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CFTC Proposes to Simplify Exemptive Process for Foreign Clearing Organizations

The CFTC proposed amendments to codify policies and procedures for organizations located outside of the U.S. to obtain an exemption from registration as a derivatives clearing organization ("DCO"). Currently, foreign DCOs seeking such an exemption are required to apply for no-action relief.

The proposal, which is part of the CFTC's Project KISS regulatory modernization efforts, would amend CFTC Parts 39 and 140, which, among other things, address procedures for registration as a DCO. The CEA also allows the CFTC to exempt a non-U.S. clearing organization from registration for clearing swaps if it determines the clearing organization to be subject to "comparable, comprehensive supervision and regulation" by government authorities in the clearing organization's home country.

Specifically, the proposal would:

  • create a new rule, CFTC Rule 39.6, that would establish a comprehensive regulatory framework for exempting foreign clearing organizations from DCO registration with the CFTC;
  • obligate clearing organizations to "observe the principles for financial market infrastructures in all material respects and be in good regulatory standing in its home country" under proposed regulations 39.6(a)(1)(ii) and (iii); and
  • require that a memorandum of understanding satisfactory to the CFTC be in effect between the agency and the clearing organization's home country regulator.

Under the proposal, the CFTC would consider as "comparable" a non-U.S. regulatory and supervisory framework that adheres to the Principles for Financial Market Infrastructures. As with current requirements, an exempt DCO would be permitted to clear only proprietary positions of U.S. persons and futures commission merchants ("FCMs"), and would not be permitted to clear the "customer" positions of such FCMs.

CFTC Chair Christopher J. Giancarlo expressed support for the proposed rules, asserting that the proposal fits into the CFTC's broader efforts to encourage cross-border cooperation. Mr. Giancarlo said the CFTC should "operate on the basis of comity, not uniformity."

Comments on the proposal will be due within 60 days of its publication in the Federal Register.

Related Articles

  • CFTC Issues Guidance on DCO Regulations

    The CFTC Division of Clearing and Risk ("DCR") issued an interpretation harmonizing regulations applicable to derivatives clearing organizations ("DCOs") under CFTC Part 39, with risk management standards under the CPMI-IOSCO Principles for Financial Market Infrastructures ("PFMIs").

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