In a keynote speech on 6 June 2013 at the Sandler O’Neill Global Exchange & Brokerage Conference, CFTC Chairman Gary Gensler responded to requests from the market for guidance on the cross-border application of the Dodd-Frank Act and specifically the rule proposed by the CFTC in June 2012 mandating the regulation of activities outside of the U.S. which have a “direct and significant connection with activities in, or effect on, commerce of the United States”. To ensure that offshore operations of financial institutions are not allowed “a free pass from reform”, Gensler suggested that the final form of the rule should include at least the following essential elements:
- the definition of U.S persons must cover offshore hedge funds and other investment firms that are majority-owned by U.S. interests or have their principal place of business in the U.S.;
- swaps between non-U.S. swaps dealers and guaranteed affiliates of U.S. persons, and swaps between two guaranteed affiliates that are not swap dealers must be included, although substituted compliance would be permissible where overseas rules are equivalent to those in the U.S.;
- foreign branches of U.S. swap dealers may also be permitted to comply with Dodd-Frank rules through substituted compliance; and
- foreign or U.S. swap dealers transacting with U.S. persons within the U.S. are also to comply with Dodd-Frank swaps market reform (which has been the case since 31 December 2012, when swap dealers began registering).