CFTC Approves Expansion of Interest Rate Swap Clearing Requirements | Practical Law

CFTC Approves Expansion of Interest Rate Swap Clearing Requirements | Practical Law

The CFTC approved its second swap clearing determination under Title VII of the Dodd-Frank Act, adding additional classes and denominations of interest rate swaps to the swap clearing requirement under CEA Section 2(h) and Part 50 of the CFTC Regulations.

CFTC Approves Expansion of Interest Rate Swap Clearing Requirements

Practical Law Legal Update w-003-6932 (Approx. 10 pages)

CFTC Approves Expansion of Interest Rate Swap Clearing Requirements

by Practical Law Finance
Published on 29 Sep 2016 • USA (National/Federal)
The CFTC approved its second swap clearing determination under Title VII of the Dodd-Frank Act, adding additional classes and denominations of interest rate swaps to the swap clearing requirement under CEA Section 2(h) and Part 50 of the CFTC Regulations.
On September 28, 2016, the CFTC approved its second swap clearing determination under Title VII of the Dodd-Frank Act, requiring clearing of additional classes and denominations of interest rate swaps under CEA Section 2(h) and Part 50 of the CFTC regulations (17 CFR Part 50) (see Practice Note, The Dodd-Frank Act: Swap Clearing and Exchange Trading Under Title VII: Swap Clearing under Title VII).
CFTC Regulation 50.4(a) requires that certain interest rate swaps be cleared by market participants through either a:
The approved expansion widens the clearing requirement to include interest rate swaps denominated in:
  • The Australian Dollar (AUD).
  • The Canadian Dollar (CAD).
  • The Hong Kong Dollar (HKD).
  • The Singapore Dollar (SGD).
  • The Mexican Peso (MXN).
  • The Swiss Franc (CHF).
  • The Polish Zloty (PLN).
  • The Swedish Krona (SEK).
  • The Norwegian Krone (NOK).
This is the first clearing determination since the CFTC issued its original determination for certain interest rate swaps and CDS on November 28, 2012. Under the CFTC's 2012 clearing determination, clearing is already required for interest rate swaps pegged to the LIBOR or EURIBOR floating rate indexes or denominated in any of the following currencies:
  • US dollar (USD).
  • British pound (GBP).
  • Japanese yen (JPY).
  • Euro (EUR).
Under this second CFTC clearing determination, interest rates swaps denominated in the AUD in the Floating Rate Agreement (FRA) class are not subject to the clearing requirement. AUD-denominated FRAs were included in the original second-determination proposal. However, the CFTC decided to exclude these swaps from the final rule.
The following chart, originally provided by the CFTC in the proposed rule, has been modified to depict the interest rate swap currencies and classes that must now be cleared. These tables include all CFTC interest rate swap clearing requirements to date:
Specification
Fixed-to-Floating Swap Class
Currency
Australian Dollar (AUD)
Canadian Dollar (CAD)
Euro (EUR)
Hong Kong Dollar (HKD)
Mexican Peso (MXN)
Norwegian Krone (NOK)
Floating Rate Indexes
BBSW
CDOR
EURIBOR
HIBOR
TIIE
NIBOR
Stated Termination Date Range
28 days to 30 years
28 days to 30 years
28 days to 50 years
28 days to 10 years
28 days to 21 years
28 days to 10 years
Optionality
No
No
No 
No
No
No
Dual Currencies
No
No
No
No
No
No
Conditional Notional Amounts
No
No
No
No
No
No

Specification
Fixed-to-Floating Swap Class (continued)
Currency
Polish Zloty (PLN)
Singapore Dollar (SGD)
Swedish Krona (SEK)
Swiss Franc (CHF)
Sterling (GBP)
US Dollar (USD)
Yen (JPY)
Floating Rate Indexes
WIBOR
SOR-VWAP
STIBOR
LIBOR
LIBOR
LIBOR
LIBOR
Stated Termination Date Range
28 days to 10 years
28 days to 10 years
28 days to 15 years
28 days to 30 years
28 days to 50 years
28 days to 50 years
28 days to 30 years
Optionality
No
No
No 
No
No
No
No
Dual Currencies
No
No
No
No
No
No
No
Conditional Notional Amounts
No
No
No
No
No
No
No

Specification
Basis Swap Class
Currency
Australian Dollar (AUD)
Euro (EUR)
Sterling (GBP)
US Dollar (USD)
Yen (JPY)
Floating Rate Indexes
BBSW
EURIBOR
LIBOR
LIBOR
LIBOR
Stated Termination Date Range
28 days to 30 years
28 days to 50 years
28 days to 50 years
28 days to 50 years
28 days to 30 years
Optionality
No
No
No 
No
No
Dual Currencies
No
No
No
No
No
Conditional Notional Amounts
No
No
No
No
No

Specification
Forward Rate Agreement Class
Currency
Euro (EUR)
Polish Zloty (PLN)
Norwegian Krone (NOK)
Floating Rate Indexes
EURIBOR
WIBOR
NIBOR
Stated Termination Date Range
3 days to 3 years
3 days to 2 years
3 days to 2 years
Optionality
No
No 
No
Dual Currencies
No
No
No
Conditional Notional Amounts
No
No
No

Specification
Forward Rate Agreement Class (continued)
Currency
Swedish Krona (SEK)
Sterling (GBP)
US Dollar (USD)
Yen (JPY)
Floating Rate Indexes
STIBOR
LIBOR
LIBOR
LIBOR
Stated Termination Date Range
3 days to 3 years
3 days to 3 years
3 days to 3 years
3 days to 3 years
Optionality
No
No
No 
No
Dual Currencies
No
No
No
No
Conditional Notional Amounts
No
No
No
No

Specification
Overnight Index Swap Class
Currency
Australian Dollar (AUD)
Canadian Dollar (CAD)
Euro (EUR)
Sterling (GBP)
US Dollar (USD)
Floating Rate Indexes
AONIA-OIS
CORRA-OIS
EONIA
SONIA
FedFunds
Stated Termination Date Range
7 days to 2 years
7 days to 2 years
7 days to 3 years
7 days to 3 years
7 days to 3 years
Optionality
No
No
No 
No
No
Dual Currencies
No
No
No
No
No
Conditional Notional Amounts
No
No
No
No
No
The CFTC has determined that the adopted rule applies to swaps currently cleared on the following four DCOs:
  • Chicago Mercantile Exchange Inc. (CME)
  • Eurex Clearing AG (Eurex)
  • LCH.Clearnet Ltd. (LCH)
  • Singapore Exchange Derivatives Clearing Ltd. (SGX)
The following exempt DCOs are eligible to clear for US proprietary accounts (but not for US customers) interest rate swaps that are subject to the expanded clearing requirement:
  • ASX Clear (Futures) Pty Ltd.
  • Japan Securities Clearing Corp.
  • Korea Exchange Inc.
  • OTC Clearing Hong Kong Ltd.
The CFTC is phasing in the expanded interest rate swap clearing requirements. The phase-in period will be implemented according to when a clearing requirement takes effect in the applicable non-US jurisdiction relevant to that currency. In order to provide certainty to market participants, however, there is a two-year time limit to the phase-in schedule after the date of publication of the new clearing requirement determination in the Federal Register.
The CFTC has provided a projected compliance table for the currencies subject to the final rule: 
Product
First Clearing Requirement Compliance Date in a Non-US Jurisdiction
CFTC Clearing Requirement Date
AUD Fixed-to-Floating Class
April 4, 2016
December 13, 2016
CAD Fixed-to-Floating Class
May 9, 2017
July 10, 2017
CHF Fixed-to-Floating Class
None to date
No later than October 14, 2018
HKD Fixed-to-Floating Class
July 1, 2017
August 30, 2017
MXN Fixed-to-Floating Class
April 1, 2016
December 13, 2016
NOK Fixed-to-Floating Class
February 9, 2017
April 10, 2017
PLN Fixed-to-Floating Class
February 9, 2017
April 10, 2017
SEK Fixed-to-Floating Class
February 9, 2017
April 10, 2017
SGD Fixed-to-Floating Class
None to date
No later than October 14, 2018
AUD Basis Swap Class
April 4, 2016
December 13, 2016
NOK Forward Rate Agreement Class
February 9, 2017
April 10, 2017
PLN Forward Rate Agreement Class
February 9, 2017
April 10, 2017
SEK Forward Rate Agreement Class
February 9, 2017
April 10, 2017
EUR Overnight Index Swap Class (2-3 year term)
June 21, 2016
December 13, 2016
GBP Overnight Index Swap Class (2-3 year term)
June 21, 2016
December 13, 2016
USD Overnight Index Swap Class (2-3 year term)
June 21, 2016
December 13, 2016
AUD Overnight Index Swap Class
October 3, 2016
December 13, 2016
CAD Overnight Index Swap Class
May 9, 2017
July 10, 2017