CFTC Chairman Massad Addresses Cross-Border Issues, Extends Package Relief

In a speech to the Futures Industry of America, CFTC Chairman Timothy Massad discussed current and future regulation of derivatives. Ticking through a long list of agenda items that included a recap of regulatory activity to-date and deep-dive on cybersecurity, the Chairman’s most actionable comments centered on cross-border regulation and the upcoming extension of no-action relief to package transactions.

Noting that the CFTC and its staff have led all other G-20 nations in writing OTC derivatives rules, Massad acknowledged that it will be impossible to achieve full scale harmonization until all other jurisdiction have finalized their own laws.  He explained:

“So let’s remember that we are in a unique historical situation: the OTC derivatives industry grew up to be a global industry without any oversight or national regulation. Now, as the financial crisis exposed weaknesses in this global market we are seeking to regulate it through the actions of the various G-20 nations, each of which has its own legal traditions, regulatory philosophy, administrative process, and political dynamics. Although the G-20 nations have agreed on basic principles for regulating swaps, there will inevitably be differences in the specific rules as reforms are implemented, including in timing of implementation. This is something I regard as a glass half full, not half empty. We are making progress, but it will take time.

Indeed, the timing of implementation of reforms alone is a simple but critical issue in solving these cross-border issues. We wrote most of our rules faster than other jurisdictions and made many substituted compliance determinations last December. More will eventually follow. But you can’t make substituted compliance determinations until other jurisdictions have written their rules or passed their laws.”  

Massad went on to note that he supports the recommendations of the CFTC staff that no-action relief on cross-border guidance, which is set to expire at the end of this year, be extended for the time being:

“We at the CFTC are also aware that the no-action relief that was granted with respect to the further cross border guidance we issued last November 14 will expire at the end of the year. This pertains to when a foreign swap dealer that engages in certain conduct in the United States is subject to U.S. transaction requirements. Earlier this year, the Commission asked for comment on that advisory. We are still considering those comments, as well as the relationship of this issue to other cross-border issues. Therefore, the staff is recommending that we extend this relief for the time being, and I support that recommendation so that we have the necessary time to consider these issues.”  

Finally, Massad also announced that the CFTC would be extending no-action relief for SEF trading of package trades:

“I also wish to announce that CFTC Staff have recommended extending the no-action relief previously provided in order to phase-in the requirement to trade on SEFs swaps executed as part of certain package transactions—that is, transactions involving a swap that is required to be traded on a SEF and some other swap or other product. Over the last year, we have been phasing in the trading requirement as it pertains to swaps that are part of various types of packages. We recognize the market needs a bit more time on certain remaining packages, and I expect the staff will issue the letter shortly.”  

To view Chairman Massad’s full remarks, please click here.