Gestión de los riesgos

On August 19, 2013, footnote 563 of the July 2013 Guidance was relied upon by ISDA to become a clear instruction to its members on how to deguarantee presently guaranteed foreign subsidiaries of U.S. bank holding company swap dealers to avoid Dodd-Frank’s swaps rules.417 _{In fact, after} ISDA’s August 2013 instruction, according to one leading expert, “the [four] biggest U.S. banks [had] changed ‘hundreds of thousands’ of such swaps contracts” to provide for this deguarantee.418

The centerpiece of implementing this “loophole” can be found by referencing the original copyrighted, boilerplate of ISDA swaps contract documentation produced for its member swaps dealers. That boilerplate is referred to in detail above.419 _{Since 1992, when a ISDA swaps customer} 415 _{Interpretive Guidance and Policy Statement Regarding Compliance}

With Certain Swap Regulations, 78 Fed. Reg. 45,292, 45,355 n.563 (July 26, 2013). See supra note 352, explaining that for the deguarantee loophole to be perfected, the deguaranteed foreign bank subsidiary must be trading with a non-U.S. person counterparty. It is explained therein the ease with which a “U.S. person” counterparty can itself through its own intra-corporate maneuvering, deguarantee (or create a deguaranteed) foreign subsidiary to convert itself to a “non-U.S. person,” thereby taking the swaps trade out of Dodd-Frank as the deguarantee loophole law is now conceived by the CFTC.

416_{See Levinson, supra note 360.} 417 _Id.

418_Id.

419 _{See supra notes 107–113 and accompanying text; Master Agreement,}

contemplated executing a swap with a subsidiary of a parent U.S. bank holding company, it was commonplace for the parent to guarantee that subsidiary within the ISDA standardized and copyrighted “credit support annex.”420

A key change to the ISDA documentation came on August 19, 2013, about a month after the CFTC July 2013 Guidance was finalized. At that time, unbeknownst to the CFTC, ISDA published, and made available to its swaps dealer membership, a standardized “Cross-border Swaps Representation Letter” (the “ISDA Cross-Border Letter”).421 The ISDA Cross-Border Letter relies on ISDA’s interpretation of footnote 563 as having sanctioned the deguaranteeing of foreign subsidiaries by a simple pre- written standardized declaration.422 _{In the prior twenty-one} years that ISDA provided these copyrighted boilerplate documents to its members, it had never before contemplated form language deguaranteeing a U.S. swaps dealer’s foreign subsidiary.

Lest there be any confusion regarding the intent of the ISDA Cross-Border Letter, the preamble language on its first page reads:

copyright 1992), https://www.sec.gov/Archives/edgar/data/1332815/00011 9312509105708/dex1024.htm.

420 _{INT’LSWAPS AND DERIVATIVES ASS’N, CREDIT SUPPORT ANNEX (1994).}

See, e.g., INT’LSWAPS AND DERIVATIVES ASS’N, 2011 BEST PRACTICES FOR THE OTC DERIVATIVES COLLATERAL PROCESS 6 (2011); Christian Johnson,

Rehypothecation Risk, GLOBAL CAPITAL (Apr. 16, 2001); Christian Johnson, Seven Deadly Sins of ISDA Negotiations, GLOBAL CAPITAL (Mar. 25, 2002); Denis M. Forster, Standard Swaps Agreements Don’t Insulate

Users from Risk, AM. BANKER (June 13, 1994), https://www.american banker.com/news/standard-swaps-agreements-dont-insulate-users-from- risk.

421 _{Cross-Border Swaps Representation Letter, INT’L SWAPS AND}

DERIVATIVES ASS’N, (Aug. 19, 2013), http://www2.isda.org/attachment/ NTgyNA==/Cross_Border_Rep_Letter_Final.doc.

On July 26, 2013, the CFTC published an “Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations” providing guidance as to when the CFTC will assert jurisdiction over swap transactions that have a non-U.S. element. This representation letter allows market participants to provide counter- parties with status representations needed to determine whether compliance with various CFTC swap regulations is required by the Interpretive Guidance. The repres- entations in this letter are solely for the purposes of making such determinations.423

ISDA then reduced the process of deguaranteeing foreign subsidiaries to a box-checking exercise, i.e., where a party would literally put a checkmark in a box next to the question titled “II (B) Guarantee Representations”:

No U.S. Person Guarantees[:]

We hereby represent to you as of each time we enter into a Swap Transaction with you that, unless we have notified you to the contrary in a timely manner in writing prior to entering into such Swap Transaction, our obligations to you in connection with the relevant Swap are not, supported by any Guarantee (of which we are aware) other than any Guarantee provided by a person who 423_Id.

we reasonably believe does not fall within any of the U.S. Person Categories and who we believe in good faith would not otherwise be deemed a “U.S. person” under the Interpretive Guidance.424

The ease with which the four big U.S. bank holding company swaps dealers could now reverse over two decades of past practice of guaranteeing subsidiaries to a new deguarantee contextualizes the flight of swaps trading from U.S. markets. It has been reported, for example, that the movement of the U.S. swaps market abroad is as high as 95% within certain kinds of swaps trading volume.425 _The problem, however, is that, in escaping Dodd-Frank’s swaps rules by trading through newly deguaranteed foreign subsidiaries, the systemic risk to the U.S. economy slingshots back to the U.S. bank holding company lender of last resort: the U.S. taxpayer.

C. Deguaranteeing Does Not Eliminate Systemic