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J Christopher Giancarlo, CFTC

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CFTC approves exemption from SEF registration requirement for EU-authorised MTFs and OTFs

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The Commodity Futures Trading Commission (CFTC) has exempted certain multilateral trading facilities (MTFs) and organised trading facilities (OTFs) authorised within the European Union (EU) from the requirement to register with the CFTC as swap execution facilities (SEFs).

The order will become effective on 3 January, 2018.
 
“Today’s announcement by the CFTC of a registration exemption for EU-authorised trading venues, combined with Tuesday’s announcement by the European Commission of an equivalence decision for CFTC-authorised trading venues, represents the third time in two years that the CFTC and the European Union have been able to work together to defer to each other’s regulatory frameworks,” says Chairman J Christopher Giancarlo (pictured). “These decisions, including all of their relevant conditions, should be enduring achievements, as they are essential to ensuring a strong and stable trans-Atlantic derivatives market that supports economic growth both in the European Union and the United States. Once again, I thank Vice President Dombrovskis and his staff for all of their work in reaching this positive result.”
 
In the order, the CFTC determined that EU-wide legal requirements – including, in particular, requirements under the EU’s new Markets in Financial Instruments Regulation (MiFIR), the EU’s amended Markets in Financial Instruments Directive (MiFID II) and the EU’s Market Abuse Regulation – establish regulatory frameworks for MTFs and OTFs, respectively, that satisfy the Commodity Exchange Act (CEA) standard for granting an exemption from the SEF registration requirement. CEA section 5h(g) provides that the CFTC may grant such an exemption if it finds that a foreign swap execution facility is subject to comparable, comprehensive supervision and regulation by the appropriate governmental authorities in the facility’s home country.
 
Based on the CFTC’s determination that the regulatory frameworks for MTFs and OTFs satisfy this standard, the order announced today will exempt each of the MTFs and OTFs listed in the order from the requirement to register with the CFTC as a SEF. The European Commission (EC) requested an exemption for each of the MTFs and OTFs listed in the order, and represented that, as of January 3, 2018 – when the order becomes effective, and requirements under MiFIR and MiFID II begin to apply – each of these MTFs and OTFs will be authorized and in good standing in an EU Member State that has completed its transposition of MiFID II requirements. The order provides that, on a going forward basis, the EC may request that additional MTFs and OTFs that satisfy these criteria be added to the list of MTFs and OTFs that are granted exempt SEF status.
 
When the order becomes effective, swap transactions that are subject to the CFTC’s trade execution requirement will be able to be executed on MTFs and OTFs that are listed in the order. These exempt SEFs also will be able to offer trading in swaps that are not subject to the CFTC’s trade execution requirement to US person counterparties.
 
The CFTC’s approval of the order follows the 13 October, 2017, common approach announcement regarding the mutual recognition of certain CFTC- and EU-authorised derivative trading venues, by Giancarlo and Valdis Dombrovskis, EC Vice President for Financial Stability, Financial Services and Capital Markets Union. On December 5, 2017, the EC adopted a decision recognising CFTC-authorised SEFs and designated contract markets (DCMs), as specified in the decision, as eligible trading venues for purposes of satisfying the new EU trading obligation under MiFIR. The EC’s decision will enable EU counterparties to trade derivative instruments that are subject to the EU trading obligation on these SEFs and DCMs. The EC’s decision does not affect the ability of EU counterparties to continue to trade derivative instruments that are not subject to the EU trading obligation on CFTC-authorised SEFs and DCMs.
 
The newly announced order does not affect other requirements under the CEA and the CFTC’s regulations. The CFTC has particularly highlighted certain of these continuing requirements in the order, which interested parties should consult for further details regarding the exemption the CFTC granted.
 
Following the order’s issuance, CFTC staff will review whether any staff action may be appropriate with respect to the real-time public reporting requirements under Part 43 of the CFTC’s regulations, for certain publicly reportable swap transactions executed on an exempted MTF or OTF, in order to account for the post-trade transparency requirements to which these transactions also will be subject in the EU under MiFIR.

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