November 30, 2012
The rules, and any SEC approval of such rules, should make clear that establishment of any separate clearing of CDS in Europe through the proposed framework will not, and may not, be used to object to, avoid, or exempt any party involved in such clearing from Section 19(h) of the Exchange Act, under which the Commission has the authority to bring an enforcement action against a clearing agency that has violated or is unable to comply with any provision of the Exchange Act, the rules or regulations thereunder, or its own rules. See 15 U.S.C. 78s.
In addition any rules providing for clearance of CDS for "non-U.S. customers" should make it clear that no such clearing framework may be used for the purpose of avoiding any tax or U.S. government financial transaction charge which would otherwise be applicable for any U.S entity or any foreign entity for which such tax or charge would be applicable because of a taxable status in the United States which is sought to be avoided through the foreign clearing. In addition, CDS associated with U.S. based securities or market indices should be periodically reportable to the degree necessary to determine whether such clearing, including the amount, security, or parties raises any issues as a result of foreign clearing.
To the extent that the purpose of the proposed rules is to be consistent with the purposes of Section 17 of the Act, including market transparency, protecting the public interest, and investors and their funds, the rules should provide adequate assurance that information related to clearing transactions, both periodic reporting to, and where necessary, requests for information from, the SEC pursuant to its regulatory, supervisory, and enforcement powers will be made available consistent with current best practices for recording, retaining, and reporting individual and summary aggregate transactions, including retention of records for a specified period of at least 5 years in a manner electronically retrievable.