Judge Asks for Update|in CFTC Policy Dispute

(CN) - Nearly a year after demanding a cost-benefit analysis on the regulation of cross-border derivative swaps, a federal judge wants an update.

The dispute stems from a policy that the Commodity Futures Trading Commission announced in 2013 after the 2008 financial crisis made clear that the investment decisions of foreign offices had major ramifications for U.S. financial firms.

In a "Cross-Border Action," which the CFTC described as a policy rather than a binding rule, the agency said major swap dealers must register with the CFTC to clear swaps involving a foreign party through a derivative clearing organization.

Such registration aims to reduce the risk of default and imposes reporting obligations on swap participants, the CFTC said.

The policy states that "where the conduit is located outside the United States, but is owned and controlled by a U.S. person ... to recognize the economic reality of the situation, the conduit's swaps should be attributed to the U.S. affiliate(s)."

Three trade organizations representing the financial industry, headed by the Securities Industry and Financial Markets Association (SIFMA), challenged the cross-border action with a federal complaint, alleging that the CFTC exceeded its authority in applying its regulatory powers overseas.

Though U.S. District Judge Paul Friedman sided with the CFTC in September last year, he did agree with SIFMA that the CFTC did not adequately analyze the costs and benefits of the policy's extraterritorial applications.

It's been nearly a year since Friedman remanded this issue back to the agency, and the judge issued a short order Monday stating that "neither party has filed any notice regarding whether the CFTC has completed this task and has repromulgated the rules."

Friedman ordered the parties to file a joint status report apprising him of the agency's activities since his last ruling by Sept. 1.

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