Clearing Requirement Determination under CEA Section 2(h) (Final Rule; Pre-Fed. Reg. Version)

The CFTC issued its first rule specifying the types of swaps required to be cleared by a registered DCO.  Under Dodd-Frank, the CFTC is required to determine which swaps must be cleared. The rule represents the first exercise by the CFTC of that authority and applies only to certain credit default swaps (CDS) and interest rate swaps cleared by CME, ICE Clear Credit, ICE Clear Europe and LCH.Clearnet Ltd. Under the rule, market participants will be required to submit a swap that is identified in the rule for clearing by a DCO as soon as technologically practicable and no later than the end of the day of execution.

The rule also specifies the dates by which these products must be cleared. Swap dealers and private funds active in the swaps market will be required to comply with the clearing mandate beginning on March 11. Accounts managed by third-party investment managers as well as ERISA pension plans will have until September 9 to comply. All other financial institutions must comply by June 10. The clearing requirement determination does not apply to those who are eligible to elect an exception from clearing, such as non-financial entities hedging commercial risk nor to swaps entered into prior to the enactment of the Dodd-Frank Act or prior to the application of the clearing requirement.

Cross-Reference(s): CFTC Rules 39 [Derivatives Clearing Organizations] and 50 [Clearing Requirement and Related Rules].

View Final Rule in full here (links externally to CFTC website).
See also: related stories in yesterday’s news: (i) announcement of the rule adoption and (ii) two related no-action letters providing relief from the clearing requirement