Jurisdictional Boundaries Between CFTC Swaps And SEC Security-Based Swaps Clarified

On September 19, 2023, the jurisdictional boundaries between the regulation of swaps by the Commodity Futures Trading Commission (the "CFTC") and the regulation of security-based swaps ("SBSs") by the Securities and Exchange Commission (the "SEC") were clarified for the first time in a decision by the United States District Court for the Southern District of New York (the "SDNY").

In CFTC v. Archegos Capital Management LP, the SDNY held that the CFTC does not have jurisdiction over either (a) total return swaps ("TRSs") based on exchange-traded funds ("ETFs") or (b) custom baskets of securities that can be rebalanced on a discretionary basis. We discussed the grey area of swap and SBS regulation between the CFTC and the SEC in prior coverage last year. This holding eliminated some of this grey area when it confirmed the SEC's assertion that such TRSs qualify as SBSs that fall within the SEC's exclusive jurisdiction.