CFTC Issues No-Action Letter to Korea Exchange (CFTC Letter 14-87)

The CFTC Division of Clearing and Risk ("DCR") issued a time-limited no-action letter to Korea Exchange, Inc. ("KRX") temporarily excusing it from registering as a derivatives clearing organization ("DCO") pursuant to CEA Section 5b(a) ("Derivatives Clearing Organizations").

In the letter, the CFTC states that KRX seeks to clear Korean Won-dominated interest rate swaps ("KRW IRS") and other swaps covered by Korea's Financial Investment Services and Capital Markets Act for the proprietary trades of KRX's clearing members that are U.S. persons. The CFTC reasons that it recently granted no-action relief permitting non-U.S. clearing organizations to clear swaps for U.S. persons prior to registering with the CFTC as a DCO. The CFTC believes that KRX's request is consistent with the others that were granted relief, and states that it will exempt KRX from the requirements found in CEA Section 5b(a) under the following conditions:

• relief is limited to clearing of KRW IRS;
• KRX may only clear proprietary trades of U.S. clearing members; and
• if a clearing member clears a swap (referred to as the "alpha" swap) through KRX that has been reported to a CFTC-registered swap data repository ("SDR") pursuant to CFTC Rules Part 45 ("Swap Data Recordkeeping and Reporting Requirements"), then KRX must report the data to an SDR regarding the two swaps resulting from the novation of the alpha swap that had been submitted to KRX for clearing (referred to as "beta" and "gamma" swaps).

The no-action relief shall expire at the earlier of: (i) December 31, 2014, (ii) the date on which the CFTC registers KRX as a DCO or (ii) the date on which the CFTC exempts KRX from registration as a DCO.

See: CFTC Letter 14-87.
Related news: CFTC Issues Extensions in Two No-Action Letters Regarding DCO and DCM (CFTC Letters 14-85 and 14-86) (June 25, 2014); CFTC Issues Two Extensions of No-Action Relief to LCH and Nodal (CFTC Letters 14-38 and 14-39) (March 27, 2014); CFTC No-Action Letter 13-52: LCH.Clearnet Ltd and Clearing Members (September 23, 2013); Nodal Exchange Converts from Exempt Commercial Market to Fully Regulated Designated Contract Market (September 30, 2013).