Today, the Securities and Exchange Commission (SEC) announced its approval of conditional temporary exemptions to allow Eurex Clearing AG (Eurex) and ICE Clear Europe Limited (ICE) to operate as central counterparties (CCPs) to clear credit default swaps (CDS). The temporary exemptions are effective until April 23, 2010.

Based on the facts presented and representations made in the requests for exemptive relief on behalf of Eurex (which was represented by Alston & Bird LLP), and on behalf of ICE, the SEC granted the following exemptions:

  • Eurex and ICE are exempt from registering as clearing agencies under Section 17A of the Securities Exchange Act of 1934 (Exchange Act) with respect to its clearance of CDS between eligible contract participants meeting the SEC’s criteria under the order (Cleared CDS).
  • CDS which are not included in the Exchange Act’s definition of “swap agreements” (non-excluded CDS) from the securities laws will be exempt to the same extent that “security-based swap agreements” are exempt. Like security-based swap agreements, however, non-excluded CDS are subject to SEC rules prohibiting fraud, manipulation and insider trading. This exemption is available to Eurex and ICE and parties to non-excluded CDS transactions cleared by those respective entities, other than self-regulatory organizations, registered broker-dealers, and any entities that hold funds of third parties in connection with CDS transactions. Registered broker-dealers have the benefit of separate temporary exemptions granted by the SEC, as discussed below.
  • Temporary exemptive relief is granted from Exchange Act Sections 5 and 6 for broker-dealers and exchanges effecting transactions in non-excluded CDS.
  • An exemption is provided for registered broker-dealers, that applies to their activities in connection with Cleared CDS by either Eurex or ICE. Broker-dealers engaging in Cleared CDS will be exempt from the Exchange Act requirements and rules to the same extent they are exempt with respect to security-based swap agreements. However, the antifraud, anti-manipulation and insider trading prohibitions under the Exchange Act are explicitly applicable to broker-dealers engaged in Cleared CDS.

The SEC is currently soliciting public comment on “all aspects of these exemptions” in order to assist in its determination of what further regulatory actions may be necessary with respect to operation of CCPs.