September 28, 2016

CFTC Expands Interest Rate Swap Clearing Requirement

Washington, DC — The U.S. Commodity Futures Trading Commission (Commission) today expanded the existing clearing requirement for interest rate swaps. The Commission voted unanimously to approve an amendment to Commission regulation 50.4(a) that establishes a new clearing requirement determination.

The new clearing requirement determination requires market participants to submit a swap that is identified in expanded regulation 50.4(a) for clearing by a derivatives clearing organization (DCO).

The Dodd-Frank Act amended the Commodity Exchange Act (CEA) to prevent market participants from entering into a swap that the Commission has required to be cleared unless that market participant submits the swap for clearing to a DCO. The Dodd-Frank Act also requires the Commission to determine whether a swap is required to be cleared by either a Commission-initiated review or a submission from a DCO for the review of a swap, or group, category, type, or class of swap. According to the CEA and Commission regulations, the clearing requirement determination does not apply to those entities that are eligible to elect an exception or exemption from clearing, such as non-financial entities and small banks hedging commercial risk, certain affiliated counterparties, and certain cooperatives.

Expanded Classes of Interest Rate Swaps Required to be Cleared

The determination requires that swaps denominated in particular currencies in each of the four interest rate swap classes described in regulation 50.4(a) be cleared under section 2(h) of the CEA. The expanded interest rate swap classes include:

• fixed-to-floating interest rate swaps denominated in Australian dollar (AUD), Canadian dollar (CAD), Hong Kong dollar (HKD), Mexican peso (MXN), Norwegian krone (NOK), Polish zloty (PLN), Singapore dollar (SGD), Swedish krona (SEK), and Swiss franc (CHF);
  
  
• basis swaps denominated in AUD;
  
  
• forward rate agreements (FRAs) denominated in NOK, PLN, and SEK; and
  
  
• overnight index swaps (OIS) denominated in AUD and CAD, as well as U.S. dollar-, euro-, and sterling-denominated OIS with termination dates up to three years.
  

While AUD-denominated FRAs were included in the proposal to expand Commission regulation 50.4(a), the Commission has decided not to include this swap in the final rulemaking.

Implementation of the Clearing Requirement

Compliance with the expanded interest rate swap clearing requirement will be phased-in according to an implementation schedule based on when analogous clearing requirements have taken, or will take, effect in non-U.S. jurisdictions. There is a two-year time limit on this phasing schedule to provide certainty to market participants.

Today’s clearing requirement determination applies to swaps currently cleared by four registered DCOs: Chicago Mercantile Exchange Inc.; Eurex Clearing AG; LCH.Clearnet Ltd.; and Singapore Exchange Derivatives Clearing Ltd. Four other DCOs that the Commission has exempted from registration: ASX Clear (Futures) Pty Ltd.; Japan Securities Clearing Corp.; Korea Exchange Inc.; and OTC Clearing Hong Kong Ltd., are eligible to clear interest rate swaps subject to the expanded clearing requirement, but only for U.S. proprietary accounts.

Last Updated: September 28, 2016