The Commodity Futures Trading Commission (CFTC or Commission) and the Monetary Authority of Singapore (MAS) today announced the mutual recognition of certain derivatives trading venues in the United States and Singapore.
The CFTC issued an order exempting certain derivatives trading facilities regulated by MAS from the requirement to register with the CFTC as swap execution facilities (SEFs). Similarly, MAS announced the issuance of regulations exempting certain derivatives trading venues regulated by the CFTC from the requirement to be a MAS-authorized approved exchange (AE) or recognised market operator (RMO) before establishing or operating an organised market.
CFTC Chairman J. Christopher Giancarlo and MAS Assistant Managing Director Lee Boon Ngiap made this joint announcement today at the 44th Annual International Futures Industry Conference hosted by the Futures Industry Association in Boca Raton, Florida.
Chairman Giancarlo stated, “Completion of deference arrangements like these not only support the cross-border activities of participants in the financial markets, but also help avoid market fragmentation, protectionism, and regulatory arbitrage. The global nature of today’s markets requires that regulators work cooperatively across borders to promote growth and innovation while supporting the financial stability of global markets. We seek to ensure that the current international approach to cross-border regulation supports these goals. I am especially pleased to have the opportunity to make this announcement today in person alongside MAS Assistant Managing Director Lee Boon Ngiap. This announcement with MAS is just the latest example of the close relationship the CFTC has with MAS. I thank MAS Managing Director Ravi Menon, and the staff of MAS for all their work in reaching this positive result.”
Ravi Menon, Managing Director, MAS, said, “This arrangement on mutual recognition between CFTC and MAS accomplishes the G20 swaps reforms in a purposeful manner. It will improve cross-border market efficiency and resilience and provide U.S. and Singapore market participants access to deeper pools of liquidity. Participants from U.S. and Asia can now trade with one another on the same trading platforms, allowing for risks to be managed more efficiently. I am grateful to Chairman Giancarlo and the staff of CFTC for the partnership that led to today’s outcome and look forward to further cooperation in the future.”
Commodity Exchange Act (CEA) section 5h(g) empowers the CFTC to grant an exemption from the SEF registration requirement when it determines that a facility is subject to comparable, comprehensive supervision and regulation on a consolidated basis by the appropriate governmental authorities in the home country of the facility. AEs and RMOs that have been granted an exemption from SEF registration under section 5h(g), as listed in the order, may be used by swap counterparties to comply with the trade execution requirement under CEA section 2(h)(8), and may also be used to trade swaps that are not subject to the trade execution requirement. Prior to this announcement, the CFTC has only used its CEA section 5h(g) authority on one other occasion to exempt certain European Union Multilateral Trading Facilities and Organised Trading Facilities from the SEF registration requirement.
Similarly, section 44(1) of the Securities and Futures Act (SFA) empowers MAS to exempt comparable derivatives trading venues from the requirement under section 7(1) of the SFA to be an AE or RMO before establishing or operating an organised market or holding itself out as operating an organised market. SEFs that have been granted an exemption, as listed in the schedule, may be used by specified persons to execute specified derivatives contracts for purposes of section 129J(1) of the SFA (i.e., the Singapore trading obligation), and may also be used to trade swaps that are not specified derivatives contracts. This is the first exemption that MAS has granted under section 44(1) of the SFA to foreign trading venues subject to comparable regulation and supervision in their home jurisdiction.
In recommending approval of these exemption requests, CFTC staff and MAS staff actively collaborated with each other to gather and analyze information about MAS-regulated AEs and RMOs and CFTC-regulated SEFs to determine these platform categories meet the comparability standards under their respective laws and regulations.
The comparability analysis conducted by CFTC staff and MAS staff followed an outcomes-based approach such that the regulatory framework being evaluated need not be identical to each other’s requirements to be found comparable, provided that the frameworks achieve comparable regulatory outcomes. Such an approach is consistent with the CFTC’s and MAS’ long histories of cross-border regulatory deference in the area of trading venues and ensures that market participants can rely on comprehensive rules and regulations of one jurisdiction without fear that another jurisdiction will seek to selectively impose an additional layer of regulatory obligations on them.
The order announced today, granting exempt SEF status to MAS-authorized AEs and RMOs, does not affect other requirements under the CEA and the CFTC’s regulations. The CFTC has particularly highlighted certain of these continuing requirements in the order, which interested parties should consult for further details as to the precise parameters of the CFTC’s exemption. Similarly, the exemption for CFTC-registered SEFs does not affect the other requirements under the SFA and MAS’ regulations.