Perhaps the worst kept secret in the whole Dodd-Frank discussion is that the law is U.S.-based law while derivatives trade in a global market. As market participants wrestle with a stream of rules from the Commodity Futures Trading Commission and Securities and Exchange Commission under Title VII, other regulators in other countries or jurisdictions are issuing their own rules. Or not.
At the end of January, the CFTC and SEC issued their Joint Report on International Swaps Regulation as required under Section 719(c) of the Dodd-Frank Act. In the report, the agencies recap most of their own rulemaking efforts and then catalog the efforts of Canada, Brazil, the EU, Japan, China, Hong Kong, Singapore, Australia and South Korea. Finally, the report identifies open issues and harmonization efforts and makes some recommendations.
Instead of looking at each jurisdiction’s proposed rules in isolation, it’s better to see how everyone deals with items of general interest and whether any differences in approach have a significant impact.
The first area of interest is in the types of market participants. The DFA creates four specific categories: dealers and major participants for both swaps and security-based swaps. To begin with, no other jurisdiction differentiates between swaps and security-based swaps, probably because they don’t have separate equivalents of the CFTC and SEC. All the other jurisdictions view derivatives dealers in the same light as dealers in other instruments, using the same registration and oversight mechanisms. Two Canadian provinces may institute separate registration for swaps dealers, but haven’t yet, and the EU, the largest non-U.S. market in the study, does not envision special registration requirements for either swap dealers or major participants.