The U.S. Commodity Futures Trading Commission (CFTC) on Tuesday adopted a rule implementing a cross-border approach to the CFTC’s margin requirements for uncleared swaps.

The final rule would allow swaps dealers to comply with comparable margin requirements in a foreign jurisdiction as an alternative to complying with the CFTC’s margin rule for uncleared swaps, provided that the CFTC determines that the foreign requirements are comparable.

“The approach we have finalized today helps ensure the safety and soundness of registered swap dealers, and reduces the potential for conflict with the rules of other international regulators,” says Timothy Massad CFTC chairman, in a statement announcing the final rule.

The final rule passed in a split vote, with commissioner Christopher Giancarlo dissenting. In a statement, Giancarlo criticized the final rule adopted by the CFTC as impractical.

Says Giancarol: “Today, instead of recognizing and building upon the strong foundation for mutual recognition of foreign regulatory regimes created by the G-20 commitments and the BCBS-IOSCO framework, as well as the CFTC’s own history of using a principles-based, holistic approach to comparability determinations, the commission is adopting a set of preconditions to substituted compliance that is overly complex, unduly narrow and operationally impractical.”

However, Massad says that the rule is consistent with its cross-border approach in other areas, which aims to protect U.S. markets against the risks posed by cross-border swaps trades.

“We have provided for a broad scope of substituted compliance. Not only will non-U.S. swap dealers be eligible for substituted compliance, so will U.S. swap dealers with respect to the margin they post to non-U.S. persons. This approach is an appropriate response to the complex world created by the swap industry, where global swap dealers can book a swap in a variety of ways,” Massad says. “Our approach is intended to protect our markets against risk coming from these cross-border transactions, while taking into account the interests of other regulators.”

The final rule also establishes a process for requesting comparability determinations, including eligibility and submission requirements, as well as the standard of review the CFTC will apply in assessing the comparability of a foreign jurisdiction’s margin requirements.

“Our approach will look at the elements of each jurisdiction’s rule set with an eye towards a flexible, outcome-based determination,” Massad adds. With the new rule slated to take effect on Sept. 1, Massad said that he has asked CFTC staff to “work closely with other domestic and international regulators, as well as industry participants, and endeavor to effect a smooth transition.”