I am voting for the final rule codifying certain limited exemptions from the swap clearing requirement that currently exist through Commission guidance or staff no action relief.  The exemptions are consistent with longstanding Commission policies.  Analysis of available historical data shows that the number and notional amount of swaps that would be exempted are relatively limited and not likely to materially impact systemic risk.  Furthermore, the swaps exempted from clearing will be subject to uncleared swap margin requirements, if applicable, thereby mitigating the risks of not clearing these swaps.

The final rule codifies in rule text exemptions for swaps entered into by foreign central banks, sovereign entities at the national level, and certain international institutions that previously have been exempted from the clearing requirement through no action relief or guidance.  In this regard, the final rule represents a proper exercise of international comity in recognition of the governmental nature and non-speculative purposes of these sovereign entities and international institutions.

The final rule also provides clearing exemptions for certain interest rate swaps of community development financial institutions, subject to a number of significant limits, and for swaps entered into by bank or savings and loan holding companies that have no more than $10 billion in consolidated assets.  In each case, the exemption only applies if the swap is used to hedge or mitigate commercial risks.  Congress provided in Commodity Exchange Act section 2(h)(7)(C) for an exclusion from the clearing requirement for banks and savings associations with less than $10 billion in assets to the extent determined by the Commission.  It is appropriate to apply this exemption to the holding companies of these financial entities.

One commenter, Better Markets, expressed concern that the number of entities that will now have an exemption from the clearing requirement has grown over time, leading to the potential for greater risk, reduction in liquidity in cleared markets, and complexity in managing the exemptions.  As described in the preamble to the final rule, swap data repository data indicates that over the past several years the number and scope of swaps entered into by these institutions that will be included within the exemptions has been relatively limited.  Given this data, these concerns, today, do not outweigh the benefits of the final rule.  However, the Commission should periodically review the SDR data to reassess whether the clearing requirement exemptions are cumulatively having a material impact on the extent of swap clearing given the intent of the Dodd-Frank Act.  The Commission can then evaluate whether, on a going forward basis, any changes to the exemptions may be warranted.

I commend the staff of the Division of Clearing and Risk for this well developed and drafted final rule.  The clarity and completeness of the final release helps establish a sound basis for the Commission to approve the final rule.