[Federal Register Volume 85, Number 23 (Tuesday, February 4, 2020)]
[Notices]
[Pages 6355-6358]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27761]



  Federal Register / Vol. 85, No. 23 / Tuesday, February 4, 2020 / 
Notices  

[[Page 6355]]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87781]


Order Designating Certain Jurisdictions as ``Listed 
Jurisdictions'' for Purposes of Applying the Security-Based Swap Dealer 
De Minimis Exception of Rule 3a71-3(d) Under the Exchange Act to 
Certain Cross-Border Security-Based Swap Transactions

I. Introduction

    Rule 3a71-3 under the Securities Exchange Act of 1934 (the 
``Exchange Act'') in part addresses the cross-border application of the 
``security-based swap dealer'' definition, including the cross-border 
application of the de minimis exception to that definition.\1\ Under 
the rule, non-U.S. persons that engage in security-based swap dealing 
activity are required to count--against the thresholds associated with 
the de minimis exception--their dealing transactions with non-U.S. 
counterparties if those dealing transactions were ``arranged, 
negotiated, or executed'' using U.S. personnel.\2\
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    \1\ The term ``security-based swap dealer'' is defined in 
Exchange Act Section 3(a)(71) and further defined by Exchange Act 
Rules 3a71-1 through 3a71-5. Section 3(a)(71)(D) provides that the 
Securities and Exchange Commission (the ``SEC'' or the 
``Commission'') shall promulgate regulations to establish factors 
with respect to the making of any determination to exempt a 
security-based swap dealer that engages in a de minimis quantity of 
security-based swap dealing. Persons whose dealing activities exceed 
the de minimis thresholds set by the Commission will be required to 
register as security-based swap dealers.
     Regulation of security-based swap dealers is a key component of 
the security-based swap market oversight that was granted to the 
Commission by Title VII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (the ``Dodd-Frank Act'').
    \2\ See Exchange Act Rule 3a71-3(b)(1)(iii)(C). The ``arranged, 
negotiated, or executed'' counting rule advances a number of 
important regulatory interests, in part by helping to protect 
against the potential that market participants would use booking 
practices to engage in an unregistered security-based swap dealing 
business in the United States. The use of those ``arranged, 
negotiated, or executed'' criteria further reflect the activity 
focus of the ``security-based swap dealer'' definition, as well as 
considerations regarding competitive disparities, market 
fragmentation and public transparency.
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    By separate action, the Commission has amended Rule 3a71-3 by 
adding new paragraph (d) to incorporate a conditional exception from 
the ``arranged, negotiated, or executed'' counting requirement.\3\ That 
conditional exception is intended to address certain operational and 
market concerns that otherwise could arise were transactions to be 
counted against the applicable de minimis thresholds requirement solely 
because a transaction between two non-U.S. counterparties results from 
activity by U.S. personnel.\4\ The Rule 3a71-3(d) exception is subject 
to a number of conditions designed to help protect the important 
interests that underpin the ``arranged, negotiated, or executed'' 
counting requirement. Those include, inter alia, the ``listed 
jurisdiction'' condition that is the subject of this Order.\5\
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    \3\ See Rule Amendments and Guidance Addressing Cross-Border 
Application of Certain Security-Based Swap Requirements, Exchange 
Act Release No. 87780 (Dec. 18, 2019) (``Cross-Border Amendments 
Adopting Release''). That release also addressed a number of 
additional topics in connection with the cross-border application of 
security-based swap dealer requirements.
    \4\ Those included concerns that non-U.S. dealers would avoid 
using U.S. personnel, and potentially would relocate U.S. personnel, 
as well as concerns that application of the counting requirement 
would be burdensome and would result in market fragmentation and 
lower liquidity levels. The exception also addressed concerns that 
the counting requirement could lead financial groups to have to 
register multiple entities, and concerns regarding disparate 
approaches from those followed by the Commodity Futures Trading 
Commission. See Part II of the Cross-Border Amendments Adopting 
Release.
    \5\ See paragraph (d)(1) to Rule 3a71-3 for the conditions to 
the conditional exception.
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II. ``Listed Jurisdiction'' Condition to the Exception

A. The ``Listed Jurisdiction'' Condition

    To take advantage of the Rule 3a71-3(d) exception, the non-U.S. 
person must be subject to the margin and capital requirements of a 
``listed jurisdiction'' when engaging in transactions subject to the 
exception from the ``arranged, negotiated, or executed'' counting 
requirement.\6\
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    \6\ See paragraph (d)(1)(v) to Rule 3a71-3. The term ``listed 
jurisdiction'' is defined as ``any jurisdiction that the Commission 
by order has designated as a listed jurisdiction'' for purposes of 
the exception. See paragraph (a)(12) to Rule 3a71-3.
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    The Commission has explained that the ``listed jurisdiction'' 
condition is intended to deter dealers from attempting to use the 
exception to avoid Title VII ``by simply booking their transactions to 
entities in jurisdictions that do not effectively require security-
based swap dealers or comparable entities to meet certain financial 
responsibility standards.'' \7\ Otherwise, the exception could 
``provide a competitive advantage to non-U.S. persons that conduct 
security-based swap dealing activity in the United States without being 
subject to sufficient financial responsibility standards.'' \8\ The 
Commission also expressed the view that the ``listed jurisdiction'' 
condition is consistent with the view that applying capital and margin 
requirements to transactions between two non-U.S. persons that have 
been arranged, negotiated, or executed in the United States can help 
mitigate the potential for financial contagion to spread to U.S. market 
participants and to the U.S. financial system more generally.\9\
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    \7\ See Part II.C.5.b of the Cross-Border Amendments Adopting 
Release.
    \8\ Id.
    \9\ Id.
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B. Designation of ``Listed Jurisdictions''

    The exception provides that the Commission conditionally or 
unconditionally may determine ``listed jurisdictions'' by order, in 
response to applications or upon the Commission's own initiative.\10\ 
The Commission by order, after notice and opportunity for comment, may 
modify or withdraw a listed jurisdiction determination if it determines 
that continued listed jurisdiction status no longer would be in the 
public interest based on a number of factors.\11\
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    \10\ See paragraph (d)(2) to Rule 3a71-3. Applications may be 
made by a party or group of parties that potentially would seek to 
rely on the exception, or by any foreign financial regulatory 
authority or authorities supervising such a party or its security-
based swap activities. See paragraph (d)(2)(i) to Rule 3a71-3. 
Exchange Act Rule 0-13 sets forth the procedures for filing ``listed 
jurisdiction'' applications.
    \11\ See paragraph (d)(2)(iii) to Rule 3a71-3. In light of the 
importance of the Commission being able to access information 
outside the United States regarding the transactions at issue, the 
determination to modify or withdraw listed jurisdiction status may 
be based on a jurisdiction's laws or regulations that have had the 
effect of preventing the Commission or its representatives on 
request to promptly access information or documents regarding the 
activities of the non-U.S. persons relying on the exception. See 
paragraph (d)(2)(iii)(B) to Rule 3a71-3. Withdrawal or modification 
further may be based on any other factor the Commission determines 
to be relevant. See paragraph (d)(2)(iii)(C) to Rule 3a71-3.
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    When evaluating a foreign jurisdiction's potential status as a 
``listed jurisdiction,'' the Commission may consider factors relevant 
for purposes of assessing whether such an order would be in the public 
interest. These may include the ``[a]pplicable margin and capital 
requirements of the foreign financial regulatory system.'' \12\ These 
also may include the ``effectiveness of the supervisory compliance 
program administered by, and the enforcement authority exercised by, 
the foreign financial regulatory authority in connection with such 
requirements, including the application of those requirements in 
connection

[[Page 6356]]

with an entity's cross-border business.'' \13\
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    \12\ See paragraph (d)(2)(ii)(A) to Rule 3a71-3. In addition, in 
assessing a jurisdiction's applicable margin and capital 
requirements, the Commission would expect to consider whether the 
margin and capital requirements at issue would apply to entities who 
transact in security-based swaps and limit a designation 
accordingly. See Part II.C.5.b of the Cross-Border Amendments 
Adopting Release.
    \13\ See paragraph (d)(2)(ii)(B) to Rule 3a71-3.
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    In adopting the exception, the Commission rejected a commenter view 
that all G-20 jurisdictions should be deemed to be ``listed 
jurisdictions.'' \14\ While the Commission recognizes that reforms 
initiated by the G-20 can be relevant for assessing listed jurisdiction 
status, the implementation of capital and margin requirements, as well 
as associated supervision or enforcement practices, has the potential 
to vary significantly across G-20 jurisdictions. Also, many G-20 
jurisdictions do not have substantial swap or security-based swap 
markets, and thus may not necessarily have the incentives or resources 
needed to promote the effective oversight of those markets.
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    \14\ See Part II.C.5.b of the Cross-Border Amendments Adopting 
Release.
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    The Commission also distinguished the evaluation of ``listed 
jurisdictions'' from the Commission's consideration of whether 
substituted compliance is appropriate in connection with foreign 
capital and margin requirements.\15\ Although ``listed jurisdiction'' 
determinations may raise issues that are analogous to those that would 
accompany applications for substituted compliance, the determinations 
are made in materially distinct contexts. The Commission accordingly 
may reach different conclusions when considering substituted compliance 
than it does when considering listed jurisdiction status for the same 
jurisdiction.\16\
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    \15\ See Part II.C.5.b of the Cross-Border Amendments Adopting 
Release.
    \16\ For example, in designating a jurisdiction as a ``listed 
jurisdiction'' for purposes of the exception, the Commission would 
not assess whether the foreign margin and capital regime is 
comparable to the applicable requirements under the Exchange Act. 
Cf. Exchange Act Rule 3a71-6(a)(2)(i) (in a substituted compliance 
determination the requirements of the foreign regulatory system must 
be comparable). In addition, unlike the context of substituted 
compliance, the entities at issue would not be registered with the 
Commission.
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III. Designation of Specific ``Listed Jurisdictions''

    For the reasons set forth below, the Commission has determined that 
it is in the public interest to designate the following jurisdictions 
as ``listed jurisdictions'' for purposes of the exception: Australia, 
Canada, France, Germany, Japan, Singapore, Switzerland, and the United 
Kingdom (the ``Initial Listed Jurisdictions'').\17\ Only non-U.S. 
persons that are subject to the margin and capital requirements 
applicable to entities that transact in security-based swaps of an 
Initial Listed Jurisdiction may rely on the listed jurisdiction 
designations that are the subject of this Order.
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    \17\ In proposing the conditional exception to the ``arranged, 
negotiated, or executed'' counting requirement, the Commission 
solicited comment regarding whether listed jurisdiction status would 
be appropriate for those jurisdictions, along with Hong Kong. See 
Proposed Rule Amendments and Guidance Addressing Cross-Border 
Application of Certain Security-Based Swap Requirements, Exchange 
Act Release No. 85823 (May 10, 2019), 84 FR 24206, 24226 (May 24, 
2019)(``Cross-Border Proposing Release''). As noted above, one 
commenter suggested that all G-20 jurisdictions should be deemed to 
be listed jurisdictions--a view that the Commission does not share. 
See note 14, supra, and accompanying text. No other commenters 
directly addressed whether listed jurisdiction status was 
appropriate for any of the named jurisdictions. The Commission notes 
that The Hong Kong Monetary Authority has proposed heightened 
capital requirements to address the risks presented by non-centrally 
cleared derivatives that follow the G-20 recommendations but has not 
yet implemented those requirements. As such the Commission has not 
designated Hong Kong at this time. In accordance with Rule 3a71-
3(d)(2)(i), the Commission will consider applications for orders for 
listed jurisdiction designation from a party or group of parties 
that would potentially seek to rely on the Rule 3a71-3(d) exception 
or by any foreign regulatory authority supervising such a party or 
its security-based swap activities.
    On the basis of DTCC Derivatives Repository Limited Trade 
Information Warehouse (``TIW'') transactions and positions data on 
single-name credit swaps, the Commission believes that entities 
currently transacting in security-based swaps in the Initial Listed 
Jurisdictions are highly likely to be engaged in security-based swap 
transactions that they would otherwise be required to count toward 
the de minimis thresholds. For this purpose, the analysis of the 
current state of the security-based swap market is based on data 
obtained from the TIW, especially data regarding the activity of 
market participants in the single-name CDS market during the period 
from 2008 to 2017.
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A. Implementation of Financial Responsibility Reforms

    The Commission's action in part reflects consideration of financial 
responsibility regulation in the Initial Limited Jurisdictions, as well 
as the steps that those jurisdictions have taken to implement financial 
responsibility reforms. To offset the greater risk to security-based 
swap dealers from non-cleared security-based swaps, the Dodd-Frank Act 
mandated financial responsibility reform through capital and margin 
requirements that would help ensure the safety and soundness of 
security-based swap dealers and be appropriate for the risk associated 
with non-cleared security-based swaps.\18\ In 2009, the G-20 made 
recommendations for financial responsibility reforms intended in part 
to reduce systemic risk attributable to over-the-counter (``OTC'') 
derivatives, including a recommendation that non-centrally cleared 
derivatives contracts should be subject to higher capital 
requirements.\19\ As noted below, each of the Initial Listed 
Jurisdictions has adopted heightened capital requirements that address 
the risks presented by OTC derivatives.
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    \18\ See Exchange Act Section 15F(e)(3).
    \19\ See G-20, Leaders Statement: Pittsburgh Summit (Sept. 24-
25, 2009) (``G-20 2009 Statement''), available at 
www.g20.utoronto.ca/2009/2009communique0925.html.
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    In 2011, the G-20 recommended that margin requirements on non-
centrally cleared derivatives be added to the reforms.\20\ As noted 
below, each of the Initial Listed Jurisdictions has implemented margin 
requirements that address the counterparty risks presented by these 
derivatives products. While recognizing that the capital and margin 
rules and regulations of the Initial Listed Jurisdictions are not the 
same as those of the Commission,\21\ the Commission believes that those 
jurisdictions' rules and regulations apply sufficient financial 
responsibility requirements on the relevant entities to support 
designation as ``listed jurisdictions.''
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    \20\ See G-20, Cannes Summit Final Declaration (Nov. 4, 2011), 
available at www.g20.utoronto.ca/2011/2011-cannes-declaration-
111104-en.html.
    \21\ Earlier this year, the Commission adopted capital, margin, 
and segregation requirements for security-based swap dealers and 
major security-based swap participants. See Capital, Margin, and 
Segregation Requirements for Security-Based Swap Dealers and Major 
Security-Based Swap Participants and Capital and Segregation 
Requirements for Broker-Dealers, Exchange Act Release No. 86175 
(Jun. 21, 2019), 84 FR 43872 (Aug. 22, 2019) (``Capital, Margin and 
Segregation Adopting Release''). The objective of the new capital 
requirements is to ensure that entities maintain sufficient liquid 
assets to satisfy liabilities promptly and to provide a cushion of 
liquid assets in excess of liabilities to cover potential market, 
credit and other risks. Capital, Margin and Segregation Adopting 
Release, 84 FR at 43947. The G-20 capital framework serves to 
improve the OTC derivatives market through higher capital 
requirements for non-centrally cleared contracts. See G-20 2009 
Statement. Further, the Capital, Margin and Segregation Adopting 
Release adopted final margin rules for non-centrally cleared 
derivatives that address counterparty risks arising from these 
transactions. See Exchange Act Rule 18a-3; see also Capital, Margin 
and Segregation Adopting Release, 84 FR at 43910.
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1. Australia
    The Australian Prudential Regulation Authority (``APRA'') has 
adopted capital requirements for ``authorized deposit-taking 
institutions'' designed to address the unique risks of OTC 
derivatives.\22\ Further, the APRA has adopted margin requirements to 
address the counterparty risks of non-centrally cleared derivatives. To 
do this, among other things, APRA's margin regime incorporates 
variation and initial margin

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calculations and methodologies and additional risk mitigation 
requirements.\23\
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    \22\ Measures adopted by the APRA to address these risks 
include, among other things, the SA-CCR approach and capital 
requirements for bank exposures to central counterparties consistent 
with the G-20 framework. See APRA, Prudential Standard APS 180, 
Capital Adequacy: Standardized Approach to Credit Risk (July 2019).
    \23\ The margin requirements adopted by the APRA are based on 
the Basel Committee on Banking Supervision (``BCBS'') and 
International Organization of Securities Organizations (``IOSCO'') 
standards on margining for non-centrally cleared derivatives. See 
APRA, Prudential Standard CPS 226, Margining and Risk Mitigation for 
Non-Centrally Cleared Derivatives (October 2019) (``CPS 226''). 
Consistent with the G-20 framework, the regulatory objectives of CPS 
226 are to improve prudential safety, reduce systemic risk and 
promote central clearing. See CPS 226 Explanatory Statement, Page 4.
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2. Canada
    Canada's Office of the Superintendent of the Financial Institutions 
(``OSFI'') has adopted capital requirements for federally regulated 
financial institutions that reflect heightened capital for non-
centrally cleared derivatives.\24\ In addition, OSFI has adopted margin 
requirements that address the counterparty risks of non-centrally 
cleared derivatives and which, among other things, establish minimum 
standards for variation and initial margin and collateral requirements 
for non-centrally cleared derivative transactions undertaken by 
federally regulated financial institutions.\25\
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    \24\ See Office of the Superintendent of Financial Institutions, 
Guideline: Capital Adequacy Requirements (October 2018) (``CAR 
Guideline''). OSFI's CAR Guideline provides a framework for 
assessing the capital adequacy of federally regulated institutions 
and includes, among other things, the implementation of the SA-CCR 
methodology consistent with the G-20 framework. The CAR Guideline is 
updated periodically to ensure that capital requirements continue to 
reflect underlying risks and developments in the financial industry. 
See CAR Guideline.
    \25\ See Office of the Superintendent of Financial Institutions, 
Guideline E-22: Margin Requirements for Non-centrally Cleared 
Derivatives (October 2016) (``Guideline E-22'').
    For the purposes of the OSFI Guidelines, federally regulated 
financial institutions refer to ``banks, foreign bank branches, bank 
holding companies, trust and loan companies, cooperative credit 
associations, cooperate retail associations, life insurance 
companies, property and casualty insurance companies and insurance 
holding companies.'' See Footnote 1 of Guideline E-22. The 
provincial Canadian securities regulators have not yet adopted 
margin and collateral requirements for non-centrally cleared 
derivatives but continue to monitor international developments as 
they consider recommendations of the Canadian Securities 
Administrators based on the G-20 framework. See Canadian Securities 
Administrators Staff Notice 95-301 Margin and Collateral 
Requirements for Non-Centrally Cleared Derivatives (Aug. 22, 2019).
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3. France/Germany/United Kingdom \26\
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    \26\ The United Kingdom has published its OTC derivatives regime 
that will come into force on the day it leaves the European Union 
(``EU''), which follows the existing body of applicable EU 
derivatives law. See Draft Over the Counter Derivatives, Central 
Counterparties and Trade Repositories (Amendment, etc., and 
Transitional Provision) (EU Exit) Regulations 2018.
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    In 2012, the European Commission (``EC'') adopted the European 
Market Infrastructure Regulation (``EMIR'') in response to the G-20 
leaders' statements on reform of the OTC derivatives market. Pursuant 
to EMIR, the EC adopted and has since revised capital requirements for 
financial institutions which are intended to address the risks of the 
OTC derivatives market and that reflect heightened capital for non-
centrally cleared derivatives.\27\ In addition, the EC has issued 
margin standards which set forth risk mitigation techniques for non-
centrally cleared derivatives, including variation and initial margin 
calculations and methodologies, with the objective of reducing 
counterparty credit risk and mitigating systematic risk.\28\ The 
capital and margin standards are found in EC regulations which are 
directly applicable to all EU member states without any further 
implementing measures.
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    \27\ Addressing the risks of non-centrally cleared derivatives, 
the EU capital requirements are more risk sensitive than previous 
methods and include, among other things, the SA-CCR, consistent with 
the BCBS-IOSCO standard. Regulation (EU) 2019/876 of the European 
Parliament and of the Council of May 20, 2019 Amending Regulation 
(EU) No. 575/2013 as regards the leverage ratio, the net stable 
funding ratio, requirements for own funds and eligible liabilities, 
counterparty credit risk, market risk, exposures to central 
counterparties, exposures to collective investment undertakings, 
large exposures, reporting and disclosure requirements, and 
Regulation (EU) No 648/2012 (``CRR2''). In addition, the EC issued a 
directive related to supervisory functions of the EU member states 
as they relate to CRR2. See Directive (EU) 2019/878 of the European 
Parliament and of the Council of 20 May 2019 amending Directive 
2013/36/EU. A directive is a legal act of the European Union that 
requires member states to achieve a particular result without 
dictating the means of achieving that result. Directives are 
distinguished from regulations which are self-executing and do not 
require any implementing measures. As a regulation, CRR2 will be 
directly applicable to all EU member states without any implementing 
measures. The Commission notes that, while CRR2 has been adopted, it 
will not be in force until June 28, 2021; however, this date is 
consistent with the compliance dates of the applicable U.S. 
security-based swap market rules adopted under the Dodd-Frank Act. 
The related supervisory directive requires action by individual 
member states to implement.
    \28\ Commission Delegated Regulation (EU) No. 2016/2251 of 
October 5, 2016 Supplementing Regulation (EU) No 648/2012 of the 
European Parliament and of the Council of July 4, 2012 on OTC 
Derivatives, Central Counterparties and Trade Repositories with 
Regard to Regulatory Technical Standards for Risk-Mitigation 
Techniques for OTC Derivate Contracts Not Cleared by a Central Party 
(as corrected by Commission Delegated Regulation (EU) 2017/323 of 
January 20, 2017 and Regulation (EU) 2019/834 of May 20, 2019) 
(``RTS''). The RTS supplements the requirements of EMIR with more 
detailed direction with respect to margin requirements and, as a 
regulation, is directly applicable in all countries that are members 
of the EU. See RTS, Explanatory Memorandum at 3.
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4. Japan
    The Japan Financial Services Agency (``JFSA'') has implemented 
specific financial responsibility reforms that include capital and 
margin requirements to address the risks of non-centrally cleared 
derivative products.\29\ For example, the JFSA margin requirements 
include variation and initial margin calculations and methodologies 
that address the counterparty risks of non-centrally cleared 
derivatives.\30\
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    \29\ See https://www.fsa.go.jp/en/newsletter/weekly2018/287.html. The JFSA capital rules include the standardized capital 
requirements consistent with the BCBS-IOSCO framework, although the 
JFSA has allowed certain interim capital requirements to remain in 
place as a transitional measure to address cross-border concerns. In 
addition, the JFSA promulgated margin requirements and guidelines 
under the Financial Instruments and Exchange Act, No. 25 of 1948.
    \30\ See Cabinet Office Ordinance on Financial Instruments 
Business (Cabinet Office Ordinance No. 52 of August 6, 2007), 
including supplementary provisions; Comprehensive Guideline for 
Supervision of Major Banks, etc., Comprehensive Guidelines for 
Supervision of Regional Financial Institutions, Comprehensive 
Guidelines for Supervision of Cooperate Financial Institutions, 
Comprehensive Guideline for Supervision of Financial Instruments 
Business Operators, etc., Comprehensive Guidelines for Supervision 
of Insurance Companies, and Comprehensive Guidelines for Supervision 
of Trust Companies, etc.; JFSA Public Notification No. 15 of March 
31, 2016, JFSA Public Notification No. 16 of March 31, 2016, JFSA 
Public Notification No. 17 of March 31, 2016.
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5. Singapore
    The Monetary Authority of Singapore (``MAS'') has adopted 
heightened capital requirements in response to the G-20 recommendations 
for non-centrally cleared derivatives.\31\ Further, the MAS has 
implemented a margin regime including variation and initial margin 
standards and collateral requirements with regard to non-centrally 
cleared derivatives.\32\
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    \31\ For example, among other things, the MAS capital 
requirements incorporate the SA-CCR approach and capital 
requirements for bank exposures to central counterparties. MAS 
Notice 637 on Risk Based Capital Adequacy Requirements for Banks 
Incorporated in Singapore (14 September 2012)(last revised 10 June 
2019). The MAS has provided a transitional period during which 
compliance with the new standards is voluntary.
    \32\ See MAS Guidelines on Margin Requirements for Non-Centrally 
Cleared OTC Derivatives Contracts, Guideline No. SFA 15-G03, Issue 
Date: 6 December 2016 (last revised July 26, 2019 to exclude 
security-based swaps from the variation margin and initial margin 
requirements until February 29, 2020).
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6. Switzerland
    As part of its financial responsibility rules reform, the Swiss 
Federal Council has implemented heightened capital requirements to 
address the risks of

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non-centrally cleared derivatives.\33\ In addition, to reduce systemic 
risk, the Swiss Federation has adopted standards on margining and risk 
mitigation requirements to address the risks associated with non-
centrally cleared derivatives which include variation and initial 
margin calculations and methodologies, along with other collateral 
requirements.\34\
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    \33\ The Swiss Federal Council included, among other things, the 
SA-CCR and capital requirements for bank exposures to central 
counterparties in its Capital Adequacy Ordinance applicable to banks 
and securities dealers. See Swiss Federal Council, 952.03 Ordinance 
concerning Capital Adequacy and Risk Diversification for Banks and 
Securities Dealers (status as of 9 April 2019). The transition 
period for implementation of the SA-CCR has been extended to January 
1, 2020 or longer for smaller banks with no or insignificant 
derivatives positions.
    \34\ See Federal Act on Financial Market Infrastructures and 
Market Conduct in Securities and Derivatives Trading of 19 June 2015 
(status as of 1 January 2019) and Ordinance on Financial Market 
Infrastructure and Market Conduct in Securities and Derivatives 
Trading of 25 November 2015 (status as of 1 January 2019).
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B. Supervisory or Enforcement Practices

    This action further recognizes that, based upon the Commission's 
current experience with regulators and authorities in each of the 
Initial Listed Jurisdictions, including, for example, cooperative 
experiences in matters of supervision or enforcement with the 
securities and financial regulators in the Initial Listed Jurisdictions 
as well as joint participation in certain international organizations 
and bodies,\35\ the Commission does not have reason to believe that the 
supervisory or enforcement practices in those jurisdictions would 
encourage market participants to restructure and book transactions into 
those jurisdictions to take advantage of a regulatory environment that 
as a practical matter does not require firms to comply with heightened 
capital requirements for OTC derivatives positions.\36\
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    \35\ Staff of the Commission has worked, consulted and 
coordinated with foreign regulatory authorities from the Initial 
Listed Jurisdictions through participation in numerous bilateral and 
multilateral discussions addressing the regulation of OTC 
derivatives. In addition, the Commission's staff has been able to 
gather information about foreign regulatory reform efforts through 
its participation in various international organizations including 
the Financial Stability Board (``FSB''), the BCBS, IOSCO, and 
committees, task forces and working groups thereof, such as the 
FSB's Working Group on OTC Derivatives Regulation and IOSCO's 
Working Group on Margining Requirements.
    \36\ The Commission notes that supervision and enforcement of 
the EU derivatives regulatory regime is conducted at the member 
state level and, therefore, in considering ``listed jurisdiction'' 
status, the Commission considered the status of derivatives market 
supervision and enforcement at the member state level.
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C. Location of Firms Likely To Engage in Security-Based Swap Dealing 
Activity Using Personnel Located in the United States

    This action also accounts for the Commission's understanding of 
which non-U.S. firms are most likely to transact in security-based 
swaps using personnel located in the United States in such volume that 
designation of that jurisdiction by the Commission as a listed 
jurisdiction is warranted. This analysis is relevant both with regard 
to whether the foreign jurisdiction has a security-based swaps market 
that demonstrates a need for designation as a listed jurisdiction, and 
with regard to whether the applicable regulators have an incentive to 
effectively oversee the market. In particular, based on available data, 
including the volume of single-name credit default swap transactions 
referencing U.S. underliers, the Commission believes that dealing 
entities in the Initial Listed Jurisdictions are highly likely to be 
engaged in security-based swap transactions that they would otherwise 
be required to count toward the de minimis thresholds.\37\
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    \37\ See note 17, supra.
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    More generally, the Commission also believes that the security-
based swap markets in the Initial Listed Jurisdictions are sufficiently 
developed that, coupled with the initiatives the applicable foreign 
financial regulators have taken in response to the G-20 leaders' 
statements regarding regulation of OTC derivatives, designation as a 
listed jurisdiction would be in the public interest.

IV. Conclusion

    For the reasons discussed above, the Commission concludes that it 
is in the public interest to designate the following jurisdictions as 
``listed jurisdictions'' for purposes of the conditional exception, set 
forth in Exchange Act Rule 3a71-3(d), from having to count certain 
transactions involving U.S. activity against the thresholds associated 
with the security-based swap dealer de minimis exception. Accordingly,
    It is hereby ordered, pursuant to Exchange Act Rule 3a71-3(a)(12) 
and 3a71-3(d)(2), that the following jurisdictions are designated as 
listed jurisdictions:
    1. Australia;
    2. Canada; \38\
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    \38\ With respect to Canada's ``listed jurisdiction'' 
designation, only federally regulated financial institutions that 
are subject to the OSFI requirements may rely on the ``listed 
jurisdiction'' condition that is the subject of this Order.
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    3. France;
    4. Germany;
    5. Japan;
    6. Singapore;
    7. Switzerland; and
    8. United Kingdom.

    By the Commission.

    Dated: December 18, 2019.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2019-27761 Filed 2-3-20; 8:45 am]
 BILLING CODE 8011-01-P


