CFTC-SEC Harmonization

Summary

SIFMA and The International Swaps and Derivatives Association, Inc. (ISDA) provided comments to the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) recommending advancing harmonization between the CFTC and SEC regulatory frameworks for derivatives. They strongly support the agencies' recent efforts, including the Memorandum of Understanding, and believe this initiative presents an important opportunity to reduce unnecessary operational complexity, minimize compliance costs, and enhance market efficiencies, without compromising regulatory oversight.

Excerpt

We applaud the agencies' initial step towards harmonization through the signing of a Memorandum of Understanding ("MOU") in March of this year. The MOU not only represents a significant advancement in the agencies' collaborative efforts to streamline regulatory oversight, but it also establishes a formal framework for information sharing, joint initiatives, and coordinated rulemaking between the two agencies. By committing to greater cooperation and transparency, the MOU serves as a structural mechanism for continued progress in addressing longstanding challenges faced by market participants who must navigate overlapping or inconsistent regulatory requirements. The Associations have long supported greater alignment between the CFTC and SEC and have consistently emphasized that harmonization would reduce unnecessary operational complexity, minimize compliance costs, and enhance market efficiencies, without compromising regulatory oversight.

While the U.S. regulatory framework distinguishes between SEC-regulated security-based swaps ("SBS") and CFTC-regulated swaps, these instruments are classified under the same regulatory framework in other jurisdictions. A consistent regulatory approach in the U.S. is warranted because swaps and SBS behave functionally in the same manner, have similar risk profiles, are often used by market participants for the same economic purpose, are largely priced alike, and are typically offered by the same trader at the same dealer institutions. ¹ When different rules apply to similar instruments, it requires market participants to build two separate compliance programs, infrastructures, and workflows, increasing the cost and complexity of compliance, without any commensurate regulatory benefit. Harmonizing rulesets across the two agencies would not only reduce unnecessary costs but also enhance market efficiency and regulatory clarity.

Set out below are the Associations' recommendations in three priority areas where harmonization is critical: (1) reporting obligations; (2) cross-border regulation; and (3) cross-product margining arrangements. We have also included a non-exclusive list of other areas where greater alignment between the CFTC and SEC is needed in the Appendix.