CFTC Approves Phase in Compliance with Dodd-Frank Clearing Requirements (Press Release and Pre-Fed Reg. Version)

The CFTC approved final regulations that establish a schedule to phase in new clearing requirements under the Dodd-Frank Act. The final rule will phase in the clearing requirement based on the type of market participant entering into swaps subject to the clearing requirement. In general: the schedule is as follows:

(i) 90 days after any type of swap is required to be cleared, swaps dealers, major swap participants and active funds (200 or more swaps average per month) would be subject to the clearing requirement;

(ii) 180 days afer a swap is required to be cleared, commodity pools, other private funds, banks and entities engaged in financial activities (as defined in banking law) would be required to register (with an exception for certain subaccounts; and

(iii) 270 days after a swap is required to be cleared, all entities would be subject to the clearing requirement.

Where a swap is between counterparties who are in different timing buckets, the longer timing bucket would apply, unless the counterparty in such longer bucket required that the shorter bucket apply.

Note that the rule does not of itself require clearing as to any swap. Rather, the rule provides that once a swap is required to be cleared, which is a separate determination, then the implementation schedule in the rule will apply.

[SL Comment: All participants in the swaps market (at least for those swaps likely to be the subject of early clearing, such as rates, FX and index CDS) should focus on how they will operationally comply and on putting the required documentation in place.]

[SL Comment: One interesting aspect of the rule is that the CFTC declined to do a cost-benefit analysis. According to the CFTC "For reasons discussed in more detail below, the cost and benefits associated with requiring clearing immediately upon the Clearing Requirement determination for a swap class, or after some longer — versus shorter — period of delay, are not susceptible to meaningful quantification. As described above, these are not the costs and benefits of implementing Clearing Requirement determinations, but rather the costs and benefits of implementing them more slowly than would be required in the absence of this rule." The Commission likewise avoided a cost-benefit analysis in proposing the Extra Territorial Guidance. In any case, whether a cost-benefit analysis is or is not required by law, one wonders whether the Commission has allowed sufficient time for compliance by counterparties of all types. It might have been useful, for example, for the Commission to estimate how many entities will be subject to new documentation requirements and operational requirements and to consider whether all of this can be achieved within the relevant time frame.]

The link below is to the press release announcing the rule adoption. On the right hand side of the page is the link to the rule itself.

View release in full here(links externally to CFTC website).