On September 28, 2016, the Commodity Futures Trading Commission (the “Commission”) voted to expand the mandatory clearing requirement under Section 2(h) of the Commodity Exchange Act, as amended (the “CEA”),1 to apply to additional categories of interest rate swaps, including fixed-to-floating interest rate swaps, basis swaps, forward rate agreements, and overnight index swaps with respect to particular currencies, that were not covered by the Commission’s initial mandatory clearing requirement determination.2 The clearing mandate in Section 2(h) of the CEA requires the swaps subject to the mandatory clearing requirement to be cleared through a registered derivatives clearing organization unless an applicable exemption or exception exists.3 The initial clearing requirement applied to the following categories of interest rate swaps (as well as certain credit default swaps):
- Certain fixed-to-floating swaps denominated in U.S. dollars (USD), Euros (EUR), British pound (GBP), or Japanese yen (JPY);
- Certain basis swaps denominated in USD, EUR, GBP, or JPY;
- Certain forward rate agreements denominated in USD, EUR, GBP, or JPY; and Certain overnight index swaps denominated in USD, EUR, or GBP.
The new clearing determination (the “Expanded Clearing Determination”) will expand the interest rate swap classes subject to the mandatory clearing requirement under the CEA to include:
- fixed-to-floating interest rate swaps denominated in Australian dollars (AUD), Canadian dollars (CAD), Hong Kong dollars (HKD), Mexican pesos (MXN), Norwegian krone (NOK), Polish zloty (PLN), Singapore dollar (SGD), Swedish krona (SEK), and Swiss franc (CHF);
- basis swaps denominated in AUD;
- forward rate agreements denominated in NOK, PLN, and SEK; and
- overnight index swaps denominated in AUD and CAD, as well as USD-, EUR-, and GBPdenominated overnight index swaps with termination dates up to three years.
Mandatory clearing for the swap classes added by the Expanded Clearing Determination will be phasedin based on the mandatory clearing compliance date in the home jurisdiction for the relevant currency (as described in more detail below). The following charts indicate the expanded scope of the clearing mandate under the CEA as it applies to interest rate swaps after taking into account the Expanded Clearing Determination (with the categories added by the Expanded Clearing Determination noted by shading):
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PHASING-IN OF THE EXPANDED CLEARING DETERMINATION
The Commission has determined to phase in compliance with respect to the expanded interest rate swap clearing requirement based on when analogous mandatory clearing requirements have taken or will take effect in non-U.S. jurisdictions. The Commission has adopted an implementation schedule as part of the new clearing determination, which will result in the mandatory clearing requirement becoming applicable to each new class of swaps sixty days after the date on which the clearing mandate for that type of swap in the relevant non-U.S. jurisdiction becomes applicable (e.g., for SEK-denominated forward rate agreements, the Swedish clearing requirement becomes applicable to these swaps in February 9, 2017 so the compliance date for the Commission’s clearing mandate for that class of swaps is sixty days following that date, or April 10, 2017). With respect to products that do not yet have a compliance date set for an analogous clearing mandate in a non-U.S. jurisdiction, the compliance date for the Commission’s clearing mandate is two years after the date of publication of the expanded clearing determination in the Federal Register. If a non-U.S. jurisdiction modifies any existing initial clearing requirement compliance date, or finally adopts a clearing requirement compliance date that is earlier than two years after the publication date of the Commission’s expanded clearing determination in the Federal Register, then the Commission staff will publish a press release setting forth the compliance date for the relevant class of swaps.