July 14, 2016
Comments on the Proposed Rule: Clearing Requirement Determination
Under Section 2(h) of the CEA for Interest Rate Swaps
issued by the Commodity Futures Trading Commission
Japanese Bankers Association
We, the Japanese Bankers Association (“JBA”), would like to express our gratitude
for this opportunity to comment on the proposed rule, “Clearing Requirement
Determination Under Section 2(h) of the CEA for Interest Rate Swaps,” issued on June
16, 2016 by the Commodity Futures Trading Commission (“CFTC”). We respectfully
expect that the following comments will contribute to your further discussion.
<General comments>
Against the backdrop of a situation where questions are raised about rising costs
for the clearing business as a result of the leverage requirements, etc. which isprompting an increasing number of clearing brokers to withdraw from the business, it
is not meaningful to impose additional regulation by broadening the scope of clearing
requirement proposed by the CFTC with respect to interest rate swaps (“IRS”).
Therefore, the CFTC is respectfully requested to reconsider introduction of theproposed rule. Notwithstanding, if the CFTC determines to introduce the proposed
rule, we request the CFTC to give due regard to the implementation schedule andthresholds, etc. with respect to additional covered currencies and products by taking
into consideration the content, situation and other factors relating to the regulatory
framework of the home countries of such additional covered currencies or thecurrency in which additional covered products are denominated.
In the next section, we would like to comment on our concerns in practice foryour consideration.

1

<Specific comments>
1. Products with only a single eligible DCO (p.39511)
To require clearing of those products that can be cleared only by one DCO(Derivatives Clearing Organization), such as MXN-denominated IRS andAUD-denominated forward rate agreements (“FRA”) listed in Table 1, may impose
undue costs on market participants or give rise to market fragmentation.
Some market participants will be forced to newly become a member of arelevant CCP (Central Counterparty) or enter into new client clearing arrangements
only to deal with such currencies, which undermines efficiency. In addition, afollower CCP, such as LCH, which will eventually deal with MXN, is expected tohave lower liquidity than existing CCPs. For these reasons, we consider it ispremature to implement clearing requirements on such products.
2. III. Proposed Amended Regulation 50.4(a) (p.39526)
Please confirm that currencies and products additionally included in the scopeof the proposed clearing requirements will be limited to those transacted on or after
the effective date of the proposed rule and will not be subject to backloading.
3. IV. Proposed Implementation Schedule (pp.39526~39527)(1) Implementation taking into account the currency’s home country regulations
With respect to covered products of the proposed clearing requirements, it isimportant to ensure harmonization with local regulations of a home country of thecurrency in which such products are denominated, in terms of market liquidity andstability. Given this, it is requested that the compliance date for the proposed
clearing requirements will be 60 days after the effective date of an analogous
clearing requirement of the home country of the currency.
Even though a specific schedule of “no later than two years” is proposed toprovide an indication of expected deadline of compliance for market participants,
uncertainty will remain unless it can be expected that the regulators of the relevant
jurisdictions will align their action with that implementation schedule.
(2) Exemption from the proposed clearing requirements
As commented in 1. above, implementation of the proposed clearing2

requirements is considered to be premature for some products. As mutual
recognition of CCPs between national regulators has not prevailed sufficiently, theoption of CCPs which a covered entity can use may be limited in some cases. In
this view, we request the CFTC to provide exemptions to the proposed clearing
requirements for such cases where it is very difficult to comply with therequirements due to the fact that multiple CCP options are not available.
If a CCP which a covered entity can use does not offer clearing of covered
currencies and/or products, it is practically impossible to comply with the proposed
clearing requirements. Given this, the proposed rule should take into account
whether multiple CCP options are available for the clearing of covered products.
(As of the end of June 2016, LCH does not offer clearing of MXN-denominated
IRS or AUD-denominated FRA while JSCC can only clear IRS denominated in
USD, EUR, AUD and JPY. Furthermore, CME has not yet started its business inJapan on a full scale (its clearing services are provided only for direct
participation.))3