On September 28, 2016, the CFTC voted to expand mandatory clearing of interest rate swaps to include the following classes:
- fixed-to-floating interest rate swaps denominated in Australian dollar (AUD), Canadian dollar (CAD), Hong Kong dollar (HKD), Mexican peso (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 (FRAs) denominated in NOK, PLN, and SEK; and
- overnight index swaps (OIS) denominated in AUD and CAD, as well as U.S. dollar-, euro-, and sterling-denominated OIS with termination dates up to three years.
The final rule is available here.
Notably, unlike the initial rollout of mandatory clearing (from 2012-2013), this time the CFTC is aligning its compliance dates with non-U.S. jurisdictions, based on when analogous clearing requirements have taken, or will take, effect in non-U.S. jurisdictions. To promote certainty, the CFTC implemented a two-year backstop time limit to the phase-in period. The CFTC tabulated projected compliance dates that are related to when each additional class began, or is expected to begin, clearing in a non-U.S. jurisdiction. The compliance date in the U.S. is as early as 60 days after publication of the final rule in the Federal Register, or as late as the two-year backstop, depending on the swap class.
A few quick observations:
- Please click here for a table summarizing the interest rate swap classes now subject to mandatory clearing in the U.S., along with projected compliance dates provided by the CFTC for the additional in scope interest rate classes. Compliance departments for financial entities and swap dealers (i.e. entities that cannot avail themselves of the exception to mandatory clearing) may consider circulating an updated list of in-scope products, including projected compliance dates, to their trading desks and marketers.
- Adding these new rate classes is a move toward aligning the CFTC’s in-scope product set with those of non-U.S. regulators. For entities that are required to clear, this mitigates cross-border gaps, and any need to rely on substituted compliance analysis, that might otherwise arise where counterparties are located in different jurisdictions and one party is required to clear a particular product in its home jurisdiction while its counterparty is not. The obvious examples are certain 2-3 year tenor OIS, which are required to clear in the E.U. under EMIR but which are not currently subject to a similar requirement in the U.S.
- Where compliance dates are already set in a non-U.S. jurisdiction, the CFTC adopted an implementation schedule that results in mandatory clearing becoming applicable 60 days after the date on which the mandate applies in the relevant non-U.S. jurisdiction. This schedule reflects the CFTC’s greater coordination with international regulators and promotes certainty. CFTC Chairman Timothy Massad alluded to this harmonization in his statement on the rule.
This rule reflects the CFTC’s close coordination with our fellow regulatory authorities from the various jurisdictions with whom we are seeking to harmonize. – CFTC Chairman Massad