US and Japanese Authorities to Cross-Monitor Derivatives Trading

The operations of derivatives trading venues will be mutually facilitated by the CFTC and JFSA

The US Commodity Futures Trading Commission (CFTC) and the Japan Financial Services Agency (JFSA) issued a joint statement focusing on cross-monitoring of derivatives trading venues. The news comes as a welcome initiative for the industry, which is already subject to a slew of regulatory oversight.

The announcement focuses on the comparability of certain derivatives trading venues in the US and Japan. The CFTC today announced the issuance of an order exempting certain derivatives trading facilities which are already regulated by the JFSA from the requirement to register as a Swap Execution Facility (SEF) in the US.

At the same time, the JFSA also announced that it aims to facilitate the authorization process its has for Authorized Electronic Over-the-Counter Derivatives Transactions for CFTC-authorized firms.

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Commenting on the news, the JFSA’s Commissioner Toshihide Endo stated, that the Japanese regulator intents to facilitate the authorization process of Foreign ETP Operators. The reasoning behind the move is that the requesting platforms are subject to a comparable regulation and supervision under the CFTCs rules.

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“Last month, G20 Leaders declared in Osaka that they welcomed the work on market fragmentation, and would address its unintended, negative effects, including through regulatory and supervisory cooperation. We will continue to strengthen our regulatory and supervisory cooperation with overseas authorities,” Endo elaborated.

CFTC Exemption Powers

The CFTC is allowed to grant exemptions from the SEF registration rules when the firm is already subjected to comparable regulatory supervision by the SEC or the relevant governmental authorities in the home country of the facility.

ETPs using the exemption can be used by swap counterparties to comply with the trade execution requirement under the US Commodities Exchange Act. Before the announcement, the CFTC already made similar arrangements with certain European Union and Singapore-based derivatives platforms.

Commenting on the matter, CFTC Chairman J. Christopher Giancarlo stated, “The order issued today follows an outcomes-based approach, meaning the regulatory framework evaluated was found to achieve comparable regulatory outcomes.”

“Deference arrangements like these not only support the cross-border activities of participants in the financial markets, but also help avoid market fragmentation, protectionism, and regulatory arbitrage. The global nature of today’s markets requires that regulators work cooperatively across borders to promote growth and innovation while supporting financial stability,” Giancarlo elaborated.

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