time after a Substituted Compliance Determination 
in order to phase in compliance with the relevant requirements of 
the jurisdiction in which the non-U.S. SDs or MSP is established. 
The Commission and its staff intend to address the need for any 
further transitional relief in connection with the subject 
Substituted Compliance Determination.
    In addition, if an SD or MSP established in another jurisdiction 
files a request for registration before December 21, 2013, the 
Commission may consider a request for deferring compliance with the 
Entity-Level Requirements if a substituted compliance request is 
filed concurrently with the application.
---------------------------------------------------------------------------

    Under the January Order, non-U.S. SDs and non-U.S. MSPs are 
required to comply with SDR Reporting for all swaps with U.S. 
counterparties. However, non-U.S. SDs and non-U.S. MSPs that are not 
part of an affiliated group in which the ultimate parent entity is a 
U.S. SD, U.S. MSP, U.S. bank, U.S. financial holding company or U.S. 
bank holding company are relieved, during the pendency of the January 
Order, from complying with the SDR Reporting requirements for swaps 
with non-U.S. counterparties. In order to facilitate the transition to 
fully compliant SDR Reporting, the Commission will provide non-U.S. SDs 
and non-U.S. MSPs established in Australia, Canada, the European Union, 
Hong Kong, Japan or Switzerland that are not part of an affiliated 
group in which the ultimate parent entity is a U.S. SD, U.S. MSP, U.S. 
bank, U.S. financial holding company, or U.S. bank

[[Page 43789]]

holding company with temporary relief from the SDR reporting 
requirements of part 45 and part 46 of the Commission's regulations 
with respect to swaps with non-U.S. counterparties on the condition 
that, during the relief period: (i) Such non-U.S. SDs and non-U.S. MSPs 
are in compliance with the swap data recordkeeping and reporting 
requirements of their home jurisdictions; or (ii) where no swap data 
reporting requirements have been implemented in their home 
jurisdictions, such non-U.S. SDs and non-U.S. MSPs comply with the 
recordkeeping requirements of Commission regulations 45.2, 45.6, 46.2 
and 46.4. This relief will expire the earlier of December 21, 2013 or, 
in the event of a Substituted Compliance Determination for the 
regulatory requirements of parts 45 and 46 for the jurisdiction in 
which the non-U.S. SD or non-U.S. MSP is established, 30 days following 
the issuance of such Substituted Compliance Determination.
3. Application of Transaction-Level Requirements
i. Application to U.S. SDs and MSPs
    Generally, U.S. SDs and MSPs must comply with all Transaction-Level 
Requirements that are in effect. As described in the Guidance, however, 
a foreign branch of a U.S. SD or MSP that enters into a swap with a 
non-U.S. counterparty would be able to comply with the requirements of 
the local law and regulations in the foreign location of the branch in 
lieu of compliance with Category A Transaction-Level Requirements if 
the Commission has made a Substituted Compliance Determination with 
respect to those regulatory requirements. Additionally, as described in 
the Guidance, a foreign branch of a U.S. bank that is an SD or MSP need 
not comply with Category B Transaction-Level Requirements unless its 
swap counterparty is a U.S. person other than a foreign branch of a 
U.S. bank that is an SD or MSP.
    Given that the Guidance is being issued now, and that the 
Commission did not receive any submissions in support of Substituted 
Compliance Determinations with sufficient time to review them and reach 
a final determination, the Commission has determined to temporarily 
defer compliance with the Category A Transaction-Level Requirements by 
foreign branches of U.S. banks if they are located in any of the six 
jurisdictions for which the Commission has received, or expects to 
receive in the near term, a request for substituted compliance 
determinations, for transactions for which substituted compliance is 
possible under the Guidance for such entities.\42\ Accordingly, under 
the Exemptive Order, a foreign branch \43\ of a U.S. bank that is an SD 
or MSP, and which is located in Australia, Canada, the European Union, 
Hong Kong, Japan, or Switzerland, may comply with any law and 
regulations of the jurisdiction where the foreign branch is located 
(and only to the extent required by such jurisdiction) in lieu of 
complying with any Category A Transaction-Level Requirement for which 
substituted compliance would be possible under the Guidance (other than 
a clearing requirement under CEA section 2(h)(1), Commission 
regulations under part 50, and Commission regulation 23.506; a trade 
execution requirement under CEA section 2(h)(8) and regulation 37.12 or 
38.11; \44\ or a real-time reporting requirement under part 43 of the 
Commission regulations for swaps with guaranteed affiliates \45\ of a 
U.S. person), until the earlier of December 21, 2013 or 30 days 
following the issuance of a Substituted Compliance Determination for 
the relevant regulatory requirements of the country in which the 
foreign branch is located. For swaps transactions with guaranteed 
affiliates of a U.S. person, a foreign branch of a U.S. SD or MSP 
established in Australia, Canada, the European Union, Hong Kong, Japan 
or Switzerland may comply with the law and regulations of the 
jurisdiction where the foreign branch is located related to real-time 
reporting (and only to the extent required by such jurisdiction) in 
lieu of complying with the real-time reporting requirements of part 43 
of the Commission regulations until September 30, 2013. In the case of 
swaps with guaranteed affiliates of a U.S. person, the Commission 
believes that it the real-time reporting requirements of part 43 of the 
Commission's regulations should be effective as expeditiously as 
possible in order to achieve their underlying statutory objectives. 
Therefore, the Commission has determined that it would not be in the 
public interest to further delay reporting under part 43 of the 
Commission's regulations with respect to such swaps beyond September 
30, 2013.
---------------------------------------------------------------------------

    \42\ If an SD or MSP established in any other jurisdiction files 
an application for registration before December 21, 2013, the 
Commission may consider a request for deferring compliance with the 
Transaction-Level Requirements if a substituted compliance request 
is filed concurrently with the application.
    The Commission notes that Transaction-Level Requirements apply 
on a transaction-by-transaction basis. As described in the Guidance, 
if a Substituted Compliance Determination is applicable to the 
jurisdiction in which a foreign branch of a U.S. bank is located for 
the relevant regulatory requirements and the branch enters into a 
swap (either in the jurisdiction in which it is located or another 
jurisdiction), then the branch can elect to comply with either the 
regulatory regime of the jurisdiction in which it is located for 
which the Substituted Compliance Determination has been made, or the 
comparable Category A Transaction-Level Requirements.
    \43\ For purposes of this Exemptive Order, market participants 
must use the term ``foreign branch'' and the interpretation of when 
a swap is with a foreign branch set forth in the Guidance. See 
Guidance regarding the types of offices which the Commission would 
consider to be a ``foreign branch'' of a U.S. bank, and the 
circumstances in which a swap is with such foreign branch.
    \44\ The Commission has adopted regulations for determining when 
a swap is ``available to trade'' and a compliance schedule for the 
trade execution requirement that applies when a swap subject to 
mandatory clearing is available to trade. At the present time, no 
swap either has been determined to be made available to trade or is 
subject to the trade execution requirement. See Process for a 
Designated Contract Market or Swap Execution Facility To Make a Swap 
Available to Trade, Swap Transaction Compliance and Implementation 
Schedule, and Trade Execution Requirement Under the Commodity 
Exchange Act, 78 FR 33606 (Jun. 4, 2013). See CEA section 2(h)(8) 
and 17 CFR 37.12 or 38.11.
    \45\ As used in the Exemptive Order, the term ``guaranteed 
affiliate'' refers to a non-U.S. person that is affiliated with a 
U.S. person and guaranteed by a U.S. person. In addition, for 
purposes of the Exemptive Order, the Commission interprets the term 
``guarantee'' generally to include not only traditional guarantees 
of payment or performance of the related swaps, but also other 
formal arrangements that, in view of all the facts and 
circumstances, support the non-U.S. person's ability to pay or 
perform its swap obligations with respect to its swaps. See Proposed 
Guidance, 77 FR at 41221 n. 47. The term ``guarantee'' encompasses 
the different financial arrangements and structures that transfer 
risk directly back to the United States. In this regard, it is the 
substance, rather than the form, of the arrangement that determines 
whether the arrangement should be considered a guarantee for 
purposes of the Exemptive Order.
---------------------------------------------------------------------------

    With respect to a swap that is subject to the clearing requirement 
under CEA section 2(h)(1), Commission regulations under part 50, and 
Commission regulation 23.506, any foreign branch of a U.S. bank that is 
an SD or MSP that was not required to clear under the January Order may 
delay complying with such clearing requirement until 75 days after the 
publication of the Guidance in the Federal Register. As the Commission 
explained in the Clearing Requirement Determination proposal,\46\ the 
movement of swaps into central clearing by swap dealers has been taking 
place for many years. As part of the OTC Derivatives Supervisors' Group 
(``ODSG''), the Federal Reserve Bank of New York led an effort along 
with the primary supervisors of certain swap dealers \47\ to enhance 
risk

[[Page 43790]]

mitigation practices for OTC derivatives, a key element of which was 
introduction of and commitment to central clearing of swaps, including 
clearing CDS (credit default swap) indices and interest rate swaps. 
Clearing is at the heart of the Dodd-Frank financial reform.\48\
---------------------------------------------------------------------------

    \46\ 77 FR 47170, 47209 (Aug. 7, 2012).
    \47\ The ODSG's group of 14 dealers included: Bank of America-
Merrill Lynch; Barclays Capital; BNP Paribas; Citi; Credit Suisse; 
Deutsche Bank AG; Goldman Sachs & Co.; HSBC Group, J.P. Morgan; 
Morgan Stanley; The Royal Bank of Scotland Group; 
Soci[eacute]t[eacute] G[eacute]n[eacute]rale; UBS AG; and Wells 
Fargo Bank N.A.
    \48\ See Clearing Requirement Determination under Section 2(h) 
of the CEA, 77 FR 74284, 74285 (Dec. 13, 2013).
---------------------------------------------------------------------------

    With regard to the CDS indices that are subject to the Commission's 
clearing determination rules, SDs and other market participants have 
been working since 2008 to comply with their commitment to their ODSG 
supervisors to clear CDS. Similarly, while clearing of interest rate 
swaps began in the late 1990s, SDs and other market participants began 
committing in the mid-2000s to clear interest rate swaps in significant 
volumes. The SD commitments included both dealer-to-dealer clearing, as 
well as clearing by buy-side participants and others. Because SDs and 
MSPs have been committed to clearing their CDS and interest rate swaps 
for many years, and indeed have been voluntarily clearing for many 
years, any further delay of the Commission's clearing requirement is 
unwarranted.
    In addition, under this Exemptive Order, a foreign branch of a U.S. 
SD or MSP located in any jurisdiction other than Australia, Canada, 
European Union, Hong Kong, Japan or Switzerland may comply with any law 
and regulations of the jurisdiction where the foreign branch is located 
(and only to the extent required by such jurisdiction) for the relevant 
Transaction-Level Requirement in lieu of complying with any 
Transaction-Level Requirement for which substituted compliance would be 
possible under the Commission's Guidance until 75 days after the 
publication of the Guidance in the Federal Register.
ii. Application to Non-U.S. SDs and Non-U.S. MSPs
    As described in the Guidance, a non-U.S. SD or non-U.S. MSP should 
generally comply with the Category A Transaction-Level Requirements for 
its swaps with U.S. persons and with non-U.S. persons that are 
guaranteed by, or are affiliate conduits of,\49\ a U.S. person 
(although substituted compliance would generally be available to a non-
U.S. SD or non-U.S. MSP for transactions with (1) foreign branches of a 
U.S. bank that is an SD or MSP and (2) guaranteed affiliates or 
affiliate conduits of a U.S. person). Additionally, as described in the 
Guidance, a non-U.S. SD or non-U.S. MSP would generally need to comply 
with Category B Transaction-Level Requirements for all swaps with a 
U.S. person (other than a foreign branch of a U.S. bank that is an SD 
or an MSP).
---------------------------------------------------------------------------

    \49\ See Guidance regarding when a non-U.S. person generally 
would be considered to be an affiliate conduit.
---------------------------------------------------------------------------

    Given that the Guidance is being issued now, and that the 
Commission did not receive any submissions in support of Substituted 
Compliance Determinations with sufficient time to review them and reach 
a final determination, the Commission has determined to temporarily 
defer compliance with the Category A Transaction-Level Requirements by 
non-U.S. SDs and non-U.S. MSPs established in any of the six 
jurisdictions for which the Commission has received, or expects to 
receive in the near term, a request for substituted compliance 
determinations for transactions for which substituted compliance is 
possible under the Guidance for such entities.\50\ Accordingly, under 
the Exemptive Order, a non-U.S. SD or non-U.S. MSP established in 
Australia, Canada, European Union, Hong Kong, Japan or Switzerland \51\ 
may comply with any law and regulations of the home jurisdiction where 
such non-U.S. SD or non-U.S. MSP is established (and only to the extent 
required by such jurisdiction) in lieu of complying with any Category A 
Transaction-Level Requirement for which substituted compliance would be 
possible under the Commission's Guidance (other than a clearing 
requirement under CEA section 2(h)(1), Commission regulations under 
part 50, and Commission regulation 23.506; a trade execution 
requirement under CEA section 2(h)(8) and regulation 37.12 or 38.11; 
\52\ or a real-time reporting requirement under part 43 of the 
Commission regulations for swaps with guaranteed affiliates of a U.S. 
person), until the earlier of December 21, 2013 or 30 days following 
the issuance of a Substituted Compliance Determination for the relevant 
regulatory requirements of the jurisdiction in which the non-U.S. SD or 
non-U.S. MSP is established.\53\ For swap transactions with guaranteed 
affiliates of a U.S. person under the Commission's Guidance, a non-U.S. 
SD or non-U.S. MSP established in Australia, Canada, the European 
Union, Hong Kong, Japan or Switzerland may comply with any law and 
regulations of the home jurisdiction where such non-U.S. SD or non-U.S. 
MSP is established related to real-time reporting requirements (and 
only to the extent required by such home jurisdiction) in lieu of 
complying with the real-time reporting requirements of part 43 of the 
Commission regulations, until September 30, 2013. In the case of swaps 
with guaranteed affiliates of a U.S. person, the Commission believes 
that the real-time reporting requirements of part 43 of the 
Commission's regulations should be effective as expeditiously as 
possible in order to achieve their underlying statutory objectives. 
Therefore, the Commission has determined that it would not be in the 
public interest to further delay reporting under part 43 of the 
Commission's regulations with respect to such swaps beyond September 
30, 2013.
---------------------------------------------------------------------------

    \50\ The Commission notes that Transaction-Level Requirements 
apply on a transaction-by-transaction basis. As described in the 
Guidance, if a Substituted Compliance Determination is applicable to 
the jurisdiction in which a non-U.S. SD or non-U.S. MSP is 
established and that entity enters into a swap (either in the 
jurisdiction in which it is established or another jurisdiction), 
then the entity can elect to comply with either the regulatory 
regime of the jurisdiction in which it is established for which the 
Substituted Compliance Determination has been made, or the 
comparable Category A Transaction-Level Requirements.
    \51\ If an SD or MSP established in any other jurisdiction files 
an application for registration before December 21, 2013, the 
Commission may consider a request for deferring compliance with the 
Transaction-Level Requirements if a substituted compliance request 
is filed concurrently with the application.
    \52\ The Commission has adopted regulations for determining when 
a swap is ``available to trade'' and a compliance schedule for the 
trade execution requirement that applies when a swap subject to 
mandatory clearing is available to trade. At the present time, no 
swap either has been determined to be made available to trade or is 
subject to the trade execution requirement. See Process for a 
Designated Contract Market or Swap Execution Facility To Make a Swap 
Available to Trade, Swap Transaction Compliance and Implementation 
Schedule, and Trade Execution Requirement Under the Commodity 
Exchange Act, 78 FR 33606 (Jun. 4, 2013). See CEA section 2(h)(8) 
and 17 CFR 37.12 or 38.11.
    \53\ The Commission anticipates that non-U.S. SD and MSPs may 
require additional time after a Substituted Compliance Determination 
in order to phase in compliance with the relevant requirements of 
the jurisdiction in which the non-US SD or MSP is established. The 
Commission and its staff intend to address the need for any further 
transitional relief at the time that the subject Substituted 
Compliance Determination is made.
---------------------------------------------------------------------------

    With respect to a swap that is subject to the clearing requirement 
under CEA section 2(h)(1), Commission regulations under part 50, and 
Commission regulation 23.506, any non-U.S. SD or non-U.S. MSP that was 
not required to clear under the January Order may delay complying with 
such clearing requirement until 75 days after the

[[Page 43791]]

publication of the Guidance in the Federal Register.\54\
---------------------------------------------------------------------------

    \54\ See discussion, supra.
---------------------------------------------------------------------------

    In addition, under this Exemptive Order, for swaps transactions 
with guaranteed affiliates of a U.S. person, a non-U.S. SD or a non-
U.S. MSP established in any jurisdiction other than Australia, Canada, 
European Union, Hong Kong, Japan or Switzerland may comply with any law 
and regulations of the home jurisdiction where such non-U.S. SD or non-
U.S. MSP is established (and only to the extent required by such 
jurisdiction) in lieu of complying with any Transaction-Level 
Requirement for which substituted compliance would be possible under 
the Commission's Guidance until 75 days after the publication of the 
Guidance in the Federal Register.
iii. Application to Non-Registrants
    Under this Exemptive Order, for swaps transactions between a 
guaranteed affiliate of a U.S. person (established in any jurisdiction 
outside the United States) that is not registered as a SD or MSP and 
another guaranteed affiliate of a U.S. person(established in any 
jurisdiction outside the United States) that is not registered as a SD 
or MSP, such non-registrants may comply with any law and regulations of 
the jurisdiction where they are established (and only to the extent 
required by such jurisdictions) for the relevant Transaction-Level 
Requirement in lieu of complying with any Transaction-Level Requirement 
for which substituted compliance would be possible under the 
Commission's Guidance until 75 days after the publication of the 
Guidance in the Federal Register.

IV. Section 4(c) of the CEA

    Section 4(c)(1) of the CEA authorizes the Commission to ``promote 
responsible economic or financial innovation and fair competition'' by 
exempting any transaction or class of transaction from any of the 
provisions of the CEA (subject to certain exceptions) where the 
Commission determines that the exemption would be consistent with the 
public interest and the purposes of the CEA.\55\ Under section 4(c)(2) 
of the CEA, the Commission may not grant exemptive relief unless it 
determines that: (1) The exemption is appropriate for the transaction 
and consistent with the public interest; (2) the exemption is 
consistent with the purposes of the CEA; (3) the transaction will be 
entered into solely between ``appropriate persons;'' and (4) the 
exemption will not have a material adverse effect on the ability of the 
Commission or any contract market to discharge its regulatory or self-
regulatory responsibilities under the CEA.
---------------------------------------------------------------------------

    \55\ CEA section 4(c)(1), 7 U.S.C. 6(c)(1).
---------------------------------------------------------------------------

    The Commission has determined that the Exemptive Order meets the 
requirements of CEA section 4(c). First, in enacting section 4(c), 
Congress noted that the purpose of the provision ``is to give the 
Commission a means of providing certainty and stability to existing and 
emerging markets so that financial innovation and market development 
can proceed in an effective and competitive manner.'' \56\ Like the 
January Order, the Commission is issuing this relief in order to ensure 
an orderly transition to the Dodd-Frank regulatory regime.
---------------------------------------------------------------------------

    \56\ H.R. Conf. Rep. No. 102-978, 1992 U.S.C.C.A.N. 3179, 3213 
(1992).
---------------------------------------------------------------------------

    This exemptive relief also will advance the congressional mandate 
concerning harmonization of international standards with respect to 
swaps, consistent with section 752(a) of the Dodd-Frank Act. In that 
section, Congress directed that, in order to ``promote effective and 
consistent global regulation of swaps and security-based swaps,'' the 
Commission, ``as appropriate, shall consult and coordinate with foreign 
regulatory authorities on the establishment of consistent international 
standards with respect to the regulation'' of swaps and security-based 
swaps.\57\ This relief, by providing non-U.S. registrants the latitude 
necessary to develop and modify their compliance plans as the 
regulatory structure in their respective home jurisdictions evolve, 
will promote the adoption and enforcement of robust and consistent 
standards across jurisdictions. The Commission emphasizes that the 
Exemptive Order is temporary in duration and reserves the Commission's 
enforcement authority, including its anti-fraud and anti-manipulation 
authority. As such, the Commission has determined that the Exemptive 
Order is consistent with the public interest and purposes of the CEA. 
For similar reasons, the Commission has determined that the Exemptive 
Order will not have a material adverse effect on the ability of the 
Commission or any contract market to discharge its regulatory or self-
regulatory duties under the CEA. Finally, the Commission has determined 
that the Exemptive Order is limited to appropriate persons within the 
meaning of CEA section 4c(3), since the SDs and MSPs eligible for the 
relief are likely to be the types of entities enumerated in that 
section and active in the swaps market. Therefore, upon due 
consideration, pursuant to its authority under section 4(c) of the CEA, 
the Commission hereby issues the Exemptive Order.
---------------------------------------------------------------------------

    \57\ See section 752(a) of the Dodd-Frank Act.
---------------------------------------------------------------------------

V. Paperwork Reduction Act

    The Paperwork Reduction Act (``PRA'') \58\ imposes certain 
requirements on Federal agencies in connection with their conducting or 
sponsoring any collection of information as defined by the PRA. An 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a currently 
valid control number.
---------------------------------------------------------------------------

    \58\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    The Exemptive Order does not require the collection of any 
information as defined by the PRA.

VI. Cost-Benefit Considerations

    Section 15(a) of the CEA \59\ requires the Commission to consider 
the costs and benefits of its actions before promulgating a regulation 
under the CEA or issuing certain orders. Section 15(a) further 
specifies that the costs and benefits shall be evaluated in light of 
five broad areas of market and public concern: (1) Protection of market 
participants and the public; (2) efficiency, competitiveness and 
financial integrity of futures markets; (3) price discovery; (4) sound 
risk management practices; and (5) other public interest 
considerations. The Commission considers the costs and benefits 
resulting from its discretionary determinations with respect to the 
section 15(a) factors.
---------------------------------------------------------------------------

    \59\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

A. Introduction

    Throughout the Dodd-Frank rulemaking process, the Commission has 
strived to ensure that new regulations designed to achieve Dodd-Frank's 
protections are implemented in a manner that is both timely and also 
minimizes unnecessary market disruption. In its effort to implement the 
Dodd-Frank regulations on a cross-border basis, the Commission's 
approach has not been different. In this respect, the Commission has 
attempted to be responsive to industry's concerns regarding 
implementation and the timing of new compliance obligations, and 
thereby to ensure that market practices would not be unnecessarily 
disrupted during the transition to the new swaps regulatory regime. At 
the same time, however, the Commission has endeavored to comply with 
the

[[Page 43792]]

Congressional mandate to implement the new SD and MSP regulatory scheme 
in a timely manner. The Commission, therefore, also seeks to ensure 
that the implementation of these requirements is not subject to undue 
delay. The Commission believes that the Exemptive Order strikes the 
proper balance between promoting an orderly transition to the new 
regulatory regime under the Dodd-Frank Act, while appropriately 
tailoring relief to ensure that market practices are not unnecessarily 
disrupted during such transition.
    The Exemptive Order also reflects the Commission's recognition that 
international coordination is essential in this highly interconnected 
global market, where risks are transmitted across national borders and 
market participants operate in multiple jurisdictions.\60\ The 
Exemptive Order would allow market participants to implement the 
calculations related to SD and MSP registration on a uniform basis and 
to delay compliance with certain Dodd-Frank requirements while the 
Commission continues to work closely with other domestic financial 
regulatory agencies and its foreign counterparts in an effort to 
further harmonize the cross-border regulatory framework.
---------------------------------------------------------------------------

    \60\ See generally CFTC-SEC Joint Report on International Swap 
Regulation Required by Section 719(c) of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act at 105-09 (Jan. 31, 2012), 
available at http://www.cftc.gov/ucm/groups/public/@swaps/documents/file/dfstudy_isr_013112.pdf.
---------------------------------------------------------------------------

B. Consideration of Costs and Benefits of the Exemptive Order

    The Exemptive Order permits, subject to the conditions specified 
therein, market participants outside the United States to: (i) Apply 
the January Order's limited, interim definition of the term ``U.S. 
person'' for a period of 75 days; (ii) make the SD and MSP registration 
calculations in accordance with the January Order's guidance for a 
period of 75 days; and (iii) delay compliance with certain Dodd-Frank 
requirements specified in the Exemptive Order. The Exemptive Order 
reflects the Commission's determination to protect U.S. persons and 
markets through the cross-border application of the provisions of the 
Dodd-Frank Act and the Commission's regulations in a manner consistent 
with section 2(i) of the CEA and longstanding principles of 
international comity. By carefully tailoring the scope and extent of 
the phasing-in provided by the Exemptive Order, the Commission believes 
that it achieves an appropriately balanced approach to implementation 
that mitigates the costs of compliance while avoiding open-ended delay 
in protecting the American public from swaps activities overseas. To be 
sure, the conditions attached to the Exemptive Order are not without 
cost, but the Commission believes that the phasing-in of certain Dodd-
Frank requirements as permitted by the Exemptive Order will reduce 
overall costs to market participants.
    In the absence of the Exemptive Order, non-U.S. SDs or MSPs would 
be required to be fully compliant with the Dodd-Frank regulatory regime 
without further delay. The Exemptive Order allows non-U.S. SDs and MSPs 
(and foreign branches of U.S. SDs and MSPs) to delay compliance with a 
number of these requirements until (at latest) December 21, 2013. With 
respect to these entities, therefore, the benefits include not only the 
avoided costs of compliance with certain requirements during the time 
that the Exemptive Order is in effect, but also increased efficiency, 
because the additional time allowed to phase in compliance will allow 
market participants more flexibility to implement compliance in a way 
that is compatible with their systems and practices. The additional 
time provided by the Exemptive Order will also give foreign regulators 
more time to adopt regulations covering similar topics, which could 
increase the likelihood that substituted compliance will be an option 
for market participants. Thus, the Exemptive Order is expected to help 
reduce the costs to market participants of implementing compliance with 
certain Dodd-Frank requirements. These and other costs and benefits are 
considered below.
1. Costs
    The costs of the Exemptive Order are similar to those of the 
January Order. One potential cost, which is difficult to quantify, is 
the potential that the relief provided herein--which will delay the 
application of certain Dodd-Frank requirements to non-US SDs and MSPs 
and to foreign branches of U.S. SDs and MSPs--will leave market 
participants without certain protections and will leave U.S. taxpayers 
exposed to systemic risks. As with the January Order, however, the 
Commission believes that these risks are mitigated by the relatively 
short time period of the Exemptive Order's application.
    When the Commission issued the January Order, it also considered 
the possibility that the order could result in competitive disparities 
from the delay in compliance permitted to non-U.S. market participants, 
discouraging potential non-U.S. counterparties from engaging in swaps 
with U.S. persons. As the Commission noted in the January Order, it was 
difficult to estimate quantitatively the potential negative effects 
that the January Order would have on U.S. SDs and MSPs. Similarly, 
while the Commission cannot exclude the possibility that the Exemptive 
Order could result in negative competitive effects on U.S. SDs and 
MSPs, it would be difficult to estimate those potential negative 
effects quantitatively. Nevertheless, the Commission notes that, in the 
six months since it issued the January Order, it has not observed 
significant competitive disparities that discouraged potential non-U.S. 
counterparties from engaging in swaps with U.S. SDs and MSPs. Given the 
short time period of the Exemptive Order's application, the Commission 
believes it is unlikely that the Exemptive Order (which is more limited 
in scope than the January Order) will cause significant competitive 
disparities that will harm U.S. SDs and MSPs.
2. Benefits
    As with the January Order, the primary benefit of the Exemptive 
Order is that it affords entities additional time to come into 
compliance with certain of the Commission's regulations. By phasing in 
(1) the term ``U.S. person,'' (2) SD and MSP calculations, and (3) the 
application of various Entity- and Transaction-Level requirements to 
persons in six jurisdictions outside the U.S., the Exemptive Order will 
reduce compliance costs for such persons. This relief will provide 
market participants with the additional time that they need for an 
orderly transition and will allow market participants to apply the 
Dodd-Frank requirements flexibly to their particular circumstances.
    Importantly, the Exemptive Order allows non-U.S. SDs and non-U.S. 
MSPs and foreign branches of U.S. SDs and MSPs from six jurisdictions 
to delay compliance with Entity-Level Requirements (as defined in the 
Exemptive Order) and Transaction-Level Requirements (other than 
clearing and trade execution) for which substituted compliance is 
possible, as described in the Guidance. This delay will permit the 
Commission to properly develop the scope and standards of its 
``substituted compliance'' regime by allowing foreign regulators 
additional time to implement regulatory changes necessary to facilitate 
the Commission's determination of comparability.

[[Page 43793]]

C. Section 15(a) Factors

1. Protection of Market Participants and the Public
    The exemptive relief provided in the Exemptive Order will protect 
market participants and the public by facilitating a more orderly 
transition to the new regulatory regime than might otherwise occur in 
the absence of the order. In particular, non-U.S. persons are afforded 
additional time to come into compliance than would otherwise be the 
case, which contributes to greater stability and reliability of the 
swaps markets during the transition process.
2. Efficiency, Competitiveness, and Financial Integrity of the Markets
    The Commission believes that the efficiency and integrity of the 
markets will be furthered by the additional compliance time provided in 
the Exemptive Order. As discussed above, the Commission is mindful of 
the possibility that the Exemptive Order could potentially cause 
competitive disparities, but believes it is unlikely that the Exemptive 
Order will cause significant competitive disparities that will harm 
U.S. SDs and MSPs.
3. Price Discovery
    The Commission has not identified any costs or benefits of the 
Exemptive Order with respect to price discovery.
4. Risk Management
    As with the January Order, application of Entity-Level risk 
management and capital requirements to non-U.S. SDs and MSPs could be 
delayed by operation of the Exemptive Order, which could weaken risk 
management. However, such potential risk is limited by the fact that 
the Exemptive Order is applicable for a finite time.
5. Other Public Interest Considerations
    The Commission has not identified any other public interest 
considerations relating to costs or benefits of the Exemptive Order.

VII. Exemptive Order

    The Commission, in order to provide for an orderly implementation 
of Title VII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (``Dodd-Frank Act''), and consistent with the 
determinations set forth above, which are incorporated in the Exemptive 
Order by reference, hereby grants, pursuant to section 4(c) of the 
Commodity Exchange Act (``CEA''), time-limited relief to non-U.S. swap 
dealers (``SDs'') and major swap participants (``MSPs'') and to foreign 
branches of U.S. SDs and MSPs, from certain swap provisions of the CEA, 
subject to the terms and conditions below.
    (1) Phase-in of ``U.S. Person'' Definition: For purposes of the 
Exemptive Order, from July 13, 2013 until 75 days after the 
Interpretive Guidance and Policy Statement Regarding Compliance with 
Certain Swap Regulations (``Guidance'') is published in the Federal 
Register, all market participants, including a prospective or 
registered SD or MSP, must apply a ``U.S. person'' definition which 
would define the term as:
    (i) A natural person who is a resident of the United States;
    (ii) A 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, in each case that 
is (A) organized or incorporated under the laws of a state or other 
jurisdiction in the United States or (B) for all such entities other 
than funds or collective investment vehicles, having its principal 
place of business in the United States;
    (iii) A pension plan for the employees, officers or principals of a 
legal entity described in (ii) above, unless the pension plan is 
primarily for foreign employees of such entity;
    (iv) An estate of a decedent who was a resident of the United 
States at the time of death, or a 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; or
    (v) An 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 (i) through (iv) above.
    Until 75 days after the Guidance is published in the Federal 
Register, any person not listed in (i) to (v) above is a ``non-U.S. 
person'' for purposes of the Exemptive Order.
    (2) Phase-In of Guaranteed Affiliates and ``Affiliate Conduits'': 
Guaranteed affiliates and affiliate conduits do not need to comply with 
Transaction-Level Requirements relating to swaps with non-U.S. persons 
and foreign branches of U.S. swap dealers and MSPs until 75 days after 
the Final Guidance is published in the Federal Register.
    (3) De Minimis SD and MSP Threshold Calculations: From July 13, 
2013 until 75 days after the Guidance is published in the Federal 
Register, a non-U.S. person is not required to include, in its 
calculation of the aggregate gross notional amount of swaps connected 
with its swap dealing activity for purposes of Commission regulation 
1.3(ggg)(4), or in its calculation of whether it is an MSP for purposes 
of Commission regulation 1.3(hhh):
    (i) Any swap where the counterparty is not a U.S. person, or
    (ii) Any swap where the counterparty is a foreign branch of a U.S. 
person that is registered as an SD.
    (4) Aggregation for Purposes of the De Minimis Calculation: From 
July 13, 2013 until 75 days after the Guidance is published in the 
Federal Register, a non-U.S. person that was engaged in swap dealing 
activities with U.S. persons as of December 21, 2012 is not required to 
include, in its calculation of the aggregate gross notional amount of 
swaps connected with its swap dealing activity for purposes of 
Commission regulation 1.3(ggg)(4), the aggregate gross notional amount 
of swaps connected with the swap dealing activity of its U.S. 
affiliates under common control.\61\ Further, from July 13, 2013 until 
75 days after the Guidance is published in the Federal Register, a non-
U.S. person that was engaged in swap dealing activities with U.S. 
persons as of December 21, 2012 and is an affiliate under common 
control with a person that is registered as an SD is also not required 
to include, in its calculation of the aggregate gross notional amount 
of swaps connected with its swap dealing activity for purposes of 
Commission regulation 1.3(ggg)(4), the aggregate gross notional amount 
of swaps connected with the swap dealing activity of any non-U.S. 
affiliate under common control that is either (i) engaged in swap 
dealing activities with U.S. persons as of December 21, 2012 or (ii) 
registered as an SD. Also, from July 13, 2013 until 75 days after the 
Guidance is published in the Federal Register, a non-U.S. person is not 
required to include, in its calculation of the aggregate gross notional 
amount of swaps connected with its swap dealing activity for purposes 
of Commission regulation 1.3(ggg)(4), the aggregate gross notional 
amount of swaps connected with the swap dealing activity of its non-
U.S. affiliates under common control with

[[Page 43794]]

other non-U.S. persons as counterparties.
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    \61\ For this purpose, the Commission construes ``affiliates'' 
to include persons under common control as stated in the 
Commission's final rule further defining the term ``swap dealer,'' 
which defines control as ``the possession, direct or indirect, of 
the power to direct or cause the direction of the management and 
policies of a person, whether through the ownership of voting 
securities, by contract or otherwise.'' See Final Entities Rules, 77 
FR at 30631, n. 437.
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    (5) SD Registration: A non-U.S. person that was previously exempt 
from registration as an SD because of the temporary relief extended to 
such person under the Commission's exemptive order issued on January 7, 
2013,\62\ but that is required to register as an SD under Commission 
regulation Sec.  1.3(ggg)(4) because of changes to the scope of the 
term ``U.S. person'' or changes in the de minimis SD calculation or 
aggregation for purposes of the de minimis calculation, is not required 
to register as an SD until two months after the end of the month in 
which such person exceeds the de minimis threshold for SD registration.
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    \62\ Final Exemptive Order Regarding Compliance with Certain 
Swap Regulations, 78 FR 858 (Jan. 7, 2013) (``January Order'').
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    (6) Entity-Level Requirements:
    (i) Non-U.S. SDs and non-U.S. MSPs. Except as provided in (ii) of 
this paragraph 6, a non-U.S. SD or non-U.S. MSP established in 
Australia, Canada, the European Union, Hong Kong, Japan or Switzerland 
need not comply with any Entity-Level Requirement \63\ for which 
substituted compliance is possible under the Commission's Guidance 
until the earlier of December 21, 2013 or 30 days following the 
issuance of an applicable substituted compliance determination under 
the Guidance (``Substituted Compliance Determination'') for the 
relevant Entity-Level Requirement of the jurisdiction in which the non-
U.S. SD or non-U.S. MSP is established.
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    \63\ For purposes of the Exemptive Order, the term ``Entity-
Level Requirements'' refers to the requirements set forth in 
Commission regulations 3.3, 23.201, 23.203, 23.600, 23.601, 23.602, 
23.603, 23.605, 23.606, 23.608, 23.609, and parts 45 and 46. The 
Commission notes that it has not yet finalized regulations regarding 
capital adequacy or margin and segregation for uncleared swaps. In 
the event that the Commission finalizes regulations regarding 
capital adequacy or margin and segregation for uncleared swaps 
before December 21, 2013, non-U.S. SDs and non-U.S. MSPs would 
comply with such requirements in accordance with any compliance date 
provided in the relevant rulemaking.
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    (ii) Notwithstanding paragraph (6)(i), non-U.S. SDs and non-U.S. 
MSPs established in Australia, Canada, the European Union, Hong Kong, 
Japan or Switzerland that are not part of an affiliated group in which 
the ultimate parent entity is a U.S. SD, U.S. MSP, U.S. bank, U.S. 
financial holding company, or U.S. bank holding company may delay 
compliance with the swap data repository (``SDR'') reporting 
requirements of part 45 and part 46 of the Commission's regulations 
with respect to swaps with non-U.S. counterparties on the condition 
that, during the relief period: (1) Such non-U.S. SDs and non-U.S. MSPs 
are in compliance with the swap data recordkeeping and reporting 
requirements of their home jurisdictions; or (2) where no swap data 
reporting requirements have been implemented in their home 
jurisdictions, such non-U.S. SDs and non-U.S. MSPs comply with the 
recordkeeping requirements of Regulations 45.2, 45.6, 46.2 and 46.4. 
This relief will expire the earlier of December 21, 2013 or, in the 
event of a Substituted Compliance Determination for the regulatory 
requirements of parts 45 and 46 of the jurisdiction in which the non-
U.S. SD or non-U.S. MSP is established, 30 days following the issuance 
of such Substituted Compliance Determination.\64\
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    \64\ Commission staff also extended no-action relief regarding 
reporting in the cross-border context to address privacy law 
conflicts. See CFTC Division of Market Oversight, Time-Limited No-
Action Relief Permitting Part 45 and Part 46 Reporting 
Counterparties to Mask Legal Entity Identifiers, Other Enumerated 
Identifiers and Other Identifying Terms and Permitting Part 20 
Reporting Entities to Mask Identifying Information, with respect to 
certain Enumerated Jurisdictions, No-Action Letter No. 13-41 (Jun. 
28, 2013).
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    (7) Transaction-Level Requirements Applicable to Non-U.S. SDs and 
MSPs.\65\ A non-U.S. SD or non-U.S. MSP established in Australia, 
Canada, the European Union, Hong Kong, Japan or Switzerland may comply 
with any law and regulations of the home jurisdiction where such non-
U.S. SD or non-U.S. MSP is established (and only to the extent required 
by such jurisdiction) in lieu of complying with any Transaction-Level 
Requirement for which substituted compliance would be possible under 
the Commission's Guidance (other than a clearing requirement under CEA 
section 2(h)(1), Commission regulations under part 50, and Commission 
regulation 23.506; a trade execution requirement under CEA section 
2(h)(8) and regulation 37.12 or 38.11; \66\ or a real-time reporting 
requirement under part 43 of the Commission regulations for swaps with 
guaranteed affiliates of a U.S. person),\67\ until the earlier of 
December 21, 2013 or 30 days following the issuance of a Substituted 
Compliance Determination for the relevant regulatory requirement of the 
jurisdiction in which the non-U.S. SD or non-U.S. MSP is established.
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    \65\ For purposes of the Exemptive Order, the term 
``Transaction-Level Requirements'' refers to the requirements set 
forth in Commission regulations 23.202, 23.205, 23.400 to 23.451, 
23.501, 23.502, 23.503, 23.504, 23.505, 23.506, 23.610 and parts 43 
and 50. The Commission notes that (1) it has not yet finalized 
regulations regarding margin and segregation for uncleared swaps and 
(2) it has not yet determined that any swap is ``available to 
trade'' such that a trade execution requirement applies to the swap.
    In addition, to the extent that a guaranteed affiliate is given 
exemptive relief from any particular Transaction-Level Requirement 
under this Exemptive Order, the same exemptive relief would apply to 
affiliate conduits.
    \66\ The Commission has adopted regulations for determining when 
a swap is ``available to trade'' and a compliance schedule for the 
trade execution requirement that applies when a swap subject to 
mandatory clearing is available to trade. At the present time, no 
swaps no swap either has been determined to be made available to 
trade or is subject to a trade execution requirement. See Process 
for a Designated Contract Market or Swap Execution Facility To Make 
a Swap Available to Trade, Swap Transaction Compliance and 
Implementation Schedule, and Trade Execution Requirement Under the 
Commodity Exchange Act, 78 FR 33606 (Jun. 4, 2013). See CEA section 
2(h)(8) and 17 CFR 37.12 or 38.11.
    \67\ As used in the Exemptive Order, the term ``guaranteed 
affiliate'' refers to a non-U.S. person that is affiliated with a 
U.S. person and guaranteed by a U.S. person. In addition, for 
purposes of the Exemptive Order, the Commission interprets the term 
``guarantee'' generally to include not only traditional guarantees 
of payment or performance of the related swaps, but also other 
formal arrangements that, in view of all the facts and 
circumstances, support the non-U.S. person's ability to pay or 
perform its swap obligations with respect to its swaps. See Cross-
Border Application of Certain Swaps Provisions of the Commodity 
Exchange Act, 77 FR 41214, 41221 n. 47 (Jul. 12, 2012). The term 
``guarantee'' encompasses the different financial arrangements and 
structures that transfer risk directly back to the United States. In 
this regard, it is the substance, rather than the form, of the 
arrangement that determines whether the arrangement should be 
considered a guarantee for purposes of the Exemptive Order.
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    (8) With respect to a swap that is subject to a clearing 
requirement under CEA section 2(h)(1), Commission regulations under 
part 50, and Commission regulation 23.506, any non-U.S. SD or non-U.S. 
MSP that was not required to clear under the January Order may delay 
complying with such clearing requirement until 75 days after the 
publication of the Guidance in the Federal Register.
    (9) For swaps transactions with guaranteed affiliates of a U.S. 
person, a non-U.S. SD or non-U.S. MSP established in Australia, Canada, 
the European Union, Hong Kong, Japan or Switzerland may comply with any 
law and regulations of the home jurisdiction where such non-U.S. SD or 
non-U.S. MSP is established related to real-time reporting requirements 
(and only to the extent required by such home jurisdiction) in lieu of 
complying with the real-time reporting requirements of part 43 of the 
Commission regulations, until September 30, 2013.
    (10) For swaps transactions with guaranteed affiliates of a U.S. 
person, a non-U.S. SD or a non-U.S. MSP established in jurisdiction 
other than Australia, Canada, European Union, Hong Kong, Japan or 
Switzerland may comply with any law and regulations of

[[Page 43795]]

the home jurisdiction where such non-U.S. SD or non-U.S. MSP is 
established (and only to the extent required by such jurisdiction) in 
lieu of complying with any Transaction-Level Requirement for which 
substituted compliance would be possible under the Commission's 
Guidance until 75 days after the publication of the Guidance in the 
Federal Register.
    (11) U.S. Registrants: The Exemptive Order does not apply to a U.S. 
person that is required to register as an SD or MSP. Notwithstanding 
the previous sentence, a foreign branch of a U.S. SD or MSP located in 
Australia, Canada, the European Union, Hong Kong, Japan or Switzerland 
may comply with any law and regulations of the jurisdiction where the 
foreign branch is located (and only to the extent required by such 
jurisdiction) for the relevant Transaction-Level Requirement in lieu of 
complying with any Transaction-Level Requirement for which substituted 
compliance would be possible under the Commission's Guidance (other 
than a clearing requirement under CEA section 2(h)(1), Commission 
regulations under part 50, and Commission regulation 23.506; a trade 
execution requirement under CEA section 2(h)(8) and regulation 37.12 or 
38.11; \68\ or a real-time reporting requirement under part 43 of the 
Commission regulations for swaps with guaranteed affiliates of a U.S. 
person), until the earlier of December 21, 2013 or 30 days following 
the issuance of a Substituted Compliance Determination for the relevant 
Transaction-Level Requirement in the applicable jurisdiction in which 
the foreign branch is located.
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    \68\ The Commission has adopted regulations for determining when 
a swap is ``available to trade'' and a compliance schedule for the 
trade execution requirement that applies when a swap subject to 
mandatory clearing is available to trade. At the present time, no 
swap either has been determined to be made available to trade or is 
subject to a trade execution requirement. See Process for a 
Designated Contract Market or Swap Execution Facility To Make a Swap 
Available to Trade, Swap Transaction Compliance and Implementation 
Schedule, and Trade Execution Requirement Under the Commodity 
Exchange Act, 78 FR 33606 (Jun. 4, 2013). See CEA section 2(h)(8) 
and 17 CFR 37.12 or 38.11.
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    (12) With respect to a swap that is subject to the clearing 
requirement under CEA section 2(h)(1), Commission regulations under 
part 50, and Commission regulation 23.506, any foreign branch of a U.S. 
SD or MSP that was not required to clear under the January Order may 
delay complying with such clearing requirement until 75 days after the 
publication of the Guidance in the Federal Register.
    (13) For swaps transactions with guaranteed affiliates of a U.S. 
person, a foreign branch of a U.S. SD or MSP located in Australia, 
Canada, the European Union, Hong Kong, Japan or Switzerland may comply 
with the law and regulations of the jurisdiction where the foreign 
branch is located related to real-time reporting (and only to the 
extent required by such jurisdiction) in lieu of complying with the 
real-time reporting requirements of part 43 of the Commission 
regulations until September 30, 2013.
    (14) A foreign branch of a U.S. SD or MSP located in any 
jurisdiction other than Australia, Canada, European Union, Hong Kong, 
Japan or Switzerland may comply with any law and regulations of the 
jurisdiction where the foreign branch is located (and only to the 
extent required by such jurisdiction) for the relevant Transaction-
Level Requirement in lieu of complying with any Transaction-Level 
Requirement for which substituted compliance would be possible under 
the Commission's Guidance until 75 days after the publication of the 
Guidance in the Federal Register.
    (15) For swaps transactions between a guaranteed affiliate of a 
U.S. person (established in any jurisdiction outside the United States) 
that is not registered as a SD or MSP and another guaranteed affiliate 
of a U.S. person (established in any jurisdiction outside the United 
States) that is not registered as a SD or MSP, such non-registrants may 
comply with any law and regulations of the jurisdiction where they are 
established (and only to the extent required by such jurisdiction) for 
the relevant Transaction-Level Requirement in lieu of complying with 
any Transaction-Level Requirement for which substituted compliance 
would be possible under the Commission's Guidance until 75 days after 
the publication of the Guidance in the Federal Register.
    (16) Inter-Affiliate Exemption. Where one of the counterparties is 
electing the Inter-Affiliate Exemption, nothing in this Exemptive Order 
affects or eliminates the obligation of any party to comply with the 
conditions of the Inter-Affiliate Exemption, including the treatment of 
outward-facing swaps condition in Commission regulation 50.52(b)(4)(i).
    (17) Expiration of Relief: The relief provided to non-U.S. SDs, 
non-U.S. MSPs and foreign branches of a U.S. SD or U.S. MSP in this 
order shall be effective on July 13, 2013 and expire on December 21, 
2013 or such earlier date specified in the Order.
    (18) Scope of Relief: The time-limited relief provided in this 
order: (i) Shall not affect, with respect to any swap within the scope 
of this order, the applicability of any other CEA provision or 
Commission regulation (i.e., those outside the Entity-Level and 
Transaction-Level Requirements); (ii) shall not limit the applicability 
of any CEA provision or Commission regulation to any person, entity or 
transaction except as provided in this order; (iii) shall not affect 
the applicability of any provision of the CEA or Commission regulation 
to futures contracts, or options on futures contracts; and (iv) shall 
not affect any effective or compliance date set forth in any Dodd-Frank 
Act rulemaking by the Commission. Nothing in this order affects the 
Commission's enforcement authority, including its anti-fraud and anti-
manipulation authority.

    Issued in Washington, DC, on July 16, 2013, by the Commission.
Melissa D. Jurgens,
Secretary of the Commission.

Appendices to Exemptive Order Regarding Compliance With Certain Swap 
Regulations--Commission Voting Summary and Chairman's Statement

Appendix 1--Commission Voting Summary

    On this matter, Chairman Gensler and Commissioners Chilton and 
Wetjen voted in the affirmative. Commissioner O'Malia voted in the 
negative.

Appendix 2--Statement of Chairman Gary Gensler

    I support the Exemptive Order Regarding Compliance with Certain 
Swap Regulations (Order). With this Commission action another 
important step has been taken to make swaps market reform a reality.
    Since the enactment of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd Frank Act), the Commission has worked 
steadfastly toward a transition from an opaque unregulated 
marketplace to a transparent, regulated swaps marketplace and has 
phased in the timing for compliance to give market participants time 
to adjust to the new regulatory regime and smooth the transition. 
The Order provides a phased-in compliance period for foreign swap 
dealers (including overseas affiliates of U.S. persons) and overseas 
branches of U.S. swap dealers with respect to certain requirements 
of the Dodd-Frank Act.
    Today's Order is a continuation of the Commission's commitment 
to this phasing of compliance--in this case for foreign market 
participants--and follows upon the Commission's January 2013 phase-
in exemptive order, which expired on July 12, 2013. The Order will 
remain in effect until December 21, 2013, and is intended to 
complement other Commission and staff actions that facilitate an 
orderly transition.
    As of July 12th, 80 swap dealers have registered with the 
Commission. Of these, 35

[[Page 43796]]

are established in jurisdictions other than United States, including 
Australia, Canada, the European Union, Hong Kong, Japan, and 
Switzerland.
    The Order provides for a phase-in of the cross-border 
application of Dodd-Frank requirements. Such phase-in period 
provides for 75 days following the publication of the Order in the 
Federal Register for market participants to adapt to the cross-
border application of the Dodd-Frank requirements. This relates to, 
for example, who is a U.S. person, swap activity conducted by or 
with affiliates that are guaranteed by a U.S. person, swap activity 
conducted by or with overseas branches of U.S. based swap dealers, 
the aggregation guidelines applicable to a group of affiliates for 
the purpose of determining whether a specific affiliate is required 
to register as a swap dealer, and identifying relevant transactions 
for the purpose of the swap dealer registration de minimis 
calculation.
    Thus, within several months, the public will gain greater 
protections as hedge funds, organized in the Cayman Islands, but 
with their principal place of business here in the U.S., will be 
subject to reforms applicable to all other U.S. persons, including 
the clearing requirement.
    Secondly, during the transitional period through December 21st, 
a foreign swap dealer may phase in compliance with certain entity-
level requirements. In addition, those entities (as well as foreign 
branches of U.S. swap dealers) are provided time-limited relief from 
specified transaction-level requirements when transacting with 
overseas affiliates guaranteed by U.S. entities (as well as with 
foreign branches of U.S. swap dealers).
    The phase-in period provides time for the Commission to work 
with foreign regulators to consider their jurisdictions' submissions 
related to substituted compliance. Substituted compliance, where 
appropriate, would allow for foreign swap dealers to meet the reform 
requirements of the Dodd-Frank Act by complying with comparable and 
comprehensive foreign regulatory requirements. With respect to any 
transaction with a U.S. person, though, compliance will be required 
in accordance with previously issued rules and staff guidance.
    To this end, the Commission has received substituted compliance 
submissions from market participants or regulators located in 
Australia, Canada, the European Union, Hong Kong, Japan and 
Switzerland. Commission staff has actively engaged in substantive 
discussions and active coordination with the appropriate regulators 
in these jurisdictions as an integral part of the submission review 
process.
    Now, 3-years after the passage of financial reform, and a full 
year after the Commission proposed guidance with regard to the cross 
border application of reform, it is time for reforms to properly 
apply to and cover those activities that, as identified by Congress 
in section 722(d) of the Dodd-Frank Act, have ``a direct and 
significant connection with activities in, or effect on, commerce of 
the United States.'' With the additional transitional phase in 
period provided by this Order, it is now time for the public to get 
the full benefit of the transparency and the measures to reduce risk 
included in Dodd Frank reforms.

[FR Doc. 2013-17467 Filed 7-19-13; 8:45 am]
BILLING CODE 6351-01-P