Middle Ground on Cross-Border Swaps Rule Sought by SEC’s Walter

U.S. regulators should apply domestic derivatives rules to overseas firms when foreign laws don’t demand comparable requirements, Securities and Exchange Commission Chairman Elisse B. Walter said in a speech today.

That approach to oversight required by the Dodd-Frank Act would be an alternative to finding overseas rules are “broadly equivalent” in a way that might ignore regulatory gaps between countries, Walter said in a speech prepared for an Australian Securities and Investments Commission conference in Sydney.

The comments by Walter come as the SEC is preparing to issue a proposal for outlining cross-border application of its rules for security-based swaps. Overseas regulators have pressed the Commodity Futures Trading Commission to curb the reach of its requirement that trades be guaranteed at clearinghouses and traded on exchanges or other platforms.

“The domestic regulator would continue to have the ability to apply certain key policy requirements of local law when foreign law does not impose comparable requirements or provide comparable protections,” Walter said.

Her call for substituted compliance was a “middle ground” between Europe’s call for equivalence and the most strict approach requiring U.S. and overseas regulations to align perfectly, Walter said.

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