CFTC Announces that the Third Phase of Mandatory Clearing of Certain Credit Default Swaps and Interest Rate Swaps Begins Today

Washington, DC — The Commodity Futures Trading Commission’s (Commission) Division of Clearing and Risk (Division) reminds all swaps market participants that the third phase of required clearing for certain credit default swaps (CDS) and interest rate swaps begins today. Accounts managed by third-party investment managers, ERISA pension plans, and entities that were not subject to the Commission’s first two implementation deadlines are required to begin clearing CDS and interest rate swaps that are executed on or after September 9, 2013.

The Dodd-Frank Wall Street Reform and Consumer Protection Act required the Commission to determine whether a swap is required to be cleared by a derivatives clearing organization. The Commission adopted its first clearing requirement determination for four classes of interest rate swaps and two classes of CDS on November 29, 2012. The specifications for the CDS and interest rate swaps required to be cleared are set forth in Commission Regulation 50.4 and can be found in the Federal Register release accompanying the Commission’s first clearing determination in the Related Links above.

With regard to the iTraxx CDS indices on European corporate names, one of the two classes of CDS subject to required clearing under Commission Regulation 50.4, the following alternative compliance dates apply: Category 1 entities began clearing April 26, 2013; Category 2 entities began clearing July 25, 2013; and all other entities will have to begin clearing on October 23, 2013.

Market participants are required to clear swaps subject to a clearing requirement determination unless an exception, exemption, or other relief from required clearing applies. The Commission has adopted an exception from clearing for non-financial entities hedging commercial risk, an exemption for swaps between affiliated entities, and an exemption for certain swaps entered into by cooperatives. In addition, the Division has issued no-action relief from the clearing requirement for certain swaps entered into by eligible treasury affiliates. In order to claim relief from the clearing requirement, a counterparty must satisfy all of the conditions and requirements of the relevant exception, exemption, or other relief from required clearing. The relevant documents can be found in the Related Links section above.

As a condition to electing not to clear a swap subject to the clearing requirement, certain information regarding both the counterparty electing the relief and the swap itself must be reported to a registered or provisionally-registered swap data repository (SDR). Counterparties should consult the text of the relevant relief to determine their reporting obligations.

There are currently three provisionally-registered SDRs available to accept the information required to be reported: CME SDR, DTCC Data Repository, and ICE Trade Vault. The SDRs have forms and/or processes, as described on their websites, for counterparties to report relief from required clearing:

http://www.cmegroup.com/market-data/repository/

http://www.dtcc.com/products/derivserv/suite/us_swap_data_repository.php

https://www.icetradevault.com/

Last Updated: September 9, 2013