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Banking Law Keyed to Barr, 3rd Ed.
Securities Industry & Financial Markets Association v. CFTC
Citation:
67 F. Supp. 3d 373 (2014)Facts
Following the 2008 financial crisis, which was exacerbated by unregulated over-the-counter derivative swaps markets, Congress passed the Dodd-Frank Act to regulate these markets. Title VII of the Act gave the CFTC jurisdiction over most swaps and required the CFTC to promulgate implementing regulations. Section 2(i) of the CEA provided for extraterritorial application of these provisions when activities “have a direct and significant connection with activities in, or effect on, commerce of the United States.”
The CFTC promulgated numerous Title VII Rules implementing the substantive requirements of the Act but did not address their extraterritorial application in those rulemakings. Instead, in July 2013, the CFTC issued the Cross-Border Action, a 78-page document describing its policies regarding the extraterritorial application of the Title VII Rules. The Cross-Border Action interpreted key terms like “U.S. person,” addressed when foreign entities would be subject to U.S. regulation, and established a framework for “substituted compliance” whereby entities could comply with comparable foreign regulations instead of U.S. regulations.
The plaintiff trade associations challenged both the Cross-Border Action and the Title VII Rules. They argued that the Cross-Border Action was a legislative rule that required notice-and-comment rulemaking and cost-benefit analysis, that the Title VII Rules could not apply extraterritorially without explicitly addressing their extraterritorial application, and that the CFTC failed to consider the costs and benefits of extraterritorial application of the Title VII Rules.
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