/Vol. 78, No. 70/Thursday, April 11, 2013/Rules and Regulations
Clearing Exemption for Swaps Between CertainAffiliated Entities, 77 FR 50425 (Aug. 21, 2012).
For ease of reference, the Commission is re-codifying proposed §39.6(g) as §50.52 so thatmarket participants are able to locate all rulesrelated to the clearing requirement in one part of the Code of Federal Regulations.
Section 2(h)(7) of the CEA provides anexception to the clearing requirement when one of the counterparties to a swap (i) is not a financialentity, (ii) is using the swap to hedge or mitigatecommercial risk, and (iii) notifies the Commissionhow it generally meets its financial obligationsassociated with entering into a non-cleared swap.
Clearing Requirement Determination UnderSection 2(h) of the CEA, 77 FR 74284 (Dec. 13,2012) (hereinafter ‘‘Clearing RequirementDetermination’’).
Clearing Requirement Determination at74319–21.
The first compliance date for required clearingapplies to Category 1 Entities, as defined in§50.25(a). SDs and MSPs and private funds activein the swaps market are defined as Category 1Entities. Security-based swap dealers and majorsecurity-based participants also are included in thedefinition. However, as the Commission has stated,if a security-based swap dealer or a major security- based swap participant is not yet required toregister with the Securities and ExchangeCommission (SEC) at such time as the Commissionissues a clearing determination, then the security- based swap dealer or a major security-based swapparticipant would be treated as a Category 2 Entity,as defined in §50.25(a).
Swap TransactionCompliance Implementation Schedule: Clearingand Trade Execution Requirements under Section2(h) of the CEA, 76 FR 58186, 58190 n.38 (Sept. 20,2011).
Clearing Requirement Determination at 74319–21.
COMMODITY FUTURES TRADINGCOMMISSION17 CFR Part 50
Clearing Exemption for SwapsBetween Certain Affiliated Entities
Commodity Futures TradingCommission.
The Commodity FuturesTrading Commission (Commission orCFTC) is adopting regulations to exemptswaps between certain affiliated entitieswithin a corporate group from theclearing requirement under theCommodity Exchange Act (CEA or Act),enacted by Title VII of the Dodd-FrankWall Street Reform and ConsumerProtection Act (Dodd-Frank Act). Theregulations include specific conditions,as well as reporting requirements, thataffiliated entities must satisfy in order toelect the inter-affiliate exemption fromrequired clearing.
This final rule is effective June10, 2013.
FOR FURTHER INFORMATION CONTACT
Sarah E. Josephson, Deputy Director,202–418–5684,
Nadia Zakir, Associate Director, 202–418–5720,
EricLashner, Special Counsel, 202–418–5393,
Meghan Tente,Law Clerk, 202–418–5785,
Division of Clearingand Risk, Erik Remmler, AssociateDirector, 202–418–7630,
Camden Nunery,Economist, 202–418–5723,
Office of the Chief Economist, Commodity Futures TradingCommission, Three Lafayette Centre,1155 21st Street NW., Washington, DC20581.
Table of Contents
I. BackgroundII. Comments on the Notice of ProposedRulemakingA. Overview of Comments ReceivedB. Section 4(c) AuthorityC. Definition of Affiliate StatusD. Inter-Affiliate Swap DocumentationE. Centralized Risk Management ProgramF. Variation MarginG. Treatment of Outward-Facing Swapsand Relief H. Reporting Requirements and AnnualElectionI. ImplementationIII. Cost-Benefit ConsiderationsA. Statutory and Regulatory BackgroundB. Costs and Benefits of Exemption forEligible Affiliate CounterpartiesC. Costs and Benefits of Exemption’sConditionsD. Costs and Benefits to MarketParticipants and the PublicE. Costs and Benefits Compared toAlternativesF. Consideration of CEA Section 15(a)FactorsIV. Related MattersA. Regulatory Flexibility ActB. Paperwork Reduction Act
On August 21, 2012, the Commissionpublished a notice of proposedrulemaking proposing to exempt swaps between certain affiliated entities fromthe clearing requirement under section2(h)(1)(A) of the CEA (NPRM).
Asproposed, §39.6(g) provides thatcounterparties to a swap may elect aninter-affiliate exemption from theclearing requirement if: (1) The financialstatements of both counterparties arereported on a consolidated basis, andeither one counterparty directly orindirectly holds a majority ownershipinterest in the other, or a third partydirectly or indirectly holds a majorityownership interest in bothcounterparties; (2) both counterpartiescomply with the conditions set forth inthe proposed rule; and (3) one of thecounterparties provides certaininformation on behalf of both affiliatedcounterparties to either a registeredswap data repository (SDR) or theCommission if a registered SDR does notaccept the information. TheCommission is hereby adoptingproposed §39.6(g), finalized as §50.52,
subject to the changes discussed below.Section 723(a)(3) of the Dodd-FrankAct amended the CEA to provide, undernew section 2(h)(1)(A) of the CEA, thatit shall be unlawful for any person toengage in a swap unless that personsubmits such swap for clearing to aderivatives clearing organization (DCO)that is registered under the CEA or aDCO that is exempt from registrationunder the CEA if the swap is requiredto be cleared.
Section 2(h)(2) of theCEA charges the Commission with theresponsibility for determining whether aswap is required to be cleared, throughone of two means: (1) Pursuant to aCommission-initiated review; or (2)pursuant to a submission from a DCO of each swap, or any group, category, type,or class of swaps that the DCO ‘‘plansto accept for clearing.’’ On November29, 2012, the Commission adopted itsfirst clearing requirementdetermination, requiring that swapsmeeting the specifications outlined infour classes of interest rate swaps andtwo classes of credit default swaps(CDS) are required to be cleared.
The Clearing RequirementDetermination adopting releaseprovided a specific complianceschedule for market participants to bring their swaps into compliance withthe clearing requirement.
Swap dealers(SDs), major swap participants (MSPs),and private funds active in the swapsmarket were required to comply beginning on March 11, 2013, for swapsthey enter into on or after that date.
Accounts managed by third-partyinvestment managers, as well as ERISApension plans, have until September 9,2013, to begin clearing swaps enteredinto on or after that date. All otherfinancial entities are required to clearswaps beginning on June 10, 2013, forswaps entered into on or after that date.With regard to the CDS indices onEuropean corporate names, iTraxx, theClearing Requirement Determinationprovided that, if no DCO offered iTraxxfor client clearing by February 11, 2013,the Commission would delaycompliance for those swaps until 60days after an eligible DCO offers iTraxxindices for client clearing. On February25, 2013, the Commission receivednotice from ICE Clear Credit LLC that ithad begun offering customer clearing of the iTraxx CDS indices that are subjectto the clearing requirement under§50.4(b). In accordance with thetimeframe previously set forth by theCommission,
the following compliance
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