August 13, 2013

CFTC Approves Final Regulations for Exemption from Required Clearing for Swaps Entered into by Certain Cooperatives; Division of Clearing and Risk Issues Time-Limited No-Action Relief

Washington, DC – The Commodity Futures Trading Commission (Commission) today issued a final rule to exempt swaps entered into by qualified cooperatives from the clearing requirement under section 2(h)(1)(A) of the Commodity Exchange Act (CEA) and part 50 of the Commission’s regulations, subject to certain conditions.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended the CEA to require clearing of certain swaps. On December 13, 2012, the Commission issued its first clearing requirement determination, requiring that swaps meeting the specifications outlined in four classes of interest rate swaps and two classes of credit default swaps (CDS) be cleared. On March 11, 2013, swap dealers, major swap participants, and private funds active in the swaps market began clearing certain index CDS and interest rate swaps that they entered into on or after March 11, 2013. On June 10, 2013, most other financial entities, except for ERISA pension plans and accounts managed by third-party investment managers, began to clear those CDS and interest rate swaps entered into on or after June 10, 2013. Clearing is mandatory unless one of the counterparties can elect an exception, exemption, or other relief from the clearing requirement.

Pursuant to its authority under section 4(c) of the CEA, which grants the Commission general exemptive authority, the Commission today approved a final rule that permits a qualifying cooperative to elect to not clear a swap subject to the clearing requirement provided that the cooperative’s members are either non-financial entities or other cooperatives whose members are non-financial entities. In addition, the swap must be entered into in connection with originating loans to cooperative members or hedge or mitigate commercial risk related to loans to, or swaps with, members.

The final rule requires the reporting counterparty to report the election of the cooperative exemption, as well as certain other information, similar to the information required by the election of the end-user exception or the inter-affiliate exemption, to a swap data repository (SDR) (or, if no SDR is available, to the Commission).

Because the final rule will not be effective for 30 days after publication in the Federal Register, concurrent with the issuance of the final rule, the Commission’s Division of Clearing and Risk today also announced the issuance of a time-limited, no-action letter granting relief from required clearing for certain swaps entered into by qualifying cooperatives that expires on effective date of the final rule. The no-action letter will provide for an orderly transition to the effective date of the final rule.

Last Updated: August 13, 2013