Order Designating Certain Jurisdictions as “Listed Jurisdictions” for Purposes of Applying the Security-Based Swap Dealer De Minimis Exception of Rule 3a71-3(d) Under the Exchange Act to Certain Cross-Border Security-Based Swap Transactions
| Published date | 04 February 2020 |
| Citation | 85 FR 6355 |
| Record Number | 2019-27761 |
| Section | Notices |
| Court | Securities And Exchange Commission |
Federal Register, Volume 85 Issue 23 (Tuesday, February 4, 2020)
[Federal Register Volume 85, Number 23 (Tuesday, February 4, 2020)]
[Notices]
[Pages 6355-6358]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27761]
Federal Register / Vol. 85, No. 23 / Tuesday, February 4, 2020 /
Notices
[[Page 6355]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87781]
Order Designating Certain Jurisdictions as ``Listed
Jurisdictions'' for Purposes of Applying the Security-Based Swap Dealer
De Minimis Exception of Rule 3a71-3(d) Under the Exchange Act to
Certain Cross-Border Security-Based Swap Transactions
I. Introduction
Rule 3a71-3 under the Securities Exchange Act of 1934 (the
``Exchange Act'') in part addresses the cross-border application of the
``security-based swap dealer'' definition, including the cross-border
application of the de minimis exception to that definition.\1\ Under
the rule, non-U.S. persons that engage in security-based swap dealing
activity are required to count--against the thresholds associated with
the de minimis exception--their dealing transactions with non-U.S.
counterparties if those dealing transactions were ``arranged,
negotiated, or executed'' using U.S. personnel.\2\
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\1\ The term ``security-based swap dealer'' is defined in
Exchange Act Section 3(a)(71) and further defined by Exchange Act
Rules 3a71-1 through 3a71-5. Section 3(a)(71)(D) provides that the
Securities and Exchange Commission (the ``SEC'' or the
``Commission'') shall promulgate regulations to establish factors
with respect to the making of any determination to exempt a
security-based swap dealer that engages in a de minimis quantity of
security-based swap dealing. Persons whose dealing activities exceed
the de minimis thresholds set by the Commission will be required to
register as security-based swap dealers.
Regulation of security-based swap dealers is a key component of
the security-based swap market oversight that was granted to the
Commission by Title VII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the ``Dodd-Frank Act'').
\2\ See Exchange Act Rule 3a71-3(b)(1)(iii)(C). The ``arranged,
negotiated, or executed'' counting rule advances a number of
important regulatory interests, in part by helping to protect
against the potential that market participants would use booking
practices to engage in an unregistered security-based swap dealing
business in the United States. The use of those ``arranged,
negotiated, or executed'' criteria further reflect the activity
focus of the ``security-based swap dealer'' definition, as well as
considerations regarding competitive disparities, market
fragmentation and public transparency.
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By separate action, the Commission has amended Rule 3a71-3 by
adding new paragraph (d) to incorporate a conditional exception from
the ``arranged, negotiated, or executed'' counting requirement.\3\ That
conditional exception is intended to address certain operational and
market concerns that otherwise could arise were transactions to be
counted against the applicable de minimis thresholds requirement solely
because a transaction between two non-U.S. counterparties results from
activity by U.S. personnel.\4\ The Rule 3a71-3(d) exception is subject
to a number of conditions designed to help protect the important
interests that underpin the ``arranged, negotiated, or executed''
counting requirement. Those include, inter alia, the ``listed
jurisdiction'' condition that is the subject of this Order.\5\
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\3\ See Rule Amendments and Guidance Addressing Cross-Border
Application of Certain Security-Based Swap Requirements, Exchange
Act Release No. 87780 (Dec. 18, 2019) (``Cross-Border Amendments
Adopting Release''). That release also addressed a number of
additional topics in connection with the cross-border application of
security-based swap dealer requirements.
\4\ Those included concerns that non-U.S. dealers would avoid
using U.S. personnel, and potentially would relocate U.S. personnel,
as well as concerns that application of the counting requirement
would be burdensome and would result in market fragmentation and
lower liquidity levels. The exception also addressed concerns that
the counting requirement could lead financial groups to have to
register multiple entities, and concerns regarding disparate
approaches from those followed by the Commodity Futures Trading
Commission. See Part II of the Cross-Border Amendments Adopting
Release.
\5\ See paragraph (d)(1) to Rule 3a71-3 for the conditions to
the conditional exception.
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II. ``Listed Jurisdiction'' Condition to the Exception
A. The ``Listed Jurisdiction'' Condition
To take advantage of the Rule 3a71-3(d) exception, the non-U.S.
person must be subject to the margin and capital requirements of a
``listed jurisdiction'' when engaging in transactions subject to the
exception from the ``arranged, negotiated, or executed'' counting
requirement.\6\
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\6\ See paragraph (d)(1)(v) to Rule 3a71-3. The term ``listed
jurisdiction'' is defined as ``any jurisdiction that the Commission
by order has designated as a listed jurisdiction'' for purposes of
the exception. See paragraph (a)(12) to Rule 3a71-3.
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The Commission has explained that the ``listed jurisdiction''
condition is intended to deter dealers from attempting to use the
exception to avoid Title VII ``by simply booking their transactions to
entities in jurisdictions that do not effectively require security-
based swap dealers or comparable entities to meet certain financial
responsibility standards.'' \7\ Otherwise, the exception could
``provide a competitive advantage to non-U.S. persons that conduct
security-based swap dealing activity in the United States without being
subject to sufficient financial responsibility standards.'' \8\ The
Commission also expressed the view that the ``listed jurisdiction''
condition is consistent with the view that applying capital and margin
requirements to transactions between two non-U.S. persons that have
been arranged, negotiated, or executed in the United States can help
mitigate the potential for financial contagion to spread to U.S. market
participants and to the U.S. financial system more generally.\9\
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\7\ See Part II.C.5.b of the Cross-Border Amendments Adopting
Release.
\8\ Id.
\9\ Id.
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B. Designation of ``Listed Jurisdictions''
The exception provides that the Commission conditionally or
unconditionally may determine ``listed jurisdictions'' by order, in
response to applications or upon the Commission's own initiative.\10\
The Commission by order, after notice and opportunity for comment, may
modify or withdraw a listed jurisdiction determination if it determines
that continued listed jurisdiction status no longer would be in the
public interest based on a number of factors.\11\
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\10\ See paragraph (d)(2) to Rule 3a71-3. Applications may be
made by a party or group of parties that potentially would seek to
rely on the exception, or by any foreign financial regulatory
authority or authorities supervising such a party or its security-
based swap activities. See paragraph (d)(2)(i) to Rule 3a71-3.
Exchange Act Rule 0-13 sets forth the procedures for filing ``listed
jurisdiction'' applications.
\11\ See paragraph (d)(2)(iii) to Rule 3a71-3. In light of the
importance of the Commission being able to access information
outside the United States regarding the transactions at issue, the
determination to modify or withdraw listed jurisdiction status may
be based on a jurisdiction's laws or regulations that have had the
effect of preventing the Commission or its representatives on
request to promptly access information or documents regarding the
activities of the non-U.S. persons relying on the exception. See
paragraph (d)(2)(iii)(B) to Rule 3a71-3. Withdrawal or modification
further may be based on any other factor the Commission determines
to be relevant. See paragraph (d)(2)(iii)(C) to Rule 3a71-3.
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When evaluating a foreign jurisdiction's potential status as a
``listed jurisdiction,'' the Commission may consider factors relevant
for purposes of assessing whether such an order would be in the public
interest. These may include the ``[a]pplicable margin and capital
requirements of the foreign financial regulatory system.'' \12\ These
also may include the ``effectiveness of the supervisory compliance
program administered by, and the enforcement authority exercised by,
the foreign financial regulatory authority in connection with such
requirements, including the application of those requirements in
connection
[[Page 6356]]
with an entity's cross-border business.'' \13\
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\12\ See paragraph (d)(2)(ii)(A) to Rule 3a71-3. In addition, in
assessing a jurisdiction's applicable margin and capital
requirements, the Commission would expect to consider whether the
margin and capital requirements at issue would apply to entities who
transact in security-based swaps and limit a designation
accordingly. See Part II.C.5.b of the Cross-Border Amendments
Adopting Release.
\13\ See paragraph (d)(2)(ii)(B) to Rule 3a71-3.
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In adopting the exception, the Commission rejected a commenter view
that all G-20 jurisdictions should be deemed to be ``listed
jurisdictions.'' \14\ While the Commission recognizes that reforms
initiated by the G-20 can be relevant for assessing listed jurisdiction
status, the implementation of capital and margin requirements, as well
as associated supervision or enforcement practices, has the potential
to vary significantly across G-20 jurisdictions. Also, many G-20
jurisdictions do not have substantial swap or security-based swap
markets, and thus may not necessarily have the incentives or resources
needed to promote the effective oversight of those markets.
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\14\ See Part II.C.5.b of the Cross-Border Amendments Adopting
Release.
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The Commission also distinguished the evaluation of ``listed
jurisdictions'' from the Commission's consideration of whether
substituted compliance is appropriate in connection with foreign
capital and margin requirements.\15\ Although ``listed jurisdiction''
determinations may raise issues that are analogous to those that would
accompany applications for substituted compliance, the determinations
are made in materially distinct contexts. The Commission accordingly
may reach different conclusions when considering substituted compliance
than it does when considering listed jurisdiction status for the same
jurisdiction.\16\
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\15\ See Part II.C.5.b of the Cross-Border Amendments Adopting
Release.
\16\ For example, in designating a jurisdiction as a ``listed
jurisdiction'' for purposes of the exception, the Commission would
not assess whether the foreign margin and capital regime is
comparable to the applicable requirements under the Exchange Act.
Cf. Exchange Act Rule 3a71-6(a)(2)(i) (in a substituted compliance
determination the requirements of the foreign regulatory system must
be comparable). In addition, unlike the context of substituted
compliance, the entities at issue would not be registered with the
Commission.
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III. Designation of Specific ``Listed Jurisdictions''
For the reasons set forth below, the Commission has determined that
it is in the public interest to designate the following jurisdictions
as ``listed jurisdictions'' for purposes of the exception: Australia,
Canada, France, Germany, Japan, Singapore, Switzerland, and the United
Kingdom (the ``Initial Listed Jurisdictions'').\17\ Only non-U.S.
persons that are subject to the margin and capital requirements
applicable to entities that transact in security-based swaps of an
Initial Listed Jurisdiction may rely on the listed jurisdiction
designations that are the subject of this Order.
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\17\ In proposing the conditional exception to the ``arranged,
negotiated, or executed'' counting requirement, the Commission
solicited comment regarding whether listed jurisdiction status would
be appropriate for those jurisdictions, along with Hong Kong. See
Proposed Rule Amendments and Guidance Addressing Cross-Border
Application of Certain Security-Based Swap Requirements, Exchange
Act Release No. 85823 (May 10, 2019), 84 FR 24206, 24226 (May 24,
2019)(``Cross-Border Proposing Release''). As noted above, one
commenter suggested that all G-20 jurisdictions should be deemed to
be listed jurisdictions--a view that the Commission does not share.
See note 14, supra, and accompanying text. No other commenters
directly addressed whether listed jurisdiction status was
appropriate for any of the named jurisdictions. The Commission notes
that The Hong Kong Monetary Authority has proposed heightened
capital requirements to address the risks presented by non-centrally
cleared derivatives that follow the G-20 recommendations but has not
yet implemented those requirements. As such the Commission has not
designated Hong Kong at this time. In accordance with Rule 3a71-
3(d)(2)(i), the Commission will consider applications for orders for
listed jurisdiction designation from a party or group of parties
that would potentially seek to rely on the Rule 3a71-3(d) exception
or by any foreign regulatory authority supervising such a party or
its security-based swap activities.
On the basis of DTCC Derivatives Repository Limited Trade
Information Warehouse (``TIW'') transactions and positions data on
single-name credit swaps, the Commission believes that entities
currently transacting in security-based swaps in the Initial Listed
Jurisdictions are highly likely to be engaged in security-based swap
transactions that they would otherwise be required to count toward
the de minimis thresholds. For this purpose, the analysis of the
current state of the security-based swap market is based on data
obtained from the TIW, especially data regarding the activity of
market participants in the single-name CDS market during the period
from 2008 to 2017.
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A. Implementation of Financial Responsibility Reforms
The Commission's action in part reflects consideration of financial
responsibility regulation in the Initial Limited Jurisdictions, as well
as the steps that those jurisdictions have taken to implement financial
responsibility reforms. To offset the greater risk to security-based
swap dealers from non-cleared security-based swaps, the Dodd-Frank Act
mandated financial responsibility reform through capital and margin
requirements that would help ensure the safety and soundness of
security-based swap dealers and be appropriate for the risk associated
with non-cleared security-based swaps.\18\ In 2009, the G-20 made
recommendations for financial responsibility reforms intended in part
to reduce systemic risk attributable to over-the-counter (``OTC'')
derivatives, including a recommendation that non-centrally cleared
derivatives contracts should be subject to higher capital
requirements.\19\ As noted below, each of the Initial Listed
Jurisdictions has adopted heightened capital requirements that address
the risks presented by OTC derivatives.
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\18\ See Exchange Act Section 15F(e)(3).
\19\ See G-20, Leaders Statement: Pittsburgh Summit (Sept. 24-
25, 2009) (``G-20 2009 Statement''), available at
www.g20.utoronto.ca/2009/2009communique0925.html.
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In 2011, the G-20 recommended that margin requirements on non-
centrally cleared derivatives be added to the reforms.\20\ As noted
below, each of the Initial Listed Jurisdictions has implemented margin
requirements that address the counterparty risks presented by these
derivatives products. While recognizing that the capital and margin
rules and regulations of the Initial Listed Jurisdictions are not the
same as those of the Commission,\21\ the Commission believes that those
jurisdictions' rules and regulations apply sufficient financial
responsibility requirements on the relevant entities to support
designation as ``listed jurisdictions.''
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\20\ See G-20, Cannes Summit Final Declaration (Nov. 4, 2011),
available at www.g20.utoronto.ca/2011/2011-cannes-declaration-
111104-en.html.
\21\ Earlier this year, the Commission adopted capital, margin,
and segregation requirements for security-based swap dealers and
major security-based swap participants. See Capital, Margin, and
Segregation Requirements for Security-Based Swap Dealers and Major
Security-Based Swap Participants and Capital and Segregation
Requirements for Broker-Dealers, Exchange Act Release No. 86175
(Jun. 21, 2019), 84 FR 43872 (Aug. 22, 2019) (``Capital, Margin and
Segregation Adopting Release''). The objective of the new capital
requirements is to ensure that entities maintain sufficient liquid
assets to satisfy liabilities promptly and to provide a cushion of
liquid assets in excess of liabilities to cover potential market,
credit and other risks. Capital, Margin and Segregation Adopting
Release, 84 FR at 43947. The G-20 capital framework serves to
improve the OTC derivatives market through higher capital
requirements for non-centrally cleared contracts. See G-20 2009
Statement. Further, the Capital, Margin and Segregation Adopting
Release adopted final margin rules for non-centrally cleared
derivatives that address counterparty risks arising from these
transactions. See Exchange Act Rule 18a-3; see also Capital, Margin
and Segregation Adopting Release, 84 FR at 43910.
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1. Australia
The Australian Prudential Regulation Authority (``APRA'') has
adopted capital requirements for ``authorized deposit-taking
institutions'' designed to address the unique risks of OTC
derivatives.\22\ Further, the APRA has adopted margin requirements to
address the counterparty risks of non-centrally cleared derivatives. To
do this, among other things, APRA's margin regime incorporates
variation and initial margin
[[Page 6357]]
calculations and methodologies and additional risk mitigation
requirements.\23\
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\22\ Measures adopted by the APRA to address these risks
include, among other things, the SA-CCR approach and capital
requirements for bank exposures to central counterparties consistent
with the G-20 framework. See APRA, Prudential Standard APS 180,
Capital Adequacy: Standardized Approach to Credit Risk (July 2019).
\23\ The margin requirements adopted by the APRA are based on
the Basel Committee on Banking Supervision (``BCBS'') and
International Organization of Securities Organizations (``IOSCO'')
standards on margining for non-centrally cleared derivatives. See
APRA, Prudential Standard CPS 226, Margining and Risk Mitigation for
Non-Centrally Cleared Derivatives (October 2019) (``CPS 226'').
Consistent with the G-20 framework, the regulatory objectives of CPS
226 are to improve prudential safety, reduce systemic risk and
promote central clearing. See CPS 226 Explanatory Statement, Page 4.
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2. Canada
Canada's Office of the Superintendent of the Financial Institutions
(``OSFI'') has adopted capital requirements for federally regulated
financial institutions that reflect heightened capital for non-
centrally cleared derivatives.\24\ In addition, OSFI has adopted margin
requirements that address the counterparty risks of non-centrally
cleared derivatives and which, among other things, establish minimum
standards for variation and initial margin and collateral requirements
for non-centrally cleared derivative transactions undertaken by
federally regulated financial institutions.\25\
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\24\ See Office of the Superintendent of Financial Institutions,
Guideline: Capital Adequacy Requirements (October 2018) (``CAR
Guideline''). OSFI's CAR Guideline provides a framework for
assessing the capital adequacy of federally regulated institutions
and includes, among other things, the implementation of the SA-CCR
methodology consistent with the G-20 framework. The CAR Guideline is
updated periodically to ensure that capital requirements continue to
reflect underlying risks and developments in the financial industry.
See CAR Guideline.
\25\ See Office of the Superintendent of Financial Institutions,
Guideline E-22: Margin Requirements for Non-centrally Cleared
Derivatives (October 2016) (``Guideline E-22'').
For the purposes of the OSFI Guidelines, federally regulated
financial institutions refer to ``banks, foreign bank branches, bank
holding companies, trust and loan companies, cooperative credit
associations, cooperate retail associations, life insurance
companies, property and casualty insurance companies and insurance
holding companies.'' See Footnote 1 of Guideline E-22. The
provincial Canadian securities regulators have not yet adopted
margin and collateral requirements for non-centrally cleared
derivatives but continue to monitor international developments as
they consider recommendations of the Canadian Securities
Administrators based on the G-20 framework. See Canadian Securities
Administrators Staff Notice 95-301 Margin and Collateral
Requirements for Non-Centrally Cleared Derivatives (Aug. 22, 2019).
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3. France/Germany/United Kingdom \26\
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\26\ The United Kingdom has published its OTC derivatives regime
that will come into force on the day it leaves the European Union
(``EU''), which follows the existing body of applicable EU
derivatives law. See Draft Over the Counter Derivatives, Central
Counterparties and Trade Repositories (Amendment, etc., and
Transitional Provision) (EU Exit) Regulations 2018.
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In 2012, the European Commission (``EC'') adopted the European
Market Infrastructure Regulation (``EMIR'') in response to the G-20
leaders' statements on reform of the OTC derivatives market. Pursuant
to EMIR, the EC adopted and has since revised capital requirements for
financial institutions which are intended to address the risks of the
OTC derivatives market and that reflect heightened capital for non-
centrally cleared derivatives.\27\ In addition, the EC has issued
margin standards which set forth risk mitigation techniques for non-
centrally cleared derivatives, including variation and initial margin
calculations and methodologies, with the objective of reducing
counterparty credit risk and mitigating systematic risk.\28\ The
capital and margin standards are found in EC regulations which are
directly applicable to all EU member states without any further
implementing measures.
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\27\ Addressing the risks of non-centrally cleared derivatives,
the EU capital requirements are more risk sensitive than previous
methods and include, among other things, the SA-CCR, consistent with
the BCBS-IOSCO standard. Regulation (EU) 2019/876 of the European
Parliament and of the Council of May 20, 2019 Amending Regulation
(EU) No. 575/2013 as regards the leverage ratio, the net stable
funding ratio, requirements for own funds and eligible liabilities,
counterparty credit risk, market risk, exposures to central
counterparties, exposures to collective investment undertakings,
large exposures, reporting and disclosure requirements, and
Regulation (EU) No 648/2012 (``CRR2''). In addition, the EC issued a
directive related to supervisory functions of the EU member states
as they relate to CRR2. See Directive (EU) 2019/878 of the European
Parliament and of the Council of 20 May 2019 amending Directive
2013/36/EU. A directive is a legal act of the European Union that
requires member states to achieve a particular result without
dictating the means of achieving that result. Directives are
distinguished from regulations which are self-executing and do not
require any implementing measures. As a regulation, CRR2 will be
directly applicable to all EU member states without any implementing
measures. The Commission notes that, while CRR2 has been adopted, it
will not be in force until June 28, 2021; however, this date is
consistent with the compliance dates of the applicable U.S.
security-based swap market rules adopted under the Dodd-Frank Act.
The related supervisory directive requires action by individual
member states to implement.
\28\ Commission Delegated Regulation (EU) No. 2016/2251 of
October 5, 2016 Supplementing Regulation (EU) No 648/2012 of the
European Parliament and of the Council of July 4, 2012 on OTC
Derivatives, Central Counterparties and Trade Repositories with
Regard to Regulatory Technical Standards for Risk-Mitigation
Techniques for OTC Derivate Contracts Not Cleared by a Central Party
(as corrected by Commission Delegated Regulation (EU) 2017/323 of
January 20, 2017 and Regulation (EU) 2019/834 of May 20, 2019)
(``RTS''). The RTS supplements the requirements of EMIR with more
detailed direction with respect to margin requirements and, as a
regulation, is directly applicable in all countries that are members
of the EU. See RTS, Explanatory Memorandum at 3.
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4. Japan
The Japan Financial Services Agency (``JFSA'') has implemented
specific financial responsibility reforms that include capital and
margin requirements to address the risks of non-centrally cleared
derivative products.\29\ For example, the JFSA margin requirements
include variation and initial margin calculations and methodologies
that address the counterparty risks of non-centrally cleared
derivatives.\30\
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\29\ See https://www.fsa.go.jp/en/newsletter/weekly2018/287.html. The JFSA capital rules include the standardized capital
requirements consistent with the BCBS-IOSCO framework, although the
JFSA has allowed certain interim capital requirements to remain in
place as a transitional measure to address cross-border concerns. In
addition, the JFSA promulgated margin requirements and guidelines
under the Financial Instruments and Exchange Act, No. 25 of 1948.
\30\ See Cabinet Office Ordinance on Financial Instruments
Business (Cabinet Office Ordinance No. 52 of August 6, 2007),
including supplementary provisions; Comprehensive Guideline for
Supervision of Major Banks, etc., Comprehensive Guidelines for
Supervision of Regional Financial Institutions, Comprehensive
Guidelines for Supervision of Cooperate Financial Institutions,
Comprehensive Guideline for Supervision of Financial Instruments
Business Operators, etc., Comprehensive Guidelines for Supervision
of Insurance Companies, and Comprehensive Guidelines for Supervision
of Trust Companies, etc.; JFSA Public Notification No. 15 of March
31, 2016, JFSA Public Notification No. 16 of March 31, 2016, JFSA
Public Notification No. 17 of March 31, 2016.
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5. Singapore
The Monetary Authority of Singapore (``MAS'') has adopted
heightened capital requirements in response to the G-20 recommendations
for non-centrally cleared derivatives.\31\ Further, the MAS has
implemented a margin regime including variation and initial margin
standards and collateral requirements with regard to non-centrally
cleared derivatives.\32\
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\31\ For example, among other things, the MAS capital
requirements incorporate the SA-CCR approach and capital
requirements for bank exposures to central counterparties. MAS
Notice 637 on Risk Based Capital Adequacy Requirements for Banks
Incorporated in Singapore (14 September 2012)(last revised 10 June
2019). The MAS has provided a transitional period during which
compliance with the new standards is voluntary.
\32\ See MAS Guidelines on Margin Requirements for Non-Centrally
Cleared OTC Derivatives Contracts, Guideline No. SFA 15-G03, Issue
Date: 6 December 2016 (last revised July 26, 2019 to exclude
security-based swaps from the variation margin and initial margin
requirements until February 29, 2020).
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6. Switzerland
As part of its financial responsibility rules reform, the Swiss
Federal Council has implemented heightened capital requirements to
address the risks of
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non-centrally cleared derivatives.\33\ In addition, to reduce systemic
risk, the Swiss Federation has adopted standards on margining and risk
mitigation requirements to address the risks associated with non-
centrally cleared derivatives which include variation and initial
margin calculations and methodologies, along with other collateral
requirements.\34\
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\33\ The Swiss Federal Council included, among other things, the
SA-CCR and capital requirements for bank exposures to central
counterparties in its Capital Adequacy Ordinance applicable to banks
and securities dealers. See Swiss Federal Council, 952.03 Ordinance
concerning Capital Adequacy and Risk Diversification for Banks and
Securities Dealers (status as of 9 April 2019). The transition
period for implementation of the SA-CCR has been extended to January
1, 2020 or longer for smaller banks with no or insignificant
derivatives positions.
\34\ See Federal Act on Financial Market Infrastructures and
Market Conduct in Securities and Derivatives Trading of 19 June 2015
(status as of 1 January 2019) and Ordinance on Financial Market
Infrastructure and Market Conduct in Securities and Derivatives
Trading of 25 November 2015 (status as of 1 January 2019).
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B. Supervisory or Enforcement Practices
This action further recognizes that, based upon the Commission's
current experience with regulators and authorities in each of the
Initial Listed Jurisdictions, including, for example, cooperative
experiences in matters of supervision or enforcement with the
securities and financial regulators in the Initial Listed Jurisdictions
as well as joint participation in certain international organizations
and bodies,\35\ the Commission does not have reason to believe that the
supervisory or enforcement practices in those jurisdictions would
encourage market participants to restructure and book transactions into
those jurisdictions to take advantage of a regulatory environment that
as a practical matter does not require firms to comply with heightened
capital requirements for OTC derivatives positions.\36\
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\35\ Staff of the Commission has worked, consulted and
coordinated with foreign regulatory authorities from the Initial
Listed Jurisdictions through participation in numerous bilateral and
multilateral discussions addressing the regulation of OTC
derivatives. In addition, the Commission's staff has been able to
gather information about foreign regulatory reform efforts through
its participation in various international organizations including
the Financial Stability Board (``FSB''), the BCBS, IOSCO, and
committees, task forces and working groups thereof, such as the
FSB's Working Group on OTC Derivatives Regulation and IOSCO's
Working Group on Margining Requirements.
\36\ The Commission notes that supervision and enforcement of
the EU derivatives regulatory regime is conducted at the member
state level and, therefore, in considering ``listed jurisdiction''
status, the Commission considered the status of derivatives market
supervision and enforcement at the member state level.
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C. Location of Firms Likely To Engage in Security-Based Swap Dealing
Activity Using Personnel Located in the United States
This action also accounts for the Commission's understanding of
which non-U.S. firms are most likely to transact in security-based
swaps using personnel located in the United States in such volume that
designation of that jurisdiction by the Commission as a listed
jurisdiction is warranted. This analysis is relevant both with regard
to whether the foreign jurisdiction has a security-based swaps market
that demonstrates a need for designation as a listed jurisdiction, and
with regard to whether the applicable regulators have an incentive to
effectively oversee the market. In particular, based on available data,
including the volume of single-name credit default swap transactions
referencing U.S. underliers, the Commission believes that dealing
entities in the Initial Listed Jurisdictions are highly likely to be
engaged in security-based swap transactions that they would otherwise
be required to count toward the de minimis thresholds.\37\
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\37\ See note 17, supra.
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More generally, the Commission also believes that the security-
based swap markets in the Initial Listed Jurisdictions are sufficiently
developed that, coupled with the initiatives the applicable foreign
financial regulators have taken in response to the G-20 leaders'
statements regarding regulation of OTC derivatives, designation as a
listed jurisdiction would be in the public interest.
IV. Conclusion
For the reasons discussed above, the Commission concludes that it
is in the public interest to designate the following jurisdictions as
``listed jurisdictions'' for purposes of the conditional exception, set
forth in Exchange Act Rule 3a71-3(d), from having to count certain
transactions involving U.S. activity against the thresholds associated
with the security-based swap dealer de minimis exception. Accordingly,
It is hereby ordered, pursuant to Exchange Act Rule 3a71-3(a)(12)
and 3a71-3(d)(2), that the following jurisdictions are designated as
listed jurisdictions:
1. Australia;
2. Canada; \38\
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\38\ With respect to Canada's ``listed jurisdiction''
designation, only federally regulated financial institutions that
are subject to the OSFI requirements may rely on the ``listed
jurisdiction'' condition that is the subject of this Order.
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3. France;
4. Germany;
5. Japan;
6. Singapore;
7. Switzerland; and
8. United Kingdom.
By the Commission.
Dated: December 18, 2019.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2019-27761 Filed 2-3-20; 8:45 am]
BILLING CODE 8011-01-P
