Staff Interpretation allows Japanese nonbank swap dealers subject to the Japanese Comparability Order to file with the CFTC and the NFA certain enumerated schedules (the ""In Scope Schedules"") of the Annual Report to...

Summary: Staff Interpretation allows Japanese nonbank swap dealers subject to the Japanese Comparability Order to file with the CFTC and the NFA certain enumerated schedules (the ""In Scope Schedules"") of the Annual Report to comply with condition 9 of the order. Japanese nonbank swap dealers may, but are not required to, submit the Annual Report in its entirety to comply with condition 9.

U.S. COMMODITY FUTURES TRADING COMMISSION

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CFTC Letter No. 25-06 Interpretative March 20, 2025

Three Lafayette Centre

1155 21 st Street, NW, Washington, DC 2058

Telephone: (202) 418 - 5000

www.cftc.gov

1

Market Participants

Thomas J. Smith

Division

Acting Director

Re:

Staff Interpretation Regarding Financial Reporting Requirements for Nonbank

Swap Dealers Subject to Regulation by the Financial Services Agency of Japan

The Market Participants Division (“Division”) of the Commodity Futures Trading

Commission (“Commission” or “CFTC”) is issuing this interpretation to clarify certain financial

reporting requirements in Commission regulation 23.105(e)1 that are applicable to nonbank swap

dealers organized and domiciled in Japan that are registered with the Financial Services Agency of

Japan (“FSA”) as Type I Financial Instruments Business Operators (“Japanese nonbank SDs”).2

Specifically, this interpretation clarifies the Division’s views that Japanese nonbank SDs

that have been granted conditional substituted compliance pursuant to the Japanese Comparability

Order (as defined below) may satisfy one of the financial repo

are registered with the Financial Services Agency of

Japan (“FSA”) as Type I Financial Instruments Business Operators (“Japanese nonbank SDs”).2

Specifically, this interpretation clarifies the Division’s views that Japanese nonbank SDs

that have been granted conditional substituted compliance pursuant to the Japanese Comparability

Order (as defined below) may satisfy one of the financial reporting conditions listed therein by

filing with the Commission and the National Futures Association (“NFA”) certain enumerated

schedules contained in the annual business report that Japanese nonbank SDs are required to submit

to the FSA pursuant to Article 46-3(1) of the Japanese Financial Instruments and Exchange Act

and Article 172 of the related Cabinet Office Order on Financial Instruments Business (“Annual

Business Report”). Japanese nonbank SDs may, but are not required to, file the Annual Business

Report in its entirety to satisfy the relevant financial reporting condition set forth in the Japanese

Comparability Order.

Regulatory Background

On July 22, 2020, pursuant to Section 4s(e) and 4s(f) of the Commodity Exchange Act

(“CEA”),3 the Commission adopted comprehensive capital and financial reporting requirements

applicable to, among other entities, swap dealers that are not subject to regulation by a prudential

1 The Commission’s regulations may be found at 17 CFR Chapter I, and are also available through the

Commission’s website, www.cftc.gov.

2 There are three Japanese nonbank SDs currently registered with the Commission: BofA Securities Japan Co., Ltd.;

Goldman Sachs Japan Co., Ltd.; and Morgan Stanley MUFG Securities Co., Ltd.

3 U.S.C. 6s(e) and 6s(f).

not subject to regulation by a prudential

1 The Commission’s regulations may be found at 17 CFR Chapter I, and are also available through the

Commission’s website, www.cftc.gov.

2 There are three Japanese nonbank SDs currently registered with the Commission: BofA Securities Japan Co., Ltd.;

Goldman Sachs Japan Co., Ltd.; and Morgan Stanley MUFG Securities Co., Ltd.

3 U.S.C. 6s(e) and 6s(f).

RE: Financial Reporting Requirements for Nonbank Swap Dealers Subject to Regulation by the

Financial Services Agency of Japan

Page 2

regulator (“nonbank SDs”).4 Recognizing that approximately one-half of the nonbank SDs were

organized and domiciled in foreign jurisdictions with potentially duplicative or inconsistent

requirements, the Commission also established, in Commission regulation 23.106, a substituted

compliance framework whereby the Commission may determine that compliance by a non-U.S

vices Agency of Japan

Page 2

regulator (“nonbank SDs”).4 Recognizing that approximately one-half of the nonbank SDs were

organized and domiciled in foreign jurisdictions with potentially duplicative or inconsistent

requirements, the Commission also established, in Commission regulation 23.106, a substituted

compliance framework whereby the Commission may determine that compliance by a non-U.S.

domiciled nonbank SD with its home country’s capital and financial reporting requirements will

satisfy all or parts of the CFTC’s capital and financial reporting requirements, provided the

Commission finds such requirements comparable to the CFTC’s (such a determination referred to

as a “Comparability Determination”).5 A person requesting a Comparability Determination is

required to submit an application to the Commission describing certain elements of the applicable

foreign regulatory regime.6 Commission regulation 23.106 further provides that the Commission

may impose any terms or conditions that it deems appropriate in issuing a Comparability

Determination. The Commission would issue a Comparability Determination in the form of an

order (“Comparability Order”).

On July 18, 2024, the Commission issued a Comparability Determination and related

Comparability Order granting substituted compliance in connection with the CFTC’s capital and

financial reporting requirements to certain CFTC-registered nonbank SDs organized and domiciled

in Japan, subject to certain conditions set forth in the order (the “Japanese Comparability Order”).7

One of the conditions contained in the Japanese Comparability Order, condition 9, requires

each Japanese nonbank SD to file a copy of its Annual Business Report with the Commission and

the NFA.8 The Commission based this requirement on an understanding that information included

4 See Capital Requirements of Swap Dealers and Major Swap Participants Final Rule, 85 FR 57462 (Sept. 15, 2020)

r”).7

One of the conditions contained in the Japanese Comparability Order, condition 9, requires

each Japanese nonbank SD to file a copy of its Annual Business Report with the Commission and

the NFA.8 The Commission based this requirement on an understanding that information included

4 See Capital Requirements of Swap Dealers and Major Swap Participants Final Rule, 85 FR 57462 (Sept. 15, 2020).

The term “prudential regulator” is defined by section 1a(39) of the CEA to mean the Board of Governors of the Federal

Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Farm

Credit Administration, and the Federal Housing Finance Agency. 7 U.S.C. 1a(39).

5 Pursuant to Commission regulation 23.106(a)(1), a non-U.S. nonbank SD, a trade association or other similar group

acting on behalf of its SD members, or a foreign regulatory authority that has direct supervisory authority over one or

more non-U.S. nonbank SDs, may submit to the Commission an application for a Comparability Determination.

6 Specifically, the application must contain: (i) a description of the objectives of the relevant foreign jurisdiction’s

capital adequacy and financial reporting requirements over nonbank SDs that are subject to the Commission’s capital

adequacy and financial reporting requirements; (ii) a description (including specific legal and regulatory provisions)

of how the relevant foreign jurisdiction’s capital adequacy and financial reporting requirements address the elements

of the Commission’s capital adequacy and financial reporting requirements for nonbank SDs, including, at a minimum,

the methodologies for establishing and calculating capital adequacy requirements; and (iii) a description of the ability

of the relevant foreign regulatory authority or authorities to supervise and enforce compliance with the relevant foreign

jurisdiction’s capital adequacy and financial reporting requirements. 17 CFR 23.106(a)(2)(i) – (iii)

equirements for nonbank SDs, including, at a minimum,

the methodologies for establishing and calculating capital adequacy requirements; and (iii) a description of the ability

of the relevant foreign regulatory authority or authorities to supervise and enforce compliance with the relevant foreign

jurisdiction’s capital adequacy and financial reporting requirements. 17 CFR 23.106(a)(2)(i) – (iii).

7 Order Granting Conditional Substituted Compliance in Connection With Certain Capital and Financial Reporting

Requirements Applicable to Nonbank Swap Dealers Subject to Regulation by the Financial Services Agency of Japan,

89 FR 58470 (July 18, 2024) (the “Japanese Comparability Order”). The Japanese Comparability Order contains 23

conditions.

8 Id. at 58492. Condition 9 of the Japanese Comparability Order requires Japanese nonbank SDs to file with the

Commission and with NFA “a copy of its Annual Business Report that is required to be filed with the Financial

Services Agency in accordance with Article 46–3(1) of the Financial Instruments and Exchange Act and Article 172

of the Cabinet Office Order on Financial Instruments Business. The Annual Business Report must be translated into

the English language and balances must be converted to U.S. dollars, using a commercially reasonable and observable

yen/U.S. dollar spot rate as of the date of the report. The Annual Business Report must be filed with the Commission

and NFA within 15 business days of the earlier of the date the Annual Business Report is filed with the Financial

he Annual Business Report must be translated into

the English language and balances must be converted to U.S. dollars, using a commercially reasonable and observable

yen/U.S. dollar spot rate as of the date of the report. The Annual Business Report must be filed with the Commission

and NFA within 15 business days of the earlier of the date the Annual Business Report is filed with the Financial

RE: Financial Reporting Requirements for Nonbank Swap Dealers Subject to Regulation by the

Financial Services Agency of Japan

Page 3

in the Annual Business Report is comparable to the information required under Commission

regulation 23.105(e). Specifically, the Commission noted that the Annual Business Report is

comparable to the annual audited financial report that each nonbank SD is required to file with the

Commission under Commission regulation 23.105(e) in that both reports include statements of

financial condition, statements of income or loss, statements demonstrating the SD’s capital levels

and compliance with applicable capital requirements, statements of changes in ownership equity,

and statements of subordinated debt (collectively, the “In Scope Statements”).9

In December 2024, the Securities Industry and Financial Markets Association (“SIFMA”),

provided the Division with translations of the table of contents and the templates of the Annual

Business Report prepared by the FSA

and compliance with applicable capital requirements, statements of changes in ownership equity,

and statements of subordinated debt (collectively, the “In Scope Statements”).9

In December 2024, the Securities Industry and Financial Markets Association (“SIFMA”),

provided the Division with translations of the table of contents and the templates of the Annual

Business Report prepared by the FSA. In March 2025, SIFMA submitted a request that Japanese

nonbank SDs be permitted to file with the Commission and NFA certain enumerated schedules of

the Annual Business Report to comply with condition 9 of the Japanese Comparability Order.10 In

support, SIFMA states that the Annual Business Report is a wide ranging and lengthy compendium

of dozens of reports, comprised of tens of thousands of fields of data and narrative, covering the

entirety of a financial organization, well beyond the areas typically required for nonbank SD

financial reporting specified in Commission regulation 23.105(e).11 SIFMA further notes that

many of the schedules contained within the Annual Business Report are unrelated to the Japanese

nonbank SD’s swap dealing activity and/or do not provide information on the Japanese nonbank

SD’s financial condition. SIFMA argues that requiring Japanese nonbank SDs to translate and file

these additional 100 pages or more of schedules and narrative would create a burden for the firms

without contributing to achieving the Commission’s regulatory objectives.12

Staff Interpretation

The Division is issuing this interpretation in response to a request submitted by SIFMA13

regarding condition 9 of the Japanese Comparability Order, which, as noted above, requires each

Japanese nonbank SD to file a copy of its Annual Business Report with the Commission and the

NFA

for the firms

without contributing to achieving the Commission’s regulatory objectives.12

Staff Interpretation

The Division is issuing this interpretation in response to a request submitted by SIFMA13

regarding condition 9 of the Japanese Comparability Order, which, as noted above, requires each

Japanese nonbank SD to file a copy of its Annual Business Report with the Commission and the

NFA.

The requirement for Japanese nonbank SDs to submit an Annual Business Report was

designed to provide the Commission with the information necessary to monitor each Japanese

nonbank SD’s financial condition and compliance with capital requirements, and to assess the

overall safety and soundness of the Japanese nonbank SDs. The Commission, however, did not

intend to request information that is extraneous to these regulatory objectives or information that

otherwise exceeds the purpose and scope of Commission regulation 23.105.

Services Agency or the date that the Annual Business Report is required to be filed with the Financial Services

Agency.” Id. at 58500-01.

9 Id. at 58492.

10 Letter by Kyle Brandon, Managing Director, Head of Derivatives Policy, SIFMA, dated March 20, 2025 (“SIFMA

Letter”).

11 SIFMA Letter at 2.

12 Id.

13 SIFMA Letter.

RE: Financial Reporting Requirements for Nonbank Swap Dealers Subject to Regulation by the

Financial Services Agency of Japan

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As noted above, the requirement was based on a finding that information included in the

RE: Financial Reporting Requirements for Nonbank Swap Dealers Subject to Regulation by the

Financial Services Agency of Japan

Page 4

As noted above, the requirement was based on a finding that information included in the

Annual Business Report would be comparable to the information required under Commission

regulation 23.105(e). Specifically, in requesting a copy of each Japanese nonbank SD’s Annual

Business Report, the Commission expected that each report would contain the In Scope Statements,

as well as information providing background related to the In Scope Statements and the Japanese

nonbank SD’s swap dealing operations (collectively, the “In Scope Information”).14

After reviewing translations of the table of contents and the templates of the Annual

Business Report, the Division understands that the Annual Business Report contains extraneous

information,15 and that the In Scope Information is limited to certain schedules of the report. The

Division, therefore, clarifies that, to comply with condition 9 of the Japanese Comparability Order,

Japanese nonbank SDs must file with the Commission and the NFA the following schedules

contained within the Annual Business Report (collectively, the “In Scope Schedules”):

i. Status of the Business:

1. Schedule (5) Outline of the business for the current period;

2. Schedule (11) Status of capital adequacy ratio;

3. Schedule (12) Status of the separate management of customer assets,

including (12-2) Status of the separate management pertaining to subject

commodity derivatives transaction-related transactions;

4

Report (collectively, the “In Scope Schedules”):

i. Status of the Business:

1. Schedule (5) Outline of the business for the current period;

2. Schedule (11) Status of capital adequacy ratio;

3. Schedule (12) Status of the separate management of customer assets,

including (12-2) Status of the separate management pertaining to subject

commodity derivatives transaction-related transactions;

4. Schedule (13) Status of separate management (excluding separate

management pertaining to electronically recorded transferable rights that

must be indicated on securities, etc.), including (13-2) Status of separate

management (limited to separate management pertaining to Electronically

Recorded Transferable Rights that must be indicated on securities, etc.);

5. Schedule (17) Status of market derivatives transactions and foreign market

derivatives transactions unrelated to securities; and

ii. Financial Information (Form A)

14 The Commission expressed its intent for Japanese nonbank SDs to file with the Commission financial information

comparable to the information required under Commission regulation 23.105. In this regard, the Commission

modified final condition 8 of the Japanese Comparability Order to require a Japanese nonbank SD to file specified

financial schedules from its Monthly Monitoring Report that were comparable to the financial schedules required

under Commission regulation 23.105(d) in lieu of the full Monthly Monitoring Report that is required to be filed with

the FSA pursuant to Article 56– 2(1) of the Japanese Financial Instruments and Exchange Act. Specifically, final

condition 8 requires a Japanese nonbank SD to file a copy of only forms 1-1 Capital Ratio Summary, 1-2 Capital

Ratio: Deductible Assets, 1–3 Market Risk, 1–4 Counterparty Risk, 2–1 Monthly Financial Statement (1), and 2–2

Monthly Financial Statement (2) of its Monthly Monitoring Report

e FSA pursuant to Article 56– 2(1) of the Japanese Financial Instruments and Exchange Act. Specifically, final

condition 8 requires a Japanese nonbank SD to file a copy of only forms 1-1 Capital Ratio Summary, 1-2 Capital

Ratio: Deductible Assets, 1–3 Market Risk, 1–4 Counterparty Risk, 2–1 Monthly Financial Statement (1), and 2–2

Monthly Financial Statement (2) of its Monthly Monitoring Report. This modification was adopted to align the

Japanese nonbank SD’s financial reporting requirements more closely to Commission regulation 23.105(d). 89 FR

58492, 58501.

15 After reviewing translations of the Annual Business Report, the Division confirmed that certain information

contained in the Annual Business Report does not relate to swap dealing activity, including asset management business

status reports.

RE: Financial Reporting Requirements for Nonbank Swap Dealers Subject to Regulation by the

Financial Services Agency of Japan

Page 5

Each Japanese nonbank SD may, but is not required to, file its Annual Business Report in

its entirety to comply with condition 9 of the Japanese Comparability Order.

The Division believes that the information contained in the In Scope Schedules will provide

the Commission with the information necessary to monitor a Japanese nonbank SD’s financial

condition and compliance with capital requirements, and to assess the overall safety and soundness

of the Japanese nonbank SD, without requesting information that is extraneous to the

Commission’s regulatory objectives.

The Division, therefore, considers that providing the In Scope Schedules would satisfy

condition 9 of the Japanese Comparability Order

onitor a Japanese nonbank SD’s financial

condition and compliance with capital requirements, and to assess the overall safety and soundness

of the Japanese nonbank SD, without requesting information that is extraneous to the

Commission’s regulatory objectives.

The Division, therefore, considers that providing the In Scope Schedules would satisfy

condition 9 of the Japanese Comparability Order. For full clarity, per condition 9 of the Japanese

Comparability Order, the In Scope Schedules must be: (i) translated into the English language and

balances must be converted to U.S. dollars, using a commercially reasonable and observable

yen/U.S. dollar spot rate as of the date of the report and (ii) filed with the Commission and NFA

within 15 business days of the earlier of the date the Annual Business Report is filed with the FSA

or the date that the Annual Business Report is required to be filed with the FSA. The Division’s

position continues to remain subject to all other conditions outlined in the Japanese Comparability

Order in their entirety.

This interpretation represents the views of the Division only and does not necessarily

represent the views of the Commission or those of any other division or office of the Commission.

Questions regarding this interpretation may be directed to Liliya Bozhanova, Associate Director,

at lbozhanova@cftc.gov or Christine McKeveny, Attorney Advisor, at cmckeveny@cftc.gov.

Sincerely,

Thomas J. Smith

Acting Director