The CFTC approved, by a two-to-one vote, a comparability determination that will allow substituted compliance with Japan's margin requirements for uncleared swaps.
In a statement at the open meeting, CFTC Chair Timothy Massad voiced his support for the margin comparability determination for Japan, notwithstanding certain differences between that country's practices and those of the United States. He noted that "our laws and the laws of other jurisdictions will never be identical."
Though voting to permit substituted compliance for Japan, Commissioner J Christopher Giancarlo noted that the rule could be problematic:
[T]his rule's subjectivity and complexity will continue to be a source of regulatory uncertainty at the expense of U.S. financial firms, their employees and the American businesses they serve. In this instance, the [CFTC] has appropriately recognized that certain differences between the U.S. margin regime and Japan's margin regime achieve comparable outcomes. Wrong approach; right outcome. I therefore vote in favor of the determination.
CFTC Commissioner Sharon Y. Bowen dissented on the margin comparability determination. She argued that it will "introduce greater risk into the derivatives markets," particularly in the case of certain bankruptcy scenarios. Commissioner Bowen recommended that the CFTC "provide a partial comparability determination. . . . American businesses could follow the Japanese margin rule except in [certain areas]... where they would have to follow the [American] rule."
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