For nearly two years, swap market participants have wanted to know how the Commodity Futures Trading Commission (CFTC) would interpret the extraterritorial reach of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The CFTC recently provided a partial answer to this question, through Proposed Guidance on the cross-border application of some Dodd-Frank swap provisions and a Proposed Order that would delay some Dodd-Frank regulation of swap dealers (SDs) and major swap participants.1 The CFTC’s actions leave many questions unanswered, however, even as compliance with many core Dodd-Frank swap rules is ostensibly set to begin this fall.2 Given that short time frame, we wanted to provide our clients and friends with the key points from the Proposed Guidance and Proposed Order. Note that the CFTC has asked for public comments on the Proposed Guidance by August 27, 2012, and on the Proposed Order by August 13, 2012.

Proposed Cross-Border Application of Swap Rules

Congress provided that Dodd-Frank “shall not apply to activities outside the United States unless those activities — (1) have a direct and significant connection with activities in, or effect on, commerce of the United States.”3 The CFTC interprets this language very broadly, guided by what one commissioner calls the “‘Intergalactic Commerce Clause’ of the United States Constitution.”