CFTC Approves Cross-Border Application of Swaps


The Commodity Futures Trading Commission (CFTC) has approved the final rules for cross-border swaps application under the Commodity Exchange Act (CEA).

24 July, 2020 | AtoZ Markets – CFTC oversees the futures, options and swaps markets. The CFTC has long been criticized for enforcing restrictions on swap market participants outside the United States. Non-US market participants are unable or unwilling to undertake the burden of US regulation. Critics also argued that the regulation divides the global swap market.

CFTC Approves Final Cross Border Swaps Rule Under CEA Act

The CFTC was set up to support a significant revision of cross-border application for swap dealers and major swap participants under the CEA Act. This final rule also concludes all rulemaking required under Section 731 of the Act. This final rule will take effect 60 days after posting on the Federal Register. US CFTC stated:

“Until the CFTC issues future cross-border rulemakings relating to unaddressed TLRs, the CFTC will not consider, as a matter of policy, a non-U.S. swap dealer’s use of their personnel or agents located in the US to “arrange, negotiate, or execute” swap transactions with non-U.S. counterparties in determining whether such requirements apply to such transactions.”

The final rule allows swap dealers to choose one of three alternative methods to set and meet minimum capital requirements, depending on the nature of the business. They are net liquid asset method, banking method, tangible net worth method. Major swap participants are required to maintain a tangible net worth that is part of a larger commercial enterprise. The final rule also includes:

  1. Comprehensive model approval process
  2. Financial reporting, record keeping, and notification requirements
  3. An alternative assessment process has also introduced for swap dealers

“The final rule includes a risk-based approach that advances the goals of Title VII of Dodd-Frank’s swap reforms while fostering greater liquidity and competitive markets. It also promotes enhanced regulatory cooperation, and improving the global harmonization of swap regulation,” the CFTC said in the statement.

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