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Statement Regarding Proposed Amendments and a Re-Proposed Rule Regarding Application of Certain Title VII Requirements to Security-Based Swap Transactions

Commissioner Daniel M. Gallagher

April 29, 2015

Thank you, Chair White.

When the Commission first proposed rules relating to the application of Title VII of the Dodd-Frank Act to cross-border activity in 2013, I supported the proposal.  However, at that time, I expressed some reservations because, while I thought we were generally moving in the right direction, I was not convinced that we had gotten it exactly right.

The Commission’s mandate in Title VII is to establish a regulatory regime for the over the counter security-based swaps market.  And that is no simple task—indeed, the legislation is needlessly complex.  And OTC derivative market data is lacking, and what data we do have is less than perfect.  When Dodd-Frank was adopted, the Commission had little to no experience in these markets.  And while the SEC has gained valuable experience over the past few years, there is still much to learn.  All of this argues for a data-driven regulatory approach that is carefully and deliberatively considered.

I am very pleased that the Commission is taking such an approach in today’s rulemaking.  Having already proposed rules on these issues, rushing to check off one more item from the long and daunting Dodd-Frank to-do list can be tempting.  But, we do not always get things right the first time.  And when it comes to Title VII, regulatory humility is a necessity as we are writing rules for unfamiliar markets.  As we build this regulatory regime from the ground up, we must keep in mind that the derivatives markets are critical to the operation of many American businesses and therefore to main street Americans.

I commend the staff for their diligence and thoughtfulness in analyzing the difficult issues presented in this proposal.  I’d like to thank, from the Division of Trading and Markets, Brian Bussey, Carol McGee, Richard Gabbert and Margaret Rubin and from the Division of Economic and Risk Analysis, Hari Phatak and Charles Lin.  I’d also like to welcome new Trading and Markets Deputy Director, Gary Barnett, to the SEC, and I imagine Gary can uniquely appreciate the deliberateness and thoughtfulness of today’s proposals.    

I look forward to reviewing the comments on today’s proposal.  In particular, I am keenly interested in how this proposal could impact U.S. competitiveness in the global marketplace.  Today, with the rapid growth of emerging markets eclipsed only by the growth of rulebooks in the U.S. and E.U., there is a real threat that the U.S. capital markets will become unattractive to global market participants, and that our market participants may look to more efficient foreign markets to conduct their business.  We must keep this is mind as we promulgate all rules, and I hope and expect that the Commission will take seriously comments relating to the costs and burdens of today’s proposed rules.[1]  Doing so is necessary in order to implement smart, rational regulation. 

And, as I have said many times before, in the derivatives markets and elsewhere we should be pursuing a vibrant substituted compliance regime.  The rules the Commission adopted in 2014 allow for it, and we must give those provisions meaning by acknowledging that as to any given financial product or activity, there will be high quality foreign regulatory regimes.  We must not allow deference to such foreign regimes and the corresponding reliance on our regime by foreigners to be subverted by bureaucratic posturing. 

Again, I sincerely appreciate the hard work that the staff put into today’s proposed rules.  I support today’s recommendation and I have no questions. 



[1]      See Commissioner Daniel M. Gallagher, Statement on the Aggregate Impact of Financial Services Regulations and Accompanying Chart (Mar. 2, 2015) available at http://www.sec.gov/news/statement/aggregate-impact-of-financial-services-regulation.html.

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