Extraterritoriality of the Dodd-Frank Act: Dealing with New CFTC Regulations

by Anshuman Jaswal, PhD, November 7, 2012


In many leading economies, regulators have drafted regulations to deal with the requirements for better risk management and greater transparency for derivatives products. In the US, the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) have begun implementing derivatives regulations under the Dodd-Frank Act (DFA). These new rules have important implications for non-US firms.

In the report, Extraterritoriality of the Dodd-Frank Act: Dealing with New CFTC Regulations, Celent considers the impact of the implementation of rule-making related to the Dodd-Frank Act on non-US providers. Several factors have to be considered, including the location of the trading entity, the nationality of its counterparties, and applicable regulatory requirements. Foreign firms have to consider which of its entities trade swaps with US persons and under which jurisdictions, as well as overlap in jurisdictions between the US and non-US markets. The implications for potential transactions and future business are another consideration because some firms might choose to restrict their swap trading to keep regulatory costs under control.

Firms that engage in swap-trading with US entities should prepare themselves to comply with the DFA requirements for trade execution, clearing, and real time reporting. Foreign banks and other trading entities have to undertake compliance for processing trades with US entities by the end of 2012. Substituted compliance is allowed for swap data reporting and recordkeeping, as long as the CFTC is provided access to data held at the foreign trade repository.

“The regulatory structure for OTC derivatives has become more stringent following the financial crisis,” says Dr. Anshuman Jaswal, Senior Analyst with Celent’s Securities & Investments Group and author of the report. “For foreign banks and other swap trading entities, the task of identifying all swaps with US counterparties is likely to be one of the main problems with regard to compliance with the new regulations.”

This report begins with an overview that considers important elements of the extraterritorial jurisdiction of US regulators under the Dodd-Frank Act. This is followed by a discussion of the different steps that firms complying with the new regulations have to consider. Finally, the report looks at some of the important issues being raised regarding the cross-border implications of US regulations.

This 22-page report contains one figure and three tables.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

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Table of Contents

Executive Summary









Dealing as or with a “US Person”



Global Application of Dodd-Frank Regulations to US Persons



Calculating Value of Swap Trading



Mandatory Registration for Market Participants



Compliance Requirements After Registration



Choice of Compliance Regime for Foreign Dealers



Considering Future Course of Action


Some Issues




Leveraging Celent’s Expertise



Support for Financial Institutions



Support for Vendors


Related Celent Research


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