U.S. securities regulators proposed new rules and guidance today that set out when, and how, U.S. regulatory requirements will apply to cross-border swaps.

The U.S. Securities and Exchange Commission (SEC) voted unanimously today to propose rules and guidance for firms involved in cross-border security-based swap transactions that set out which requirements apply when a transaction occurs cross border (partially within, and partially outside, the U.S.) They also establish when market players, such as swap dealers, major swap participants, and infrastructure firms (such as clearing agencies, execution facilities, and data repositories), must register with the SEC.
The SEC says that its proposal outlines a framework of ‘substituted compliance’, which recognizes that market participants may be subject to conflicting, or duplicative, compliance obligations in the global derivatives market.

“We should take a robust and workable approach to this particularly complex and predominantly global market,” said SEC chair, Mary Jo White. “The global nature of this market means that participants may be subject to requirements in multiple countries, and this type of overlapping regulatory oversight could lead to conflicting or costly duplicative regulatory requirements. Market participants need to know which rules to follow, and I believe that this proposal will serve as the road map.”

The Securities Industry and Financial Markets Association (SIFMA) said that it appreciates the SEC’s approach to the issue of cross-border swap transactions. “The swaps market is truly global in nature and U.S. regulators must work with their counterparts in Europe and Asia to ensure that regulatory oversight of these markets is coordinated and harmonized,” said SIFMA’s acting president and CEO, Kenneth Bentsen, Jr.”We look forward to closely analyzing the SEC’s use of ‘substituted compliance’. We believe that foreign regulations should be assessed on a comprehensive, ultimate outcome-level basis, not rule-by-rule nor transaction-by-transaction. This will be critical to working effectively with foreign regulatory bodies to oversee global markets for these products.”

The proposed rules are out for a 90-day comment period.