The International Swaps and Derivatives Association (ISDA) and the US Chamber Center for Capital Markets Competitiveness (CCMC) is advocating for a mechanism to avoid the need for securities firms to comply with two sets of regulations.
Currently, firms must comply with similar rules imposed by the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).
In a new paper, the two organizations propose a “safe harbor” mechanism to allow companies to rely on their compliance with one commission’s rules to satisfy comparable requirements set by the other. This would streamline the compliance burden on firms who must file compliance information with both the CFTC and SEC. The SEC has yet to implement many of its rules, but there are several technical disparities between its requirements and the CFTC’s. Even minor differences can cause firms to build separate compliance systems, which results in more time spent and higher costs.
“Firms have already spent millions of dollars developing systems and processes to comply with CFTC requirements for swaps. Rather than have those firms repeat that work to comply with similar but not identical rules from the SEC for security-based swaps, we believe there is a better way to comply with the regulations. Our proposed safe harbor mechanism would reduce the compliance burden while ensuring the CFTC and SEC continue to have oversight authority over their respective markets,” ISDA Chief Executive Scott O’Malia said.
ISDA and CCMC propose that the commissions use their exemptive authorities to establish the safe harbor. This would be consistent with the Dodd-Frank Act, which called on the CFTC and SEC to ensure regulatory comparability when possible.
“With this paper, we are proposing common-sense reforms for efficient capital markets,” Tom Quaadman, executive vice-president of CCMC, said. “We’ve been a long-time advocate for regulatory harmonization, especially for financial instruments that are largely the same, such as swaps and security-based swaps. A safe harbor mechanism would prevent inconsistencies in regulation and ensure the markets continue to operate efficiently, to the benefit of all market participants – from swap dealers to the end users that use these instruments to hedge their risks.”