Do I quality for cross-border exemptions for public reporting?

What is a US Person?

Until December 31, 2027, a person may continue to classify counterparties as U.S. Persons based on:

• representations made pursuant to the "U.S. Person" definition in § 23.160(a)(10) prior to the effective date of the new definition; or
• representations made pursuant to the interpretation of the term "U.S. Person" in the Cross-Border Guidance prior to the effective date of the new definition.

The Final Rule eliminated the concept of a "Conduit Affiliate" used in the Cross-Border Guidance. Instead, the Final Rule introduces a new category of non-U.S. entity called a "Significant Risk Subsidiary" (SRS) that must be treated like a U.S. Person for regulatory purposes because of the risks it poses to an ultimate and significant U.S. parent entity. The definition of SRS begins with the condition that the entity must have an ultimate U.S. parent that has more than $50 billion in global consolidated assets, so the scope of the definition is relatively narrow and becomes even narrower because there are additional conditions that must be met before an entity falls within its scope. Based on the points Commissioner Berkovitz made about SRSs in the CFTC meetings proposing and adopting the new definition, it is highly likely that there is no current entity that will qualify as an SRS, making this definition another null set like the definition of "Major Swap Participant" and the term "Conduit Affiliate" in the Cross-Border Guidance.

A Non-U.S. Person with a guarantee from a U.S. Person is defined as a "Guaranteed Entity." The Final Rule clarifies that a Non-U.S. Person could be a Guaranteed Entity with respect to some counterparties but not with respect to others, depending upon whether its swaps were guaranteed by a U.S. Person.

Great reference article by Katten for those to which this applies (link)

What are the different classifications of requirements?

What substituted compliance is allowed?

The Final Rule further develops the current substituted compliance program for those non‑U.S. swap entities and foreign branches of U.S. entities that are subject to a comparable regulatory regime in their respective home jurisdictions. The Final Rule's new approach would apply with respect to Group A and Group B requirements only. For Group A requirements, which cannot be applied effectively on a fragmented basis across a single entity, a non-U.S. SD would be allowed to comply solely with its local, comparable regulations without regard to the identity of the counterparty (i.e., whether transacting with U.S. or non-U.S. counterparties). On the other hand, no substituted compliance is available for Group C requirements because they will not apply to non-U.S. SDs or the foreign branches of U.S. SDs.

For Group B requirements, which can be applied on a transaction-by-transaction or relationship-specific basis, the Final Rule clarifies that, where substituted compliance is available, and subject to the terms of the relevant comparability determination:

• A Non-U.S. Swap Entity and the Foreign Branch of a U.S. Swap Entity may satisfy any Group B requirement on the basis of substituted compliance when entering into foreign-based swaps with any foreign counterparty; and
• A Non-U.S. Swap Entity may satisfy any Group B requirement for any swap booked in a U.S. branch provided that the counterparty is neither a Foreign Branch nor a Guaranteed Entity.

What exemptive relief is allowed?

The Final Rule does not provide any exceptions from Group A requirements; however, there are five new exemptions from some or all of the Group B and Group C requirements when transacting in foreign-based swaps. Specifically, exceptions have been provided for: (1) certain exchange-traded and cleared foreign-based swaps; (2) certain foreign-based swaps with foreign counterparties; (3) certain non-U.S. swap entities for certain foreign-based swaps with specified foreign counterparties; (4) foreign- based swaps of foreign branches of U.S. swap entities with certain foreign counterparties, subject to limitations including a quarterly cap on the total gross notional amount of such swaps; and (5) foreign-based swaps between an SRS Swap Entity or Guaranteed Swap Entity, on the one hand, and certain non-U.S. persons, on the other hand.

The chart below summarizes the material terms of each of these exceptions.

* Except with respect to daily trading records requirements.

** Other than a foreign branch of a U.S. Person where the swap is conducted through such foreign branch.

*** The numerator and the denominator also include all swaps conducted by affiliated SRS Swap Entities and Guaranteed Swap Entities in reliance on the exception.

Legacy Compliance Obligations

As noted above, the Final Rule does not address all of the SD compliance obligations set out in the Cross-Border Guidance. In particular, the Final Rule does not address the following: capital adequacy; clearing and swap processing; mandatory trade execution; swap data repository reporting; large trader reporting; margining of uncleared swaps; and real-time public reporting. The Final Rule recognizes this disparity and notes its intention to "separately address" the cross-border application of these requirements.

For certain compliance obligations, such as capital adequacy and margining of uncleared swaps, the relevant CFTC rulemakings include detailed provisions on the cross‑border application of their provisions. For the other legacy compliance obligations, as discussed above in Section 1 of this advisory, the practical consequences are less clear, and non-U.S. SDs may encounter challenges in implementing an only partial migration of their compliance framework from the Cross-Border Guidance to the terms of the Final Rule.

The chart below summarizes the treatment of these legacy compliance obligations.

* The CFTC also requires access to foreign SDR data, which has not occurred in practice.

Reference CFTC Guidance

Application of the CEA’s Swap Provisions and Commission Regulations to Market Participants That are Not Registered As a Swap Dealer or MSP

Five of the CEA’s swaps provisions and Commission regulations promulgated thereunder – namely, those relating to required clearing, trade execution, real-time public reporting, Large Trader Reporting, SDR Reporting, and swap data recordkeeping (collectively, the Non-Registrant Requirements) – also apply to persons or counterparties other than a swap dealer or MSP.

With regard to swaps between two non-registrants where one (or both) of the counterparties to the swap is a U.S. person (including an affiliate of a non-U.S. person), the parties to the swap generally would be expected to comply with the Non-Registrant Requirements. Where both parties are non-U.S. persons, the Non-Registrant Requirements generally will not apply. Additionally, where both parties to a swap are non-registrants and non-U.S. persons but both are also guaranteed or conduit affiliates, the Non-Registrant Requirements will apply to the swap (although substituted compliance will generally be possible for such requirements). 

Appendix F – Application of Certain Entity-Level and Transaction-Level Requirements to Non-Swap Dealer/Non-MSP Market Participants*

(The relevant Dodd-Frank requirements are those relating to: clearing, trade execution, real-time public reporting, Large Trader Reporting, SDR Reporting and swap data recordkeeping).