CFTC Issues No-Action Letter for Clearing Corporation of India Ltd. (CFTC Letter 14-107)
Commentary by Bob Zwirb
The CFTC Division of Clearing and Risk issued time-limited no-action relief to the Clearing Corporation of India Ltd. ("CCIL") for failing to register as a derivatives clearing organization ("DCO"), pursuant to CEA Section 5b(a) ("Derivatives Clearing Organizations"). The no-action relief is limited to CCIL's clearing of Indian Rupee-denominated interest rate swaps and Indian Rupee-denominated forward rate agreements for the proprietary trades of prospective U.S. clearing members.
The no-action relief is effective until the earlier of either December 31, 2014, or the date upon which the CFTC either (i) registers CCIL as a DCO or (ii) exempts CCIL from registration under Section 5b(h).
See: CFTC Letter 14-107.
Commentary
The CEA requires DCOs that clear swaps to either register with the Commission or be exempt from registration. A non-U.S. DCO may seek an exemption from this requirement if the CFTC determines that such clearing organization is subject to "comparable, comprehensive supervision by the appropriate government authorities in its home country." The catch-22 here, as the letter dutifully notes, is that the Commission has yet to establish a regulatory framework for exempting a clearing organization from registration as a DCO pursuant to Section 5b(h) of the CEA. This requires each foreign DCO, including those from Japan, Korea, Hong Kong, Singapore and Europe, to seek highly specific temporary relief from the CFTC until the agency becomes ready for prime time. A better solution would be to delay the effective date of registration requirement or, failing that, to issue more relief to the industry in general.