Mary Jo White Chair Securities and Exchange Commission

Good Morning.  This is an open meeting of the U.S. Securities and Exchange Commission on May 1, 2013.

Today, the Commission will consider two proposals stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act.

First, we will consider proposing rules and interpretive guidance regarding the way U.S. regulatory requirements will apply to security-based swap transactions that cross borders – and we will consider the appropriate use of “substituted compliance” for these transactions under the comparable regulatory regimes of other jurisdictions.

Second, we will consider the related action of reopening the comment period for the Commission’s outstanding rulemakings that concern security-based swaps.

Let’s begin with the cross-border release.

As many of you know, for some time now, the Commission has been working hard to create an important and entirely new regulatory regime for the derivatives market – a regime required by Title VII of the Dodd-Frank Act.  As a Commission, we have proposed nearly all of the rules required by that provision.

Today’s proposal addresses a final key component of that new regulatory regime – specifically, how cross-border activities in this market should be treated.  I am pleased that, if the Commission approves this approach, we will be able to proceed with the adoption of the substantive rules we have already proposed.

Over the past two decades, the security-based swaps market has become truly global in scope.  Most transactions now occur between counterparties located in different countries.  And both market participants and infrastructures routinely engage in activities that reach across jurisdictional boundaries. 

Today’s proposal maps out how our substantive requirements under Title VII would apply to the significant portion of the security-based swap market that is cross-border. 

This is particularly important because the global nature of this market means that participants may be subject to requirements in multiple countries.  And, this type of overlapping regulatory oversight could lead to conflicting or costly duplicative regulatory requirements.  Market participants need to know which rules to follow – and I believe that this proposal will serve as the road map.

The complexities resulting from the regulation of cross-border activity in the security-based swap market could be addressed in a variety of ways.   At one end of the spectrum, the Commission could take the view that any transaction that touches the United States in any way should be subjected to our entire range of Title VII regulatory requirements.  At the other end of the spectrum, the Commission could simply “recognize” the wholesale use and application of foreign regulatory requirements in place of our own. 

I, however, believe we should take a robust and workable approach to this particularly complex and predominantly global market. As laid out in this proposal, that approach can be achieved by advancing a framework for “substituted compliance” determinations that take appropriate account of comparable regulatory regimes of other countries.  This approach would allow a foreign market participant to comply with requirements imposed by its own home country so long as those requirements are comparable to our regulations.  Where the home country’s regulations are not comparable, that market participant would be required to abide by our rules. 

This approach would allow the elimination of overlapping regulation when it truly is duplicative, while recognizing that regulatory regimes will necessarily differ in some respects.  Crucially and as required, acceptable substituted compliance would advance the important statutory goals of the Dodd-Frank Act, including stability, transparency, and protection against market abuse.

Under the proposal, substituted compliance would not be based on a line-by-line comparison of the relevant rules in a foreign jurisdiction.  Instead, in making a substituted compliance determination, the Commission would look at key categories of the Title VII regime, focusing on regulatory outcomes rather than the particular means of achieving those outcomes.  As part of this process, the Commission would look not just at the way in which a country’s laws and regulations are written, but also at how that country supervises and enforces compliance with its rules.

Importantly, the proposal provides the Commission with flexibility in making these determinations, so that we are not forced into an “all-or-none” situation.  For instance, if a foreign jurisdiction were missing one key component of the Dodd-Frank regulatory framework this would not prevent the Commission from making a substituted compliance determination with respect to other parts of a foreign jurisdiction’s regulatory framework.

Another significant issue addressed in the proposal relates to data access. 

Comprehensive access to data on cross-border transactions is fundamental to effective oversight for market regulators and systemic risk regulators.  At the Commission, we know that there are a number of potential impediments to market participants providing data to trade repositories, and regulators getting access to data. 

These impediments arise from local law in various jurisdictions.  For example, certain countries have privacy laws, blocking statutes, and other laws that restrict or limit the disclosure of certain information about trade counterparties.  And some countries put up high hurdles to data access by regulators from other jurisdictions.  But regulatory access issues also arise under the Dodd-Frank Act, which requires regulators, among other things, to agree to indemnify SEC-registered trade repositories before they receive data from trade repositories. 

The proposal before us seeks to address these issues and better facilitate regulator access to data held in the data repositories we regulate in a manner consistent with the Dodd-Frank Act.  More specifically, the proposal would provide an exemption from the indemnification provision in the Dodd-Frank Act that would permit SEC-registered swap data repositories to provide information to appropriate domestic and foreign authorities, even if they have not received such indemnification, so long as certain specified conditions are met.

We hope that other regulators will similarly address these impediments under their own laws.

Before I ask John Ramsay, Acting Director of the Division of Trading and Markets, to discuss the proposed rules, I would like to express my deep gratitude to John and his counsel, Nathaniel Stankard, as well as Jim Burns, Brian Bussey, Matt Daigler, Wenchi Hu, Richard Gabbert, and Richard Grant from the Office of Derivatives Policy for their hard work on this rulemaking. 

In addition, I would like to thank numerous other staff in the Division of Trading and Markets for their very hard work on this proposal, including Heather Seidel, Nancy Sanow, Michael Gaw, Leah Mesfin, David Liu, Michael Bradley, David Michehl, and Geoffrey Pemble from the Office of Market Supervision. … Peter Curley, Jeffrey Mooney , Matthew Landon, Claire Noakes, Matthew Lee and Stephanie Park from the Office of Clearance and Settlement. … David Blass, Lourdes Gonzalez, Jo Anne Swindler, Haimie Workie, Bonnie Gauch, Joanne Rutkowski, Marie-Louise Huth, Angie Le, and Richard Vorosmarti from the Office of Chief Counsel … Mike Macchiaroli, Tom McGowan, Randall Roy, and Teen Sheng from the Office of Broker-Dealer Finances … and Catherine McGuire and Tom Eady.

Thanks as well to Meridith Mitchell, Michael Conley, Lori Price, Robert Bagnall, Brooks Shirey, Cynthia Ginsberg, and Robert Teply from the Office of the General Counsel; Eric Pan, Kathleen Kelly, and Michelle Bond from the Office of International Affairs; and Craig Lewis, Jennifer Marietta-Westberg, Scott Bauguess, Vanessa Countryman, Narahari Phatak, and Adam Yonce from the Division of Risk, Strategy, and Financial Innovation. 

Finally, I would like to express my tremendous gratitude to my fellow Commissioners and all of our counsels for their very hard work and comments on the proposed rules.

Now I’ll turn the meeting over to John Ramsay to provide a fuller explanation of the Division’s recommendations.