OPINION
In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), Pub.L. No. 111-203, 124 Stat. 1376, as a legislative response to the 2008 financial crisis. Title VII of the Dodd-Frank Act provided the United States Commodity Futures Trading Commission (“CFTC”) with jurisdiction over the previously unregulated derivative swaps market. Congress provided that the provisions of Title. VII, as well as any rules or regulations issued by the CFTC, “shall not apply to activities outside the United States unless those activities ... have a direct and significant connection with activities in, or effect on, commerce of the United States.” 7 U.S.C. § 2(i). Over the next three years, the CFTC promulgated over a dozen regulations under its Title VII authority, but did not address in those regulations the scope of their extraterritorial application under Section 2(i). On July 26, 2013, the CFTC promulgated its Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap ■ Regulations, 78 Fed.Reg. 45292 (July 26, 2013) (the “Cross-Border Action”), in which it announced its policy regarding the scope of the extraterritorial applications of its so-called “Title VII Rules” pursuant to Section 2(i).
On December 4, 2013, plaintiffs Securities Industry and Financial Markets Association (“SIFMA”), International Swaps and Derivatives Association (“ISDA”), and the Institute of International Bankers (“IIB”) — all trade associations representing financial institutions involved in swaps dealing and trading — filed this lawsuit against the CFTC. Plaintiffs seek vacatur of the Cross-Border Action on procedural and substantive grounds, partial vacatur of the Title VII Rules, and an injunction to prevent the CFTC from applying the Title VII Rules extraterritorially in the absence of a properly promulgated regulation ad
Now pending before the Court are the CFTC’s partial motion to dismiss and the parties’ cross-motions for summary judgment. Having considered the briefs and other filings of the parties and amici, the administrative record, the oral arguments presented by counsel for the parties on July 80, 2014, and the controlling law, the Court will: (1) grant the CFTC’s motion to dismiss as to the Trade Execution Rule; (2) grant the CFTC’s motion for summary judgment as to the Cross-Border Action and the Large Trader Reporting, Straight-Through Processing, and Clearing Determination Rules; (3) grant plaintiffs’ motion for summary judgment as to the other challenged Title VII Rules; and (4) remand those Rules to the CFTC for its consideration of the costs and benefits of their extraterritorial applications.
PART ONE: BACKGROUND
I. DERIVATIVE SWAPS MARKETS AND THE 2008 FINANCIAL CRISIS
The Commodity Exchange Act (“CEA”) regulates the trading of commodity futures, including derivatives. Derivatives are types of “contracts deriving their value from underlying assets.” Inv. Co. Inst. v. CFTC (“ICI ”),
The use of over-the-counter derivative swaps — swaps executed bilaterally rather than over an exchange — boomed in the 1980s and 1990s. This unprecedented growth prompted a debate over whether swaps should be regulated like other derivatives, such as futures contracts and stock options. See Inv. Co. Inst. v. CFTC,
The CFMA left the markets for most derivative swaps “essentially unregulated and unmonitored — effectively dark — in most respects,” and those markets flourished until the 2008 financial crisis. Inv. Co. Inst.,
Prior to the crisis, firms had used derivatives “to construct highly leveraged speculative positions, which generated enormous losses that threatened to bankrupt not only the firms themselves, but also their creditors and trading partners.” Rena S. Miller & Kathleen Ann Ruane, Cong. Research Serv, R41398, The Dodd-Franic Wall Street Reform and Consumer Protection Act: Title VII, Derivatives 1 (2012). That the over-the-counter derivative markets “depended on the financial stability of a dozen or so major dealers” only compounded the problem: “[fjailure of a dealer would have resulted in -the nullification of trillions of dollars’ worth of contracts and would have exposed derivatives counterparties to sudden risk and loss, exacerbating the cycle of delev-eraging and withholding of credit that characterized the [financial] crisis.” Id. Although derivative dealing “was not generally the direct source of financial weakness, a collapse of the $600 trillion dollar ... derivatives market was imminent absent” the injection of “[h]undreds of billions of dollars in government credit.” Id.
The over-the-counter derivative markets’ contributions to the 2008 financial crisis were not limited to swaps executed on U.S. soil between U.S. counterparties. As plaintiffs recognize, “[t]he swaps market is truly global: a single swap may be negotiated and executed between counter-parties located in two different countries, booked in a third country and risk-managed in a fourth country.” Comment from SIFMA on Swap Entity Registration Rule, Feb. 3, 2013, at 2 (footnote omitted) (Joint Appendix (“JA”) at 1144).
U.S.-based financial services conglomerates — like many of plaintiffs’ members— operate in global swaps markets not only as direct counterparties, but also through relationships with their foreign branches, affiliates, and subsidiaries. “The modern U.S. financial services conglomerate is a U.S. parent holding company comprised of hundreds, if not thousands, of U.S. and foreign branches, affiliates, and subsidiaries.” Declaration of Sayee Srinivasan, Chief Economist, CFTC (“Srinivasan Deck”), Mar. 14, 2014 [Dkt. No. 28-2] ¶ 5. These multinational firms operate “though complex legal and operational structures ... created and maintained to efficiently serve particular purposes as part [of] the firms’ overall profit-making business.” Id. ¶ 16. The firms’ operations through foreign subsidiaries and affiliates balance “legal, operational, tax, and accounting considerations and facilitate the [firms’] ability to serve clients in various markets around the world.” Id.
Although legally distinct from their affiliates and subsidiaries, the U.S.-parent firms “routinely commingle losses and gains from U.S. and non-U.S. affiliates, subsidiaries and branches on their consolidated financial statements.” Srinivasan Deck ¶ 5. As a result, “risks taken by foreign affiliates, subsidiaries, and branches of U.S. parent companies are usually borne by the U.S. parent.” Id.; see also, e.g., Declaration of Don Thompson, Managing Director & Associate General Counsel, JPMorgan Chase & Co. (“JPMorgan Deck”), Jan. 27, 2014 [Dkt. No. 22-1] ¶ 6 (“[C]osts incurred by JPMorgan’s affiliates and branches are ultimately borne by JPMorgan itself, because all are part of the same corporate group.”). Indeed, U.S. parent corporations often expressly “guarantee” the swap obligations of their foreign affiliates and subsidiaries through contracts. Srinivasan Deck ¶ 6; see also JPMorgan Deck ¶ 4. Under these “guarantee” provisions, -the U.S. parent must
Several poster children for the 2008 financial crisis demonstrate the impact that overseas over-the-counter derivative swaps trading can have on a U.S. parent corporation. American International Group (“AIG”) nearly failed because of risks incurred by the swaps trading operations in the London branch of its subsidiary, AIG Financial Products (“AIGFP”). Srinivasan Decl. ¶ 9. Significant losses on credit default swaps entered into by AIGFP, and “guaranteed” by AIG, triggered collateral calls the companies could not meet and a liquidity crisis for both companies. Id. Similarly, Lehman Brothers Holding Inc. — a corporation that had over 3000 corporate affiliates worldwide — guaranteed the nearly 130,000 derivative contracts held by one of its London-based subsidiaries. Id. ¶¶ 10-11. When Lehman Brothers filed for bankruptcy in September 2008 — at that time the largest bankruptcy in history with claims exceeding $300 billion — its derivative book, lost over $50 billion in value. Ml 11.
While Lehman Brothers’ collapse ended in bankruptcy, AIG avoided default through over $180 billion in support from the federal government. Srinivasan Decl. ¶ 9. Tens of billions of dollars of that bailout money flowed to AIG’s" derivative counterparties, Miller & Ruane at 5, including many of plaintiffs’ members. See Brief of Better Markets, Inc. as Amicus Curiae in Support of Defendant CFTC, Mar. 19, 2014 [Dkt. No. 33] at 2 n.3 (noting that Goldman Sachs, Deutsche Bank, So-ciété Générale, Barclays, Merrill Lynch, and Bank of America indirectly received approximately $10.4, 9.2, 7.8, 7.0, 5.0, and 5.0 billion in payments, respectively, through the AIG bailout).
Although the global notional value of over-the counter derivatives decreased following the 2008 financial crisis, that value has crept up in the past six years and now exceeds its pre-crisis total. Miller & Ruane at 2. As of the end of 2013, the global market for over-the-counter derivatives totals over $710 trillion in notional value. Bank for Int’l Settlements, Statistical Release: OTC Derivatives Statistics at End-December 2013, at 1 (May 2014), available at http://www.bis.org/publ/otc_hy 1405.pdf.
II. THE DODD-FRANK ACT
Congress responded to the 2008 financial crisis by passing the Dodd-Frank Act in 2010. Title VII of the Dodd-Frank Act gave the CFTC jurisdiction to regulate the markets for most swaps, see 7 U.S.C. § 2(a)(1)(A), and established a swaps regulatory framework intended to “reduce systemic risk ... increase transparency, and promote market integrity within the financial system.” Cross-Border Action, 78 Fed.Reg. at 45293. This framework requires entities qualifying as “swap dealers” and “major swap participants” to register with the CFTC and comply with certain statutory risk management controls. See 7 U.S.C. §§ 6s(a), 6s(g), 6s(j)(2), 6s(j)(5), 6s(k). Title VII also requires the “clearing” of certain swaps through a “derivative clearing organization” to reduce the risk that a counterparty fails to honor its swap obligations. See id. § la(15)(A). Finally, Title VII imposed a multitude of information reporting requirements on swap market participants. See, e.g., id. §§ 2(a)(13), 7b-3(f)(9). •
The provisions of this chapter relating to swaps that were enacted by the [Dodd-Frank Act] (including any rule prescribed or regulation promulgated under that Act), shall not apply to activities outside the United States unless those activities — (1) have a direct and significant connection with activities in, or effect on, commerce of the United States; or (2) contravene such rules or regulations as the [CFTC] may prescribe or promulgate as are necessary or appropriate to prevent the evasion of any provision of this chapter that was enacted by the [Dodd-Frank Act],
7 U.S.C. § 2(i). One of the questions posed in this case is the scope of this provision’s extraterritorial reach.
In furtherance of its swaps regulation framework, Congress in the Dodd-Frank Act also directed the CFTC to issue a large number of implementing regulations. See, e.g., 7 U.S.C. § 6s(d)(l) (“The [CFTC] shall adopt rules for persons that are registered as swap dealers or major swap participants under this section.”); id. § 6s(e)(2)(A) (providing that the CFTC and SEC “shall jointly adopt rules for swap dealers and major swap participants” relating to capital and margin requirements); id. § 6(f)(2) (“The [CFTC] shall adopt rules governing reporting and re-cordkeepking for swap dealers and major swap participants.”); id. § 6s(i)(2) (“The [CFTC] shall adopt rules governing documentation standards for swap dealers and major swap participants.”); id. § 7a-l(k)(2) (“The [CFTC] shall adopt data collection and maintenance requirements for swaps cleared by derivatives clearing organizations.”). In addition to the typical requirements of notice-and-comment rule-making, the Commodity Exchange Act requires the CFTC to “consider the costs and benefits of [its] action” when “promulgating a regulation” pursuant to its Title VII authority. Id. § 19(a)(i).
III. THE TITLE VII RULES
The CFTC has engaged in a significant series of rulemakings pursuant to its authority to regulate derivative swaps under Title VII of the Dodd-Frank Act. In this action, plaintiffs challenge fourteen of these rules (collectively, the “Title VII Rules”). The Title VII Rules can be grouped into five categories according to their purposes and functions.
First, the clearing rules require or promote clearing of certain swaps through central organizations to reduce the credit risk posed by bilateral swaps. Srinivasan Decl. ¶ 4(a). The Clearing Determination Rule requires swaps participants to clear certain swaps through central organizations that guarantee payments to all parties involved. See 77 Fed.Reg. 74284 (Dec. 13, 2012) (codified at 17 C.F.R. Part 50). The Straight-Through Processing Rule requires, inter alia, swap dealers and.clearing organizations to process swaps in ways that increase customer access to clearing, facilitate timely trading, and strengthen risk management. See 77 Fed.Reg. 21278 (April 9, 2012) (codified in scattered sections of 17 C.F.R.)
Second, the transparency and competition rules “promotfe] the use of competitive markets and regulated exchanges, rather than closed private deals, for swap transactions.” Srinivasan Decl. ¶ 4(b). The Real-Time Reporting Rule establishes a framework under which regulated entities must publicly report price and volume information for swap transactions in real-time. See 77 Fed.Reg. 1182 (Jan. 9, 2012)
Third, the registration and compliance rules define who must register with the CFTC and how they must do so. Sriniva-san Decl. ¶ 4(c). The Entity Definition Rule, jointly promulgated by the CFTC and the SEC, supplements key statutory definitions, including “swap dealer.” See 77 Fed.Reg. 30596 (May 23, 2012) (codified in scattered sections of 17 C.F.R.). Relat-edly, the Swap Entity Registration Rule sets the procedures for swap dealers and major swap participants to register with the CFTC. See 77 Fed.Reg. 2613 (Jan. 19, 2012) (codified at 17 C.F.R. §§ 23.21-22).
Fourth, the risk control rules “impos[e] requirements on swap dealers and other market participants to reduce risk and unlawful conduct and facilitate resolution of disputes.” Srinivasan Decl. ¶ 4(d). The Daily Trading Records Rule requires swap dealers and major swap participants to maintain daily trading records of all swap activities sufficient to permit after-the-fact reconstruction of the transactions. See 77 Fed.Reg. 20128, 20133 (Apr. 3, 2012) (codified at 17 C.F.R. § 23.202). The Risk Management Rule requires swap dealers and major swap participants to take measures to monitor and manage financial risks. See id. at 20205-11 (codified at 17 C.F.R. §§ 23.600-606). The Chief Compliance Officer Rule requires swap dealers and major swap participants to designate a corporate official responsible for monitoring compliance with the CEA. See id at 20200-01 (codified at 17 C.F.R. § 3.3). The Portfolio Reconciliation and Documentation Rule requires swap dealers and major swap participants to document swap terms and valuation, confirm this documentation after swap execution, and reconcile any discrepancies. See 77 Fed.Reg. 55904 (Sept. 11, 2012) (codified at 17 C.F.R. §§ 23.500-506).
Finally, the reporting rules “foster market transparency” and support the CFTC’s market surveillance program. Srinivasan Decl. ¶ 4(e). The SDR Reporting Rule. requires swap market participants to report transaction information to swap data repositories (“SDRs”). See 77 Fed.Reg. 2336 (Jan. 13, 2012) (codified at 17 C.F.R. Part 45). The Historical SDR Reporting Rule requires similar reporting for certain past transactions. See 77 Fed.Reg. 35200 (June 12, 2012) (codified at 17 C.F.R. Part 46). The Large Trader Reporting Rule requires. clearing organizations and swap dealers to report large market positions so that the CFTC can detect market manipulation. See 76 Fed.Reg. 43851 (July 22, 2011) (codified at 17 C.F.R. Part 20).
During the comment periods for most of the Title YII Rules, plaintiffs and their members sought clarification as to the Rules’ extraterritorial applications under 7 U.S.C. § 2(i)— e.g., which foreign entities were required to register as swap dealers and what types of swaps needed to be “cleared” and reported to the CFTC. See, e.g., Comment from IIB on Swap Entity • Registration Rule, Jan. 10, 2011, at 3 (JA at 1125); Comment from SIFMA on Swap Entity Registration Rule, Feb. 3, 2011, at 4 (JA at 1146); Comments from SIFMA and ISDA on Real-Time Reporting Rule,
Notwithstanding those comments, the CFTC did not address the extraterritoriality of the Title VII Rules in those rulemak-ings. Nor did the CFTC explicitly address the costs and benefits of the Rules’ extraterritorial application in those Rules’ Section 19(a)(1) cost-benefit analyses. See 7 U.S.C. § 19(a)(1), Instead, the CFTC “limit[ed]” its final rulemakings to the substantive requirements of the Title VII Rules, describing those Rules’ extraterritorial applications as “beyond the scope of this rulemaking,” see Swap Entity Registration Rule, 77 Fed.Reg. at 2619-20, and stating that it “intended] to separately address” issues of extraterritorial application in “separate releases.” See Entity Definition Rule, 77 Fed.Reg. at 30605, 30688 n.1119. That separate “release” came in the form of the Cross-Border Action also challenged by plaintiffs in this case.
IV. THE CROSS-BORDER ACTION
On July 12, 2012, the CFTC released for public comment a proposed “interpretive guidance and policy statement” addressing the “cross-border application” of the Title Vll Rules. See Cross-Border Application of Certain Swaps of the Commodity Exchange Act, 77 Fed.Reg. 41214 (July 12, 2012). On January 7, 2013, after receiving approximately 290 comments on the initial proposed “guidance,” see Cross-Border Action, 78 Fed.Reg. at 45295, the CFTC issued further proposed “guidance” on specific elements of its proposed cross-border application policies. See Further Proposed Guidance Regarding Compliance with Certain Swap Regulations, 78 Fed. Reg. 909 (Jan. 7, 2013). The CFTC received approximately two dozen additional comments on the further proposed “guidance.” Cross-Border Action, 78 Fed.Reg. at 45295.
On July 22, 2013, the CFTC issued an “Exemptive Order” that provided certain entities temporary “transitional relief’ from the Title VJI Rules “in order to avoid unnecessary market disruptions and to facilitate market participants’ transition to the new Dodd-Frank swaps regime,” including policies in the forthcoming Cross-Border Action. See Exemptive Order Regarding Compliance with Certain Swap Regulations, 78 Fed.Reg. 43785, 43786. (July 22, 2013). On July 26, 2013, over a dissent from Commissioner Scott D. O’Ma-lia, the CFTC promulgated its final Cross-Border Action. 78 Fed.Reg. at 45292. The final document, including appendices, encompasses seventy-eight pages in the Federal Register and does not contain a cost-benefit analysis. The Court addresses only those portions of the Cross-Border
A “Scope” of the Cross-Border Action
Formally titled “Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations,” the Cross-Border Action contains a section devoted to its “scope.” See 78 Fed.Reg. at 45293, 45297. According to that section, the Cross-Border Action
sets forth the general policy of the [CFTC] in interpreting how section 2(i) of the CEA provides for the application of the swaps provisions of the CEA and [CFTC] regulations to cross-border activities when such activities have a “direct and significant connection with activities in, or effect on, commerce of the United States” or when they contravene [CFTC] rulemaking.
Id. at 45297. Because of the “complex and dynamic nature of the global swap market and the need to take an adaptable approach to cross-border issues,” the Cross-Border Action states that the CFTC will “periodically review” the Cross-Border Action as “foreign regulatory regimes and the global swaps market continue to evolve.” Id.
The Cross-Border Action distinguishes itself from a “binding rule” that “would state with precision when particular requirements do and do not apply to particular situations.” 78 Fed.Reg. at 45297. Instead, the Cross-Border Action is “a statement of the [CFTC]’s general policy regarding cross-border swap activities and allows for flexibility in application to various situations, including consideration of all relevant facts and circumstances that are not explicitly discussed” within the Cross-Border Action itself. Id. (footnote omitted). The Cross-Border Action further emphasizes that while it “is intended to inform the public of the [CFTC’s] views on how it ordinarily expects to apply existing law and regulations in the cross-border context,” the CFTC will apply the relevant statutory provisions and regulations on a case-by-case basis according to “the particular facts and circumstances” of the cross-border conduct. Id.
The Cross-Border Action’s positions on its “scope” are carried out through its more substantive portions. In those sections, the Cross-Border Action conditions its statements with the modifier “generally” nearly 200 times, see Brief of the Chamber of Commerce of the United States of America as Amicus Curiae in Support of Plaintiffs’ Motion for Summary Judgment, Feb. 3, 2014 [Dkt. No. 25] at 2; reiterates the CFTC’s case-by-case approach on multiple occasions, e.g., Cross-Border Action, 78 Fed.Reg. at 45308-09, 45316, 45320, 45348; and encourages market participants to consult CFTC staff regarding individual circumstances. See, e.g., id. at 45326, 45345, 45349.
B. “Interpretation” of 7 U.S.C. § 2(i)
The Cross-Border Action’s interpretation of 7 U.S.C. § 2(i) immediately follows the section defining the Action’s “scope.” See 78 Fed.Reg. at 45297-300. The interpretation focuses on Section 2(i)’s statutory language providing that the Title VII statutory provisions and regulations “shall not apply to activities outside the United States unless those activities ... have a direct and significant connection with activities in, or effect on, commerce of the United States.” 7 U.S.C. § 2(i); see Cross-Border Action, 78 Fed.Reg. at 45298. Relying on the Supreme Court’s interpretation of similar language in F. Hoffmanm-La Roche Ltd. v. Empagran S.A.,
The Cross-Border Action goes on to construe the word “direct” in Section 2(i)(l) to require only “a reasonably proximate causal nexus,” and not “foreseeability, substantiality, or immediacy.”
The Cross-Border Action also rejects any interpretation of Section 2(i)(l) that would “require a transaction-by-transaction basis determination that a specific swap outside the United States” has the jurisdictionally requisite “ ‘connection with activities in, or effect on, commerce in the United States.’ ” Cross-Border Action, 78 Fed.Reg. at 45300 (quoting 7 U.S.C. § 2(i)(l)). Instead, the Cross-Border Action concludes that “it is the connection of swap activities, viewed as a class or in the aggregate, to activities in commerce of the United States that must be assessed to determine whether [extraterritorial] application of the [Title VII] swaps provisions is warranted.” Id.
C. Interpretation of the Term “U.S. person”
Having interpreted the scope of Section 2(i)(l)’s jurisdictional nexus, the Cross-Border Action uses the term “U.S. person” to “generally encompass! ] those persons whose activities — either individually or in the aggregate — have the requisite ‘direct and significant’ connection with activities in, or effect on, U.S. commerce” to satisfy Section 2(i)’s. jurisdictional nexus and therefore to be subject to the Title VII provisions and regulations. Cross Border Action, 78 Fed.Reg. at 45308; see also id at 45301 (“[T]he term ‘U.S. person’ identifies those persons who, under the [CFTC]’s interpretation, could be expected to satisfy the jurisdictional nexus under section 2(i) of the CEA based on their swap activities either individually or in the aggregate.”). The Cross-Border Action thereafter provides an eight-pronged “interpretation” of the term “U.S. person.” Id. at 45316-17. The interpretation expands beyond “[a]ny natural person who is a resident of the United States” and “any corporation ... that is organized or incorporated under the laws of a state or other jurisdiction in the United States or having its principal place of business in the United States” to include, inter alia, other entities based on their legal and financial relationships with the aforementioned types of U.S. persons. Id. The Cross-Border Action explains that
the various prongs of the [CFTC]’s interpretation are intended to identify persons for which, in practice, the connection or effects required by section 2(i) are likely to exist and thereby inform the public of circumstances in which the [CFTC] expects that the swaps provisions of the CEA and the [CFTC]’s regulations would apply pursuant to the statute. In this respect, the [CFTC] will consider not only a person’s legal form and its domicile (or location of operation), but also the economic reality of a particular structure or arrangement, along with all other relevant facts and circumstances, in order to identify those persons whose activities meet the “direct and significant” jurisdictional nexus.
Id. at 45308-09. For the purposes of this lawsuit, the most relevant of the Cross-
In both its proposed and final forms, the Cross-Border Action interprets the term “U.S. person” to include “a foreign branch of a U.S. person.” Cross-Border Action, 78 Fed.Reg. at 45315; id. at 45317. The Cross-Border Action explains that “a branch does not have a legal identity separate from that of its principal entity” and thus “branches are neither separately incorporated nor separately capitalized and, more generally, the rights and obligations of a branch are the rights and obligations of its principal entity (and vice versa).” Id. at 45315. Therefore, the Cross-Border Action expresses the CFTC’s general view that “the activities of a foreign branch as the activities of the principal entity, and thus a foreign branch of a U.S. person is a U.S. person.” Id.; see also id. at 45317 (“[T]he term ‘U.S. person’ generally means that a foreign branch of a U.S. person would be covered by virtue of the fact that it is a part, or an extension, of a U.S. person.”).
In contrast to foreign branches of U.S. persons, the Cross-Border Action emphasizes that the CFTC “does not interpret section 2(i) to require that it treat a non-U.S. person as a ‘U.S. person’ solely because it is controlled by or under common control with a U.S. person.” Cross-Border Action, 78 Fed.Reg. at 45312 n.215. Instead, the Cross-Border Action expresses CFTC’s view that “where one or more U.S. owners has unlimited responsibility for losses or nonperformance by its majority-owned affiliate” — a so-called “guaranteed affiliate” — “there is generally a direct and significant connection with activities in, or effect on, commerce of the United States within the meaning of section 2(i),” id. at 45312, because the “guarantee creates a significant risk transfer into the United States.” Id. at 45313.
D. Aggregation
The Cross-Border Action also addresses the aggregation requirement for the de minimis exception to Dodd-Frank’s “swap dealer” designation. See 78 Fed.Reg. at 45320-27. The Dodd-Frank Act exempted from its definition of “swap dealer” those swap dealers who “engage[ ] in a de min-imis quantity of security-based swap dealing in connection with transactions with or on behalf of [their] customers.” 7 U.S.C. § la(49)(D). The Act also required the CFTC to “promulgate regulations to establish factors with respect to the making of any determination to exempt.” Id.
On May 23, 2012, the CFTC and the SEC promulgated such regulations in their joint Entity Definition Rule. See
so long as the swap positions connected with those dealing activities into which the person — or any other entity controlling, controlled by or under common control with the person — enters over thecourse of the immediately preceding 12 months ... have an aggregate gross notional amount of no more than $3 billion. ...
17 C.F.R. § 1.3(ggg)(4)(i) (emphasis added).
The Cross-Border Action construes “any other entity controlling, controlled by or under common control with,” see 17 C.F.R. § 1.3(ggg)(4), to generally include foreign affiliates. See Cross Border Action, 78 Fed.Reg. at 45326. As a result, when aggregating swaps positions to determine whether to register as a swap dealer, “a person (whether U.S. or non-U.S.) should generally include all relevant dealing swaps of all its U.S. and non-U.S. affiliates under common control, except that swaps of an affiliate (either U.S. or non-U.S.) that is a registered swap dealer are excluded.” Id. The Cross-Border Action explains:
Stated in general terms, the [CFTCJs interpretation allows both U.S. persons and non-U.S. persons in an affiliated group to engage in swap dealing activity up to the de minimis threshold. When the affiliated group meets the de minim-is threshold in the aggregate, one or more affiliate(s) (inside or outside the United States) would generally have to register as swap dealer(s) so that the relevant swap dealing activity of the unregistered affiliates remains below the threshold.
Id. at 45323.
E. Categorization of Certain Title VII Rules as “Entity-” or “Transaction-level”
The Cross-Border Action also categorizes certain Title VII Rules as either “entity-” or “transaction-level,” to distinguish when those Rules apply extraterritorially. “Entity-level” requirements define the general obligations of regulated market participants irrespective of the characteristics of individual swaps transactions. Thus, under the Cross-Border Action, entity-level requirements generally apply to “registered swap dealers ... across all their swaps without distinction as to coun-terparty or the location of the swap.” 78 Fed.Reg. at 45331 (emphasis added). The entity-level requirements include Risk Management, Chief Compliance Officer, SDR Reporting, Historical SDR Reporting, and Large Trader Reporting Rules. See id. at 45364-66.
In contrast, the “transaction-level” requirements impose transaction-specific obligations on swap market participants. Under the Cross-Border Action, the identity of the counterparty is significant in determining whether a foreign registered swap dealer must comply'with transaction-level requirements for that swap : if the counterparty is not a U.S.-person, the transaction-level requirements generally would not apply. 78 Fed.Reg. at 45333. The “transaction-level” requirements include the Real-Time Reporting, Daily Trading Records, Clearing Determination, Straight-Through Processing, Portfolio Reconciliation and Documentation, and Trade Execution Rules. See id. at 45366-68.
F. Application of Transaction-level Requirements to Certain “Foreign Affiliate Conduits”
The Cross-Border Action extends transaction-level requirements to certain so-called “foreign affiliate conduits.” See 78 Fed.Reg. at 45357-59. As described by the Cross-Border Action:
[I]t is common for large global companies to centralize their hedging or risk-management activities in one or more affiliates (informally referred to as a “treasury conduit” or “conduit”). Under this structure, the conduit may enter into swaps with its affiliates and thenenter into offsetting swaps with third-parties. In other cases, the conduit may enter into swaps with third-parties as agent for its affiliates. In either case, the conduit functions as a vehicle by which various affiliates engage in swaps with third-parties (i.e., the market).
Id. at 45358.
The Cross-Border Action acknowledges that conduit arrangements are beneficial in that they “promote[ ] operational efficiency and prudent risk management by enabling a company to manage its risks on a consolidated basis at a group level.”
G. Substituted Compliance
As a general rule, the Title VII Rules apply to all “registered” swap dealers and major swap participants, “irrespective of where they are based.” Cross-Border Action, 78 Fed.Reg. at 45342. The Cross-Border Action announces the CFTC’s planned policy for “substituted compliance,” whereby certain foreign entities operating in compliance with the home jurisdiction’s swaps regulations would be considered in compliance with the Title VII Rules as well. 78 Fed.Reg. at 45340-46.
Grounded in principles of “international comity,” see Cross-Border Action,
The Cross-Border Action clarifies, inter alia, that substituted compliance “would generally not be available for [certain] Transaction-Level Requirements” for swaps between a foreign registered swap dealer or major swap participant and a U.S. person (other than a foreign branch of a U.S. swap dealer or major swap participant). 78 Fed.Reg. . at 45353. The Cross-Border Action notes the CFTC’s “strong interest in ensuring that the swap fully complies with the ... Transaction Level Requirements, without substituted compliance,” because “swaps between U.S. persons and non-U.S. persons inherently raise the possibility of’ risk magnification and transfer that Title VII was meant to control. Id.
In footnote 513, the Cross-Border Action adopts the “view” that “a U.S. branch of a non-U.S. swap dealer or [major swap participant] would be subject to [certain] Transaction-Level requirements, without substituted compliance available.”
Following the promulgation of the Cross-Border Action, some financial institutions believed that footnote 513 contained a loophole to compliance with transaction-level requirements: that non-U.S. swap dealers — including affiliates of U.S. persons — could completely avoid transaction-level requirements by arranging swaps with non-U.S. counterparties using traders or brokers working for U.S. persons within the United States, but then “booking” the swaps with an overseas affiliate.
DSIO believes that persons regularly arranging, negotiating, or executing swaps for or on behalf of [a swap dealer] are performing core, front-office activities of that [swap dealer’s dealing business. Thus, DSIO is of the view that a non-U.S. [swap dealer] (whether an affiliate or not of a U.S. person) regularly using personnel or agents located in the U.S. to arrange, negotiate, or execute a swap with a non-U.S. person generally would be required to comply with the Transaction-Level Requirements.
Applicability of Transaction-Level Requirements to Activity in the United States, CFTC Letter No. 13-69,
V. PROCEDURAL HISTORY
On December 4, 2013, plaintiffs — three trade associations that represent the interests of the financial industry and count as their members some of the world’s largest securities firms, banks and asset managers — filed this action. The case was initially assigned to Judge Ellen Segal Hu-velle, but was later transferred by consent to the undersigned pursuant to Local Civil Rule 40.6(a). Plaintiffs’ amended complaint challenges the Cross-Border Action and the Title VII Rules on several bases. Plaintiffs allege that the Cross-Border Ac~ tion was promulgated in violation of the APA’s notiee-and-comment requirements, 5 U.S.C. § 553(b)-(e), and the CEA’s cost-benefit analysis requirements, 7 U.S.C. § 19(a)(2), and is an arbitrary and capricious substantive interpretation of 7 U.S.C. § 2(i). Amended Complaint (“Amd. Compl.”), Dec. 27, 2013 [Dkt. No. 11] ¶¶ 96-119. Plaintiffs similarly allege that the challenged Title VII Rules on their face lack independent extraterritorial effect and were promulgated in violation of the APA’s notice-and-comment requirements and CEA’s cost-benefit analysis requirements. Id. ¶¶ 120-33. Finally, plaintiffs allege that the extraterritorial scope of the SEF Registration Rule is an arbitrary and capricious interpretation of 7 U.S.C. § 2(i). Id. ¶¶ 134-37.
Plaintiffs seek, inter alia. (1) a declaratory judgment that the Cross-Border Action and the Title VII Rules (as applied extraterritorially) are procedurally and substantively infirm; (2) vacatur of the Cross-Border Action in its entirely; (3) partial vacatur of the Title VII Rules to the extent that they purport to have extraterritorial application; (4) an injunction enjoining the CFTC from enforcing most of the Title VII Rules extraterritorially until the agency promulgates a procedurally valid legislative rule regarding extraterritoriality; and (5) a permanent injunction enjoining the CFTC (with no apparent conditional end-date) “from implementing, applying, or taking any action whatsoever to enforce the SEP Registration Rule on trading platforms organized or incorporated under the laws of a jurisdiction outside of the United States.” Amd. Compl. ¶ 143.
On December 27, 2013, plaintiffs moved for summary judgment. Plaintiffs sought expedited consideration of their motion,
Plaintiffs produced their member declarations on January 27, 2014, and the parties completed the briefing on the CFTC’s motion to dismiss and the parties’ cross-motions for summary judgment on May 2, 2014.
The case was reassigned to the undersigned on June 18, 2014. On June 23, 2014, the Court ordered the parties to submit supplemental briefs regarding whether plaintiffs lacked standing under the shareholder standing rule and whether the Cross-Border Action was an interpretive rule. Order, June 23, 2014 [Dkt. No. 48]. The parties completed their supplemental briefing on July 18, 2014.
PART TWO: STANDARDS OF REVIEW
I. MOTION TO DISMISS
The CFTC moves to dismiss plaintiffs’ complaint under Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of standing and, as to the Cross-Border Action, ripeness. CFTC Mot. at 15. “On a motion to dismiss for lack of subject matter jurisdiction, the plaintiff bears the burden of establishing that the Court has jurisdiction.” Sierra Club v.
The Court “may consider documents outside the pleadings to assure itself that it has jurisdiction.” Al-Owhali v. Ashcroft,
II. MOTION FOR SUMMARY JUDGMENT
The parties have also filed cross-motions for summary judgment. “[W]hen an agency action is challenged!, t]he entire case on review is a question of law, and only a question of law.” Marshall Cnty. Health Care Auth. v. Shalala,
Under the APA, a reviewing court shall “hold unlawful and set aside agency action, findings, and conclusions found to be ... arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). “This is a ‘deferential standard’ that ‘presumefs] the validity of agency action.’ ” World-Com, Inc. v. FCC,
“An agency decision is arbitrary and capricious if it ‘relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.’ ” Cablevision Sys. Corp. v. FCC,
PART THREE: ANALYSIS
I. STANDING
The Court must first address the “ ‘threshold jurisdictional question’ ” of plaintiffs’ Article III standing to challenge the Cross-Border Action and the Title VII Rules: See Holistic Candlers & Consumers Ass’n v. FDA,
Because plaintiffs are trade associations and do not assert standing “on their own behalf,” Havens Realty Corp. v. Coleman,
There is no dispute that the plaintiff associations in this case satisfy the second and third Hunt prongs. Cf. Am. Trucking Ass’ns,
To establish standing pursuant to these established principles, the plaintiff associations must identify for each challenged Title VII Rule at least one member of one of their associations that is regulated or directly harmed by that Rule’s extraterritorial application. For the limited purposes of its standing analysis, the Court must assume that plaintiffs are correct that the Cross-Border Action is a binding legislative rule carrying the force of law. See City of Waukesha v. EPA,
A Declarations in Support of the Plaintiff Associations’ Standing
Based on the declarations the plaintiff associations filed in support of their standing, plaintiffs’ members may be classified as either foreign- or U.S.-based.
Plaintiffs’ U.S.-based members collectively address each of the challenged Title VII Rules. See, e.g., JPMorgan Deck ¶¶ 7-8, 10-20; Declaration of Thomas Riggs, Managing Director, Goldman, Sachs & Co. (“Goldman Deck”), Jan. 27, 2014 [Dkt. No. 22-2] ¶¶ 8-9. The U.S.-based members, however, are not themselves subject to the extraterritorial application of the Title Vll Rules, as a result of the Cross-Border Action or otherwise. Instead, it is the U.S.-based members’ legally distinct foreign affiliates that are subject to the Rules’ extraterritorial applications. For example, J.P. Morgan Securities LLC and JPMorgan Chase & Co. — members of SIFMA and ISDA, respectively — are not regulated extraterritorially by the Title VII Rules pursuant to the Cross-Border Action. JPMorgan Deck ¶¶ 1, 7-8. Rather, their foreign guaranteed affiliate, J.P. Morgan Securities pic, is regulated extra-territorially by many of the Title VII Rules pursuant to the Cross-Border Action, but is not a formal member listed on the membership rolls of the plaintiff associations. JPMorgan Deck ¶¶ 7, 9-18. Similarly, while Goldman, Sachs & Co. — a member of ISDA and SIFMA — is not regulated extraterritorially by the Title VII Rules pursuant to the Cross-Border Action, several of its foreign affiliates — including affiliates that act as conduits — are. Goldman Deck ¶¶ 4, 7.
On July 18, 2014, in support of their supplemental brief on shareholder standing, the plaintiff associations also submitted declarations of corporate counsel regarding their organizational structures and operations. See Declaration of Ira D. Hammerman, Executive Vice President & General Counsel, SIFMA (“SIFMA
B. Plaintiffs’ Stdnding Based on Their Formal Foreign-based Members
Having considered the declarations submitted by SG and Deutsche Bank AG, the Court concludes that plaintiffs have standing to challenge the extraterritorial application of many of the transaction-level Title VII Rules — specifically, the Real-Time Reporting, Daily Trading Records, Clearing Determination, Straight-Through Processing, and Portfolio Reconciliation and Documentation Rules — as well as the Cross-Border Action. In the event that SG or Deutsche Bank AG (as non-U.S. swap dealers) engages in a swaps transaction with a foreign entity classified as a “U.S. person” under the Cross-Border Action, the firm must comply with the transaction-level requirements in those Rules. See Cross-Border Action,
Although the SEF Registration and Trade Execution Rules do not directly reg-úlate SG or Deutsche Bank AG, plaintiffs seek to challenge the extraterritorial application of those Title VII Rules as well. As to the SEF Registration Rule, certain foreign SEFs have denied SG and Deutsche Bank AG personnel located in the United States access to their platforms to avoid triggering registration requirements under the Rule. SG Decl. ¶ 10(c); Deutsche Bank Decl. ¶ 10(c).
While the SEP Registration Rule does not require foreign SEFs to deny U.S.based entities or personnel access to their platforms, it creates incentives for foreign SEFs to do so in order to avoid having to register (and thus be regulated) under the Rule. See Guidance on Application of Certain Commission Regulations to Swap Execution Facilities, CFTC Division of Market Oversight, Nov. 15, 2013, at 1-2 (JA at 792-93) (“The Division expects that [an SEF] located outside the U.S. that provides U.S. persons or persons located in the U.S. (including personnel or agents of non-U.S. persons located in the United States)... with the ability to trade or execute swaps ... will register.”). The D.C. Circuit has long recognized “the incentives that [regulated] third parties often have to minimize their expenditure of money and effort,” Animal Legal Def. Fund, Inc. v. Glickman,
Based on the record in this case, it is clear that the extraterritorial application of
Like the SEF Registration Rule, the Trade Execution Rule also regulates SEFs, not swap dealers. The Trade Execution Rule established, inter alia, a six-factor framework under which registered SEFs and DCMs determine whether certain types of swaps are “available to trade.” See 78 Fed.Reg. at 33612-13; accord 17 C.F.R. § 37.10. A determination by an SEF or DCM that a type of swap is “available to trade” triggers the statutory requirement that registered swap dealers like SG and Deutsche Bank AG generally must execute that type of swap on registered SEF or DCM platforms. See 7 U.S.C. § 2(h)(8)(A)-(B) (requiring “swaps subject to the clearing requirement” of Section 2(h)(1) to be executed on SEFs or DCMs unless the swaps are not “available to trade”); 17 C.F.R. § 37.10(c) (triggering Section 2(h)(8)(A) “[ujpon a determination that a swap is available to trade”). Executing swaps on SEFs registered with the CFTC costs more than trading swaps bilaterally. Pis.’ Standing Br. at 10; see also JPMorgan Decl. ¶ 19(b).
But unlike with the SEF Registration Rule, SG and Deutsche Bank AG have failed to demonstrate how the extraterritorial application of the Trade Execution Rule injures them at all. Plaintiffs generally complain that the extraterritorial application of the Trade Execution Rule requires SG and Deutsche Bank AG lo execute on SEF or DCM platforms any swaps that are “available to trade.” See Pis.’ Standing Br. at 9; cf. JPMorgan Decl. ¶ 19. But this is not the case. The Trade Execution Rule merely prescribes the factors that SEFs and DCMs must consider when determining that a type of swap is “available to trade” — it does not directly regulate swap dealers. See 78 Fed.Reg. at 33613. Instead, it is the extraterritorial application of the statutory trade execution requirement — not the Trade Execution Rule — that requires foreign swap dealers like SG and Deutsche Bank AG to execute “available to trade” swaps on SEF or DCM platforms. See 7 U.S.C. § 2(h)(8)(A)-(B). Thus, it is Section 2(h)(8), not the Trade Execution Rule, that directly burdens SG and Deutsche Bank AG.
Of course, it is possible that the application of the Trade Execution Rule to foreign SEFs and DCMs might result in more “available lo trade” determinations than if the Rule applied only to U.S.-based SEFs and DCMs. As a result, swap dealers like SG and Deutsche Bank AG would be required, under Section 2(h)(8), to execute more types of swaps on SEF and DCM platforms. Were this the case, the Trade Execution Rule would constitute a “substantial factor” in foreign SEFs’ and DCMs’ “available to trade” determinations that, in turn, would trigger the statutory trade execution requirement that burdens SG and Deutsche Bank AG. But plaintiffs do not allege — nor is there any evidence in the record — that the extraterritorial application of the Trade Execution Rule results in more “available to trade” determinations.
C. Plaintiffs’ Standing Based on Their Formal U.S.-based Members
Plaintiffs’ standing to challenge the entity-level Title VII Rules — the Entity Definition, Swap Entity Registration, Risk Management, Chief Compliance Officer, SDR Reporting, Historical SDR Reporting, and Large Trader Reporting Rules— is not immediately apparent. This is so because plaintiffs’ formal U.S.-based members are not themselves subject to the extraterritorial application of those Rules pursuant to the Cross-Border Action. Instead, the entity-level Rules apply extra-territorially to the formal members’ legally distinct foreign affiliates. See, e.g., JPMorgan Decl. ¶¶ 7-8; Goldman Decl. ¶¶ 4, 7.
“As a general rule, two separate corporations are regarded as distinct legal entities even if the stock of one is owned wholly or partly by the other.” 1 William Meade FletoheR et al., Fletcher Cyclopedia of the Law of Corporations § 43 (perm.ed., rev.vol.2013); see also Dole Food Co. v. Patrickson,
Where a parent corporation desires the legal benefits to be derived from organization of a subsidiary that will function separately and autonomously in the conduct of its own distinct business, the parent must accept the legal consequences, including its inability later to treat the subsidiary as its alter ego because of certain advantages that might thereby be gained.
Under these same principles, a subsidiary cannot bring a suit on behalf of its parent, let alone other members of its extended corporate family. See Construtodo, S.A. De C.V. v. Conficasa Holdings, Inc.,
The plaintiff associations argue, however, that the shareholder standing rule does not apply here for several different reasons. The Court is not persuaded by any of them. First, the plaintiff associ
Second, the' plaintiff associations aver that their formal U.S.-based members have standing because the “cross-border application of the Title VII rules dramatically affects how [their] members must conduct business through their affiliates, including whether to guarantee foreign affiliate transactions, engage in swaps through or with their ‘affiliate conduits,’ and separately incorporate or capitalize foreign affiliates or branches.” Pls.’ Suppl. Br. at 2. For this argument, plaintiffs rely on BellSouth Corp. v. FCC,
Although the Title Vll Rules undoubtedly may affect how the formal U.S.based members choose to structure their corporate families and engage in swaps transactions with foreign affiliates, the Rules — unlike those in BellSouth —neither mandate nor forbid any particular corporate structure or relationship. And although the formal U.S.-based members may dictate the actions of their legally distinct foreign affiliates, the primary burdens of the Title VII Rules’ extraterritorial applications fall squarely on the legally distinct foreign affiliates. Any harm to the formal U.S.-based members, or the corporate family as a whole, is thus purely derivative of the burden on the foreign affiliates. These derivative injuries are precisely the type that the shareholder standing rule precludes. See, e.g., Cheeks v. Fort Myer Constr. Co.,
Third, the plaintiff associations argue that their formal U.S.-based members have standing because the members represent the interests of their entire corporate families, including the regulated foreign affiliates, within the plaintiff associations. Pis.’ Suppl. Br. at 5. The Supreme Court established over a quarter century ago that an “association of associations” will have “standing to sue on behalf of its member associations as long as those [member] associations would have standing to bring the same challenge” through their individual members. N.Y. State Club Ass’n v. City of New York,
The problem is that the plaintiff associations’ formal U.S.-based members are not “membership associations” formed to represent the interests of their entire corporate families. They are not “associations” at all. Cf. APCC Servs., Inc. v. Sprint Commc’ns Co.,
Thus, the Court concludes that, under the shareholder standing rule, the plaintiff associations’ formal U.S.-based members cannot demonstrate standing based on the fact that their legally distinct foreign affiliates are subject to extraterritorial regulation under the entity-level Title VII Rules. And because the plaintiff associations’ formal U.S.-based members are not themselves subject to extraterritorial regulation under the entity-level Title VII Rules, those members lack standing in their own right to challenge those Rules’ extraterritorial applications. The plaintiff associations accordingly cannot rely on their formal U.S.-based members to establish their associational standing to challenge the entity-level Title VII Rules.
D. Plaintiffs’ Standing Based on Their Formal U.S.-based Members’ Foreign Affiliates
The fact that the plaintiff associations cannot establish standing to challenge the entity-level Title VII Rules through their formal U.S.-based members does not, however, end the inquiry. For the plaintiff associations also argue that their formal U.S.-based members’ foreign affiliates— who are not listed on the associations’ membership rolls — are functionally members of the associations for purposes of an associational standing analysis. Pis.’
Plaintiffs are correct that the associational standing doctrine does not formalistically limit an association’s membership to those listed on its membership rolls. Hunt,
Although Hunt applied its “indicia of membership” test to a non-traditional organization that lacked formal members, see
The question presented, then, is whether any of plaintiffs’ U.S.-based members’ foreign affiliates — who CFTC acknowledges are directly affected by the extraterritorial application of the entity-level Title VII Rules, CFTC Suppl. Br. at 3 — “possess all of the indicia of membership” in the plaintiff associations. Hunt,
PLC — as a foreign guaranteed affiliate of a U.S. person that qualifies as a “swap dealer,” JPMorgan Decl. ¶¶ 5, 7(b) — is the “object” of the extraterritorial application of the entity-level Title VII Rules. See Cross-Border Action, 78 Fed.Reg. at 45312, 45368. app. C. PLC’s standing to challenge the extraterritorial application of those Rules is accordingly “self-evident.” See Sierra Club,
E. Summary
All three plaintiff associations have demonstrated that they have associational standing to challenge the extraterritorial application of the transaction-level Real-Time Reporting, Daily Trading Records, Clearing Determination, StraighL-Through Processing, and Portfolio Reconciliation and Documentation Rules, as well as the SEF Registration Rule and the Cross-Border Action, through their formal members SG and Deutsche Bank AG. Plaintiffs SIFMA and ISDA have also demonstrated associational standing to challenge the extraterritorial application of the entity-level Entity Definition, Swap Entity Registration, Risk Management, Chief Compliance Officer, SDR Reporting, Historical SDR Reporting, and Large Trader Reporting Rules through their functional member PLC. Plaintiffs have failed, however, to demonstrate their standing to challenge the extraterritorial application of the Trade Execution Rule. Accordingly, the Court will dismiss without prejudice plaintiffs’ claims based on the Trade Execution Rule.
II. CHALLENGES TO THE CROSS-BORDER ACTION
Plaintiffs raise both procedural and substantive challenges to the Cross-Border Action. Plaintiffs first aver that the CFTC, when promulgating the Cross-Border Action, failed to comply with the APA’s notice-and-comment rulemaking requirements and the CEA’s cost-benefit analysis requirement. Pis.’ Mot. at 23-30. As to the substance of the Cross-Border Action, plaintiffs argue, inter alia, that the CFTC exceeded its authority to regulate extraterritorially under 7 U.S.C. § 2(i).
Plaintiffs’ claims turn, to a significant extent, on whether the Cross-Border Action is a legislative rule (as plaintiffs argue), a policy statement (as the CFTC argues), or an interpretive rule (as the CFTC now concedes some parts may be). Pis.’ Mot. at 23-28; CFTC Mot. at 24-34; CFTC Suppl. Br. at 10. As the D.C. Circuit has recently noted, “[a] lot can turn on which box an agency action falls into.” Nat’l Mining Ass’n v. McCarthy (“NMA ”),
[i]n terms of reviewability, legislative rules and sometimes even interpretive rules may be subject to pre-enforcement judicial review, but general statements of policy are not. Legislative rules generally require notice and comment, but interpretive rules and general statements of policy do not. Legislative rules generally receive Chevron deference, but interpretive rules and general statements of policy often do not..
Id. (citations omitted). In this action, the parties also dispute whether the cost-benefit analysis requirement in 7 U.S.C. § 19(a) applies only to legislative rules, or also extends to interpretive rules and policy statements. CFTC Mot. at 45-46; Pis.’ Reply at 27 & n. 13; CFTC Reply at 12 n.6, 23 n.15. Before turning to these important questions, however, the Court must address the “threshold inquiry” of whether plaintiffs’ challenges to the Cross-Border Action are prudentially ripe for review. See In re Aiken Cnty.,
A. Prudential Ripeness
The CFTC contends that the Cross-Border Action is not prudentially ripe for review because plaintiffs’ challenges “involve hypothetical scenarios in which they speculate the [Cross-Border Actionj’s application might not be reasonable.” CFTC Mot. at 35. “Ripeness is a justiciability doctrine designed ‘to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements over administrative policies, and also to protect the agencies from judicial interference until an administrative decision has been formalized and its effects fell in a concrete way by the challenging parties.’ ” Nat’l Park Hospitality Ass’n v. Dep’t of Interior,
The ripeness doctrine is “drawn both from Article III limitations on judicial power and from prudential reasons for refusing to exercise jurisdiction.” Reno v. Catholic Social Servs., Inc.,
“The fitness requirement is primarily meant to protect ‘the agency’s interest in crystallizing its policy before that policy is subjected to judicial review and the court’s interests in avoiding unnecessary adjudication and in deciding issues in a concrete setting.’ ” Am. Petroleum Inst.,
Under the “hardship prong,” a court must consider a plaintiffs interests in securing immediate review. See Toilet Goods Ass’n v. Gardner,
In this case, plaintiffs’ procedural challenges to the Cross-Border Action are “clearly ripe for review.” See Air Transp. Ass’n v. Dep’t of Transp.,
The Court need not ultimately address this “difficult question! ] of its jurisdiction.” Sherrod v. Breitbart,
Here, the Court need not look so far away as a companion case or even consult Circuit precedent. For the Court’s consideration of plaintiffs’ ripe procedural claims reveals that the Cross-Border Action is not a “final agency action” subject to review under the APA. See infra Section II.C. This conclusion requires judgment for the CFTC as to all of plaintiffs’ pre-enforcement challenges to the Cross-Border Action — both procedural and substantive. Thus, a definite determination on whether plaintiffs’ substantive claims are prudentially ripe would be inconsequential to the outcome of the case. Accordingly, the Court exercises its discretion to avoid deciding the jurisdictional question. See Emory,
B. Type of Agency Action
1. Distinctions Among Legislative Rules, Interpretive Rules, and Policy Statements
As discussed above, many issues in this case turn on whether the Cross-Border Action is a legislative rule, an interpretive rule, or a policy statement. See supra pp. 411-12. “The distinction between legislative rules and interpretative rules or policy statements has been described at various times as ‘tenuous,’ ‘fuzzy,’ ‘blurred,’ and, perhaps most picturesquely, ‘enshrouded in considerable smog.’ ” Cmty. Nutrition Inst. v. Young,
An agency action that purports to impose legally binding obligations or prohibitions on regulated parties — and that would be the basis for an enforcement action for violations of those obligations or requirements — is a legislative rule.... (As to interpretive rules, an agency action that merely interprets a prior statute or regulation, and does not itself purport to impose new obligations or prohibitions or requirements on regulated parties, is an interpretive rule.) An agency action that merely explains how the agency will enforce a statute or regulation — in other words, how it will exercise its broad enforcement discretion or permitting discretion under some extant statute or rule — is a general statement of policy.
NMA,
Courts, however, are not without some guidance. In distinguishing between legislative rules and general statements of. policy, the D.C. Circuit has long been guided by two important factors: “the actual legal effect (or lack thereof) of the agency action in question on regulated entities,” and the “agency’s characterization” of the' agency action. NMA,
In distinguishing between legislative and interpretive rules, “[t]he practical question inherent in the distinction ... is whether the new rule effects ‘a substantive regulatory change’ to the statutory or regulatory regime.” Elec. Privacy Info. Ctr. v. U.S. Dep’t of Homeland Sec.,
(1) whether in the absence of the rule there would not be an adequate legislative basis for enforcement action or other agency action to confer benefits or ensure the performance of duties, (2) whether the agency has published the rule in the Code of Federal Regulations, (3) whether the agency has explicitly invoked its general legislative authority, [and] (4) whether the rule effectively amends a prior legislative rule.
Am. Mining Cong. v. Mine Safety & Health Admin.,
Finally, the distinction between interpretive rules and policy statements “defies easy explanation.” HaRry T. Edwards, Linda A. Elliott & Marin K. Levy, Federal Standards of Review 162 (2d ed. 2013). The D.C. Circuit has lamented the unfortunate “tendency of courts and litigants to lump interpretative rules and pol
2. Is the Cross-Border Action a Legislative Rule, Interpretive Rule, or Policy Statement?
Plaintiffs argue that the Cross-Border Action is a legislative rule because — both on its face and in practice — it is binding upon the CFTC and market participants. Pis.’ Mot. at 23-28. The CFTC counters that the Cross-Border Action — as the agency has proclaimed since its promulgation — is a non-binding general statement of policy intended to “communicate its views and intentions” to the regulated community regarding the scope of the Title VII Rules’ extraterritorial applications. CFTC Mot. at 31, 24-34. Having considered the parties arguments, the controlling case law, the record before the Court, and — most importantly — the Cross-Border Action itself, the Court agrees with the CFTC that — save for a four-page portion of the Cross-Border Action addressed later in this section — the Cross-Border Action is a policy statement.
For starters, the Cross-Border Action on its face is binding on neither the CFTC nor swaps market participants. The Cross-Border Action, when read in its entirety, does not “purport to carry the force ■ of law.” See Ctr. for Auto Safety v. Nat’l Highway Traffic Safety Admin.,
Plaintiffs attempt to obfuscate the nonbinding character of the Cross-Border Action in several ways. First, plaintiffs cherry pick phrases within the Cross-Border Action that contain the words “will” and “must” to suggest that they create binding norms. See Pis.’ Mot. at 25. Although the “use of mandatory language suggests the ‘rigor of a rule, not the pliancy of a policy,’” the Cross-Border Action’s “use of these words cannot be read in isolation.” Ctr. for Auto Safety, Inc. v. Nat’l Highway Traffic Safety Admin.,
Plaintiffs further argue that the CFTC’s policy of substituted compliance, as introduced in the Cross-Border Action, is a “safe harbor” indicative of a legislative rule. See Pis.’ Reply at 11 & n.4. As the D.C. Circuit has recognized, “if the language of the document is such that private parties can rely on it as a ... safe harbor by which to shape their actions, it can be binding as a practical matter.” Gen. Elec.,
Finally, plaintiffs contend that the Cross-Border Action cannot be a policy statement because the document is too long and too detailed in its elaboration of complex standards for when extraterritorial activities will generally be covered under Section 2(i). Pis.’ Mot. at 25. Policy statements, however, often announce standards that the agency intends to apply in future enforcement actions. See ICI,
Although far less important than “the language used in the [document] itself,” an agency’s characterization of a challenged agency action is also accorded “some weight.” Brock,
Plaintiffs counter that the Cross-Border Action’s text and the CFTC’s characterization of the action are a carefully orchestrated charade intended to insulate the Cross-Border Action from judicial review. Pis.’ Mot. at 28 (citing Appalachian Power,
Moreover, plaintiffs can point to no evidence that the CFTC has applied the Cross-Border Action as binding in practice. See NMA,
The CFTC’s decisions to issue the exemptive orders and “no action” letters in response to plaintiffs’ requests also do not indicate that the CFTC considers the Cross-Border Action to be binding. A policy statement “simply lets the public know [an agency’s] current enforcement or adjudicatory approach.” Syncor,
To be sure, the Cross-Border Action may signal potential future enforcement trends within the CFTC. Plaintiffs’ members therefore understandably “may feel pressure to voluntarily conform their behavior because the writing is on the wall” about which entities and activities the CFTC expects to be subject to extraterritorial regulation under 7 U.S.C. § 2(i). See NMA
The important fact in this case is that plaintiffs’ members remain completely “free to ignore” the Cross-Border Action’s “writing ... on the wall,” NMA
Finally, the Court takes note of a subliminal theme to all of plaintiffs’ arguments regarding the Cross-Border Action: that the financial stakes are so high that it is impossible for the CFTC to issue a “non-binding” policy statement regarding the scope of the Title VII Rules’ extraterritorial applications. Of course, it is established that “ ‘the mere fact that [an agency action] may have a substantial impact does not transform it into a legislative rule.’ ” Cent. Texas Tel. Coop. v. FCC,
In the end, the CFTC was not required to issue any guidance (let alone binding rules) regarding its intended enforcement policies pursuant to Section 2(i). Indeed, the CFTC’s decision to provide such a nonbinding policy statement benefits market participants and cannot now, all other things being equal, be turned against it. Cf. Am. Mining Cong.,
The Court is thus left with a simple determination. The Cross-Border Action reads like a non-binding policy statement and has been neither characterized nor treated in practice as binding by the CFTC. The Cross-Border Action therefore represents “nothing more than [the CFTC’s] privileged viewpoint in the legal debate” over the extraterritorial scope of the Title VII Rules. See Ctr. for Auto Safety,
The CFTC’s interpretation of Section 2(i) in the Cross-Border Action, however, does not constitute a legislative rule. The Cross-Border Action was not published in the Code of Federal Regulations, does not explicitly invoke the CFTC’s general rule-making authority, and does not effectively amend any prior legislative rules. See Am. Mining Cong.,
C. Reviewability Under the APA
The APA subjects to judicial review only “[a]gency action[s] made reviewable by statute and final agency action[s] for which there is no other adequate remedy in a court.” 5 U.S.C. § 704. Here, there is no statute authorizing the review of the Cross-Border Action. And the Cross-Border Action does not qualify as “final agency action” because, as part interpretive rule and part policy statement, it is not “finally determinative of the issues or rights to which [it is] addressed,” Am. Tort Reform Ass’n,
III. CHALLENGES TO THE TITLE YII RULES
Plaintiffs challenge the Title YII Rules on several grounds. First, plaintiffs argue that because the Title VII Rules do not define the scope of their extraterritorial applications, they have no extraterritorial reach. Pis.’ Mot. at 16-17. Second, and in the alternative, plaintiffs argue that by refusing to define the scope of the Title VII Rules’ extraterritorial applications in those Rules, the CFTC failed “ ‘to consider an important aspect of the problem’ being regulated” and otherwise failed to adequately respond to significant public comments. Id. at 17-20 (quoting State Farm,
A. Independent Operation of 7 U.S.C. § 2(i)
Plaintiffs’ initial argument that the Title VII Rules cannot apply extraterritorially because they do not define the scope of their extraterritorial applications is belied by the plain language of 7 U.S.C. § 2(i), the Dodd-Frank Act more generally, and established principles of law.
Section 2(i) provides that the Title VII provisions “relating to swaps that were enacted by the [Dodd-Frank Act] (including any rule prescribed or regulation promulgated under that Act), shall not apply to activities outside the United States unless those activities ... have a direct and significant connection with activities in, or effect on, commerce of the United States.” 7 U.S.C. § 2(i)(l) (emphases added). The plain text of this provision “clearly expressed]” Congress’s “affirmative intention” to give extraterritorial effect to Title VII’s statutory requirements, as well as to the Title VII rules or
Indeed, the Supreme Court has explicitly addressed a similarly structured provision in the Foreign Trade Antitrust Improvements Act. See F. Hoffmann-La Roche Ltd. v. Empagran S.A.,
Plaintiffs seem to concede the potential extraterritoriality of the Title VII provisions, rules, and regulations. They instead argue that the Title VII Rules cannot be applied extraterritorially until the CFTC promulgates a regulation defining the scope of the Rules’ extraterritorial applications under Section 2(i). See Pis.’ Mot. at 43. But plaintiffs’ “argument runs aground on bedrock administrative law, which puts ‘the choice ... between proceeding by general rule or by individual, ad hoc litigation ... primarily in the informed discretion of the administrative agency.’ ” Nat’l Cable & Telecomms. Ass’n v. FCC,
The Court therefore will question the CFTC’s choice to proceed by adjudication only if Congress has clearly “specified” that proceeding by rulemaking is required. See Michigan v. EPA,
In the absence of any congressional indication to the contrary, the Court concludes that Section 2(i) operates independently, without the need for implementing regulations, and that the CFTC is well within its discretion to proceed by case-by-case adjudications, rather than rulemaking, when applying Section 2(i)’s jurisdictional nexus. See Chenery,
B. Title VII Rules’ Failures to Address Their Extraterritorial Applications
Plaintiffs’ second argument — that by failing to address the extraterritorial applications of the Title VII Rules within those Rules, the CFTC disregarded an “important aspect of the problem,” State Farm,
Second, the extraterritorial application of the Title VII Rules was not an “important aspect of the problem” that the CFTC needed to address when it promulgated those Rules. This is not to say that the breadth of the Title VII Rules’ extraterritorial applications is not “important” — the parties agree that it is. See Pis.’ Mot. at 17;- CFTC Reply at 7; see also Or. Natural Res. Council v. Thomas,
In any event, “as the Supreme Court has emphasized, ‘[njothing prohibits federal agencies from moving in an incremental manner.’ ” ICI,
Finally, the CFTC was under no obligation to respond to commenters raising the issue of the Rules’ extraterritorial applications. An agency “ ‘need not address every comment, but it must respond in a reasoned manner to those that raise significant problems.’ ” Covad Commc’ns Co. v. FCC,
In this case, because the issue of the Title VII Rules’ extraterritorial applications was beyond the scope of the Rule-makings, the comments addressing the Rules’ extraterritorial applications did not raise any “significant problems” or “relevant factors,” see Covad Commc’ns,
C. Sufficiency of the Title VII Rides’ Cost-benefit Analyses Under 7 U.S.C. § 19(a)
The Court agrees with plaintiffs that the CFTC was required but failed to consider adequately the costs and benefits of some of the Title VII Rules by excluding from its analyses consideration of the costs and benefits of those Rules’ extraterritorial applications.
The CEA requires the CFTC, “[b]efore promulgating a regulation,” 7 U.S.C. § 19(a)(1), to ‘“consider the costs and benefits’ of its actions and ‘evaluate[ ]’ those costs and benefits ‘in light of five factors: ‘(A) considerations of protection of market participants and the public; (B) considerations of the efficiency, competitiveness, and financial integrity of futures markets; (C) considerations of price discovery; (D) considerations of sound risk management practices; and (E) other public interest considerations.’ ” ICI,
As cost-benefit analysis requirements go, Section 19(a) is not particularly demanding. Section 19(a) does not require
Even considering Section 19(a)’s flexible requirements and the deferential standard of review to be applied, however, the Court agrees with plaintiffs that the CFTC failed to conduct adequate cost-benefit analyses for the Title VII Rules. The CFTC failed to acknowledge, let alone “consider” and “evaluate,” the costs and benefits of those Rules’ extraterritorial applications. None of the CFTC’s arguments justifies this failure.
The CFTC first argues that because Congress determined that the Title VII Rules would apply extraterritorially, see 7 U.S.C. § 2(i), “Section 19(a) ... d[id] not require the CFTC to reconsider the costs and benefits of ‘whether’ it is ‘necessary’ to apply the Title VII Rules overseas.” CFTC Mot. at 46 (quoting Pis.’ Mot. at 21). This is true, but ultimately beside the point. Section 19(a) requires the CFTC to consider only “the costs and benefits of the action of the Commission,” 7 U.S.C. § 19(a)(1) (emphasis added), not those resulting from statutory mandates. See Nat’l Ass’n of Mfrs. v. SEC (“NAM”),
That said, Congress’s decision that the Title VII Rules are to have extraterritorial application did not relieve the CFTC from its duty to consider the costs and benefits of a given Title VII Rule’s extraterritorial application when it determined what each Rule required of regulated market participants. It is precisely because Congress determined that the Title VII Rules apply
The CFTC nonetheless argues that, because plaintiffs do not point to any available data that it failed to consider regarding extraterritorial costs and benefits, the Title VII Rules’ cost-benefit analyses were sufficient under Section 19(a). CFTC Mot. at 47-48 & n.22.
Even in the absence of such data, however, the CFTC had a duty to consider “as best it c[ould] the economic implications of the rule[s].” Chamber of Commerce,
Finally, the CFTC argues that “plaintiffs’ primary objection ... that Title VII Rules are ‘duplicative’ and swaps ‘already are amply regulated under the laws of other nations’ ” was inaccurate at the time the Title VII Rules were promulgated. CFTC Mot. at 50-51 (quoting Pis.’ Mot. at 21-22). As ISDA acknowledged, even after most of the Title VII Rules were promulgated, foreign regulations were “still developmental” and in some cases “not expected to be in effect” for years. See ISDA Comment on Cross-Border Action, Aug. 10, 2012, at 5-6 (JA at 895-96). The CFTC thus urges that it had no obligation to consider the “ ‘hypothetical costs’ ” of these foreign regulations that had yet to materialize. CFTC Mot. at 51 (quoting ICI,
That the CFTC had no duty to consider the costs of duplicative regulation raises the possibility that the costs and benefits of the Title VII Rules’ extraterritorial applications were essentially identical to those of the Rules’ domestic applications. If that were the case, then the CFTC functionally considered the extraterritorial costs and benefits of the Title VII Rules by considering the Rules’ domestic costs and benefits. Indeed, Section 19(a) does not require the separate consideration of a Rule’s domestic and extraterritorial costs and benefits, so long as the cost-benefit analysis makes clear that the CFTC reasonably considered both. But there is no indication in the Title VII Rules that the CFTC’s cost-benefit analyses even tacitly considered both the Rules’ domestic and extraterritorial applications. The Court therefore need not address the possibility that the costs and benefits of the Title VII Rules’ domestic and extraterritorial applications were functionally the same. Chen-ery,
Instead, the record compels the Court to conclude that the CFTC’s failure to address the costs and benefits of the Title VII Rules’ extraterritorial applications signals that the CFTC failed to consider those costs and benefits as they relate, inter alia, to “considerations of protection of market participants” as well as “considerations of efficiency,, competitiveness, and financial integrity of futures markets.” 7 U.S.C. § 19(a)(2)(A)-(B). This failure renders the CFTC’s cost-benefit analyses for the transaction-level Real-Time Reporting, Daily Trading Records, and Portfolio Reconciliation and Documentation Rules and the entity-level Entity Definition, Swap Entity Registration, Risk Management, Chief Compliance Officer, SDR Reporting, Historical SDR Reporting Rules, and SEF Registration Rules, arbitrary and capricious under 5 U.S.C. § 706(2)(A).
IV. REMEDY
Plaintiffs seek “partial vacatur of the [Title VII] Rules to the extent the CFTC claims they have extraterritorial application,” and an injunction prohibiting the CFTC from applying
(1) “the Title VII Rules to swaps transactions in which both parties are organized or incorporated under the laws of a jurisdiction outside the United States, even if one party is a guaranteed or conduit affiliate of a ‘U.S. person’;”
(2) “the ‘Transaction-Level Requirements’ of the Title VII Rules to swaps with non-U.S. swap dealers or major swap participants, regardless of whether the counterparties use U.S. branches or U.S. personnel to execute their swaps;” and
(3) “the SEF Registration Rule to non-U.S. multilateral trading platforms that limit the execution of swaps to counterparties organized or incorporated under the laws of a jurisdiction outside of the United States”
until the ■ CFTC completes the required cost-benefit analyses. Pis.’ Mot. at 44. The CFTC responds that the relief plaintiffs seek is beyond the Court’s authority and otherwise unjustified. CFTC Mot. at 59-65.
When a Court identifies an infirmity in a rule, vacatur and remand is the “normal” remedy. Allina Health Servs. v. Sebelius,
Any deficiency in the Title VII Rules is not so “serious” as to favor vacatur if the CFTC can show that it “will be able to justify a future decision to retain the Rule[s]” on remand. Fox Television Stations, Inc. v. FCC,
Importantly, the only issues necessarily before the CFTC on remand would be the substance of the Title VII Rules, not the scope of those Rules’ extraterritorial appli
While the fact that some foreign jurisdictions have passed swaps regulations since the CFTC’s promulgation of the Title VII Rules suggests that the Rules’ extraterritorial applications may now raise issues of duplicative regulatory burdens, the CFTC may well conclude that its policy of substituted compliance largely negates these costs. In any event, it is the CFTC’s role in the first instance to weigh those costs along with the Rules’ benefits, see Inv. Co. Inst.,
Whether vacatur would cause disruptive consequences is “only barely relevant” when, as is the ease here, it is apparent that the agency likely will be able to provide adequate justification for retaining its rules after remand. Fox Television Stations,
Considering Title VII’s purposes of reducing systemic risk and promoting market transparency, the Court finds that the partial vacatur of the inadequately explained Title VII Rules for some unknown period of time while the CFTC conducted new cost-benefit analyses would be unnecessarily disruptive to the CFTC’s mission and the purposes of the Dodd-Frank Act. See Nat’l Lime Ass’n v. EPA,
CONCLUSION
The majority of plaintiffs’ claims fail because Congress has clearly indicated that the swaps provisions within Title VII of the Dodd-Frank Act — including any rules or regulations prescribed by the CFTC— apply extraterritorially whenever the jurisdictional nexus in 7 U.S.C. § 2(i) is satisfied. In this regard, plaintiffs’ challenges to the extraterritorial application of the Title VII Rules merely seek to delay the inevitable. The Court will not question the CFTC’s decision to proceed in interpreting and applying Section 2(i) on a case-by-case basis through adjudication; nor will it set aside the CFTC’s decision to promulgate the Cross-Border Action to announce its non-binding policies regarding the Title VII Rules’ extraterritorial applications. Instead, the Court will only remand to the CFTC those Title VII Rules that are supported by inadequate cost-benefit analyses.
For the foregoing reasons, the Court will dismiss plaintiffs’ claims as to the
ORDER
For the reasons set forth in the Opinion issued this same day [Dkt. No. 58], it is hereby
ORDERED that defendant’s motion to dismiss [Dkt. No. 28] is GRANTED in . part and DENIED in part; it is
FURTHER ORDERED that plaintiffs’ claims relating to the Process for a Designated Contract Market or Swap Execution Facility To Make a Swap Available to Trade, Swap Transaction Compliance and Implementation Schedule, and Trade Execution Requirement Under the Commodity Exchange Act (“Trade Execution Rule”), 78 Fed.Reg. 38606 (June 4, 2013), are DISMISSED WITHOUT PREJUDICE for lack of standing; it is
FURTHER ORDERED that plaintiffs’ motion for summary judgment [Dkt. No. 21] is GRANTED in part and DENIED in part; it is
FURTHER ORDERED that defendant’s motion for summary judgment [Dkt. No. 28] is GRANTED in part and DENIED in part; it is
FURTHER ORDERED that judgment is entered in favor of defendant as to plaintiffs’ claims relating to the following agency actions:
1. Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations (“Cross-Border Action”), 78 Fed. Reg. 45292 (July 26, 2013);
2. Large Trader Reporting for Physical Commodity Swaps (“Large Trader Reporting Rule”), 76 Fed.Reg. 43851 (July 22, 2011);
3. Customer Clearing Documentation, Timing of Acceptance for Clearing, and Clearing Member Risk Management (“Straight-Through Processing Rule”), 77 Fed.Reg. 21278 (April 9, 2012); and
4. Clearing Requirement Determination Under Section 2(h) of the CEA (“Clearing Determination Rule”), 77 Fed.Reg. 74284 (Dec. 13, 2012); it is
FURTHER ORDERED that the following agency actions are REMANDED WITHOUT VACATUR to the United States Commodity Futures Trading Commission for further proceedings consistent with the Opinion issued this same day:
1. Real-Time Public Reporting of Swap Transaction Data (“Real-Time Reporting Rule”), 77 Fed.Reg. 1182 (Jan. 9, 2012);
2. Recordkeeping and Reporting Requirements (“SDR Reporting Rule”), 77 Fed.Reg. 2136 (Jan. 13,2012);
3. Registration of Swap Dealers and Major Swap Participants (“Swap Entity Registration Rule”), 77 Fed. Reg. 2613 (Jan. 19, 2012);
4. Swap Dealer and Major Swap Participant Recordkeeping, Reporting, and Duties Rules; Futures Commission Merchant and Introducing Broker Conflicts of Interest Rules; and Chief Compliance Officer Rules for Swap Dealers, Major Swap Participants, and Futures Commission Merchants (“Daily Trading Records,” “Risk Management,” and “Chief Compliance Officer Rules”), 77 Fed.Reg. 20128 (April 3, 2012);
5. Further Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” “Major Security-Based Swap Participant,” and “Eligible Contract Participant” (“Entity Definition Rule”), 77 Fed. Reg. 30596 (May 23, 2012);
6. Swap Data Recordkeeping and Reporting Requirements: Pre-Enactment and Transition Swaps (“Historical SDR Reporting Rule”), 77 Fed.Reg. 35200 (June 12,2012);
7. Confirmation, Portfolio Reconciliation, Portfolio Compression, and Swap Trading Relationship Documentation Requirements for Swap Dealers and Major Swap Participants (“Portfolio Reconciliation and Documentation Rule”), 77 Fed.Reg. 55904 (Sep. 11, 2012); and
8. Core Principles and Other Requirements for Swap Execution Facilities (“SEP Registration Rule”), 78 Fed. Reg. 33476 (June 4, 2013); it is
SO ORDERED.
Notes
. Futures contracts are traded on exchanges regulated by the CFTC. See 7 U.S.C. § 2(a)(1)(A). Stock options are traded on exchanges regulated by the United States Securities and Exchange Commission. See 15 U.S.C. § 77b(a)(l).
. Plaintiffs have not, however, identified comments for the Trade Execution, Large Trader Reporting, Straight-Through Processing, and Clearing Determination Rules that raised the issue of the scope of those Rules' extraterritorial applications.
. In a joint final rule with the SEC, the CFTC concluded that "when a swap has a benefit of a guarantee, the guarantee is an integral part of that swap” because it "affects the price or pricing attributes of that swap.” Entity Definition Rule, 77 Fed.Reg. 48208, 48225-26 (Aug. 13, 2012) (footnote omitted); see also Cross-Border Action, 78 Fed.Reg. at 45319 & n.260.
. The Cross-Border Action provides a nonexclusive list of "certain factors” the CFTC “believes ... are relevant to considering whether a non-U.S. person is a [foreign] 'affiliate conduit.' ” 78 Fed.Reg. at 45359. Those factors include whether
(i) the non-U.S. person is a majority-owned affiliate of a U.S. person;
(ii) the non-U.S. person is controlling, controlled by or under common control with the U.S. person;
(iii) the financial results of the non-U.S. person are included in the consolidated financial statements of the U.S. person; and (iv) the non-U.S. person, in the regular course of business, engages in swaps with non-U.S. third-party(ies) for the purpose of hedging or mitigating risks faced by, or to take positions on behalf of, its U.S. affiliate(s), and enters into offsetting swaps or other arrangements with its U.S. affiliate(s) in order to transfer the risks and benefits of such swaps with third-party(ies) to its U.S. affiliates.
Id. (footnotes omitted). The Cross-Border Action, however, notes that "[o]ther facts and circumstances also may be relevant.” Id.
. The Cross-Border Action emphasizes that, unlike a guaranteed affiliate, “an affiliate conduit would not necessarily be guaranteed by its parent,” and thus "the jurisdictional nexus is met by reason of the trading relationship between the conduit and the affiliated U.S. persons,” not the whole or partial transfer of risk to the affiliated U.S. persons. 78 Fed.Reg. at 45359 & n.588.
. See Robert Schmidt & Silla Brush, Banks Said to Seize 'Footnote 513’ to Keep Swaps Private, Bloomberg News, Oct. 23, 2013, http:// www.bloomberg.com/news/2013-10-23/ banks-said-to-seize-footnote-513-to-keep-swaps-private.html.
. Gina Chon & Philip Stafford, CFTC Sued by Trade Groups over Swaps Rules, Fin. Times, Dec. 4, 2013, http://www.ft.eom/cms/s/0/0f998 b74-5dla-lle3-a558-00144feabdc0.html [Dkt. No. 28-1 Ex. F],
. Motion of CFTC to Hold in Abeyance Plaintiffs' Motion for Summary Judgment Pending Disposition of the Commission's Forthcoming Motion to Dismiss, Dec. 30, 2013 [Dkt. No. 13]; Plaintiffs’ Motion for Expedited Consideration of Summary Judgment, Dec. 30, 2013 [Dkt. No. 14],
. See Plaintiffs’ (Corrected) Motion for Summary Judgment ("Pis.' Mot.”), Jan. 23, 2014 [Dkt. No. 21]; Plaintiffs’ Statement Accompanying Declarations Regarding Standing (“Pis.' Standing Br.”), Jan. 27, 2014 [Dkt. No. 22]; Defendant CFTC’s Cross-Motion for Summary Judgment, Opposition to Plaintiffs’ Motion for Summary Judgment, and Motion to Dismiss in Part ("CFTC Mot.”), Mar. 14, 2014 [Dkt. No. 28]; Plaintiffs’ Consolidated Reply in Support of their Motion for Summary Judgment and Response to Defendant’s Cross-Motion for Summary Judgment and Motion to Dismiss in Part ("Pis.’ Reply”), April 8, 2014 [Dkt. No. 37]; Defendant CFTC's Consolidated Reply in Support of its Cross-Motion for Summary Judgment, Opposition to Plaintiffs’ Motion for Summary Judgment, and Motion to Dismiss in Part ("CFTC's Reply”), May 2, 2014 [Dkt. No. 40].
. See Brief of the Chamber of Commerce of the United States of'America as Amicus’ Curiae in Support of Plaintiffs’ Motion for Summary Judgment, Feb. 3, 2014 [Dkt. No. 25]; Brief of Better Markets, Inc. as Amicus Curiae in Support of Defendant CFTC, Mar. 19, 2014 [Dkt. No. 33]; Brief of Current and Former Members of Congress as Amicus Curiae in Support of Defendant CFTC, Mar. 21, 2014 [Dkt. No. 46],
. See CFTC’s Supplemental Brief Filed Pursuant to Order Dated June 23, 2014 ("CFTC Suppl. Br.”), July 18, 2014 [Dkt. No. 53]; Supplemental Brief for Plaintiffs ("Pis.’ Suppl. Br.”), July 18, 2014 [Dkt. No. 54].
. In this Circuit, the shareholder standing rule has both jurisdictional and prudential underpinnings. See Cherry v. FCC,
. The Court accepts the statements within plaintiffs' members' declarations for three reasons. First, and most importantly, the statements are largely undisputed. Second,
. The Court rejects the CFTC's argument that plaintiffs cannot demonstrate traceability or redressability as to the Cross-Border Action because the Title VII Rules apply extra-territorially, with or without the Cross-Border Action, through 7 U.S.C. § 2(i). CFTC Reply at 27. While Section 2(i) unambiguously establishes that the Title VII Rules apply extraterritorially, see infra Section III.A, the CFTC exercised its discretion to promulgate the Cross-Border Action to further define the scope of Section 2(i). The CFTC cannot insulate the Cross-Border Action from judicial review by stating that it would enforce its Title VII Rules in the same manner even if the Court were to vacate the Cross-Border Action. Cf. Mendoza v. Perez,
. The CFTC argues that the declarants lack personal knowledge of why the SEFs excluded plaintiffs^ members from the platforms and that the best evidence adduced is " ‘sheer hearsay' which ‘counts for nothing on summary judgment.' " CFTC Mot. at 57 (quoting Greer v. Paulson,
. Indeed, to date it appears that U.S.-based SEFs and DCMs have made all of the "avail
. Even assuming plaintiffs had standing to challenge the Trade Execution Rule through SG and Deutsche Bank AG — or any other member — all of plaintiffs' claims regarding the Trade Execution Rule would fail on the merits. Plaintiffs' failure to identify comments for the Trade Execution Rule that addressed the scope of the Rule's extraterritorial application, see supra note 2, is fatal to their claims. See Nat’l Wildlife Fed’n v. EPA,
. The shareholder standing rule is “[r]elated to” the rule against third-party standing. See Franchise Tax Bd.,
. Organizations purporting to represent informal members must also "serve a specialized segment of the community” and have "fortunes ... tied closely to those of its constituency.” Basel Action Network,
. By contrast, plaintiffs’ functional members (like PLC) lack standing to challenge the Trade Execution Rule for the same reasons as SG and Deutsche Bank AG. See supra Section I.B. Plaintiffs have failed to adduce facts showing that the CFTC’s extraterritorial application of the Trade Execution Rule is a “substantial factor” in the injuries they allege.
. Had the parties been in agreement, as the Court concludes infra Section II.B.2, that the Cross-Border Action is part interpretive rule and part policy statement, plaintiffs’ substantive challenges to the Cross-Border Action certainly would not be ripe for review. Although the issues presented would remain, for the most part, purely legal, "even purely legal issues may be unfit for review." Atl. States Legal Found.,
. Although this rule has its genesis in doctrines involving appellate jurisdiction, see Norton,
. The D.C. Circuit decided NMA on July 11, 2014, months after the parties completed briefing and only weeks before oral argument. Both parties filed notices of supplemental authority with the Court prior to oral argument. CFTC’s Second Notice of Supplemental Authority, July 18, 2014 [Dkt. No. 52]; Plaintiffs’ Response to CFTC’s Second Notice of Supplemental Authority, July 28, 2014 [Dkt. No. 57].
. While the Cross-Border Action does address legally binding norms, it does not establish them. See 78 Fed.Reg. at 45297 (indicating "how [the CFTC] ordinarily expects to apply existing law and regulations ” (emphasis added)). Instead, it merely "clarifies” the CFTC’s position as to the market participants’ "existing duties” pursuant to 7 U.S.C. § 2(i) and the Title VII Rules, See Catawba Cnty, 571 F.3d al 34. Such "clarification” and advance notice is a core function (and benefit) of a policy statement. See Pac. Gas & Elec. Co. v. Fed. Power Comm’n,
. The Cross-Border Action’s publication in the Federal Register does not signal that the CFTC meant it to be a legislative rule. See Brock, 796 F.2d at'539 (‘'Publication in the Federal Register does not suggest that the matter published was meant to be a regulation, since the APA requires general statements-of policy to be published as well.” (emphases in original) (citing 5 U.S.C. § 552(a)(1)(D))). Nor is the fact that the Cross-Border Action was issued by a vote of the CFTC’s commissioners, and over a dissent, of any significance. See Batterton v. Marshall,
. Similarly, the fact that the CFTC briefly references the Cross-Border Action, or even adopts its language, in some of its non-binding "no action” letters, see, e.g., CFTC Letter No. 13-71,
. As the D.C. Circuit made clear in American Mining Congress, whether an interpretation is closely related enough to the underlying statute to be considered an interpretive rule is a distinct question from whether the interpretation is reasonable or enforceable. See
. See 15 U.S.C. § 6a ("Sections 1- to 7 of this title shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless — (1) such conduct has a direct, substantial, and reasonably foreseeable effect— (A) on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or (B) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States; and (2) such effect gives rise to a claim undpr the provisions of sections 1 to 7 of this title, other than this section.”).
. Contrary to plaintiffs’ suggestion, Pis.’ Mot. at 13, the fact that the SEC published a legislative rule defining the scope of its Title VII Rules’ extraterritorial applications, see Application of "Security-Based Swap Dealer” and "Major Security-Based Swap Participant” Definitions to Cross-Border Security-Based Swap Activities, 79 Fed.Reg. 39068 (July 9, 2014), republished, 79 Fed.Reg. 47278 (Aug. 12, 2014), says nothing of the CFTC’s obligation to do so. Agencies are generally free to proceed differently when addressing similar problems. In any event, while the CFTC had discretion to address the extraterritorial applications of its Title VII Rules through either rulemaking or adjudication, the SEC did not have that flexibility. Instead, the SEC was required to promulgate "rules or regulations” before applying its Title VII Rules extraterritorially. See 15 U.S.C. § 78dd(c) (stating that SEC’s Title VII Rules shall not apply “without the jurisdiction of the United States, unless such person transacts such business in contravention of such rules and regulations as the [SEC] may prescribe as necessary or appropriate to prevent the evasion of any provision of this chapter” (emphases added)).
. As an initial matter, plaintiffs fail to identify comments submitted for the Large Trader Reporting, Straight-Through Processing, and
. Even if plaintiffs’ contention that “[cQeter-mining which entities and activities are covered by a regulation is necessarily an important aspect of crafting the rule,” Pis.’ Mot. at 17, is generally correct, it is inapposite in this case. For Congress already addressed this "important” issue by defining the scope of the Title VII Rules’ extraterritorial applications in the statute itself. The CFTC need not within each Title VII Rule it promulgates elaborate on every facet of the overall regulatory scheme; instead, the agency can rely on regulated market participants to reference other controlling statutes and regulations to address issues left unresolved by a given Title VII Rule. Just as plaintiffs could turn to the Entity Definition Rule to determine what the other Title VII Rules meant when they used the term "swap dealer,” plaintiffs could look to the language in 7 U.S.C. § 2(i) to determine the scope of the Title VII Rules’ extraterritorial applications. See Entity Definition Rule, 77 Fed.Reg. at 30693 n.1183 (noting that a foreign entity’s registration as a swap dealer or major swap participant "would have to satisfy the requirements” of 7 U.S.C. § 2(i)).
. Many of the comments on which plaintiffs rely foiled to address any aspect of the proposed Title VII Rules for which they were submitted. Instead, commenters used their comments to express to the CFTC their views on the general scope of Title VII’s extraterritorial reach. See Comment from IIB on Swap Entity Registration Rule, Jan. 10, 2011 (JA at 1123-42) (twenty-page comment "proposing” a "framework for global supervision of cross-border swap activity by foreign banks); Comment from SIFMA on Swap Entity Registration Rule, Feb. 3, 2011 (JA at 1143-61) (nineteen-page comment addressing only the "extraterritorial application of Title VII ... and the rules proposed”); cf Comment from Sullivan & Cromwell LLP on Entity Definition Rule, Feb. 22, 2011 (JA at 1162-81) (twenty-page comment urging that entity definitions in Entity' Definition Rule be modified to address scope of Title VII’s extraterritorial application). These generalized comments cannot undermine the CFTC’s discretion to proceed incrementally, whether by adjudication or by rulemaking.
. The D.C. Circuit decided NAM on April 14, 2014, one week after plaintiffs filed their opposition and reply brief, but several weeks before the CFTC filed its reply brief. The CFTC addressed NAM in its reply brief, CFTC Reply at 9-10, and the parties also filed notices of supplemental authority with the Court. See Plaintiffs’ Notice of Supplemental Authority, May 13, 2014 [Dkt. No. 42]; CFTC’s Response to Plaintiffs’ Notice of Supplemented Authority, May 16,2014 [Dkt. No. 44],
. The CFTC cherry picks the Title VII Rules for references to the extraterritorial applications to argue that it considered the costs and benefits of the Rules' extraterritorial applications. See CFTC Mot. at 48-50; CFTC Reply at 10. Even to the extent that these myriad citations indicate that the CFTC did consider the fact that the Rules would have extraterritorial application, they are no substitute for the consideration of the costs and benefits of the extraterritorial applications as required under Section 19(a).
. Indeed, one thing is certain; the CFTC may not conclude on remand that the costs of extraterritorial application of a given Title VII Rule so outweigh the benefits that the Rule is flatly inapplicable abroad. See supra Section III.C.
. The Court denies plaintiffs' request for an injunction enjoining the CFTC from applying the Title VII Rules extraterritorially for many of the same reasons. "An injunction is a drastic and extraordinary remedy” — more drastic and extraordinary than vacatur— "which should not be granted as a matter of course.” See Monsanto Co. v. Geertson Seed Farms,