Commission Issues Proposed Interpretative Statement; Seeks Public Comment
The Commodity Futures Trading Commission (CFTC) today voted to issue a Proposed Interpretative Statement regarding the confidentiality and indemnification provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The proposal generally exempts foreign regulators from the indemnification and confidentiality provision in the Dodd-Frank Act, and ensures that foreign regulators have access to data in Swap Data Repositories (SDR). This exemption only applies to data that is required to be reported and if the SDR is recognized by the country’s law and regulation. The proposal passed the Commission by a vote of 5-0. The proposal’s comment period will be open for 30 days from the date of publication in the Federal Register.
In 2010, Congress passed the Dodd-Frank Act, which established a comprehensive framework for regulating the over-the-counter swap markets. To enhance transparency and promote standardization, the Dodd-Frank Act added to the Commodity Exchange Act (CEA) section 21, which created a new class of registered entity—SDRs—to perform specified functions related to the collection and maintenance of swap transaction data and information.
CEA section 21(c)(7) requires that SDRs make swap data available to certain domestic and foreign regulators under specified circumstances. Separately, section 21(d) mandates that before an SDR may share the requested data or information, such regulators must agree in writing to abide by confidentiality requirements established in the CEA and to indemnify the SDR and the Commission for any expenses arising from litigation relating to the information provided by the SDR.
Section 752 of the Dodd-Frank Act seeks to “promote effective and consistent global regulation of swaps” and provides that the CFTC and foreign regulatory authorities “may agree to such information-sharing arrangements as may be deemed to be necessary or appropriate in the public interest…” In light of this statutory directive, and mindful of concerns raised by foreign regulatory authorities with respect to the indemnification provisions of CEA section 21(d), the Commission has continued to strive to provide sufficient access to SDR data to appropriate domestic and foreign regulatory authorities.
In June 2011, the Chairman of the CFTC and the Chairman of the SEC, in a letter to the European Commissioner for Internal Markets and Services, expressed their belief that indemnification and notice requirements need not apply when a registered SDR is also registered in a foreign jurisdiction and the foreign regulator, acting within the scope of its jurisdiction, seeks information directly from the SDR.
The Commission’s Proposed Interpretative Statement
Because some registered SDRs may also be registered, recognized or otherwise authorized in a foreign jurisdiction and may accept swap data reported pursuant to a foreign regulatory regime, the Commission concludes that the confidentiality and indemnification provisions of CEA section 21(d) generally apply only to such data reported pursuant to the CEA and Commission regulations.
The Commission further concludes that the confidentiality and indemnification provisions of section 21(d) should not operate to inhibit or prevent foreign regulatory authorities from accessing data in which they have an independent and sufficient regulatory interest—even if that data also has been reported pursuant to the CEA and Commission regulations. The Commission concludes that application of the requirements of CEA section 21(d) in these circumstances is unreasonable in light of, among other things,
• The importance of such data to the foreign jurisdiction’s regulatory regime;
• Foreign regulators’ interest in unfettered access to such data; and
• Traditions of mutual trust and cooperation among international regulators.
Accordingly and more specifically, consistent with the Commission’s Final SDR Rules, the Commission proposes to interpret CEA section 21(d) such that a registered SDR would not be subject to the confidentiality and indemnification provisions of that section if:
• Such registered SDR is also registered, recognized or otherwise authorized in a foreign jurisdiction’s regulatory regime; and
• The data sought to be accessed by a foreign regulatory authority has been reported to such registered SDR pursuant to the foreign jurisdiction’s regulatory regime.
Considerations Relevant to the Commission’s Proposed Interpretative Statement: International Considerations
The Commission remains committed to a cooperative international approach to the registration and regulation of SDRs, has consulted extensively with various foreign regulatory authorities in promulgating both its proposed and SDR Final Rules, and continues to work with these authorities to ensure appropriate access to swap data in SDRs. During its consultations, many foreign regulatory authorities expressed concern about the difficulty in complying with the indemnification provisions of CEA section 21(d).
As a consequence of these consultations with foreign regulatory authorities, and pursuant to the mandate for international cooperation in section 752 of the Dodd-Frank Act, the Commission has concluded that further guidance is necessary to ensure that appropriate access by foreign regulatory authorities is not inhibited.
While the SDR Final Rules address access to data by foreign regulators which have supervisory authority and regulatory responsibility over SDRs, the Commission is proposing an interpretative statement to ensure that other foreign regulators also receive sufficient access to data held in SDRs, which is reported pursuant to a foreign regulatory regime and where such foreign regulators have a sufficient and independent regulatory interest.
Public Comment Requested
The Commission requests comment on all aspects of its proposed interpretative statement. In particular, the Commission requests comment addressing whether and how the timing and implementation of foreign jurisdictions’ regulatory regimes affect the Commission’s proposed statement.
Comments may be submitted for 30 days from the date of publication in the Federal Register.