Shearman & Sterling LLP | FinReg | Commodity Futures Trading Commission Proposes Clearing Requirement Exemptions for Certain Financial End Users
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  • Commodity Futures Trading Commission Proposes Clearing Requirement Exemptions for Certain Financial End Users
    08/23/2018
    The Commodity Futures Trading Commission has proposed exempting certain bank holding companies, savings and loan holding companies and community development financial institutions from swap clearing requirements. The proposed exemptions, issued in response to comments made through the CFTC's Project KISS initiative, codify prior no-action relief provided under CFTC Staff Letters 16-01 and 16-02.

    Pursuant to the proposed revisions to CFTC regulation 50.5, certain swaps entered into by bank holding companies and savings and loan holding companies with consolidated assets of $10 billion or less would be exempt from the clearing requirement. This exemption would only be available for swaps used to hedge or mitigate commercial risk. The swap would have to be reported to a swap data repository, pursuant to the CFTC's regulations.

    Swap transactions entered into with a community development financial institution would also be exempt from the clearing requirement, if: (1) the swap is a fixed-to-floating interest rate swap or forward rate agreement that would otherwise be subject to the clearing requirement; (2) the total aggregate notional value of interest rate swaps and forward rate agreements entered into by the community development financial institution does not exceed $200 million per year; (3) the community development financial institution enters into no more than ten swap transactions per year; and (4) the swap is used to hedge or mitigate commercial risk. These swaps must also be reported to an SDR, pursuant to the CFTC's regulations.

    As part of the proposal, bank holding companies, savings and loan holding companies and community development financial institutions would also be required to report certain additional information to an SDR indicating how the electing counterparty generally meets its financial obligations associated with its non-cleared swaps, similar to reporting required for non-financial end-users relying on an exemption from clearing.

    Additionally, the CFTC in its discussion specifically noted that the proposed exemptions would have no effect on margin requirements for uncleared swaps.

    Comments on the proposed exemptions are due October 29, 2018.

    View the proposal

    View the CFTC's press release.

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    TOPIC: Derivatives