On June 9, the Commodity Futures Trading Commission (CFTC) released a notice of proposed rulemaking regarding an expansion of CFTC Regulation 50.4(a). If adopted, additional classes of interest rate swaps will become subject to mandatory clearing pursuant to the Dodd-Frank Act. The proposed rulemaking does not modify the types of entities that are subject to mandatory clearing, namely swap dealers, major swap participants and financial entity end users. Comments in response to the proposal must be received by the CFTC by July 18, 2016.
According to the CFTC, the proposed rules are designed to harmonize the CFTC’s clearing requirements with those proposed or finalized by the CFTC’s counterparts in Australia, Canada, the European Union, Hong Kong, Mexico and Singapore.
The charts below1 illustrate, in italics, how the CFTC proposes to expand the clearing mandate for interest rate swaps. Non-italicized items are already subject to clearing pursuant to the CFTC’s first clearing mandate, which was issued in 2012.
Proposed Compliance Date
The CFTC is considering two scenarios regarding implementation.
In the first scenario, market participants would be required to comply with the proposed requirements 60 days after the final determination is published in the Federal Register, as is typical of rules promulgated by the CFTC. Under this scenario, all market participants would know exactly when the requirements begin, but it is likely that some categories of swaps would be subject to these rules before or after the effective date of the corresponding rules in the non-U.S. jurisdictions.
In the second scenario, the compliance date would be on the earlier of (1) 60 days “after the effective date of an analogous clearing requirement that has been adopted by a regulator in a non-U.S. jurisdiction,”2 as long as it is not within 60 days of the CFTC’s final rule being published, or (2) two years after the CFTC’s final rule is published in the Federal Register. The second scenario would align the corresponding regulations in non-U.S. jurisdictions more closely, but market participants would not know exactly when the requirements begin.
1 These charts can be found as part of the CFTC’s press release. CFTC Proposes Additional Interest Rate Swaps for Clearing Requirement, COMMODITY FUTURES TRADING COMM’N (Jun. 9, 2016), http://www.cftc.gov/PressRoom/PressReleases/pr7387-16.
2 Clearing Requirement Determination under Section 2(h) for Interest Rate Swaps,81 Fed. Reg. (39,506) (June 16, 2016).
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