Say again? Deciphering the CFTC’s position on swaps

Commissioner Bart Chilton of the Commodity Futures Trading Commission (CFTC) has been quoted as saying that it is "the most complicated undertaking [by the agency] in the past three years." Quiz: what was he referring to?

Why, the CFTC's "Final Guidance and Accompanying Exemptive Order on Cross-Border Application of Certain Swap Regulations," as one law firm's client memo was headed. There followed a narrative, seven charts and 39 footnotes. I have read it twice. It is a herculean effort, done very professionally, and I am confused at a depth even deeper than my usual state.

For years, I was viewed as one of the "experts" (see asterisked definition below) in this area of the law. But, as I read about who is, and who is not, a "U.S. Person" subject to CFTC registration, regulation and reporting, I felt a yearning for the first time that King George III had fielded a better army, or that Native Americans had blocked the landings of Ponce de Leon, Christopher Columbus, and the like. We can only hope that any legislation on immigration resists the temptation to adopt the CFTC's definition.

Then, the memo forces us (as it must) to focus on "Guaranteed and Conduit Affiliates," "Entry-Level and Transaction-Level Requirements," and other matters that beg for translation into English. There is also a discussion of "Substituted Compliance" using the regulatory system of other countries with agency approval. Finally, it notes that the CFTC has issued an oh-never-mind "Exemptive Order" for certain matters and with varied expiration dates.

God bless those attorneys and compliance officers who decipher this program before mental health issues set in. I must do my best as well because, while "retired" recently, this subject must be explained in my legal treatise, "Derivatives Regulation," that has survived through four editions over the past 32 years. If I end up with an uncontrollable twitch, you will know what to blame for it.

* Definition of "Expert:" Anyone giving a speech more than 50 miles from home (i.e., to an audience that doesn't know better).

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