derivatives clearing organizations (DCOs)

CFTC Unanimously Approves Final Rule for Granting Exemptions from Derivatives Clearing Organization Registration

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On November 18, the Commodity Futures Trading Commission (CFTC) unanimously approved a final rule establishing a framework for the Commission to grant an exemption from registration as a derivatives clearing organization (DCO) to a clearing organization organized outside of the United States for the purpose of clearing proprietary swap transactions for U.S. persons. Section 5b(h) of the Commodity Exchange Act permits the CFTC to exempt a non-U.S. clearing organization from registration for clearing swaps if the CFTC determines that the clearing organization is subject to comparable, comprehensive supervision and regulation by its home country authorities. Therefore, financial institutions may have more options for central clearing counterparties to clear swaps that they enter into that are subject to a clearing mandate by the CFTC – namely, derivatives clearing organizations organized outside of the U.S., so long as the CFTC determines that they are subject to comparable, comprehensive supervision and regulation by the relevant local authorities in the jurisdiction of their organization. Final Rule.

CFTC Finalizes Rules to Improve Swap Data Reporting

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On September 17, the Commodity Futures Trading Commission (CFTC) approved three final rules to revise CFTC regulations for swap data reporting, dissemination and public reporting requirements for market participants. The CFTC also approved a final rule that will permit derivatives clearing organizations organized outside of the U.S. to be registered with the CFTC. The CFTC also approved a supplemental notice of proposed rulemaking regarding amendments to the CFTC’s regulations that govern bankruptcy proceedings for commodity brokers. Release.

CFTC Proposal for Enhanced FCM and DCO Protections

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On October 23, the CFTC proposed new regulations and amendments to existing regulations to enhance protections for customers and to strengthen safeguards for the holding of money, securities, and other property deposited by customers with futures commission merchants (FCMs) and derivatives clearing organizations (DCOs).  The proposal would:

(i)     require FCMs to hold sufficient funds in secured accounts to meet their total obligations to U.S.- and foreign-domiciled customers trading on foreign contract markets;
(ii)    prohibit FCMs from holding certain positions in Part 30 secured accounts;
(iii)   require FCMs to hold sufficient proprietary funds in segregated accounts;
(iv)   require FCMs to maintain certain written policies and procedures;
(v)    require certain daily reporting;
(vi)   require FCMs and DCOs to provide the CFTC and designated SROs with read-only direct electronic access to bank and custodial accounts holding customer funds;
(vii)  require FCMs to adopt policies and procedures on supervision and risk management of customer funds;
(viii) require FCMs to provide potential customers with additional disclosures addressing firm specific risks; and
(ix)   enhance standards for SROs’ examination of member FCMs. 

Comments may be submitted within 60 days after publication in the Federal Register.  CFTC Release.