July 19, 2019
Chair Clayton and Commissioners Several,
I write specifically regarding the arranged, negotiated, or executed criteria as part of the de minimis counting
test. In my view, the risk that non-U.S. persons engaged in security-based swap dealing activity
in the United States could avoid regulation under Title VII (see Call for Comment at FN18, citing ANE Adopting Release, 81 FR at 8615) is a more serious risk than the risk that the ambit of Title VII may be expanded nominally in some unanticipated way (which strikes me as unlikely both as a matter of regulation and as a practical matter of enforcement). Further, the installation of a default framework wherein US persons acting directly or as agents in market-facing US activity fall under a US regulatory framework better-aligns SEC policy with recent CFTC policy and significantly reduces confusion among borderline actors as to whether they are complying with SEC, CFTC, or both.
Further, I concur with the Commission's conclusion that broad carve-outs analogous to broker-dealer exceptions in other areas of the framework are not appropriate here, either from the standpoint of regulatory consistency or from that of consumer protection. The regulatory requirements applicable to broker-dealers and those applicable to security-based swap dealers are purposefully, historically, and functionally distinct and even if the two were to grow more similar over time, this particular issue (the regulation of cross-border swap dealers) is both the wrong opportunity within which, and the wrong direction from which, to bring that merger of doctrine. And, of course, many banks are exempt from the "broker" definition partially (as to certain activities) or wholly, making any merger of doctrine incomplete.
It is possible to bring the SEC's explicit interpretations of existing regulation more in line with CFTC's posture on related issues without blessing a complete conceptual eclipse between historically-unrelated lineages of regulatory activity (such as endorsing an interpretation in which broker-dealers and security-based swap dealers are viewed interchangeably) and without "discouraging non-U.S. clients from interacting with U.S. personnel" (see Call for Comment at FN33).
Karl T. Muth, J.D., M.B.A., M.Phil., Ph.D.
Lecturer in Law and Economics, Northwestern University
These comments are mine alone and reflect my views. They may not reflect the views, policy positions, or analyses of my past or present employers or clients. This is a public comment to a regulatory agency and not legal or financial advice. The author may be contacted at firstname.lastname@example.org.