CFTC Proposes Amendments to Clearing Exemptions
The CFTC proposed several amendments to the exemptions from swap clearing requirements, including for certain sovereign entities and small banking entities.
The proposal would, among other things, make the following changes:
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Small Bank Exception. The proposal would move the exception for "small banks" (generally, certain banking entities with less than $10 billion in assets) from Rule 50.50(d) to new Rule 50.53.
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Sovereigns and Multilaterals. The CFTC proposed new Rule 50.75, which would provide an exemption from clearing for swaps with "central banks" and "sovereign entities." The CFTC proposed new Rule 50.76, which would provide an exemption from clearing for swaps with a specified list of multilateral development institutions along with "any other entity that provides financing for national or regional development in which the U.S. government is a shareholder or contributing member."
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Other Banking Entities. Proposed new Rules 50.77, 50.78 and 50.79 would provide clearing exceptions for certain community development financial institutions, bank holding companies, and savings and loan holding companies.
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Compliance Schedule. A new compliance schedule would be adopted as per Rule 50.26 that includes prior compliance dates from 2012 to 2016.
Commissioner Statements
CFTC Chair Heath P. Tarbert commended the proposed amendments for (i) clarifying the terms of existing exemptions for smaller entities (e.g., saving associations, farm credit systems and credit units) that play an "outsized role" in the U.S. economy and (ii) significantly reducing costs and regulatory burdens for such entities. Commissioners Dan M. Berkovitz and Brian Quintenz also issued statements in support of the proposal.
Comments on the proposal must be submitted within 60 days following publication in the Federal Register.
Commentary
Though seemingly significant given the subject matter and the number of changes, the proposal is largely a good-housekeeping measure by the CFTC.
- The exemption for sovereigns and multilaterals largely codifies ad hoc exemptions for these entities granted in the preamble to the release adopting the initial clearing requirement, 77 FR at 42561-62, and in subsequent CFTC staff letters (e.g., Letters 13-25, 17-57, 17-58, and 17-59).
- The compliance schedule in Rule 50.26 has no forward-looking meaning and is solely reference material.
- The small bank change is intended solely as a technical cleanup and to move all exemptions to the same section of the rulebook.
- The “other banking entity” exceptions are essentially codifications of existing staff relief under Letters 16-01 and 16-02 and are a re-proposal of rules initially proposed in 2018.