CFTC Issues Supplements to Swaps-Related Rulemaking to Clarify Costs and Benefits; Requests Comments (Fed. Reg.)
Commentary by Bob Zwirb and Steven Lofchie
In response to the order of the United States District Court for the District of Columbia (the "Court") in SIFMA v. CFTC, the CFTC is seeking comments on a number of Dodd-Frank Act rulemakings covering cross-border swaps activity that were remanded by a federal court for additional analysis of their costs and benefits. More specifically, the CFTC formally issued supplements to the preambles of eight remanded swaps-related rulemakings and solicited comments on cross-border costs or benefits associated with the remanded rules that differ from those associated with the activities within the United States.
In SIFMA v. CFTC, the Court remanded eight swaps-related rulemakings to address what it held to be "inadequacies" in either the CFTC's consideration of costs and benefits or its explanation of that consideration. The eight remanded rulemakings include:
- Real-Time Public Reporting of Swap Transactions Data (77 FR 1182);
- Swap Data Recordkeeping and Reporting Requirements (77 FR 2136);
- Registration of Swap Dealers and Major Swap Participants (77 FR 2613);
- Swap Dealer and Major Swap Participant Recordkeeping, Reporting and Duties Rules; Futures Commission Merchant and Introducing Broker Conflicts of Interest Rules; and Chief Compliance Officer Rules for Swap Dealers, Major Swap Participants and Futures Commission Merchants (77 FR 20128);
- Further Definitions of "Swap Dealer," "Security-Based Swap Dealer," "Major Swap Participant," "Major Security-Based Swap Participant" and "Eligible Contract Participant" (77 FR 30596);
- Swap Data Recordkeeping and Reporting Requirements: Pre-Enactment and Transition Swaps (77 FR 35200);
- Confirmation, Portfolio Reconciliation, Portfolio Compression, and Swap Trading Relationship Documentation Requirements for Swap Dealers and Major Swap Participants (77 FR 55904); and
- Core Principles and Other Requirements for Swap Execution Facilities (78 FR 33476).
The Court directed the CFTC to address explicitly whether the costs and benefits identified in these rulemakings applied to activities outside the United States as well as within and, if so, to address any differences between the costs and benefits application.
The CFTC supplemented the preambles to the eight remanded rulemakings by clarifying that, unless otherwise specified, the costs and benefits identified therein applied to both domestic swaps activities and overseas swaps activities subject to the CFTC's jurisdiction under CEA Section 2(i).
Additionally, the CFTC is soliciting comments on whether costs or benefits of the remanded rules as applied to business activities outside the United States differ from those of the rules as applied to activities within the United States. Following a review of the comments, the CFTC stated that it will publish another response to the Court-remanded order that will include any changes to its consideration of the costs and benefits of the rules as set forth in the rule preambles.
Comments are due by May 11, 2015.
See: 80 FR 12555; CFTC Press Release.
Related news: D.C. District Court Issues Opinion on SIFMA v. CFTC Cross-Border Guidance Case (with Lofchie and Zwirb Comments) (September 16, 2014); Court Denies CFTC's Motion to File Supplemental Authority in Cross-Border Guidance Case (with Zwirb Comment) (July 30, 2014); Associations Submit Response to CFTC's Second Notice of Supplemental Authority in CFTC Cross-Border Guidance Case (with Zwirb and Lofchie Comments and Lofchie YouTube Selection) (July 29, 2014); CFTC Submits Reply in Support of Its Motion to File Supplemental Declaration in CFTC Cross-Border Guidance Case (with Zwirb Comment) (July 25, 2014); Associations Submit Opposition to CFTC Motion to File Supplemental Declaration in SIFMA v. CFTC Cross-Border Guidance Case (with Zwirb Comment) (July 23, 2014); Parties Submit Supplemental Briefs in SIFMA v. CFTC Cross-Border Guidance Case (with Zwirb and Lofchie Comments) (July 21, 2014); CFTC Files Supplemental Declaration in CFTC Cross-Border Guidance Case (with Zwirb Comment) (July 17, 2014); Associations Submit Response to CFTC's Notice of Supplemental Authority in CFTC Cross-Border Guidance Case (June 26, 2014); Court Requests Supplemental Briefs from Parties in SIFMA v. CFTC Cross-Border Guidance Case (June 24, 2014).
Commentary
In its request for comment, the CFTC emphasized that because the statute established the extraterritorial scope of the CFTC's swaps rules, and because the CFTC Guidance is not a rule subject to judicial review, the CFTC "was not tasked with reconsidering the costs and benefits of those legislative decisions." Moreover, in remanding the matter for consideration of such costs and benefits, the Court stated that it was "willing to assume for now" that the issue was "one of form and not of substance," and that this perceived shortcoming was "not so serious as to favor vacatur" of the rules.
None of this instills confidence that the exercise will be conducted in a serious manner. While it is good that the CFTC is seeking public comment on this issue, it is incumbent on it to also task its economists to conduct their own independent analysis in an intellectually rigorous manner if the public is to have any confidence in the outcome of this process.
Commentary
The judicial decision that the CFTC's cross-border guidance was "guidance" and not a rule was both remarkable and disappointing. The holding of the case seems to be that if a regulatory agency called something "guidance," there was no need for further judicial inquiry. (In reaching its decision, the Court asserted that a major factor in its holding was the CFTC's characterization of its statement as guidance and not a rule – which seems circular, since the whole point of the litigation was to determine the accuracy of the CFTC's assertion.) While the Court did order a remand to the CFTC of certain cost considerations, the language of the remand indicates that the Court's review of whatever the CFTC sent back to it proved too light to ruffle a butterfly's wing.
Notwithstanding the Court's decision, the best thing to do would be for the CFTC to propose its cross-border guidance again as a "rule" and conduct an analysis of the benefits of such a "rule," as is required by law; i.e., to follow the same process as the SEC.