Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations 949 

Control(s) 

Country chart (see 

supp. No. 1 to part 

738) 

CB applies to 

1C991.c.

CB Column 3. 

AT applies to entire 

entry.

AT Column 1. 

List Based License Exceptions (See Part 740 

for a Description of All License Exceptions) 

LVS: N/A 

GBS: N/A 

List of Items Controlled 

Related Controls: (1) Medical products 

containing ricin or saxitoxin, as follows, 

are controlled for CW reasons under ECCN 

1C351: 

(a) Ricinus communis AgglutininII (RCAII), 

also known as ricin D, or Ricinus Communis 

LectinIII (RCLIII); 

(b) Ricinus communis LectinIV (RCLIV), 

also known as ricin E; or 

(c) Saxitoxin identified by C.A.S. #35523– 

89–8. 

(2) The export of a ‘‘medical product’’ that 

is an ‘‘Investigational New Drug’’ (IND), as 

defined in 21 CFR 312.3, is subject to certain 

U.S. Food and Drug Administration (FDA) 

requirements that are independent of the 

export requirements specified in this ECCN 

or elsewhere in the EAR. These FDA 

requirements are described in 21 CFR 

312.110 and must be satisfied in addition to 

any requirements specified in the EAR. 

(3) Also see 21 CFR 314.410 for FDA 

requirements concerning exports of new 

drugs and new drug substances. 

Related Definitions: For the purpose of this 

entry, ‘immunotoxins’ are monoclonal 

antibodies linked to a toxin with the 

intention of destroying a specific target cell 

while leaving adjacent cells intact. For the 

purpose of this entry, ‘medical products’ 

are: (1) Pharmaceutical formulations 

designed for testing and human (or 

veterinary) administration in the treatment 

of medical conditions, (2) prepackaged for 

distribution as clinical or medical 

products, and (3) approved by the U.S. 

Food and Drug Administration either to be 

marketed as clinical or medical products or 

for use as an ‘‘Investigational New Drug’’ 

(IND) (see 21 CFR part 312). For the 

purpose of this entry, ‘diagnostic and food 

testing kits’ are specifically developed, 

packaged and marketed for diagnostic or 

public health purposes. Biological toxins 

in any other configuration, including bulk 

shipments, or for any other end-uses are 

controlled by ECCN 1C351. For the 

purpose of this entry, ‘vaccine’ is defined 

as a medicinal (or veterinary) product in a 

pharmaceutical formulation, approved by 

the U.S. Food and Drug Administration or 

the U.S. Department of Agriculture to be 

marketed as a medical (or veterinary) 

product or for use in clinical trials, that is 

intended to stimulate a protective 

immunological response in humans or 

animals in order to prevent disease in 

those to whom or to which it is 

administered. 

Items: 

Technical Note: For purposes of the 

controls described in this ECCN, ‘toxins’ 

refers to those toxins, or their subunits, 

controlled under ECCN 1C351.d. 

a. Vaccines containing, or designed for use 

against, items controlled by ECCN 1C351, 

1C353 or 1C354. 

b. Immunotoxins containing toxins 

controlled by 1C351.d; 

c. Medical products that contain any of the 

following: 

c.1. Toxins controlled by ECCN 1C351.d 

(except for botulinum toxins controlled by 

ECCN 1C351.d.3, conotoxins controlled by 

ECCN 1C351.d.6, or items controlled for CW 

reasons under ECCN 1C351.d.11 or .d.12); or 

c.2. Genetically modified organisms or 

genetic elements controlled by ECCN 

1C353.a.3 (except for those that contain, or 

code for, botulinum toxins controlled by 

ECCN 1C351.d.3 or conotoxins controlled by 

ECCN 1C351.d.6); 

d. Medical products not controlled by 

1C991.c that contain any of the following: 

d.1. Botulinum toxins controlled by ECCN 

1C351.d.3; 

d.2. Conotoxins controlled by ECCN 

1C351.d.6; or 

d.3. Genetically modified organisms or 

genetic elements controlled by ECCN 

1C353.a.3 that contain, or code for, 

botulinum toxins controlled by ECCN 

1C351.d.3 or conotoxins controlled by ECCN 

1C351.d.6; 

e. Diagnostic and food testing kits 

containing toxins controlled by ECCN 

1C351.d (except for items controlled for CW 

reasons under ECCN 1C351.d.11 or .d.12). 

Matthew S. Borman, 

Deputy Assistant Secretary for Export 

Administration. 

[FR Doc. 2020–27754 Filed 1–6–21; 8:45 am] 

BILLING CODE 3510–33–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 39 and 140 

RIN 3038–AE65 

Exemption From Derivatives Clearing 

Organization Registration 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final rule. 

SUMMARY: The Commodity Futures 

Trading Commission (Commission) is 

adopting policies and procedures that 

the Commission will follow with 

respect to granting exemptions from 

registration as a derivatives clearing 

organization (DCO). In addition, the 

Commission is amending certain related 

delegation provisions in its regulations. 

DATES: Effective February 8, 2021. 

FOR FURTHER INFORMATION CONTACT: 

Eileen A. Donovan, Deputy Director, 

202–418–5096, edonovan@cftc.gov; 

Parisa Nouri, Associate Director, 202– 

418–6620, pnouri@cftc.gov; Eileen R. 

Chotiner, Senior Compliance Analyst, 

202–418–5467, echotiner@cftc.gov; 

Brian Baum, Special Counsel, 202–418– 

5654, bbaum@cftc.gov; August A. 

Imholtz III, Special Counsel, 202–418– 

5140, aimholtz@cftc.gov; Abigail S. 

Knauff, Special Counsel, 202–418–5123, 

aknauff@cftc.gov; Division of Clearing 

and Risk, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW, Washington, DC 

20581; Theodore Z. Polley III, Associate 

Director, 312–596–0551, tpolley@

cftc.gov; Division of Clearing and Risk, 

Commodity Futures Trading 

Commission, 525 West Monroe Street, 

Chicago, Illinois 60661. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. Introduction 

B. Existing Exempt DCO Orders 

II. Amendments to Part 39 

A. Regulation 39.1—Scope 

B. Regulation 39.2—Definitions 

C. Regulation 39.6—Exemption From DCO 

Registration 

D. Regulation 39.9—Scope 

III. Amendments to Part 140 

IV. Related Matters 

A. Regulatory Flexibility Act 

B. Paperwork Reduction Act 

C. Cost-Benefit Considerations 

D. Antitrust Considerations 


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950 Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations 

1The term ‘‘derivatives clearing organization’’ is 

statutorily defined to mean a clearing organization 

in general. However, for purposes of the discussion 

in this release, the term ‘‘registered DCO’’ refers to 

a Commission-registered DCO, the term ‘‘exempt 

DCO’’ refers to a DCO that is exempt from 

registration, and the term ‘‘clearing organization’’ 

refers to a clearing organization that: (a) Is neither 

registered nor exempt from registration with the 

Commission as a DCO; and (b) falls within the 

definition of ‘‘derivatives clearing organization’’ 

under section 1a(15) of the CEA, 7 U.S.C. 1a(15), 

and ‘‘clearing organization or derivatives clearing 

organization’’ under § 1.3 of the Commission’s 

regulations, 17 CFR 1.3. 

2Section 5b(a) also provides that a clearing 

organization may not perform the functions of a 

clearing organization with respect to futures unless 

it is a registered DCO. This, however, is limited to 

futures executed on a designated contract market. 

Regulation 48.7 provides that a foreign board of 

trade registered with the Commission may clear its 

contracts through a registered DCO or a clearing 

organization that observes the Recommendations 

for Central Counterparties (RCCPs) or successor 

standards and is in good regulatory standing in its 

home country jurisdiction. 17 CFR 48.7. The 

Principles for Financial Market Infrastructures 

(PFMIs) are the successor standards to the RCCPs. 

See Committee on Payment and Settlement Systems 

and the Technical Committee of the International 

Organization of Securities Commissions, Principles 

for financial market infrastructures (Apr. 2012), 

available at http://www.iosco.org/library/pubdocs/ 

pdf/IOSCOPD377-PFMI.pdf. Because an exempt 

DCO is required to observe the PFMIs and be in 

good regulatory standing it its home country, it is 

eligible to clear contracts executed on a foreign 

board of trade. 

3 7 U.S.C. 7a–1(a). Under section 2(i) of the CEA, 

7 U.S.C. 2(i), activities outside of the United States 

are not subject to the swap provisions of the CEA, 

including any rules prescribed or regulations 

promulgated thereunder, unless those activities 

either have a direct and significant connection with 

activities in, or effect on, commerce of the United 

States, or contravene any rule or regulation 

established to prevent evasion of a CEA provision 

enacted under the Dodd-Frank Wall Street Reform 

and Consumer Protection Act, Public Law 111–203, 

124 Stat. 1376 (Dodd-Frank Act). Therefore, 

pursuant to section 2(i), the DCO registration 

requirement extends to any clearing organization 

whose clearing activities outside of the United 

States have a direct and significant connection with 

activities in, or effect on, commerce of the United 

States. 

4Section 5b(h) of the CEA, 7 U.S.C. 7a–1(h). 

Section 5b(h) also permits the Commission to 

exempt from DCO registration a securities clearing 

agency registered with the Securities and Exchange 

Commission; however, the Commission has not 

granted, nor developed a framework for granting, 

such exemptions. 

5See ASX Clear (Futures) Pty Amended Order of 

Exemption from Registration (Jan. 28, 2016), 

available at http://www.cftc.gov/idc/groups/public/ 

@otherif/documents/ifdocs/ 

asxclearamdorderdcoexemption.pdf; Korea 

Exchange, Inc. Order of Exemption from 

Registration (Oct. 26, 2015), available at http://

www.cftc.gov/idc/groups/public/@otherif/ 

documents/ifdocs/krxdcoexemptorder10-26-15.pdf; 

Japan Securities Clearing Corporation Order of 

Exemption from Registration (Oct. 26, 2015), 

available at http://www.cftc.gov/idc/groups/public/ 

@otherif/documents/ifdocs/jsccdcoexemptorder10- 

26-15.pdf; OTC Clearing Hong Kong Limited Order 

of Exemption from Registration (Dec. 21, 2015), 

available at http://www.cftc.gov/idc/groups/public/ 

@otherif/documents/ifdocs/ 

otccleardcoexemptorder12-21-15.pdf. 

6See Exemption From Derivatives Clearing 

Organization Registration, 83 FR 39923 (Aug. 13, 

2018). 

7The Commission received comment letters from 

the following in 2018: Japan Securities Clearing 

Corporation (JSCC); ASX Clear (Futures) Pty (ASX); 

Futures Industry Association (FIA) and Securities 

and Financial Markets Association (SIFMA); and 

International Swaps and Derivatives Association, 

Inc. (ISDA). 

8 2018 Proposal, 83 FR at 39930. 

9See ASX Clear (Futures) Pty comment letter at 

1 (stating that ‘‘ASXCF supports the CFTC 

permitting exempt DCOs to clear swaps for U.S. 

person customers. ASXCF believes it would be 

beneficial to allow U.S. person customers to access 

the broadest possible range of central clearing 

facilities (‘‘CCPs’’) as this would provide U.S. 

person customers with flexibility and choice in 

accessing the best commercial solutions for the 

products that they use subject to those CCPs 

meeting global QCCP standards under the CPMI– 

IOSCO Principles for Financial Market 

Infrastructures (PFMIs).’’); JSCC comment letter at 

5 (stating that ‘‘JSCC would like the CFTC to 

consider the potential benefits of allowing U.S. 

customers to access exempt DCOs, using a similar 

approach to the correspondent clearing structure 

adopted for foreign futures markets, by permitting 

. . . non-U.S. clearing members in an exempt DCO 

to clear for U.S. customers, without the necessity 

to register as a FCM, as long as those non-U.S. 

clearing members can demonstrate that they are 

properly supervised, regulated, and licensed to 

provide customer clearing services in their home 

countries, where the regulatory authority maintains 

appropriate cooperative arrangements with the 

CFTC.’’); and ISDA comment letter at 3 (stating 

‘‘[i]n response to the Commission’s question about 

customer clearing, ISDA strongly believes that the 

CFTC should permit exempt DCOs to clear swaps 

for customers.’’). 

10See Exemption From Derivatives Clearing 

Organization Registration, 84 FR 35456 (Jul. 23, 

2019). 

11The Commission received comment letters 

from the following in 2019: ASX; Americans for 

Financial Reform Education Fund (AFR Ed Fund); 

Better Markets, Inc. (Better Markets); CCP12; 

Citadel; CME Group, Inc. (CME); FIA; OTC Clearing 

Hong Kong Limited (OTC Clear); Intercontinental 

Exchange, Inc. (ICE); International Bankers 

Association of Japan (IBA Japan) and Japan 

Financial Markets Council (JFMC); ISDA; JSCC; 

LCH Group (LCH); Milbank LLP (Milbank); SIFMA; 

and World Federation of Exchanges (WFE). 

12As discussed further below, the Commission is 

adopting § 39.6(b)(6), as modified in the 2019 

Proposal, to specify the information that an exempt 

DCO must provide to the Commission if it is unable 

to provide an unconditional certification that it 

continues to observe the PFMIs in all material 

respects; § 39.6(b)(9) (renumbered as § 39.6(b)(8)), 

which provides that the Commission may condition 

an exemption from DCO registration on any other 

facts and circumstances it deems relevant; and 

§ 39.6(f), which establishes a process for 

modification or termination of an exemption from 

DCO registration upon Commission initiative. 

13The Commission holds systemically important 

DCOs and subpart C DCOs to requirements that are 

I. Background 

A. Introduction 

Section 5b(a) of the Commodity 

Exchange Act (’’CEA’’) provides that a 

clearing organization 1 may not 

‘‘perform the functions of’’ a clearing 

organization with respect to swaps 2

unless the clearing organization is a 

DCO registered with the Commission.3

However, the CEA also permits the 

Commission to conditionally or 

unconditionally exempt a clearing 

organization from DCO registration for 

the clearing of swaps if the Commission 

determines that the clearing 

organization is subject to ‘‘comparable, 

comprehensive supervision and 

regulation’’ by its home country 

regulator.4 The Commission issued the 

first exemption from DCO registration in 

2015 and, to date, has exempted four 

clearing organizations organized outside 

of the United States (hereinafter referred 

to as ‘‘non-U.S. clearing organizations’’) 

from DCO registration.5

In August 2018, the Commission 

proposed to codify the policies and 

procedures it implemented in 2015 with 

respect to granting exemptions from 

DCO registration, including permitting 

exempt DCOs to clear only proprietary 

swap positions of U.S. persons and 

futures commission merchants (FCMs), 

and not customer positions (2018 

Proposal).6 The Commission received 

four substantive comment letters on the 

2018 Proposal.7

In response to a specific request for 

comment as to whether the Commission 

should consider permitting an exempt 

DCO to clear swaps for U.S. customers,8

three commenters expressed support.9

In light of these comments, the 

Commission further proposed in July 

2019 to permit foreign intermediaries to 

clear swaps for U.S. customers at 

exempt DCOs (2019 Proposal).10

After considering the comments 

received in response to the 2019 

Proposal,11 the Commission is adopting 

the 2018 Proposal and, with limited 

exceptions,12 declining to adopt the 

2019 Proposal at this time. The 

Commission may consider permitting 

U.S. customer clearing at exempt DCOs 

or establishing a substantial risk test for 

exempt DCOs at a later time. 

B. Existing Exempt DCO Orders 

As previously noted, a clearing 

organization must be subject to 

comparable, comprehensive supervision 

and regulation by appropriate 

government authorities in the clearing 

organization’s home country to be 

eligible for an exemption from 

registration as a DCO for the clearing of 

swaps. To date, the Commission has 

issued four exempt DCO orders, subject 

to conditions, consistent with the 

statute. In granting these exemptions, 

the Commission determined that a 

supervisory and regulatory framework 

that conforms to the PFMIs is 

comparable to, and as comprehensive 

as, the supervisory and regulatory 

requirements applicable to registered 

DCOs.13 This conclusion is consistent 


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fully consistent with the PFMIs. See 17 CFR 39.30, 

39.40. 

14See, e.g., § 50.52(b)(4)(i)(E), 17 CFR 

50.52(b)(4)(i)(E) (permitting eligible affiliate 

counterparties that are located in certain 

jurisdictions to satisfy a condition to electing the 

exemption by clearing the swap through a DCO or 

a clearing organization that is subject to supervision 

by appropriate government authorities in the 

clearing organization’s home country and that has 

been assessed to be in compliance with the PFMIs). 

15 In the 2018 Proposal, the Commission had 

proposed to define ‘‘good regulatory standing’’ in a 

way that would apply only to exempt DCOs. See 

Exemption From Derivatives Clearing Organization 

Registration, 83 FR at 39933. In a separate, 

subsequent proposal, the Commission proposed a 

definition of ‘‘good regulatory standing’’ that 

retained the previously proposed definition for 

exempt DCOs but added a separate provision that 

would apply only to DCOs subject to alternative 

compliance. See Registration With Alternative 

Compliance for Non-U.S. Derivatives Clearing 

Organizations, 84 FR 34819, 34831 (July 19, 2019); 

see also Exemption From Derivatives Clearing 

Organization Registration, 84 FR at 35471. The 

Commission has adopted the definition as it relates 

to DCOs subject to alternative compliance (see 

Registration with Alternative Compliance for NonU.S. Derivatives Clearing Organizations, 85 FR 

67160, 67186 (Oct. 21, 2020)); therefore, the 

Commission is adopting here only that portion of 

the definition that applies to exempt DCOs. 

16While the Commission expects, in almost all 

cases, to defer to the home country regulator’s 

determination of whether an instance of noncompliance is or is not material, it does retain the 

discretion, in the context of the application of these 

rules of the Commission, to make that 

determination itself, and, in order to make such a 

determination, to obtain information from the home 

country regulator pursuant to the relevant 

memorandum of understanding. 

with previous Commission 

determinations.14 Under exempt DCO 

orders granted to date, an exempt DCO 

is required to observe the PFMIs in all 

material respects and be in good 

regulatory standing in its home country, 

as evidenced by an annual written 

representation by its home country 

regulator. A memorandum of 

understanding (MOU) must be in effect 

between the Commission and the home 

country regulator. 

The existing exempt DCO orders also 

require the exempt DCO to supply the 

Commission with certain reports and 

information, some on a periodic basis 

and others based on the occurrence of 

specified events. For example, exempt 

DCOs are required to provide daily and 

quarterly reporting of certain 

information regarding the clearing 

activity of U.S. persons and FCMs. An 

exempt DCO also is required to report 

to the Commission if there is any change 

in its licensure, registration or 

authorization to act as a clearing 

organization in its home country; if the 

exempt DCO takes action against a U.S. 

person or FCM; if there is a default by 

a U.S. person or FCM; or if there is any 

change in the home country regulatory 

regime that is material to the exempt 

DCO’s continuing observance of the 

PFMIs or compliance with the 

requirements of the Commission’s order. 

In addition, existing exempt DCO orders 

require the exempt DCO to make its 

books and records available for 

inspection by the Commission and, 

where a clearing member has reported 

information regarding a swap to a swap 

data repository (SDR), to also report 

information regarding that swap to the 

SDR. 

Because the regulations being adopted 

herein are consistent with existing 

exempt DCO orders, the Commission 

does not anticipate amending any of the 

exempt DCO orders it has issued to date. 

II. Amendments to Part 39 

A. Regulation 39.1—Scope 

The Commission proposed to amend 

§ 39.1 to expand the scope of subpart A 

of part 39 to include a clearing 

organization applying for an exemption 

from DCO registration. This change was 

meant to address the inclusion in 

subpart A of new § 39.6 (discussed 

below), which sets forth the 

requirements for an exemption from 

DCO registration. The Commission did 

not receive any comments on this 

provision and is adopting it as 

proposed. 

B. Regulation 39.2—Definitions 

In connection with the proposed 

regulations, the Commission proposed 

to add five definitions to § 39.2, which 

apply only for purposes of part 39. 

1. Exempt Derivatives Clearing 

Organization 

The Commission proposed to define 

‘‘exempt derivatives clearing 

organization’’ to mean a clearing 

organization that the Commission has 

exempted from registration under 

section 5b(a) of the CEA, pursuant to 

section 5b(h) of the CEA and § 39.6. The 

Commission did not receive any 

comments on this proposed definition 

and is adopting it as proposed. 

2. Good Regulatory Standing 

The Commission proposed that, to be 

eligible for an exemption from 

registration, a clearing organization 

would have to be in good regulatory 

standing in its home country. The 

Commission proposed to define ‘‘good 

regulatory standing’’ to mean either 

there has been no finding by the home 

country regulator of material nonobservance of the PFMIs or other 

relevant home country legal 

requirements, or there has been such a 

finding by the home country regulator, 

but it has been or is being resolved to 

the satisfaction of the home country 

regulator by means of corrective action 

taken by the clearing organization. 

Although the Commission proposed 

to reference ‘‘material’’ non-observance 

of the PFMIs or other relevant home 

country legal requirements, the 

Commission requested comment in the 

2018 Proposal as to whether the 

definition should instead refer to all 

instances of non-observance. In their 

responses to the 2019 Proposal, ASX, 

JSCC, and CCP12 supported the 

proposed definition of ‘‘good regulatory 

standing.’’ CCP12 and JSCC commented 

that the proposed definition is 

appropriate, as individual regulators 

have taken differing approaches to how 

they apply the PFMIs in the context of 

the markets that they regulate and 

supervise. CCP12 and JSCC did not 

recommend extending the definition to 

all instances of non-observance of the 

PFMIs. JSCC further stated that 

regulatory changes in the home country 

of an exempt DCO affecting the exempt 

DCO’s continuing observance of the 

PFMIs ‘‘occur infrequently and are 

easily identifiable,’’ due to the 

familiarity of exempt DCOs with the 

legal and regulatory framework in their 

home countries. ASX added that an 

exempt DCO is best placed to determine 

whether a change is material and advise 

the Commission accordingly. 

The Commission is adopting the 

definition of ‘‘good regulatory standing’’ 

largely as proposed.15 The 

Commission’s supervisory experience 

with registered and exempt DCOs has 

shown that even well-functioning DCOs 

will experience instances of nonobservance of applicable requirements— 

both material and immaterial. The 

Commission therefore seeks to refrain 

from adopting a mechanical or hypertechnical approach whereby isolated 

instances of non-observance would be 

disqualifying.16 The Commission 

further believes that the definition 

provides adequate assurance of 

observance of the PFMIs or compliance 

with other relevant home country 

requirements, because any material nonobservance must be resolved to the 

satisfaction of the home country 

regulator in order for the exempt DCO 

to be deemed to be in good standing. 

3. Home Country 

The Commission proposed to define 

‘‘home country’’ to mean, with respect 

to a non-U.S. clearing organization, the 

jurisdiction in which the clearing 

organization is organized. The 

Commission did not receive any 

comments on this proposed definition 

and is adopting it as proposed. 


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17The name of CPSS was changed to the 

Committee on Payment and Market Infrastructures 

(CPMI) in 2014. 

18 2018 Proposal, 83 FR at 39925 n.14. 

19 2019 Proposal, 84 FR at 35459. 

20The Commission proposed to use the 

interpretation of ‘‘U.S. person’’ as set forth in the 

Cross-Border Guidance, as such definition may be 

amended or superseded by a definition of the term 

‘‘U.S. person’’ that is adopted by the Commission 

and applicable to this final rule. See Cross-Border 

Guidance, 78 FR 45292, 45316–45317. 

21The eligibility requirements listed in § 39.6(a) 

and the conditions set forth in § 39.6(b) are preconditions to the Commission’s issuance of any 

order exempting a clearing organization from the 

DCO registration requirement of the CEA and 

Commission regulations. Additional conditions that 

are unique to the facts and circumstances specific 

to a particular clearing organization could be 

imposed upon that clearing organization in the 

Commission’s order of exemption, as permitted by 

section 5b(h) of the CEA. 

22 In addition to the principles applicable to 

central counterparties (CCPs) and other financial 

market infrastructures, the PFMIs provide that 

central banks, market regulators, and other relevant 

authorities should observe five responsibilities. 

Consistent with this, the Commission expects that, 

in order to meet the standard of being subject to 

comparable, comprehensive supervision and 

regulation, a clearing organization’s home country 

regulator will observe these responsibilities. In 

particular, Responsibility D, Explanatory Note 4.4.1 

provides that the home country regulator should 

adopt the PFMIs, and, ‘‘[w]hile the precise means 

through which the principles are applied may vary 

from jurisdiction to jurisdiction, all CPSS and 

IOSCO members are expected to apply the 

principles to the relevant [financial market 

infrastructures] in their jurisdictions to the fullest 

extent allowed by the legal framework in their 

jurisdiction.’’ PFMIs, ¶ 4.4.1. Therefore, the 

Commission would not find a home country 

regulator’s statement that it requires a clearing 

organization to observe the PFMIs to be sufficient 

to meet the above standard for exemption, if the 

home country regulator has not itself adopted a 

regulatory framework that is consistent with the 

PFMIs. 

23 7 U.S.C. 7a–1(c)(2). 

24See, e.g., Derivatives Clearing Organizations 

and International Standards, 78 FR 72476 (Dec. 2, 

2013) (adopting final rules). 

4. Home Country Regulator 

The Commission proposed to define 

‘‘home country regulator’’ to mean, with 

respect to a non-U.S. clearing 

organization, an appropriate 

government authority which licenses, 

regulates, supervises, or oversees the 

clearing organization’s clearing 

activities in the home country. The 

Commission did not receive any 

comments on this proposed definition 

and is adopting it as proposed. 

5. Principles for Financial Market 

Infrastructures 

The Commission proposed to define 

‘‘Principles for Financial Market 

Infrastructures’’ to mean the PFMIs 

published by the Committee on 

Payment and Settlement Systems 

(CPSS) and the Technical Committee of 

the International Organization of 

Securities Commissions (IOSCO) in 

April 2012, as updated, revised, or 

otherwise amended. The Commission 

proposed the ‘‘as updated, revised, or 

otherwise amended’’ language in the 

2018 Proposal to recognize that CPMI– 

IOSCO 17 could offer further 

interpretation of or guidance on the 

PFMIs.18 As proposed in the 2019 

Proposal,19 the Commission is striking 

‘‘as updated, revised, or otherwise 

amended’’ from the definition to clarify 

that while a home country regulator 

may voluntarily adopt or amend its 

statutes, rules, regulations, policies or 

combination thereof to incorporate 

subsequent interpretations and 

guidance, the home country regulator is 

not required to do so to maintain a 

regulatory regime that is comparable to 

and as comprehensive as the PFMIs. 

The Commission believes that striking 

that portion of the proposed definition 

would provide exempt DCOs with 

greater regulatory certainty, as a DCO’s 

eligibility to remain exempt from 

registration would not be contingent on 

whether a home country regulator has 

adopted CPMI–IOSCO’s latest 

interpretations or guidance. The 

Commission also does not believe it is 

appropriate to allow any future change 

to the PFMIs themselves to be 

incorporated into the definition without 

the Commission and other regulators 

first having the opportunity to consider 

the change. However, the Commission 

reserves the ability to incorporate future 

amendments to the PFMIs within the 

definition if the Commission determines 

that such amendments are appropriate. 

The Commission did not receive any 

comments on this proposed definition 

and is adopting it as proposed. 

C. Regulation 39.6—Exemption From 

DCO Registration 

The Commission proposed new § 39.6 

to establish a regulatory framework for 

the granting of exemptions from DCO 

registration consistent with the policies 

and procedures that the Commission 

has been following with respect to 

granting exemptions from DCO 

registration. The specific provisions of 

§ 39.6 are discussed in greater detail 

below. 

1. Regulation 39.6(a)—Eligibility for 

Exemption 

The Commission proposed § 39.6(a) to 

provide that the Commission may 

exempt a non-U.S. clearing organization 

from registration as a DCO for the 

clearing of swaps for U.S. persons 20 and 

thereby exempt such clearing 

organization from compliance with the 

provisions of the CEA and Commission 

regulations applicable to registered 

DCOs, if the Commission determines 

that all of the eligibility requirements 

listed in § 39.6(a) are met, and that the 

clearing organization satisfies the 

conditions set forth in § 39.6(b).21

a. Subject to Comparable, 

Comprehensive Supervision and 

Regulation 

The Commission proposed to codify 

in § 39.6(a)(1) the statutory authority in 

section 5b(h) of the CEA that the 

Commission may exempt a clearing 

organization from DCO registration for 

the clearing of swaps provided that the 

Commission determines that the 

clearing organization is subject to 

comparable, comprehensive supervision 

and regulation by a home country 

regulator. To satisfy this condition, the 

clearing organization would need to 

demonstrate that: (i) It is organized in a 

jurisdiction in which a home country 

regulator applies to the clearing 

organization, on an ongoing basis, 

statutes, rules, regulations, policies, or a 

combination thereof that, taken together, 

are consistent with the PFMIs; (ii) it 

observes the PFMIs in all material 

respects; (iii) and it is in good regulatory 

standing in its home country. 

In determining that adherence to the 

PFMIs 22 satisfies the ‘‘comparable, 

comprehensive supervision and 

regulation’’ standard set forth in CEA 

section 5b(h), the Commission takes a 

holistic, outcomes-based approach. That 

is, the Commission has assessed 

whether, taken together in their entirety, 

the PFMIs provide a comprehensive 

framework for DCO supervision and 

regulation that is comparable to the 

statutory and regulatory requirements 

that comprise the DCO regulatory 

framework—focusing, in particular, on 

the core principles applicable to 

registered DCOs set forth in CEA section 

5b (DCO Core Principles).23 The use of 

the PFMIs as the benchmark in this 

context builds upon the global effort to 

develop an effective and consistent set 

of regulatory and supervisory standards 

for CCPs. More specifically, the PFMIs 

address major elements critical to the 

safe and efficient operation of CCPs, 

such as risk management, adequacy of 

financial resources, default 

management, margin, settlement, and 

participation requirements.24

The Commission recognizes that the 

requirements of the PFMI-compliant 

jurisdiction will not be identical to the 

Commission’s regulations in every 

aspect. Nevertheless, a foreign 

jurisdiction’s observance of the PFMIs 

provides assurance that its supervision 

and regulation are sufficiently similar in 

purpose and effect while avoiding a 


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25As stated previously, this conclusion is 

consistent with other previous Commission 

determinations. See, e.g., Regulation 

50.52(b)(4)(i)(E), 17 CFR 50.52(b)(4)(i)(E) 

(permitting eligible affiliate counterparties that are 

located in certain jurisdictions to satisfy a condition 

to electing the exemption by clearing the swap 

through a DCO or a clearing organization that is 

subject to supervision by appropriate government 

authorities in the clearing organization’s home 

country and that has been assessed to be in 

compliance with the PFMIs). 

26See, e.g., Derivatives Clearing Organizations 

and International Standards, 78 FR 72476 (Dec. 2, 

2013) (adopting final rules). 

demand for strict compliance with U.S. 

regulation that would subject CCPs to a 

patchwork of U.S. and foreign 

regulations. In summary, the PFMIfocused ‘‘comparability’’ framework 

strikes the proper balance by showing 

an appropriate level of deference to the 

legal and supervisory regime of the 

home country jurisdiction, while 

fulfilling the Commission’s supervisory 

duty to ensure that foreign DCOs 

clearing for U.S. market participants are 

subject to a sound regulatory 

framework. 

CME, ISDA, IBA Japan, and JFMC 

supported the Commission’s reliance on 

the PFMIs as the standard for 

determining whether a non-U.S. 

clearing organization’s home country 

regulatory regime is comparable and 

comprehensive. IBA Japan and JFMC 

believe this approach strikes the correct 

balance between addressing risk to the 

United States and promoting crossborder harmonization. ISDA encouraged 

the Commission to continue its dialogue 

with foreign regulators in the EU and 

other jurisdictions to ensure that 

supervision in each jurisdiction is based 

on deference to home country 

regulations and compliance with the 

PFMIs. ISDA argued that applying 

inconsistent and duplicative regulatory 

frameworks to clearing organizations 

will lead to the fragmentation of global 

cleared derivatives markets. 

AFR Ed Fund, Citadel, and Better 

Markets opposed using the PFMIs to 

determine whether a clearing 

organization is subject to comparable, 

comprehensive supervision and 

regulation by its home country 

regulator. These commenters argued 

that section 5b(h) of the CEA requires 

that the Commission compare the CEA 

with the clearing organization’s home 

country regime and that the 

Commission cannot use the fact that the 

foreign regulatory regime conforms to 

the PFMIs as a substitute for 

determining whether the regulatory 

regimes are comparable, as required by 

section 5b(h). 

AFR Ed Fund argued that the 

Commission’s decision to deem 

compliance with any foreign regulatory 

regime that conforms to the PFMIs as 

fulfilling the statutory requirements for 

exempting a clearing organization from 

registration under U.S. law means that 

a foreign clearing organization can be 

exempted from registration without any 

determination that it is subject to 

supervision and regulation that is ‘‘in 

any way’’ comparable to the relevant 

U.S. laws or regulations. AFR Ed Fund 

further argued that the Commission 

‘‘cannot substitute its judgement as to 

whether a foreign regime conforms to 

the PFMIs, a set of broad principles with 

no standing under U.S. law, for the 

statutory mandate to ensure that a DCO 

is subject to a regime comparable to U.S. 

regulation and supervision.’’ 

Similarly, Better Markets argued that 

the proposal unlawfully treats the 

PFMIs as being the equivalent of U.S. 

law for purposes of making a 

comparability determination under 

section 5b(h). Better Markets also argued 

that the U.S. statutory and regulatory 

requirements for DCOs are not the 

equivalent of the PFMIs because the 

PFMIs do not have the force of law until 

they are incorporated into the home 

jurisdiction’s laws or regulations, and 

because, even when the PFMIs are 

implemented, material differences may 

exist between the PFMI-compliant 

regulatory regime and the PFMI 

principles. Better Markets further 

argued that because section 5b(h) is only 

implicated if the non-U.S. clearing 

organization is subject to the DCO 

registration requirement of section 5b(a) 

in the first instance, Congress limited 

the Commission’s comparability inquiry 

to determining whether the non-U.S. 

regime is comparable to the U.S. 

regulatory requirements that would 

otherwise apply to the clearing 

organization. Better Markets claimed 

that the 2018 Proposal and the four 

existing exemptive orders suffer from 

the same legal deficiencies alleged in its 

comment. 

Citadel believes the Commission 

should directly compare its regulatory 

regime with that of the clearing 

organization’s home country. Citadel 

pointed out that the PFMIs do not 

address a number of important elements 

of the Commission’s regulatory 

framework for DCOs, including nondiscriminatory access, straight-through 

processing, gross margining, public 

disclosure of rule filings, and public 

information. Lastly, Citadel stated that 

U.S. customer access should be 

considered as a part of the overall 

comparability assessment. 

The Commission notes that section 

5b(h) provides that the Commission may 

exempt a clearing organization from 

DCO registration ‘‘if the Commission 

determines that the [ ] clearing 

organization is subject to comparable, 

comprehensive supervision and 

regulation . . . .’’ Accordingly, the 

Commission may, and does, determine 

that a foreign regulatory regime that 

conforms to the PFMIs constitutes 

‘‘comparable, comprehensive 

supervision and regulation by . . . the 

appropriate government authorities in 

the home country of the organization,’’ 

and therefore that a clearing 

organization subject to such a regime 

may be exempted from the DCO 

registration requirements.25 As 

mentioned previously, the PFMIs are 

comparable to the DCO Core Principles 

and the implementing Commission 

regulations in purpose and scope. Both 

address major elements critical to the 

safe and efficient operations of clearing 

organizations, such as risk management, 

adequacy of financial resources, default 

management, margin, settlement, and 

participation requirements.26 Regulation 

39.40 expressly states that subpart C of 

part 39 of the Commission’s regulations 

‘‘is intended to establish standards 

which, together with subparts A and B 

of [part 39], are consistent with’’ section 

5b(c) of the CEA and the PFMIs and 

should be interpreted in that context. 

Regarding Citadel’s comment, the 

Commission acknowledges that the 

PFMIs are not identical to, nor as 

detailed as, part 39. However, 

‘‘comparable and comprehensive’’ does 

not mean identical. The Commission 

adopted the part 39 requirements for 

registered DCOs, which may generally 

clear futures, swaps, and other 

instruments for various U.S. persons to 

the extent permissible under the CEA. 

Here, in light of the scope of an exempt 

DCO’s clearing activities, the PFMIs are 

sufficiently comparable and 

comprehensive to provide the 

appropriate framework for the 

supervision and regulation of exempt 

DCOs permitted to clear in accordance 

with this final rule and other relevant 

conditions contained within any 

exemptive order granted by the 

Commission. Application of the PFMIs 

in the context of U.S. customer clearing, 

which is not part of the final rule, can 

be considered if the Commission takes 

up the issue of customer clearing at 

exempt DCOs. 

The Commission is adopting 

§ 39.6(a)(1) as proposed. 

b. Memorandum of Understanding 

The Commission proposed § 39.6(a)(2) 

to require that, in order for a clearing 

organization to be eligible for an 

exemption from registration, an MOU or 

similar arrangement satisfactory to the 

Commission must be in effect between 


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27CFTC Memoranda of Understanding: 

Cooperation for Supervisory, Prudential, and Risk 

Assessment Purposes, https://www.cftc.gov/ 

International/MemorandaofUnderstanding/ 

mouInfo_Sharing_for_Supervisor.html. 

28The reference to ‘‘those persons identified in 

the definition of ‘proprietary account’ set forth in 

§ 1.3,’’ refers to those persons associated with the 

U.S. person that is a clearing member in the manner 

provided in the definition of ‘‘proprietary account’’ 

as if the U.S. person is the ‘‘individual, a 

partnership, corporation or other type of 

association’’ that carries the proprietary account on 

its books and records, and not simply to such types 

of persons identified in the definition generally. 

29This provision is intended to permit what 

would be considered clearing of ‘‘proprietary’’ 

positions under the Commission’s regulations, even 

if the positions would qualify as ‘‘customer’’ 

positions under the laws and regulations of an 

exempt DCO’s home country. This provision 

clarifies that an exempt DCO may clear positions for 

FCMs if the positions are not ‘‘customer’’ positions 

under the Commission’s regulations. 

30The reference to ‘‘those persons identified in 

the definition of ‘proprietary account’ set forth in 

§ 1.3,’’ is intended to refer to those persons 

associated with the FCM in the manner provided 

in the definition of ‘‘proprietary account’’ as if the 

FCM is the individual, a partnership, corporation or 

other type of association that carries the proprietary 

account on its books and records, and not simply 

to such types of persons identified in the definition 

generally. 

31 7 U.S.C. 2(h)(1)(B). 

the Commission and the clearing 

organization’s home country regulator, 

pursuant to which, among other things, 

the home country regulator agrees to 

provide to the Commission any 

information that the Commission deems 

necessary to evaluate the clearing 

organization’s initial and continued 

eligibility for exemption or to review 

compliance with any conditions of such 

exemption. 

ISDA commented that the 

Commission should identify the types of 

information that it expects to require 

under the MOU. ISDA argued that it is 

important for the Commission to 

provide additional clarity regarding the 

specific information it will require to 

evaluate the exempt DCO’s initial and 

continued eligibility for exemption to 

ensure that providing such information 

would not violate any local laws. ISDA 

believes that doing so would allow the 

Commission to access necessary 

information while, at the same time, 

taking into account any prohibitions on 

providing certain types of information 

under local laws. 

In response to ISDA’s comment, the 

Commission notes that § 39.6(e)(2) sets 

forth the information that an applicant 

for exemption from DCO registration 

must provide to the Commission. That 

information would not be specified in 

an MOU because it must be provided by 

the applicant, not the applicant’s home 

country regulator. However, an MOU 

between the Commission and the home 

country regulator would allow the 

Commission to seek the home country 

regulator’s assistance in analyzing and 

interpreting the information as 

necessary to determine the applicant’s 

eligibility for an exemption. If the 

applicant is granted an exemption, the 

MOU would allow the Commission to 

gather additional information from the 

home country regulator as necessary to 

determine the exempt DCO’s continued 

eligibility. For example, if an exempt 

DCO provides notice to the Commission 

of a change in its home country 

regulatory regime pursuant to 

§ 39.6(c)(2)(iii), the Commission may 

wish to discuss the change with the 

home country regulator to understand 

what impact, if any, the change may 

have on the exempt DCO’s ability to 

comply with the conditions of its 

exemption. 

The Commission notes that it already 

has several MOUs with other regulators 

in place, and those specific to the 

oversight of clearing organizations are 

generally similar in content and scope.27

To the extent that local laws limit a 

regulator’s ability to share information 

with the Commission, the Commission 

works closely with the regulator to 

resolve any issues. 

The Commission is adopting 

§ 39.6(a)(2) as proposed. 

2. Regulation 39.6(b)—Conditions of 

Exemption 

The Commission proposed § 39.6(b) to 

set forth the conditions to which an 

exempt DCO would be subject. These 

are the same conditions the Commission 

has imposed on exempt DCOs through 

the orders of exemption that it has 

issued to date. 

a. Clearing by or for U.S. Persons and 

Futures Commission Merchants 

The Commission proposed 

§ 39.6(b)(1) to prohibit the clearing of 

U.S. customer positions at an exempt 

DCO. An FCM would be permitted to be 

a clearing member of an exempt DCO, 

or maintain an account with an 

affiliated broker that is a clearing 

member, for the purpose of clearing 

swaps only for the FCM itself and those 

persons identified in the definition of 

‘‘proprietary account’’ in § 1.3 of the 

Commission’s regulations. 

The Commission requested comment 

in the 2018 Proposal as to whether the 

Commission should consider permitting 

an exempt DCO to clear swaps for U.S. 

customers. The Commission received 

four comments in response to that 

request. As noted above, the 

Commission responded to these 

comments by issuing the 2019 Proposal, 

which proposed to permit U.S. 

customers to clear at an exempt DCO, 

but only through foreign intermediaries, 

not FCMs. However, at this time, the 

Commission is adopting § 39.6(b)(1) 

largely as proposed in the 2018 

Proposal, to permit an exempt DCO to 

clear only proprietary positions of U.S. 

persons and FCMs, and not customer 

positions. Specifically, § 39.6(b)(1) 

provides that an exempt DCO must have 

rules that limit swaps clearing services 

for U.S. persons and FCMs as follows: 

(i) A U.S. person that is a clearing 

member of the exempt DCO may clear 

swaps for itself and those persons 

identified in the definition of 

‘‘proprietary account’’ set forth in 

§ 1.3; 28 (ii) a non-U.S. person that is a 

clearing member of the exempt DCO 

may clear swaps for any affiliated U.S. 

person identified in the definition of 

‘‘proprietary account’’ set forth in § 1.3 

of this chapter; 29 and (iii) an FCM may 

be a clearing member of the exempt 

DCO, or otherwise maintain an account 

with an affiliated broker that is a 

clearing member, for the purpose of 

clearing only proprietary swaps 

positions for itself and those persons 

identified in the definition of 

‘‘proprietary account’’ set forth in 

§ 1.3.30

b. Open Access 

The Commission proposed 

§ 39.6(b)(2) to codify the ‘‘open access’’ 

requirements of section 2(h)(1)(B) of the 

CEA, which applies to both registered 

and exempt DCOs, with respect to 

swaps cleared by an exempt DCO to 

which one or more of the counterparties 

is a U.S. person.31 Paragraph (b)(2)(i) 

would require an exempt DCO to 

maintain rules providing that all such 

swaps with the same terms and 

conditions (as defined by product 

specifications established under the 

exempt DCO’s rules) submitted to the 

exempt DCO for clearing are 

economically equivalent and may be 

offset with each other, to the extent that 

offsetting is permitted by the exempt 

DCO’s rules. Paragraph (b)(2)(ii) would 

require an exempt DCO to maintain 

rules providing for non-discriminatory 

clearing of such a swap executed either 

bilaterally or on or subject to the rules 

of an unaffiliated electronic matching 

platform or trade execution facility, e.g., 

a swap execution facility. The 

Commission did not receive any 

comments on this provision. The 

Commission is adopting § 39.6(b)(2) as 

proposed. 


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32See 7 U.S.C. 7a–1(h) (stating, in relevant part, 

that the Commission may exempt, conditionally or 

unconditionally, a DCO from registration under that 

section for the clearing of swaps). 

c. Consent to Jurisdiction; Designation 

of Service of Process 

The Commission proposed 

§ 39.6(b)(3) to require that an exempt 

DCO consent to jurisdiction in the 

United States and designate an agent in 

the United States, for notice or service 

of process, pleadings, or other 

documents issued by or on behalf of the 

Commission or the U.S. Department of 

Justice in connection with any actions 

or proceedings against, or any 

investigations relating to, the exempt 

DCO or any U.S. person or FCM that is 

a clearing member or that clears swaps 

through an affiliated clearing member. 

The name of the designated agent would 

be submitted as part of the clearing 

organization’s application for 

exemption. If an exempt DCO appoints 

another agent to accept such notice or 

service of process, the exempt DCO 

would be required to promptly inform 

the Commission of this change. This is 

consistent with requirements currently 

imposed in the registration orders of 

DCOs that are organized outside of the 

United States as well as in each of the 

orders of exemption that the 

Commission has issued thus far. The 

Commission did not receive any 

comments on this provision. The 

Commission is adopting § 39.6(b)(3) as 

proposed. 

d. Compliance 

The Commission proposed 

§ 39.6(b)(4) as a general provision that 

would require an exempt DCO to 

comply, and demonstrate compliance as 

requested by the Commission, with any 

condition of the exempt DCO’s order of 

exemption. The Commission did not 

receive any comments on this provision. 

The Commission is adopting § 39.6(b)(4) 

as proposed. 

e. Inspection of Books and Records 

The Commission proposed 

§ 39.6(b)(5) to require an exempt DCO to 

make all documents, books, records, 

reports, and other information related to 

its operation as an exempt DCO (books 

and records) open to inspection and 

copying by any Commission 

representative, and to promptly make its 

books and records available and provide 

them to Commission representatives 

upon request. This condition is 

consistent with section 5b(h) of the 

CEA, which provides that the 

Commission may exempt a DCO from 

registration with conditions that may 

include requiring that the DCO be 

available for inspection by the 

Commission and make available all 

information requested by the 

Commission. 

ISDA believes that the proposed 

condition is too broad and that the 

Commission should specify how and 

when it would undertake inspections of 

exempt DCOs. ISDA also believes, to 

foster cross-border regulatory 

cooperation, the Commission should 

consider obtaining consent for 

inspections from an exempt DCO’s 

home country regulator prior to 

conducting onsite inspections. ISDA 

suggested, at a minimum, the 

Commission should provide prior notice 

to an exempt DCO’s home country 

regulator in connection with any 

inspection or ask the home country 

regulator for the required information. 

ISDA argued that, not only would this 

promote comity and coordination, but it 

would also ensure that such inspections 

are not overly burdensome or in 

violation of local laws. ISDA further 

suggested that the Commission should 

consider including an exempt DCO’s 

home country regulator during 

inspections, which would assist the 

Commission in interpreting and 

analyzing the exempt DCO’s books and 

records in the context of the regulatory 

requirements of a particular jurisdiction. 

The Commission is adopting 

§ 39.6(b)(5) as proposed. The 

Commission notes that it does not 

anticipate conducting routine site visits 

to exempt DCOs. However, the 

Commission may request a DCO’s books 

and records to ensure that, among other 

things, the exempt DCO continues to 

meet the eligibility requirements for an 

exemption as well as the conditions of 

its exemption. The Commission further 

notes that it already follows many of 

ISDA’s recommendations in the context 

of examining non-U.S. DCOs, and it 

would expect to do the same in the 

context of an exempt DCO; such 

interactions with the home country 

regulator would be addressed in the 

MOU. 

f. Observance of the PFMIs 

In the 2018 Proposal, the Commission 

proposed § 39.6(b)(6) to require that an 

exempt DCO provide an annual 

certification that it continues to observe 

the PFMIs in all material respects, 

within 60 days following the end of its 

fiscal year. In the 2019 Proposal, the 

Commission proposed to modify (and 

renumber) this condition to specify the 

information that an exempt DCO must 

provide to the Commission if it is 

unable to provide an unconditional 

certification that it continues to observe 

the PFMIs in all material respects. 

Specifically, the exempt DCO would be 

required to identify the underlying 

material non-observance of the PFMIs 

and explain whether and how such nonobservance has been or is being resolved 

by the exempt DCO. The Commission 

proposed this modification in 

recognition of the fact that at some point 

an exempt DCO may not be able to 

certify that it observes the PFMIs in all 

material respects. The exempt DCO 

must disclose that information to the 

Commission and allow the Commission 

to consider its impact on the exempt 

DCO’s standing. 

The Commission did not receive 

comments on this provision. The 

Commission is adopting § 39.6(b)(6) as 

proposed. 

g. Representation of Good Regulatory 

Standing 

The Commission proposed 

§ 39.6(b)(7) to require that the 

Commission receive an annual written 

representation from a home country 

regulator that an exempt DCO is in good 

regulatory standing, within 60 days 

following the end of the exempt DCO’s 

fiscal year. The Commission received 

comments on the definition of ‘‘good 

regulatory standing,’’ as discussed 

above, but did not receive comments on 

this provision. The Commission is 

adopting § 39.6(b)(7) as proposed. 

h. Other Conditions 

Lastly, the Commission proposed 

§ 39.6(b)(9) in the 2019 Proposal to 

provide that the Commission may 

condition an exemption from DCO 

registration on any other facts and 

circumstances it deems relevant.32 The 

Commission stated that, in doing so, it 

would be mindful of principles of 

international comity. For example, the 

Commission could take into account the 

extent to which the relevant foreign 

regulatory authorities defer to the 

Commission with respect to oversight of 

registered DCOs organized in the United 

States. 

CME strongly supported the 

Commission’s retaining discretion to 

condition an exemption from DCO 

registration on principles of 

international comity and the extent to 

which the relevant home country 

regulator defers to the Commission with 

respect to oversight of registered DCOs 

organized in the United States that are 

accessed by local participants. CME 

believes the Commission’s efforts to 

support mutual deference among 

regulators across the globe will foster 

efficient markets and cooperative 

behavior to the benefit of all. As a result, 

CME suggested that the Commission 

codify its ability to condition an 


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956 Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations 

33 In order to promote effective and consistent 

global regulation of swaps, section 752 of the DoddFrank Act directs the Commission to consult and 

coordinate with foreign regulatory authorities on 

the establishment of consistent international 

standards with respect to the regulation of swaps, 

among other things. Section 752 of the Dodd-Frank 

Act, Public Law 111–203, 124 Stat. 1376 (2010), 

codified at 15 U.S.C. 8325. 

34Such FCMs may or may not be U.S. persons. 

The Commission will not require that exempt DCOs 

provide daily information regarding initial margin 

requirements, initial margin on deposit, and daily 

variation margin, or quarterly aggregate clearing 

volume or average open interest, with respect to 

swaps, for FCMs that are not U.S. persons (unless 

reporting would otherwise be required because 

such FCMs are affiliates of U.S. persons). However, 

the Commission has a supervisory interest in 

receiving information regarding which of its 

registered FCMs are clearing members or affiliates 

of clearing members, with respect to the clearing of 

swaps at an exempt DCO. 

35Such an international organization may include 

the International Monetary Fund or World Bank. 

See PFMIs, ¶ 1.33. 

exemption from DCO registration on 

matters of international comity and 

reciprocity within the regulatory text. 

The Commission is declining to 

specifically condition an exemption 

from DCO registration on matters of 

international comity and reciprocity, 

but only because it believes § 39.6(b)(9) 

as proposed is sufficient for those 

purposes. As noted in the 2019 

Proposal, the Commission could use its 

discretion under § 39.6(b)(9) to advance 

the goal of regulatory harmonization, 

consistent with the express directive of 

Congress that the Commission 

coordinate and cooperate with foreign 

regulatory authorities on matters related 

to the regulation of swaps.33 The 

recognition that market participants and 

market facilities in a global swaps 

market are subject to multiple regulators 

and potentially duplicative regulations, 

and can therefore benefit from 

regulatory harmonization and mutual 

deference among regulators, underpins 

the exempt DCO framework. The 

framework is intended to encourage 

collaboration and coordination among 

U.S. and foreign regulators in 

establishing comprehensive regulatory 

standards for swaps clearing. In 

addition, the framework seeks to 

promote fair competition and a level 

playing field for all DCOs. As a result, 

the Commission will consider the 

degree of deference that a home country 

regulator extends to the Commission’s 

oversight of U.S. DCOs in determining 

whether to extend the benefits of 

exemption from registration to DCOs in 

that jurisdiction, both at the point of 

initially exempting a non-U.S. DCO, and 

in determining whether compliance 

under that framework should continue. 

The Commission is adopting § 39.6(b)(9) 

as proposed (renumbered as 

§ 39.6(b)(8)). 

3. Regulation 39.6(c)—General 

Reporting Requirements 

The Commission proposed § 39.6(c) to 

require an exempt DCO to report certain 

information that would assist the 

Commission in evaluating the continued 

eligibility of the exempt DCO for 

exemption, reviewing the exempt DCO’s 

compliance with any conditions of its 

exemption, or monitoring the risk of 

U.S. persons and their affiliates clearing 

swaps at the exempt DCO. 

Specifically, the Commission 

proposed § 39.6(c)(2)(i) to require that 

an exempt DCO compile a report as of 

the end of each trading day, and submit 

it to the Commission by 10:00 a.m. U.S. 

Central time on the following business 

day, containing with respect to swaps: 

(A) Initial margin requirements and 

initial margin on deposit for each U.S. 

person; and (B) daily variation margin, 

separately listing the mark-to-market 

amount collected from or paid to each 

U.S. person. However, if a clearing 

member margins on a portfolio basis its 

own positions and the positions of its 

affiliates, and either the clearing 

member or any of its affiliates is a U.S. 

person, the exempt DCO would be 

required to report initial margin 

requirements and initial margin on 

deposit for all such positions on a 

combined basis for each such clearing 

member on a combined basis and 

separately list the mark-to-market 

amount collected from or paid to each 

such clearing member, on a combined 

basis. These requirements are similar to 

certain reporting requirements 

applicable to registered DCOs in 

§ 39.19(c)(1). These reports will provide 

the Commission with information 

regarding the cash flows associated with 

U.S. persons clearing swaps through 

exempt DCOs in order to analyze the 

risks presented by such U.S. persons 

and to assess the extent to which U.S. 

business is being cleared by each 

exempt DCO. 

The Commission proposed 

§ 39.6(c)(2)(ii)(A) and (B) to require an 

exempt DCO to compile a report as of 

the last day of each fiscal quarter, and 

submit it to the Commission no later 

than 17 business days after the end of 

the fiscal quarter, containing the 

aggregate clearing volume of U.S. 

persons during the fiscal quarter, and 

the average open interest of U.S. persons 

during the fiscal quarter, respectively. If 

a clearing member is a U.S. person, this 

data would include the transactions and 

positions of the clearing member and all 

affiliates for which the clearing member 

clears; if a clearing member is not a U.S. 

person, the data would only have to 

include the transactions and positions 

of affiliates that are U.S. persons. The 

Commission proposed § 39.6(c)(2)(ii)(C) 

to require that an exempt DCO’s 

quarterly report to the Commission 

contain a list of U.S. persons and 

FCMs 34 that are either clearing 

members or affiliates of any clearing 

member, with respect to the clearing of 

swaps, as of the last day of the fiscal 

quarter. This information would enable 

the Commission, in conducting risk 

surveillance of U.S. persons and swaps 

markets more broadly, to better 

understand and evaluate the nature and 

extent of the cleared swaps activity of 

U.S. persons. 

The Commission proposed paragraphs 

(c)(2)(iii) through (viii) of § 39.6 to 

require an exempt DCO to provide 

information to the Commission upon 

the occurrence of certain specified 

events. The Commission proposed 

§ 39.6(c)(2)(iii) to require an exempt 

DCO to provide prompt notice to the 

Commission regarding any change in its 

home country regulatory regime that is 

material to the exempt DCO’s 

continuing observance of the PFMIs or 

with any requirements set forth in 

§ 39.6, or the order of exemption issued 

by the Commission. 

The Commission proposed 

§ 39.6(c)(2)(iv) to require an exempt 

DCO to provide to the Commission, to 

the extent that it is available to the 

exempt DCO, any assessment of the 

exempt DCO’s or the home country 

regulator’s observance of the PFMIs by 

a home country regulator or other 

national authority, or an international 

financial institution or international 

organization.35

The Commission proposed 

§ 39.6(c)(2)(v) to require an exempt DCO 

to provide to the Commission, to the 

extent that it is available to the exempt 

DCO, any examination report, 

examination findings, or notification of 

the commencement of any enforcement 

or disciplinary action by a home 

country regulator. 

The Commission proposed 

§ 39.6(c)(2)(vi) to require an exempt 

DCO to provide immediate notice to the 

Commission of any change with respect 

to its licensure, registration, or other 

authorization to act as a clearing 

organization in its home country. 

The Commission proposed 

§ 39.6(c)(2)(vii) to require an exempt 

DCO to provide immediate notice to the 

Commission in the event of a default (as 

defined by the exempt DCO in its rules) 

by a U.S. person or FCM clearing swaps, 

including the name of the U.S. person 


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36 JSCC cited CFTC Letter 18–03: Extension of NoAction Relief from Certain Reporting Obligations for 

Counterparties Clearing Swaps through Derivatives 

Clearing Organizations Acting Under Exemptive 

Orders or No-Action Relief (Feb. 20, 2018). 

37See Exemption From Derivatives Clearing 

Organization Registration, 83 FR at 39928, n.32. 

38See Swap Data Recordkeeping and Reporting 

Requirements, 85 FR 75503, 75567 (Nov. 25, 2020) 

(appendix 1 to part 45 contains the ‘‘clearing 

member’’ field, which contains instructions for 

reporting the field under the agency clearing model 

or the principal clearing model). See also Technical 

Specification Document: Parts 43 and 45 swap 

reporting and public dissemination requirements at 

1–2, available at https://www.cftc.gov/media/3496/ 

DMO_Part43_45TechnicalSpecification022020/ 

download (containing the technical specifications 

for the ‘‘clearing member’’ field). 

39See 17 CFR 49.27 (containing the SDR access 

and fees requirements). 

or FCM, a list of the positions held by 

the U.S. person or FCM, and the amount 

of the U.S. person’s or FCM’s financial 

obligation. 

Finally, the Commission proposed 

§ 39.6(c)(2)(viii) to require an exempt 

DCO to provide notice to the 

Commission of any action the exempt 

DCO has taken against a U.S. person or 

FCM, no later than two business days 

after taking such action. 

The Commission requested comment 

in the 2018 Proposal, with regard to 

proposed § 39.6(c)(2)(iii), on whether, 

instead of requiring an exempt DCO to 

provide prompt notice to the 

Commission regarding any change in its 

home country regulatory regime that is 

material to the exempt DCO’s 

continuing observance of the PFMIs, 

any requirements set forth in § 39.6, or 

the order of exemption issued by the 

Commission (thereby requiring the 

exempt DCO to determine whether a 

change is material), the Commission 

should require an exempt DCO to 

provide prompt notice of any change in 

its home country regulatory regime. 

ASX and JSCC supported requiring an 

exempt DCO to determine whether a 

change to its home country regulatory 

regime constitutes a material change. 

ASX and JSCC believe an exempt DCO 

is best situated to easily identify 

changes to its home country regulatory 

regime as well as determine whether 

such changes are material. JSCC also 

commented that having the exempt DCO 

make this materiality determination 

would avoid redundant reporting and 

review for an exempt DCO and the 

Commission of any change to the home 

country regulatory regime. 

The Commission agrees with the 

commenters that an exempt DCO should 

be required to determine whether a 

change to its home country regulatory 

regime would constitute a material 

change, especially as the Commission 

would otherwise need to review 

changes to home country regulatory 

regimes in multiple jurisdictions. 

The Commission is adopting § 39.6(c) 

as proposed. 

4. Regulation 39.6(d)—Swap Data 

Reporting Requirements 

The Commission proposed § 39.6(d) 

to require an exempt DCO, if it accepts 

for clearing a swap that has been 

reported to an SDR pursuant to part 45 

of the Commission’s regulations, to 

report to an SDR data for the two swaps 

that result from the novation of the 

original swap. The exempt DCO would 

also be required to report the 

termination of the original swap to the 

same SDR that received the original 

swap report. To avoid duplicative 

reporting for such transactions, the 

Commission also proposed to require an 

exempt DCO to have rules that prohibit 

the reporting of the two new swaps by 

the counterparties to the original swap. 

Citadel commented that the 

Commission should ensure that 

reporting requirements pursuant to parts 

43 and 45 of the Commission’s 

regulations continue to be fulfilled in an 

accurate manner for in-scope 

transactions, including the ‘‘cleared or 

uncleared’’ field in part 43 and the 

‘‘clearing indicator’’ and ‘‘clearing 

venue’’ fields in part 45. JSCC supported 

clearly defining an exempt DCO’s swap 

data reporting obligations within part 

39. However, JSCC was concerned that 

the counterparties to the original swap 

would still be required to report the 

cleared transaction arising from the 

novation of the original swap at an 

exempt DCO to an SDR under part 45, 

which JSCC viewed as in conflict with 

proposed § 39.6(d). JSCC commented 

that proposed § 39.6(d) could create 

confusion about reporting expectations 

for exempt DCOs and their respective 

clearing members.36 JSCC was hopeful 

that part 45 would be amended to 

address this issue. 

CCP12 acknowledged that 

transparency in the swaps markets, 

which it believes is supported by SDR 

reporting, provides a number of 

benefits. However, CCP12 argued that 

the current SDR reporting requirements 

applied to exempt DCOs pose 

significant operational challenges, such 

as on-boarding with a U.S. SDR that has 

a different reporting format than that of 

the exempt DCO’s home country. CCP12 

also commented that SDR reporting fees 

are a burden based on the number of 

reported transactions. The Commission 

believes that transparency in the swaps 

market as provided by the swap data 

reporting requirements, which are 

applicable to all registered DCOs, 

including non-U.S. DCOs and existing 

exempt DCOs, strongly warrants 

requiring exempt DCOs to report such 

information pursuant to § 39.6(d). 

In response to JSCC’s concern that 

§ 39.6(d) could cause confusion given 

the time-limited no-action relief 

provided in CFTC Letter 18–03, the 

Commission notes that § 39.6(d) 

specifically requires an exempt DCO to 

have rules that prohibit the 

counterparties to the original swap from 

reporting to an SDR pursuant to part 45 

the two new swaps which result from 

novation of the original swap. As 

explained in the 2018 Proposal, the 

exempt DCO’s rules prohibiting 

reporting by the counterparties to the 

original swap are intended to avoid 

duplicative reporting.37

In response to CCP12’s concern 

related to onboarding with an SDR that 

uses a different reporting format than 

the exempt DCO’s home country, the 

Commission notes that it recently 

adopted revisions to part 45 of the 

Commission’s regulations that include 

standardized data fields that 

accommodate reporting for swaps 

cleared under either the ‘‘agency’’ 

clearing model or the ‘‘principal’’ 

clearing model.38 In regards to SDR fees, 

the Commission notes that SDRs are 

required to provide their services on a 

fair, open, and equal basis and an SDR’s 

fees must be equitable and applied in a 

uniform and non-discriminatory 

manner.39 As such, the burdens 

associated with SDR fees for exempt 

DCOs will be no different than the 

burdens for other DCOs that clear swaps 

that must be reported to SDRs. The 

Commission is adopting § 39.6(d) as 

proposed. 

5. Regulation 39.6(e)—Application 

Procedures 

The Commission proposed § 39.6(e) to 

codify the procedures a non-U.S. 

clearing organization must follow when 

applying for an exemption from DCO 

registration. 

Specifically, the Commission 

proposed § 39.6(e)(1) to require a 

clearing organization to file an 

application for exemption with the 

Secretary of the Commission in the 

format and manner specified by the 

Commission. After reviewing the 

application, the Commission may: (1) 

Grant an exemption without conditions; 

(2) grant an exemption with conditions; 

or (3) deny the application. 

Proposed § 39.6(e)(2) requires an 

applicant to submit a complete 

application, including all applicable 

information and documentation as 

outlined therein, and provide that the 

Commission will not commence 

processing an application unless the 


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40See CPSS–IOSCO, Principles for financial 

market infrastructures: Disclosure framework and 

Assessment methodology (Dec. 2012), at 82 et seq., 

available at http://www.iosco.org/library/pubdocs/ 

pdf/IOSCOPD396.pdf. 

41The Disclosure Framework contemplates that 

CCPs will make public disclosures pursuant to the 

Disclosure Framework. See id. at 1. 

42 In the 2019 Proposal, proposed § 39.6(f)(1) 

included a subparagraph (iii) that is not being 

adopted at this time. 

application is complete. The application 

must include: (i) A cover letter 

providing general information 

identifying the applicant, its regulatory 

licenses or registrations, and relevant 

contact information; (ii) a description of 

the applicant’s business plan, including 

swap asset classes that it would clear 

and whether the swaps are subject to a 

clearing requirement issued by the 

Commission or the applicant’s home 

country regulator; (iii) documents that 

demonstrate that the applicant is held to 

requirements consistent with the PFMIs; 

(iv) a written representation from the 

applicant’s home country regulator that 

the applicant is in good regulatory 

standing; (v) copies of the applicant’s 

most recent disclosures necessary to 

observe the PFMIs, including the 

financial market infrastructure 

disclosure template set forth in Annex 

A to the Disclosure Framework and 

Assessment Methodology for the 

PFMIs; 40 (vi) a representation that the 

applicant will comply with each of the 

requirements and conditions of its 

exemption; (vii) a draft of the 

applicant’s rules showing compliance 

with various requirements for an 

exemption; and (viii) the applicant’s 

consent to jurisdiction in the United 

States, with contact information for the 

applicant’s designated U.S. agent. 

Proposed § 39.6(e)(3) provides that, at 

any time during the Commission’s 

review of an application for exemption, 

the Commission may request that the 

applicant submit supplemental 

information in order for the Commission 

to process the application, and require 

an applicant to file such supplemental 

information in the format and manner 

specified by the Commission. 

Regulation 39.3(a)(4), which applies to 

applications for DCO registration, 

contains a similar provision. 

Proposed § 39.6(e)(4) requires an 

applicant to promptly amend its 

application if it discovers a material 

omission or error, or if there is a 

material change in the information 

provided to the Commission in the 

application or other information 

provided in connection with the 

application. This provision is similar to 

§ 39.3(a)(5), which addresses 

amendments to applications for DCO 

registration. 

Proposed § 39.6(e)(5) identifies those 

sections of an application for exemption 

from registration that would be made 

public, including the cover letter 

required in proposed § 39.6(e)(2)(i); 

documents demonstrating that the 

applicant is organized in a jurisdiction 

in which its home country regulator 

applies to the applicant statutes, rules, 

regulations, and/or policies that are 

consistent with the PFMIs as proposed 

in § 39.6(e)(2)(iii); disclosures necessary 

to observe the PFMIs as proposed in 

§ 39.6(e)(2)(v); 41 draft rules that meet 

the requirements of proposed 

§ 39.6(b)(1) (U.S. persons clearing 

requirements), § 39.6(b)(2) (open access 

requirements); and § 39.6(d) (swap data 

reporting requirements), as applicable; 

and any other part of the application not 

covered by a request for confidential 

treatment, subject to § 145.9. This 

provision is similar to § 39.3(a)(6), 

which identifies those portions of an 

application for registration as a DCO 

that are made public. 

The Commission did not receive 

comments on this aspect of the 

proposal. The Commission is adopting 

§ 39.6(e) as proposed. 

6. Regulation 39.6(f), (g), and 

(h)—Modification or Termination of 

Exemption; Notice to Clearing Members 

of Termination of Exemption 

The Commission initially proposed to 

provide in § 39.6(f) that the Commission 

may modify the terms and conditions of 

an order of exemption, either at the 

request of the exempt DCO or on the 

Commission’s own initiative, based on 

changes to or omissions in material facts 

or circumstances pursuant to which the 

order of exemption was issued, or for 

any reason in the Commission’s 

discretion. This is a further expression 

of the Commission’s discretionary 

authority under section 5b(h) of the CEA 

to exempt a clearing organization from 

registration ‘‘conditionally or 

unconditionally,’’ and it reflects the 

Commission’s authority to act with 

flexibility in responding to changed 

circumstances affecting an exempt DCO. 

In the 2019 Proposal, the Commission 

proposed to also provide for the 

termination of an exemption upon the 

Commission’s initiative, and to set forth 

the process by which the Commission 

would issue a modification or 

termination. 

Under proposed § 39.6(f)(1), the 

Commission may modify or terminate 

an exemption from DCO registration, in 

its discretion and upon its own 

initiative, if the Commission determines 

that there are changes to or omissions in 

material facts or circumstances pursuant 

to which the order of exemption was 

issued. The Commission may also 

modify or terminate an exemption from 

DCO registration if any of the terms and 

conditions of the order of exemption are 

not met, including: (i) The exempt DCO 

observing the PFMIs in all material 

respects; and (ii) the exempt DCO being 

subject to comparable, comprehensive 

supervision and regulation by its home 

country regulator.42

The Commission proposed 

§ 39.6(f)(2), (f)(3), and (f)(4) to set forth 

the process for modification or 

termination of an exemption upon the 

Commission’s initiative. Under 

proposed § 39.6(f)(2), the Commission 

must first provide written notification to 

an exempt DCO that the Commission is 

considering whether to modify or 

terminate the DCO’s exemption and the 

basis for that consideration. 

Under proposed § 39.6(f)(3), an 

exempt DCO may respond to the 

notification in writing no later than 30 

business days following receipt of the 

Commission’s notification, or at such 

later time as the Commission may 

permit in writing. The Commission 

believes that a minimum 30-business 

day timeframe would allow the 

Commission to take timely action to 

protect its regulatory interests while 

providing the exempt DCO with 

sufficient time to develop its response. 

The Commission proposed § 39.6(f)(4) 

to provide that, following receipt of a 

response from the exempt DCO, or after 

expiration of the time permitted for a 

response, the Commission may either: 

(i) Issue an order terminating the 

exemption as of a date specified in the 

order; (ii) issue an amended order of 

exemption that modifies the terms and 

conditions of the exemption; or (iii) 

provide written notification to the 

exempt DCO that the Commission has 

determined to neither modify nor 

terminate the exemption. 

ASX, JSCC, and ISDA believe that an 

automatic termination of exemptions 

could result in market disruption and 

legal uncertainty, particularly for U.S. 

persons clearing through the exempt 

DCO. However, the commenters 

recognized that the Commission must 

ensure that exempt DCOs continue to 

operate safe and efficient clearing 

operations under a regime that is 

consistent with the PFMIs. Therefore, 

the commenters suggested that the 

Commission should first commit to 

working with the exempt DCO and its 

home country regulator(s) to resolve any 

issues with compliance with the terms 

and conditions of the order of 

exemption. If these efforts are not 


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43Subsequent to the 2018 Proposal, the 

Commission amended § 39.9 in the Alternative 

Compliance rulemaking to take into account a DCO 

registered subject to alternative compliance. See 

Registration with Alternative Compliance for NonU.S. Derivatives Clearing Organizations, 85 FR at 

67171. The Commission is adding to those 

amendments the changes it had originally proposed 

in the 2018 Proposal. See Exemption From 

Derivatives Clearing Organization Registration, 83 

FR at 39929. 

44 5 U.S.C. 601 et seq. 

45See 66 FR 45604, 45609 (Aug. 29, 2001). 

46 44 U.S.C. 3501 et seq. 

47 Due to minor adjustments to the burden 

estimate for an exempt DCO application due to 

consolidating the burden estimates for components 

of the application, the current estimated cost is 

$10,000 per application. 

successful, the commenters suggested 

that the Commission allow for an 

appropriate transitional period so that 

affected clearing members and 

customers may migrate to other clearing 

organizations in an orderly manner. 

The Commission agrees with the 

commenters that sufficient time for 

transition will be needed in the event 

that it terminates an exemption from 

registration. That is why the 

Commission proposed in § 39.6(f)(4)(i) 

that it would issue an order of 

termination with an effective date 

intended to provide the exempt DCO 

with a reasonable amount of time to 

wind down its swap clearing services 

for U.S. persons, including the 

liquidation or transfer of the positions 

and related collateral of U.S. persons, as 

necessary. The Commission is adopting 

§ 39.6(f) as proposed. 

Furthermore, the Commission 

proposed § 39.6(g) to set forth the 

framework under which an exempt DCO 

may petition the Commission to 

terminate its exemption and the 

applicable procedures. Specifically, 

pursuant to proposed § 39.6(g)(1), an 

exempt DCO may request that the 

Commission terminate its exemption if 

the exempt DCO: (i) No longer qualifies 

for an exemption as a result of changed 

circumstances; (ii) intends to cease 

clearing swaps for U.S. persons; or (iii) 

submits an application for registration 

in accordance with § 39.3(a)(2) or 

§ 39.3(a)(3), as applicable. The 

Commission further proposed in 

§ 39.6(g)(2) that the petition for 

termination must include a detailed 

explanation for the request and describe 

the exempt DCO’s plans for liquidation 

or transfer of the positions and related 

collateral of U.S. persons, if applicable. 

Under proposed § 39.6(g)(3), the 

Commission would issue an order of 

termination within a reasonable time 

appropriate to the circumstances or in 

conjunction with the issuance of an 

order of registration, if applicable. 

The Commission did not receive any 

comments on § 39.6(g). The Commission 

is adopting this provision as proposed. 

Lastly, the Commission proposed 

§ 39.6(h) to provide that, following the 

Commission’s issuance of an order of 

termination (unless issued in 

conjunction with the issuance of an 

order of registration), the exempt DCO 

must provide immediate notice of such 

termination to its clearing members. The 

notice must include: (1) A Copy of the 

Commission’s order of termination; (2) a 

description of the procedures for orderly 

disposition of any open swaps positions 

that were cleared for U.S. persons; and 

(3) an instruction to clearing members, 

requiring that they provide the exempt 

DCO’s notice of such termination to all 

U.S. persons clearing swaps through 

such clearing members. The 

Commission did not receive any 

comments on this provision. The 

Commission is adopting § 39.6(h) as 

proposed. 

D. Regulation 39.9—Scope 

The Commission proposed to revise 

§ 39.9 to make it clear that the 

provisions of subpart B apply to any 

DCO, as defined under section 1a(15) of 

the CEA and § 1.3, that is registered 

with the Commission as a DCO pursuant 

to section 5b of the CEA, but do not 

apply to any exempt DCO. This revision 

was intended to clarify that the subpart 

B regulations that address compliance 

with the DCO Core Principles applicable 

to registered DCOs do not impose any 

obligations upon exempt DCOs. The 

Commission did not receive any 

comments on this proposal. The 

Commission is adopting § 39.9 largely as 

proposed.43

III. Amendments to Part 140 

The Commission initially proposed 

amendments to § 140.94(c) to delegate 

authority to the Director of the Division 

of Clearing and Risk (DCR) for all 

functions reserved to the Commission in 

proposed § 39.6, subject to certain 

exceptions. Specifically, the 

Commission did not propose to delegate 

its authority to grant, modify, or 

terminate an exemption or prescribe 

conditions to an exemption order. 

Consistent with that proposal, the 

Commission further proposed to 

supplement its delegation to DCR to 

include certain functions related to the 

modification or termination of an 

exemption order upon the 

Commission’s initiative. These 

functions would include, but would not 

be limited to, sending an exempt DCO 

notice of an intention to modify or 

terminate its exemption order. However, 

the Commission alone would retain the 

authority to modify or terminate the 

exemption order. The Commission did 

not receive any comments on this 

proposal. The Commission is adopting 

the changes to § 140.94(c) as proposed. 

IV. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

requires that agencies consider whether 

the regulations they propose will have 

a significant economic impact on a 

substantial number of small entities 

and, if so, provide a regulatory 

flexibility analysis on the impact.44 The 

regulations being adopted by the 

Commission will affect clearing 

organizations. The Commission has 

previously established certain 

definitions of ‘‘small entities’’ to be used 

by the Commission in evaluating the 

impact of its regulations on small 

entities in accordance with the RFA. 

The Commission has previous 

determined that clearing organizations 

are not small entities for the purpose of 

the RFA.45 Accordingly, the Chairman, 

on behalf of the Commission, hereby 

certifies pursuant to 5 U.S.C. 605(b) that 

the regulations adopted herein will not 

have a significant economic impact on 

a substantial number of small entities. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(PRA) 46 imposes certain requirements 

on Federal agencies (including the 

Commission) in connection with their 

conducting or sponsoring a collection of 

information as defined by the PRA. The 

regulations adopted herein would result 

in such a collection, as discussed below. 

A person is not required to respond to 

a collection of information unless it 

displays a currently valid control 

number issued by the Office of 

Management and Budget (OMB). The 

Commission requested a new OMB 

control number for the collection of 

information in connection with the 

proposal. 

The Commission received one 

comment regarding its cost burden 

analysis in the preamble to the Proposal. 

JSCC stated in its October 2018 

comment letter that the Commission’s 

cost estimate of $10,500 47 for an 

application for exemption from DCO 

registration substantially 

underestimated an applicant’s costs, 

which JSCC stated would require a 

significant amount of resources to 

understand any legal and/or regulatory 

implications arising from the DCO 

exemption, as well as to identify any 

potential conflicts with the applicant’s 


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48The Commission has determined that one 

termination every three years is a more appropriate 

estimate than one per year, which was used in the 

information burden estimate for the 2018 Proposal. 

49Although the 2018 Proposal included separate 

burden estimates for the application and for 

information requested by the Commission during its 

review, these estimates were combined in the 2019 

Proposal and in this final rule. The estimated 

number of applications has been revised to one per 

year from two in the 2018 Proposal in response to 

the Commission’s adoption of the Alternative 

Compliance framework, which had not been 

proposed at the time of the 2018 Proposal, and 

which provides an alternative that could lead to a 

reduced number of exemption applications. See 

Registration with Alternative Compliance for NonU.S. Derivatives Clearing Organizations, 85 FR 

67160 (Oct. 21, 2020). In addition, burden estimates 

for reporting by exempt DCOs have been updated 

based on recent observations of filing frequency by 

existing exempt DCOs. 

50While updating the number of reports based on 

recent data, the Commission discovered that the 

estimated number in the NPRM—1987— 

inadvertently reflected a quarterly, rather than 

annual, number of reports. The estimate of 8074 

reports per respondent represents the median 

number of swaps reported to SDRs by existing 

exempt DCOs during calendar year 2019. 

51 7 U.S.C. 19(a). 

home country regulatory and 

supervisory frameworks. However, JSCC 

did not provide any estimate of what the 

expected cost of an application would 

be. As stated in the Proposal, the 

Commission based its cost estimate of 

$10,500 for the exempt DCO application 

on the significantly reduced 

requirements as compared to a DCO 

registration application, which the 

Commission estimated would cost 

$100,000. The Commission has not 

received any information indicating 

what the amount of additional costs 

over $10,500 would be, nor has it 

revised any of the elements of the 

proposal that would affect the cost 

estimate. Therefore, the Commission is 

retaining the burden estimates it 

included in the proposal. 

1. Application for Exemption From DCO 

Registration Under § 39.6 

Based on its experience in addressing 

petitions for exemption, the 

Commission anticipates receiving one 

application for exemption per year, and 

one request for termination of an 

exemption every three years.48 Burden 

hours and costs were estimated based 

on existing information collections for 

DCO registration and reporting, adjusted 

to reflect the significantly lower burden 

of the proposed regulations. The 

Commission has estimated the burden 

hours for this collection of information 

as follows: 

• Application for exemption, including 

all exhibits, supplements and 

amendments 49

Estimated number of respondents: 1 

Estimated number of reports per 

respondent: 1 

Average number of hours per report: 

40 

Estimated gross annual reporting 

burden: 40 

• Termination of exemption 

Estimated number of respondents: 1 

Estimated number of reports per 

respondent: 0.33 

Average number of hours per report: 

2 

Estimated gross annual reporting 

burden: 0.66 

• Notice to clearing members of 

termination of exemption 

Estimated number of respondents: 1 

Estimated number of reports per 

respondent: 8 

Average number of hours per report: 

0.1 

Estimated gross annual reporting 

burden: 0.8 

2. Reporting by Exempt DCOs 

The number of respondents for the 

daily and quarterly reporting and 

annual certification requirements is 

conservatively estimated at a maximum 

of seven, based on the number of 

existing exempt DCOs (4) and one 

application for exemption each year. 

Reporting of specific events is expected 

to occur infrequently, and the estimated 

number of respondents reflects that not 

all exempt DCOs will experience events 

subject to the notification requirement: 

• Daily reporting 

Estimated number of respondents: 7 

Estimated number of reports per 

respondent: 250 

Average number of hours per report: 

0.1 

Estimated gross annual reporting 

burden: 175 

• Quarterly reporting 

Estimated number of respondents: 7 

Estimated number of reports per 

respondent: 4 

Average number of hours per report: 

1 

Estimated gross annual reporting 

burden: 28 

• Event-specific reporting 

Estimated number of respondents: 4 

Estimated number of reports per 

respondent: 1 

Average number of hours per report: 

0.5 

Estimated gross annual reporting 

burden: 2 

• Annual certification 

Estimated number of respondents: 7 

Estimated number of reports per 

respondent: 1 

Average number of hours per report: 

1.5 

Estimated gross annual reporting 

burden: 10.5 

3. Reporting by Exempt DCOs in 

Accordance With Part 45 

Regulation 39.6(d) requires an exempt 

DCO to report data regarding the two 

swaps resulting from the novation of an 

original swap to an SDR, if the original 

swap had been reported to an SDR 

pursuant to part 45 of the Commission’s 

regulations. The Commission is revising 

the information collection for part 45 to 

include a separate information 

collection under OMB Control No. 

3038–0096. The burden for exempt 

DCOs reporting in accordance with part 

45 is estimated to be approximately onefifth of the burden for registered DCOs 

because exempt DCOs will not be 

required to report all swaps, only those 

that result from the novation of original 

swaps that have been reported to an 

SDR. Consequently, the burden hours 

for the collection of information in this 

rulemaking have been estimated as 

follows: 

• Reporting in accordance with part 45 

Estimated number of respondents: 7. 

Estimated number of reports per 

respondent: 8,074 50

Average number of hours per report: 

0.1 

Estimated gross annual reporting 

burden: 5649 

C. Cost-Benefit Considerations 

1. Introduction 

Section 15(a) of the CEA requires the 

Commission to consider the costs and 

benefits of its actions before 

promulgating a regulation under the 

CEA or issuing certain orders.51 Section 

15(a) further specifies that the costs and 

benefits shall be evaluated in light of 

five broad areas of market and public 

concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness, and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission considers the costs and 

benefits resulting from its discretionary 

determinations with respect to the 

section 15(a) factors. 

The baseline for the Commission’s 

consideration of the costs and benefits 

of this rulemaking are: (1) The DCO 

Core Principles; (3) the general 

provisions applicable to registered 

DCOs under subparts A and B of part 

39; (4) Form DCO in Appendix A to part 

39; and (5) part 40 of the Commission’s 

regulations. 

This rulemaking codifies certain 

conditions and procedures that the 


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52Pursuant to section 2(i) of the CEA, activities 

outside of the United States are not subject to the 

swap provisions of the CEA, including any rules 

prescribed or regulations promulgated thereunder, 

unless those activities either have a direct and 

significant connection with activities in, or effect 

on, commerce of the United States; or contravene 

any rule or regulation established to prevent 

evasion of a CEA provision enacted under the 

Dodd-Frank Act, Public Law 111–203, 124 Stat. 

1376. 7 U.S.C. 2(i). 

53Registration with Alternative Compliance for 

Non-U.S. Derivatives Clearing Organizations, 85 FR 

67160 (Oct. 21, 2020). 

54See Derivatives Clearing Organization General 

Provisions and Core Principles, 85 FR 4800, 4829 

(Jan. 27, 2020). 55To the extent that current procedures for 

seeking an exemption from DCO registration are 

similar to the procedures adopted in this release, 

these costs are currently being incurred. 

Commission has been using to grant 

exemptions from DCO registration, with 

some modifications. To the extent that 

exemptions from DCO registration were 

already available to non-U.S. clearing 

organizations pursuant to these 

conditions and procedures, the actual 

costs and benefits of this rulemaking 

will likely be lower than the costs and 

benefits relative to the baseline. 

The Commission notes that this 

consideration is based on its 

understanding that the swaps market 

functions internationally with (1) 

transactions that involve U.S. firms 

occurring across different international 

jurisdictions; (2) some entities organized 

outside of the United States that are 

prospective Commission registrants; and 

(3) some entities that typically operate 

both within and outside the United 

States and that follow substantially 

similar business practices wherever 

located. Where the Commission does 

not specifically refer to matters of 

location, the discussion of costs and 

benefits below refers to the effects of the 

final rule on all relevant swaps activity, 

whether based on their actual 

occurrence in the United States or on 

their connection with activities in, or 

effect on, U.S. commerce pursuant to 

section 2(i) of the CEA.52

The Commission recognizes that the 

final rule may impose costs. The 

Commission has endeavored to assess 

the expected costs and benefits of the 

final rule in quantitative terms, 

including PRA-related costs, where 

possible. In situations where the 

Commission is unable to quantify the 

costs and benefits, the Commission 

identifies and considers the costs and 

benefits of the applicable regulations in 

qualitative terms. The lack of data and 

information to estimate those costs is 

attributable in part to the nature of these 

final regulations. Additionally, the 

initial and recurring compliance costs 

for any particular exempt DCO will 

depend on the size, existing 

infrastructure, level of clearing activity, 

practices, and cost structure of the DCO. 

Finally, the costs and benefits of this 

final rule may be affected by the 

Alternative Compliance framework 53

under which a non-U.S. clearing 

organization or an already registered 

non-U.S. DCO would have the option of 

applying for registration with alternative 

compliance, which would allow the 

DCO to comply with the DCO Core 

Principles through its home country 

regulatory regime. The Commission has 

compared these costs and benefits 

below. 

2. Amendments to Part 39 

a. Summary 

Section 5b(h) of the CEA permits the 

Commission to exempt a non-U.S. 

clearing organization from DCO 

registration for the clearing of swaps to 

the extent that the Commission 

determines that such clearing 

organization is subject to comparable, 

comprehensive supervision by 

appropriate government authorities in 

the clearing organization’s home 

country. Pursuant to this authority, the 

Commission has exempted four nonU.S. clearing organizations from DCO 

registration. The final rule generally 

codifies the policies and procedures that 

the Commission has followed with 

respect to granting exemptions from 

DCO registration. Specifically, these 

regulations set forth the process by 

which a non-U.S. clearing organization 

may obtain an exemption from DCO 

registration for the clearing of 

proprietary swaps for U.S. persons 

provided that it meets the specified 

eligibility standards and can meet the 

conditions of an exemption. 

b. Benefits and Costs 

With the Commission’s adoption of 

this final rule, non-U.S. clearing 

organizations seeking to clear swaps for 

U.S. persons on a proprietary basis will 

have a choice between seeking an 

exemption from DCO registration and 

registering as a DCO, either under the 

Commission’s original framework or the 

recently adopted Alternative 

Compliance framework. The 

Commission expects exemption from 

registration to be the least costly of the 

three options. The Commission 

estimates that it would take about 421 

hours to prepare a traditional 

application for DCO registration 54 and 

100 hours to prepare an application 

under the alternative procedures, as 

compared to 40 hours to prepare an 

application for an exemption.55 The 

daily, quarterly, and event-specific 

reporting requirements are estimated to 

impose the same hourly burden for both 

registered and exempt DCOs with the 

exception of swap data reporting under 

part 45. Registered DCOs subject to 

Alternative Compliance will be subject 

to the same part 45 reporting 

requirements as other registered DCOs, 

while exempt DCOs will only have to 

report data regarding the two swaps 

resulting from the novation of an 

original swap previously reported to an 

SDR. In the PRA section for this release, 

the Commission estimates that the part 

45 reporting burden for an exempt DCO 

would be about one fifth as much as the 

burden on a registered DCO. Both 

exempt DCOs and registered DCOs 

subject to Alternative Compliance are 

primarily subject to their home country 

regulatory regimes, but registered DCOs 

subject to Alternative Compliance will 

also be held to certain requirements set 

forth in the CEA and Commission 

regulations, including, for example, 

subpart A of part 39 and § 39.15. The 

extent to which these additional 

requirements will increase costs on 

registered DCOs subject to Alternative 

Compliance relative to the costs to 

exempt DCOs will depend on the extent 

to which these requirements exceed the 

legal requirements of their home 

countries and whether registered DCOs 

subject to Alternative Compliance have 

to change their practices more than they 

would if they had sought an exemption 

instead. 

Given the lower costs of an exemption 

as compared to registration, and the 

greater clarity and regulatory certainty 

resulting from codification of the 

CFTC’s existing procedures, the final 

regulation may promote competition 

among registered and exempt DCOs by 

encouraging more clearing organizations 

to seek an exemption. Lower costs and 

competition may, in turn, result in 

clearing members incurring lower costs 

to clear through exempt DCOs. In 

addition, access to more clearing 

organizations may also encourage 

voluntary clearing of swaps that are not 

required to be cleared, as certain swaps 

may not be cleared by any registered 

DCOs. This may, in turn, serve to 

diversify the potential risk of cleared 

swaps, because any such risk would 

become less concentrated if a larger 

number of registered and exempt DCOs 

were clearing swaps for U.S. persons, 

and the volume of those swaps could 

become more evenly distributed among 

those registered and exempt DCOs. 

While an exemption from DCO 

registration would be less costly to 

obtain than any form of DCO 

registration, registration provides 

benefits that are not available to exempt 


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56PFMIs at Principle 18, Explanatory Note 3.18.5. 

57 Id. at Principle 18, Explanatory Note 3.18.8. 

58 Id. at Principle 14, Explanatory Note 3.14.1. 59 7 U.S.C. 2(h)(1)(B). 

DCOs or persons that clear through an 

exempt DCO. For example, a registered 

DCO is permitted to clear for U.S. 

customers. An eligible clearing 

organization may choose to register, 

particularly under the Alternative 

Compliance framework, over seeking an 

exemption if it determines that the 

benefits of customer clearing (including 

an enhanced ability to attract U.S. 

business) would justify the extra costs of 

registration relative to an exemption. 

Based on data submitted by registered 

DCOs to the Commission pursuant to 

§ 39.19(c), customer clearing typically 

accounts for a majority of the initial 

margin at a DCO (about 70 percent on 

average), and this is likely true for other 

clearing organizations as well. Thus, the 

inability of exempt DCOs to clear for 

U.S. customers may create a significant 

disincentive to seeking exemption in 

lieu of registration. 

Registered DCOs may face a 

competitive disadvantage as a result of 

the final rule. A registered DCO may 

have to compete with an exempt DCO 

for U.S. proprietary swap business, yet 

may have higher ongoing compliance 

costs than an exempt DCO. This 

competitive disadvantage is mitigated 

by the fact that exempt DCOs are, as a 

precondition of such exemption, 

required to be subject to comparable, 

comprehensive supervision and 

regulation by a home country regulator 

that is likely to impose costs similar to 

those associated with Commission 

regulation. 

The Commission is codifying in 

§ 39.6(a)(1) the statutory authority in 

section 5b(h) of the CEA that the 

Commission may exempt a clearing 

organization from DCO registration for 

the clearing of swaps provided that the 

Commission determines that the 

clearing organization is subject to 

comparable, comprehensive supervision 

and regulation by a home country 

regulator. To satisfy this standard, the 

clearing organization will need to 

demonstrate, among other things, that: 

(i) It is organized in a jurisdiction in 

which a home country regulator applies 

to the clearing organization, on an 

ongoing basis, statutes, rules, 

regulations, and/or policies that, taken 

together, are consistent with the PFMIs; 

and (ii) it observes the PFMIs in all 

material respects. New § 39.6(b)(6) 

requires an annual certification that an 

exempt DCO continues to observe the 

PFMIs in all material respects. 

The Commission believes that the 

PFMIs provide numerous regulatory 

benefits and promote the protection of 

market participants and the public, the 

financial integrity of derivatives 

markets, and sound risk management 

practices. In this regard, the PFMIs 

include provisions that address DCOs 

establishing requirements and/or 

procedures designed to ensure that 

clearing members meet their obligations 

to DCOs and safeguard customer funds. 

For example, the PFMIs provide that 

DCOs should establish risk-related 

participation requirements adequate to 

ensure that participants meet 

operational, financial, and legal 

requirements to allow them to fulfill 

their obligations to DCOs. Financial 

requirements may include reasonable 

risk-related capital requirements for 

participants and appropriate indicators 

of participant creditworthiness.56 In 

addition, the PFMIs provide that a DCO 

should monitor compliance with its 

participation requirements on an 

ongoing basis through the receipt of 

timely and accurate information.57 The 

PFMIs further provide that collateral 

belonging to customers of clearing 

members should be segregated from the 

assets of the clearing member through 

which the customers clear.58 Moreover, 

using the PFMIs may promote 

regulatory comity, since the PFMIs 

represent standards that have been 

agreed to by the G20 and are widely 

used in the regulation of clearing 

organizations. Although the PFMIs are 

already used to determine eligibility for 

receiving an exemption from DCO 

registration, the Commission believes 

that codifying the use of the PFMIs is 

beneficial from the perspectives of 

transparency and consistency. 

The Commission acknowledges, as 

discussed in the preamble above, that 

the PFMIs are not identical to, nor as 

detailed as, part 39. Thus, market 

participants choosing to clear swaps 

through exempt DCOs may incur costs 

associated with forgoing certain 

regulatory protections that are not 

included in the PFMIs. However, these 

costs are mitigated by some of the 

conditions of exemption set out in 

§ 39.6(b), as discussed below, as well as 

other Commission regulations 

applicable to exempt DCOs. These 

conditions (including, for example, the 

open access provision of § 39.6(b)(2)), 

provide additional regulatory 

protections beyond those required by 

the PFMIs. Additionally, the costs of 

using the PFMIs (as compared to some 

other means of determining that a 

clearing organization is subject to 

comparable, comprehensive supervision 

and regulation by a home country 

regulator) will vary depending on the 

home country regulatory regime. 

Finally, since the PFMIs are already 

used to determine eligibility for 

receiving an exemption from DCO 

registration, these costs are currently 

being realized by exempt DCOs and U.S. 

persons who currently clear proprietary 

swaps on exempt DCOs. 

New § 39.6(b) contain various 

conditions that the Commission is 

imposing for the granting of exemptions 

from DCO registration. These conditions 

are consistent with those that the 

Commission has been imposing on 

exempt DCOs prior to the adoption of 

this rule. Therefore, the costs and 

benefits of these conditions are 

currently being incurred by exempt 

DCOs and U.S. persons who currently 

clear proprietary swaps on such DCOs. 

New § 39.6(b)(2) codifies the ‘‘open 

access’’ requirements of section 

2(h)(1)(B) of the CEA with respect to 

swaps cleared by an exempt DCO to 

which one or more of the counterparties 

is a U.S. person.59 Under § 39.6(b)(2), an 

exempt DCO is required to maintain 

rules providing that all such swaps with 

the same terms and conditions 

submitted to the exempt DCO for 

clearing are economically equivalent 

and may be offset with each other, to the 

extent that offsetting is permitted by the 

exempt DCO’s rules. An exempt DCO is 

also required to maintain rules 

providing for non-discriminatory 

clearing whether a swap is executed 

bilaterally or is executed on or subject 

to the rules of an unaffiliated electronic 

matching platform or trade execution 

facility, e.g., a swap execution facility. 

This should benefit market participants 

by ensuring that they are able to offset 

their positions to the extent that it is 

feasible and consistent with DCO rules 

and that they are not subject to 

discrimination based on whether or not 

they execute on a trading platform. The 

Commission believes that most or all 

non-U.S. clearing organizations have 

open access rules that comply with 

§ 39.6(b)(2) and has received no 

comments suggesting otherwise. 

However, to the extent that a clearing 

organization seeking an exemption from 

DCO registration needs to change its 

rules to comply with this requirement, 

that clearing organization could incur 

costs. 

New § 39.6(b)(3) requires an exempt 

DCO to consent to jurisdiction in the 

United States and designate an agent in 

the United States to receive notice or 

service of various documents issued by 

or on behalf of the Commission or the 

U.S. Department of Justice in 

connection with investigations or for 

certain other purposes. This will assist 


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the Commission and the Department of 

Justice in protecting market participants 

and the public and will impose on 

exempt DCOs the minor costs associated 

with retaining a U.S. agent. 

New §§ 39.6(b)(4) and 39.6(b)(8) are 

general provisions that require an 

exempt DCO to comply, and 

demonstrate compliance as requested by 

the Commission, with any condition of 

the exempt DCO’s order of exemption 

and to provide that the Commission 

may condition an exemption from DCO 

registration on any other facts and 

circumstances it deems relevant. These 

provisions do not provide any costs and 

benefits in and of themselves. The costs 

and benefits of any additional 

conditions that may be imposed 

pursuant to § 39.6(b)(8) can only be 

considered when such additional 

conditions are imposed. 

New § 39.6(b)(5) requires an exempt 

DCO to promptly make all books and 

records related to its operation as an 

exempt DCO available to any 

Commission representative upon 

request. This provision will facilitate 

the Commission’s mission, including 

the protection of market participants 

and the public. While the Commission 

does not anticipate making routine 

requests for books and records, 

providing or making available books 

and records pursuant to any such 

request will impose modest costs on 

exempt DCOs. 

New § 39.6(b)(7) requires an exempt 

DCO’s home country regulator to 

provide an annual certification that the 

exempt DCO is in good regulatory 

standing. That rule, along with 

§ 39.6(a)(2) which requires an MOU or 

similar arrangement to be in effect 

between the Commission and the home 

country regulator, will assist the 

Commission in protecting market 

participants and the public, but will not 

impose any direct costs on exempt 

DCOs or market participants. Where no 

MOU between the Commission and a 

home country regulator is in effect, a 

clearing organization in that country 

wanting an exemption may incur costs 

associated with facilitating such an 

MOU, or it could incur the costs of 

either registering with the Commission 

or forgoing U.S. participation. The 

requirements regarding an MOU also 

exist in current procedures, so the costs 

and benefits of those requirements are 

currently being realized by exempt 

DCOs and U.S. persons who currently 

clear proprietary swaps on exempt 

DCOs. 

Finally, new § 39.6(d) requires an 

exempt DCO to report swap data for the 

two cleared swaps that result from the 

novation of an original swap cleared 

through the exempt DCO. An exempt 

DCO would also need to report the 

termination of the original swap to the 

SDR that received the swap data for the 

original swap. To avoid duplicative 

reporting, the exempt DCO is also 

required to have rules that prohibit the 

part 45 reporting of the two new swaps 

by the counterparties to the original 

swap. CCP12 commented that 

transparency in the swaps markets, 

which is supported by SDR reporting, 

provides a number of benefits. However, 

CCP12 argued that the SDR reporting 

requirements would post significant 

operational challenges, such as 

onboarding with an SDR that has a 

different reporting format than that of 

the exempt DCO’s home country. CCP12 

also commented that SDR reporting fees 

would be a burden based on the number 

of reported transactions. The 

Commission agrees that SDR reporting 

enhances market transparency and thus 

provides benefits to the market. The 

Commission notes that SDR reporting 

costs would otherwise be borne by the 

counterparties to the swap, and because 

there are far more swap counterparties 

than exempt DCOs, it would be more 

efficient to require the relatively few 

exempt DCOs to bear the operational 

burdens of setting up and following 

reporting processes and procedures with 

the various SDRs. The costs and benefits 

of the reporting requirements are 

currently being realized to the extent 

that similar requirements are contained 

in existing orders of exemption for 

DCOs. 

3. Section 15(a) Factors 

a. Protection of Market Participants and 

the Public 

For the most part, the final rule does 

not materially reduce the protections 

available to market participants and the 

public because, among other things, it: 

(i) Only permits exempt DCOs to clear 

swaps for U.S. persons for their 

proprietary accounts, and not for 

customers; (ii) requires that an exempt 

DCO be subject to comparable, 

comprehensive supervision and 

regulation by a home country regulator 

as provided by the PFMIs; (iii) requires 

an MOU or similar arrangement with 

the home country regulator that would 

enable the Commission to obtain any 

information that the Commission deems 

necessary to evaluate the initial and 

continued eligibility of the DCO for 

exemption from registration or to review 

its compliance with any conditions of 

such exemption; (iv) provides 

additional protections with the 

conditions of exemption set out in 

§ 39.6(b), including open access and 

data reporting requirements; and (v) 

explicitly authorizes the Commission to 

modify or terminate an order of 

exemption on its own initiative if it 

determines that there are changes to or 

omissions in material facts or 

circumstances pursuant to which the 

order of exemption was issued, or that 

any of the terms and conditions of the 

order of exemption have not been met. 

Collectively, these provisions protect 

market participants and the public by 

ensuring that exempt DCOs are subject 

to the internationally recognized PFMIs. 

Although the Commission 

acknowledges the possibility that some 

foreign regulatory regimes may 

ultimately prove to be less effective than 

that of the United States, the 

Commission believes that this risk is 

mitigated for the reasons discussed 

above. 

b. Efficiency, Competitiveness, and 

Financial Integrity 

The final rule promotes operational 

efficiency by permitting exempt DCOs 

to clear swaps for U.S. persons without 

having to apply for DCO registration, 

which involves the submission of 

extensive documentation to the 

Commission. The final rule also 

mitigates duplicative compliance 

requirements by not requiring exempt 

DCOs to comply with the Commission’s 

part 39 regulations (with the exception 

of § 39.6) in addition to the 

requirements of their home country 

regulator. In addition, adopting these 

regulations might prompt other 

regulators to adopt similar rules that 

would defer to the Commission in the 

regulation of U.S. registered DCOs 

operating outside the United States, 

which could increase competitiveness 

by reducing the regulatory burdens on 

such DCOs. 

The exempt DCO framework may also 

promote competition for U.S. 

proprietary business among non-U.S. 

clearing organizations because it holds 

exempt DCOs to the internationally 

recognized standards set forth in the 

PFMIs. This will allow such clearing 

organizations to compete with each 

other for the proprietary business of 

U.S. clearing members under their own 

comparable regulatory regimes, which 

may potentially increase the number of 

DCOs available to clear for U.S. persons. 

The final rule is expected to maintain 

the financial integrity of swap 

transactions cleared by exempt DCOs 

because such DCOs are subject to 

supervision and regulation by their 

home country regulator within a legal 

framework that is comparable to that 

applicable to registered DCOs under the 

CEA and Commission regulations and as 


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60 2018 Proposal, 83 FR at 39926. 

61 2018 Proposal, 83 FR at 39930. 

62Clearing organizations could be incentivized to 

seek DCO registration instead, either under the 

Commission’s original framework or the recently 

adopted Alternative Compliance framework. 

63 7 U.S.C. 19(b). 

comprehensive. In addition, the final 

rule may contribute to the financial 

integrity of the broader financial system 

by spreading the potential risk of 

particular swaps among a greater 

number of registered and exempt DCOs, 

thus reducing concentration risk. 

c. Price Discovery 

Price discovery is the process of 

determining the price level for an asset 

through the interaction of buyers and 

sellers and based on supply and 

demand conditions. The Commission 

has not identified any impact of the 

final rule on price discovery. This is 

because price discovery occurs before a 

transaction is submitted for clearing 

through the interaction of bids and 

offers on a trading system or platform, 

or in the over-the-counter market. The 

final rule does not impact requirements 

under the CEA or Commission 

regulations regarding price discovery. 

d. Sound Risk Management Practices 

The exempt DCO framework 

encourages sound risk management 

practices because exempt DCOs are 

subject to the risk management 

standards set forth in the PFMIs, which 

are comparable to standards imposed on 

registered DCOs. 

e. Other Public Interest Considerations 

The Commission notes the public 

interest in access to clearing 

organizations outside of the United 

States in light of the international nature 

of many swap transactions. The final 

rule codifies the exemption process for 

non-U.S. clearing organizations that will 

permit them to clear swap transactions 

for U.S. persons on a proprietary basis 

when such clearing organizations meet 

the eligibility requirements and 

conditions included therein, thus 

promoting transparency and 

consistency. Furthermore, the final rule 

might encourage international comity by 

deferring, under certain conditions, to 

regulators in other jurisdictions in the 

oversight of non-U.S. clearing 

organizations. The Commission expects 

that such regulators will defer to the 

Commission in the supervision and 

regulation of registered DCOs organized 

in the United States, thereby reducing 

the regulatory and compliance burdens 

to which such DCOs are subject. 

4. Consideration of Alternatives 

The final rule does not permit U.S. 

customers to clear through exempt 

DCOs. As the Commission noted in the 

2018 Proposal, there is uncertainty as to 

how swaps customer funds would be 

treated under the U.S. Bankruptcy Code 

if the customer’s swaps are cleared at an 

exempt DCO.60 However, the 

Commission did request comment as to 

whether the Commission should 

consider permitting an exempt DCO to 

clear swaps for U.S. customers.61

In response, three commenters 

expressed support. ISDA stated that it 

‘‘strongly believes’’ that the Commission 

should permit exempt DCOs to clear 

swaps for customers. ASX argued that it 

would be beneficial to allow U.S. 

customers to access the broadest 

possible range of clearing organizations, 

which would provide them with 

flexibility and choice in accessing the 

best commercial solutions for the 

products that they use. JSCC 

recommended that the Commission 

consider allowing U.S. customers to 

access exempt DCOs through non-U.S. 

clearing members that are not required 

to register as an FCM, as long as those 

non-U.S. clearing members can 

demonstrate that they are properly 

supervised, regulated, and licensed to 

provide customer clearing services in 

their home countries, and if the home 

regulatory authority maintains 

appropriate cooperative arrangements 

with the Commission. 

Similarly, in response to the 2019 

Proposal, several commenters, including 

ASX, FIA, SIFMA, JSCC, and CCP12, 

proposed a regime for swaps similar to 

that for futures, including a clearing 

structure in which a U.S. customer 

clears through an FCM that maintains 

the U.S. customer’s positions and 

margin in a customer omnibus account 

held by a non-U.S. clearing member that 

is not registered as an FCM. The 

commenters argued that such a regime 

could potentially provide new business 

opportunities to FCMs while allowing 

customers to save money and improve 

efficiency by using the same FCMs to 

clear at both registered and exempt 

DCOs. This would permit customers to 

avoid the time and expense of executing 

documentation with multiple 

intermediaries, for example, and to 

realize operational efficiencies such as 

netting and offsetting within a single 

intermediary, receiving fewer position 

statements, and managing fewer cash 

transfers. The commenters noted that 

customers would also benefit from the 

various customer protections required of 

FCMs, such as those pertaining to 

disclosure, net capital, and reporting. 

The Commission notes that, based on 

data submitted pursuant to § 39.19(c), as 

of October 2020, approximately 70 

percent of initial margin at registered 

DCOs was in customer accounts, with 

the remainder in house (proprietary) 

accounts. It is likely that the majority of 

initial margin at exempt DCOs or 

clearing organizations that may seek an 

exemption is also in customer accounts. 

Thus, limiting clearing by U.S. persons 

at exempt DCOs to proprietary swaps 

will likely significantly reduce the 

number of U.S. persons who can benefit 

from clearing at exempt DCOs and may 

reduce the incentive for eligible clearing 

organizations to seek exemption.62

However, there is uncertainty as to the 

extent to which U.S. customers would 

be protected under the Bankruptcy Code 

in the event of an FCM bankruptcy 

proceeding. The Commission is not 

adopting these alternatives at this time, 

but continues to weigh these risks 

against the potential benefits to U.S. 

customers and FCMs. 

D. Antitrust Considerations 

Section 15(b) of the CEA requires the 

Commission to take into consideration 

the public interest to be protected by the 

antitrust laws and endeavor to take the 

least anticompetitive means of 

achieving the purposes of the CEA, in 

issuing any order or adopting any 

Commission rule or regulation.63

The Commission believes that the 

public interest to be protected by the 

antitrust laws is the promotion of 

competition. The Commission 

requested, but did not receive, any 

comments on whether the proposed 

rulemaking implicated any other 

specific public interest to be protected 

by the antitrust laws. The Commission 

has considered the proposed rulemaking 

to determine whether it is 

anticompetitive. The Commission 

believes that the final rule may promote 

greater competition in swap clearing 

because it might encourage more nonU.S. clearing organizations to seek an 

exemption from registration to clear the 

same types of swaps for U.S. persons 

that are currently cleared by registered 

DCOs. 

The Commission has not identified 

any less anticompetitive means of 

achieving the purposes of the CEA. The 

Commission requested, but did not 

receive, any comments on whether there 

are less anticompetitive means of 

achieving the relevant purposes of the 

CEA that would otherwise be served by 

adopting the final rule. 


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Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations 965 

List of Subjects 

17 CFR Part 39 

Clearing, Derivatives clearing 

organization, Exemption, Procedures, 

Registration, Swaps. 

17 CFR Part 140 

Authority delegations (Government 

agencies), Organization and functions 

(Government agencies). 

For the reasons stated in the 

preamble, the Commodity Futures 

Trading Commission amends 17 CFR 

chapter I as follows: 

PART 39—DERIVATIVES CLEARING 

ORGANIZATIONS 

■ 1. The authority citation for part 39 

continues to read as follows: 

Authority: 7 U.S.C. 2, 6(c), 7a–1, and 

12a(5); 12 U.S.C. 5464; 15 U.S.C. 8325; 

Section 752 of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, Pub. L. 

111–203, title VII, sec. 752, July 21, 2010, 124 

Stat. 1749. 

■ 2. Revise § 39.1 to read as follows: 

§ 39.1 Scope. 

The provisions of this subpart A 

apply to any derivatives clearing 

organization, as defined under section 

1a(15) of the Act and § 1.3 of this 

chapter, that is registered or is required 

to register with the Commission as a 

derivatives clearing organization 

pursuant to section 5b(a) of the Act, or 

that is applying for an exemption from 

registration pursuant to section 5b(h) of 

the Act. 

■ 3. In § 39.2, add definitions of the 

terms ‘‘Exempt derivatives clearing 

organization,’’ ‘‘Home country,’’ ‘‘Home 

country regulator,’’ and ‘‘Principles for 

Financial Market Infrastructures,’’ in 

alphabetical order, and amend the 

definition of ‘‘Good regulatory 

standing,’’ to read as follows: 

§ 39.2 Definitions. 

* * * * * 

Exempt derivatives clearing 

organization means a derivatives 

clearing organization that the 

Commission has exempted from 

registration under section 5b(a) of the 

Act, pursuant to section 5b(h) of the Act 

and § 39.6. 

* * * * * 

Good regulatory standing means, with 

respect to a derivatives clearing 

organization that is organized outside of 

the United States, and is licensed, 

registered, or otherwise authorized to 

act as a clearing organization in its 

home country, that: 

(1) In the case of an exempt 

derivatives clearing organization, either 

there has been no finding by the home 

country regulator of material nonobservance of the Principles for 

Financial Market Infrastructures or 

other relevant home country legal 

requirements, or there has been a 

finding by the home country regulator of 

material non-observance of the 

Principles for Financial Market 

Infrastructures or other relevant home 

country legal requirements but any such 

finding has been or is being resolved to 

the satisfaction of the home country 

regulator by means of corrective action 

taken by the derivatives clearing 

organization; or 

(2) In the case of a derivatives clearing 

organization registered subject to 

compliance with subpart D of this part, 

either there has been no finding by the 

home country regulator of material nonobservance of the relevant home country 

legal requirements, or there has been a 

finding by the home country regulator of 

material non-observance of the relevant 

home country legal requirements but 

any such finding has been or is being 

resolved to the satisfaction of the home 

country regulator by means of corrective 

action taken by the derivatives clearing 

organization. 

Home country means, with respect to 

a derivatives clearing organization that 

is organized outside of the United 

States, the jurisdiction in which the 

derivatives clearing organization is 

organized. 

Home country regulator means, with 

respect to a derivatives clearing 

organization that is organized outside of 

the United States, an appropriate 

government authority which licenses, 

regulates, supervises, or oversees the 

derivatives clearing organization’s 

clearing activities in the home country. 

* * * * * 

Principles for Financial Market 

Infrastructures means the Principles for 

Financial Market Infrastructures jointly 

published by the Committee on 

Payment and Settlement Systems and 

the Technical Committee of the 

International Organization of Securities 

Commissions in April 2012. 

* * * * * 

■ 4. Add § 39.6 to read as follows: 

§ 39.6 Exemption from derivatives clearing 

organization registration. 

(a) Eligibility for exemption. A 

derivatives clearing organization that is 

organized outside of the United States 

shall be eligible for an exemption from 

registration as a derivatives clearing 

organization for the clearing of swaps 

for U.S. persons, and thereby exempt 

from compliance with provisions of the 

Act and Commission regulations 

applicable to derivatives clearing 

organizations, if: 

(1) The derivatives clearing 

organization is subject to comparable, 

comprehensive supervision and 

regulation by a home country regulator 

as demonstrated by the following: 

(i) The derivatives clearing 

organization is organized in a 

jurisdiction in which a home country 

regulator applies to the derivatives 

clearing organization, on an ongoing 

basis, statutes, rules, regulations, 

policies, or a combination thereof that, 

taken together, are consistent with the 

Principles for Financial Market 

Infrastructures; 

(ii) The derivatives clearing 

organization observes the Principles for 

Financial Market Infrastructures in all 

material respects; and 

(iii) The derivatives clearing 

organization is in good regulatory 

standing in its home country; and 

(2) A memorandum of understanding 

or similar arrangement satisfactory to 

the Commission is in effect between the 

Commission and the derivatives 

clearing organization’s home country 

regulator, pursuant to which, among 

other things, the home country regulator 

agrees to provide to the Commission any 

information that the Commission deems 

necessary to evaluate the initial and 

continued eligibility of the derivatives 

clearing organization for exemption 

from registration or to review its 

compliance with any conditions of such 

exemption. 

(b) Conditions of exemption. An 

exemption from registration as a 

derivatives clearing organization shall 

be subject to any conditions the 

Commission may prescribe including, 

but not limited to: 

(1) Clearing by or for U.S. persons and 

futures commission merchants. The 

exempt derivatives clearing organization 

shall have rules that limit swaps 

clearing services for U.S. persons and 

futures commission merchants to the 

following circumstances: 

(i) A U.S. person that is a clearing 

member of the exempt derivatives 

clearing organization may clear swaps 

for itself and those persons identified in 

the definition of ‘‘proprietary account’’ 

set forth in § 1.3 of this chapter; 

(ii) A non-U.S. person that is a 

clearing member of the exempt 

derivatives clearing organization may 

clear swaps for any affiliated U.S. 

person identified in the definition of 

‘‘proprietary’’ account set forth in § 1.3 

of this chapter; and 

(iii) An entity that is registered with 

the Commission as a futures 

commission merchant may be a clearing 

member of the exempt derivatives 


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clearing organization, or otherwise 

maintain an account with an affiliated 

broker that is a clearing member, for the 

purpose of clearing swaps only for itself 

and those persons identified in the 

definition of ‘‘proprietary account’’ set 

forth in § 1.3 of this chapter; and 

(2) Open access. The exempt 

derivatives clearing organization shall 

have rules with respect to swaps to 

which one or more of the counterparties 

is a U.S. person that shall: 

(i) Provide that all swaps with the 

same terms and conditions, as defined 

by product specifications established 

under the exempt derivatives clearing 

organization’s rules, submitted to the 

exempt derivatives clearing organization 

for clearing are economically equivalent 

within the exempt derivatives clearing 

organization and may be offset with 

each other within the exempt 

derivatives clearing organization, to the 

extent offsetting is permitted by the 

exempt derivatives clearing 

organization’s rules; and 

(ii) Provide that there shall be nondiscriminatory clearing of a swap 

executed bilaterally or on or subject to 

the rules of an unaffiliated electronic 

matching platform or trade execution 

facility. 

(3) Consent to jurisdiction; 

designation of agent for service of 

process. The exempt derivatives 

clearing organization shall: 

(i) Consent to jurisdiction in the 

United States; 

(ii) Designate, authorize, and identify 

to the Commission, an agent in the 

United States who shall accept any 

notice or service of process, pleadings, 

or other documents, including any 

summons, complaint, order, subpoena, 

request for information, or any other 

written or electronic documentation or 

correspondence issued by or on behalf 

of the Commission or the United States 

Department of Justice to the exempt 

derivatives clearing organization, in 

connection with any actions or 

proceedings brought against, or 

investigations relating to, the exempt 

derivatives clearing organization or any 

U.S. person or futures commission 

merchant that is a clearing member, or 

that clears swaps through a clearing 

member, of the exempt derivatives 

clearing organization; and 

(iii) Promptly inform the Commission 

of any change in its designated and 

authorized agent. 

(4) Compliance. The exempt 

derivatives clearing organization shall 

comply, and shall demonstrate 

compliance as requested by the 

Commission, with any condition of its 

exemption. 

(5) Inspection of books and records. 

The exempt derivatives clearing 

organization shall make all documents, 

books, records, reports, and other 

information related to its operation as 

an exempt derivatives clearing 

organization open to inspection and 

copying by any representative of the 

Commission; and in response to a 

request by any representative of the 

Commission, the exempt derivatives 

clearing organization shall, promptly 

and in the form specified, make the 

requested books and records available 

and provide them directly to 

Commission representatives. 

(6) Observance of the Principles for 

Financial Market Infrastructures. On an 

annual basis, within 60 days following 

the end of its fiscal year, the exempt 

derivatives clearing organization shall 

provide to the Commission a 

certification that it continues to observe 

the Principles for Financial Market 

Infrastructures in all material respects. 

To the extent the exempt derivatives 

clearing organization is unable to 

provide to the Commission an 

unconditional certification, it must 

identify the underlying material nonobservance of the Principles for 

Financial Market Infrastructures and 

identify whether and how such nonobservance has been or is being resolved 

by means of corrective action taken by 

the exempt derivatives clearing 

organization. 

(7) Representation of good regulatory 

standing. On an annual basis, within 60 

days following the end of its fiscal year, 

an exempt derivatives clearing 

organization shall request and the 

Commission must receive from a home 

country regulator a written 

representation that the exempt 

derivatives clearing organization is in 

good regulatory standing. 

(8) Other conditions. The Commission 

may condition an exemption on any 

other facts and circumstances it deems 

relevant. 

(c) General reporting requirements. (1) 

An exempt derivatives clearing 

organization shall provide to the 

Commission the information specified 

in this paragraph and any other 

information that the Commission deems 

necessary, including, but not limited to, 

information for the purpose of the 

Commission evaluating the continued 

eligibility of the exempt derivatives 

clearing organization for exemption 

from registration, reviewing compliance 

by the exempt derivatives clearing 

organization with any conditions of the 

exemption, or conducting oversight of 

U.S. persons and their affiliates, and the 

swaps that are cleared by such persons 

through the exempt derivatives clearing 

organization. Information provided to 

the Commission under this paragraph 

shall be submitted in accordance with 

§ 39.19(b). 

(2) Each exempt derivatives clearing 

organization shall provide to the 

Commission the following information: 

(i) A report compiled as of the end of 

each trading day and submitted to the 

Commission by 10:00 a.m. U.S. Central 

time on the following business day, 

containing: 

(A) Initial margin requirements and 

initial margin on deposit for each U.S. 

person, with respect to swaps, provided 

however if a clearing member margins 

on a portfolio basis its own positions 

and the positions of its affiliates, and 

either the clearing member or any of its 

affiliates is a U.S. person, the exempt 

derivatives clearing organization shall 

report initial margin on deposit for all 

such positions on a combined basis for 

each such clearing member; and 

(B) Daily variation margin, separately 

listing the mark-to-market amount 

collected from or paid to each U.S. 

person, with respect to swaps; provided, 

however, if a clearing member margins 

on a portfolio basis its own positions 

and the positions of its affiliates, and 

either the clearing member or any of its 

affiliates is a U.S. person, the exempt 

derivatives clearing organization shall 

separately list the mark-to-market 

amount collected from or paid to each 

such clearing member, on a combined 

basis. 

(ii) A report compiled as of the last 

day of each fiscal quarter of the exempt 

derivatives clearing organization and 

submitted to the Commission no later 

than 17 business days after the end of 

the exempt derivatives clearing 

organization’s fiscal quarter, containing: 

(A) The aggregate clearing volume of 

U.S. persons during the fiscal quarter, 

with respect to swaps. If a clearing 

member is a U.S. person, the volume 

figure shall include the transactions of 

the clearing member and all affiliates. If 

a clearing member is not a U.S. person, 

the volume figure shall include only 

transactions of affiliates that are U.S. 

persons. 

(B) The average open interest of U.S. 

persons during the fiscal quarter, with 

respect to swaps. If a clearing member 

is a U.S. person, the open interest figure 

shall include the positions of the 

clearing member and all affiliates. If a 

clearing member is not a U.S. person, 

the open interest figure shall include 

only positions of affiliates that are U.S. 

persons. 

(C) A list of U.S. persons and futures 

commission merchants that are either 

clearing members or affiliates of any 

clearing member, with respect to the 


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Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations 967 

clearing of swaps, as of the last day of 

the fiscal quarter. 

(iii) Prompt notice regarding any 

change in the home country regulatory 

regime that is material to the exempt 

derivatives clearing organization’s 

continuing observance of the Principles 

for Financial Market Infrastructures or 

compliance with any of the 

requirements set forth in this section or 

in the order of exemption issued by the 

Commission; 

(iv) As available to the exempt 

derivatives clearing organization, any 

assessment of the exempt derivatives 

clearing organization’s or the home 

country regulator’s observance of the 

Principles for Financial Market 

Infrastructures, or any portion thereof, 

by a home country regulator or other 

national authority, or an international 

financial institution or international 

organization; 

(v) As available to the exempt 

derivatives clearing organization, any 

examination report, examination 

findings, or notification of the 

commencement of any enforcement or 

disciplinary action by a home country 

regulator; 

(vi) Immediate notice of any change 

with respect to the exempt derivatives 

clearing organization’s licensure, 

registration, or other authorization to act 

as a derivatives clearing organization in 

its home country; 

(vii) In the event of a default by a U.S. 

person or futures commission merchant 

clearing swaps, with such event of 

default determined in accordance with 

the rules of the exempt derivatives 

clearing organization, immediate notice 

of the default including the name of the 

U.S. person or futures commission 

merchant clearing swaps, a list of the 

positions held by the U.S. person or 

futures commission merchant, and the 

amount of the U.S. person’s or futures 

commission merchant’s financial 

obligation; and 

(viii) Notice of action taken against a 

U.S. person or futures commission 

merchant clearing swaps by an exempt 

derivatives clearing organization, no 

later than two business days after the 

exempt derivatives clearing organization 

takes such action against a U.S. person 

or futures commission merchant. 

(d) Swap data reporting requirements. 

If an exempt derivatives clearing 

organization accepts for clearing a swap 

that has been reported to a swap data 

repository pursuant to part 45 of this 

chapter, the exempt derivatives clearing 

organization shall report to a swap data 

repository data regarding the two swaps 

resulting from the novation of the 

original swap. The exempt derivatives 

clearing organization shall also report 

the termination of the original swap to 

the swap data repository to which the 

original swap was reported. In order to 

avoid duplicative reporting for such 

transactions, the exempt derivatives 

clearing organization shall have rules 

that prohibit the reporting, pursuant to 

part 45 of this chapter, of the two new 

swaps by the counterparties to the 

original swap. 

(e) Application procedures. (1) An 

entity seeking to be exempt from 

registration as a derivatives clearing 

organization shall file an application for 

exemption with the Secretary of the 

Commission in the format and manner 

specified by the Commission. The 

Commission will review the application 

for exemption and may approve or deny 

the application or, if deemed 

appropriate, exempt the applicant from 

registration as a derivatives clearing 

organization subject to conditions in 

addition to those set forth in paragraph 

(b) of this section. 

(2) Application. An applicant for 

exemption from registration as a 

derivatives clearing organization shall 

submit to the Commission the 

information and documentation 

described in this section. Such 

information and documentation shall be 

clearly labeled as outlined in this 

section. The Commission will not 

commence processing an application 

unless the applicant has filed a 

complete application. Upon its own 

initiative, an applicant may file with its 

completed application for exemption 

additional information that may be 

necessary or helpful to the Commission 

in processing the application. The 

application shall include: 

(i) A cover letter containing the 

following information: 

(A) Exact name of applicant as 

specified in its charter, and the name 

under which business will be conducted 

(including acronyms); 

(B) Address of applicant’s principal 

office; 

(C) List of principal office(s) and 

address(es) where clearing activities are/ 

will be conducted; 

(D) A list of all regulatory licenses or 

registrations of the applicant (or 

exemptions from any licensing 

requirement) and the regulator granting 

such license or registration; 

(E) Date of the applicant’s fiscal year 

end; 

(F) Contact information for the person 

or persons to whom the Commission 

should address questions and 

correspondence regarding the 

application; and 

(G) A signature and date by a duly 

authorized representative of the 

applicant. 

(ii) A description of the applicant’s 

business plan for providing clearing 

services as an exempt derivatives 

clearing organization, including 

information as to the classes of swaps 

that will be cleared and whether the 

swaps are subject to a clearing 

requirement issued by the Commission 

or the applicant’s home country 

regulator; 

(iii) Documents that demonstrate that 

the applicant is organized in a 

jurisdiction in which its home country 

regulator applies to the applicant, on an 

ongoing basis, statutes, rules, 

regulations, policies, or a combination 

thereof that, taken together, are 

consistent with the Principles for 

Financial Market Infrastructures; 

(iv) A written representation from the 

applicant’s home country regulator that 

the applicant is in good regulatory 

standing; 

(v) Copies of the applicant’s most 

recent disclosures that are necessary to 

observe the Principles for Financial 

Market Infrastructures, including the 

financial market infrastructure 

disclosure template set forth in Annex 

A to the Disclosure Framework and 

Assessment Methodology for the 

Principles for Financial Market 

Infrastructures, any other such 

disclosure framework issued under the 

authority of the International 

Organization of Securities Commissions 

that is required for observance of the 

Principles for Financial Market 

Infrastructures, and the URL to the 

specific page(s) on the applicant’s 

website where such disclosures may be 

found; 

(vi) A representation that the 

applicant will comply with each of the 

requirements and conditions of 

exemption set forth in paragraphs (b), 

(c), and (d) of this section, and the terms 

and conditions of its order of exemption 

as issued by the Commission; 

(vii) A copy of the applicant’s rules 

that meet the requirements of 

paragraphs (b)(2) and (d) of this section, 

as applicable; and 

(viii) The applicant’s consent to 

jurisdiction in the United States, and 

the name and address of the applicant’s 

designated agent in the United States, 

pursuant to paragraph (b)(3) of this 

section. 

(3) Submission of supplemental 

information. At any time during its 

review of the application for exemption 

from registration as a derivatives 

clearing organization, the Commission 

may request that the applicant submit 

supplemental information in order for 

the Commission to process the 

application, and the applicant shall file 

such supplemental information in the 


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format and manner specified by the 

Commission. 

(4) Amendments to pending 

application. An applicant for exemption 

from registration as a derivatives 

clearing organization shall promptly 

amend its application if it discovers a 

material omission or error, or if there is 

a material change in the information 

provided to the Commission in the 

application or other information 

provided in connection with the 

application. 

(5) Public information. The following 

sections of an application for exemption 

from registration as a derivatives 

clearing organization will be public: The 

cover letter set forth in paragraph 

(e)(2)(i) of this section; the 

documentation required in paragraphs 

(e)(2)(iii) and (e)(2)(v) of this section; 

rules that meet the requirements of 

paragraphs (b)(2) and (d) of this section, 

as applicable; and any other part of the 

application not covered by a request for 

confidential treatment, subject to § 145.9 

of this chapter. 

(f) Modification or termination of 

exemption upon Commission initiative. 

(1) The Commission may, in its 

discretion and upon its own initiative, 

terminate or modify the terms and 

conditions of an order of exemption 

from derivatives clearing organization 

registration if the Commission 

determines that there are changes to or 

omissions in material facts or 

circumstances pursuant to which the 

order of exemption was issued, or that 

any of the terms and conditions of its 

order of exemption have not been met, 

including, but not limited to, the 

requirement that: 

(i) The exempt derivatives clearing 

organization observes the Principles for 

Financial Market Infrastructures in all 

material respects; or 

(ii) The exempt derivatives clearing 

organization is subject to comparable, 

comprehensive supervision and 

regulation by its home country 

regulator. 

(2) The Commission shall provide 

written notification to an exempt 

derivatives clearing organization that it 

is considering whether to terminate or 

modify an exemption pursuant to this 

paragraph and the basis for that 

consideration. 

(3) The exempt derivatives clearing 

organization may respond to the 

notification in writing no later than 30 

business days following receipt of the 

notification, or at such later time as the 

Commission permits in writing. 

(4) Following receipt of a response 

from the exempt derivatives clearing 

organization, or after expiration of the 

time permitted for a response, the 

Commission may: 

(i) Issue an order of termination, 

effective as of a date to be specified 

therein. Such specified date shall be 

intended to provide the exempt 

derivatives clearing organization with a 

reasonable amount of time to wind 

down its swap clearing services for U.S. 

persons; 

(ii) Issue an amended order of 

exemption that modifies the terms and 

conditions of the exemption; or 

(iii) Provide written notification to the 

exempt derivatives clearing organization 

that the exemption will remain in effect 

without modification to the terms and 

conditions of the exemption. 

(g) Termination of exemption upon 

request by an exempt derivatives 

clearing organization. (1) An exempt 

derivatives clearing organization may 

petition the Commission to terminate its 

exemption if: 

(i) Changed circumstances result in 

the exempt derivatives clearing 

organization no longer qualifying for an 

exemption; 

(ii) The exempt derivatives clearing 

organization intends to cease clearing 

swaps for U.S. persons; or 

(iii) In conjunction with the petition, 

the exempt derivatives clearing 

organization submits an application for 

registration in accordance with 

§ 39.3(a)(2) or § 39.3(a)(3), as applicable, 

to become a registered derivatives 

clearing organization pursuant to 

section 5b(a) of the Act. 

(2) The petition for termination of 

exemption shall include a detailed 

explanation of the facts and 

circumstances supporting the request 

and the exempt derivatives clearing 

organization’s plans for, as may be 

applicable, the liquidation or transfer of 

the swaps positions and related 

collateral of U.S. persons. 

(3) The Commission shall issue an 

order of termination within a reasonable 

time appropriate to the circumstances 

or, as applicable, in conjunction with 

the issuance of an order of registration. 

(h) Notice to clearing members of 

termination of exemption. Following the 

Commission’s issuance of an order of 

termination (unless issued in 

conjunction with the issuance of an 

order of registration), the exempt 

derivatives clearing organization shall 

provide immediate notice of such 

termination to its clearing members. 

Such notice shall include: 

(1) A copy of the Commission’s order 

of termination; 

(2) A description of the procedures for 

orderly disposition of any open swaps 

positions that were cleared for U.S. 

persons; and 

(3) An instruction to clearing 

members, requiring that they provide 

the exempt derivatives clearing 

organization’s notice of such 

termination to all U.S. persons clearing 

swaps through such clearing members. 

■ 5. Revise § 39.9 to read as follows: 

§ 39.9 Scope. 

Except as otherwise provided by 

Commission order, the provisions of 

this subpart B apply to any derivatives 

clearing organization, as defined under 

section 1a(15) of the Act and § 1.3 of 

this chapter, that is registered with the 

Commission as a derivatives clearing 

organization pursuant to section 5b of 

the Act. The provisions of this subpart 

B do not apply to any exempt 

derivatives clearing organization, as 

defined under § 39.2. 

PART 140—ORGANIZATION, 

FUNCTIONS, AND PROCEDURES OF 

THE COMMISSION 

■ 6. The authority citation for part 140 

continues to read as follows: 

Authority: 7 U.S.C. 2(a)(12), 12a, 13(c), 

13(d), 13(e), and 16(b). 

■ 7. Amend § 140.94 by: 

■ a. Redesignating paragraphs (c)(4) 

through (13) as paragraphs (c)(5) 

through (14); and 

■ b. Adding new paragraph (c)(4). 

The addition reads as follows: 

§ 140.94 Delegation of authority to the 

Director of the Division of Swap Dealer and 

Intermediary Oversight and the Director of 

the Division of Clearing and Risk. 

* * * * * 

(c) * * * 

(4) All functions reserved to the 

Commission in § 39.6 of this chapter, 

except for the authority to: 

(i) Grant an exemption under § 39.6(a) 

of this chapter; 

(ii) Prescribe conditions to an 

exemption under § 39.6(b) of this 

chapter; 

(iii) Modify or terminate an 

exemption under § 39.6(f)(4) of this 

chapter; and 

(iv) Terminate an exemption under 

§ 39.6(g)(3) of this chapter. 

* * * * * 

Issued in Washington, DC, on November 

25, 2020, by the Commission. 

Christopher Kirkpatrick, 

Secretary of the Commission. 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 


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1See Exemption From Derivatives Clearing 

Organization Registration, 83 FR 39923 (Aug. 13, 

2018). The Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Law 111–203, 124 

Stat. 1376, amended the Commodity Exchange Act 

(‘‘CEA’’) to permit the Commission to exempt 

conditionally or unconditionally a DCO from 

registration for the clearing of swaps if the 

Commission determines that the clearing 

organization is subject to ‘‘comparable, 

comprehensive supervision and regulation’’ by 

appropriate government authorities in the clearing 

organization’s home country. See Section 5b(a) of 

the CEA, 7 U.S.C. 7a–1(a). 

2See Amended Order of Exemption from 

Registration (Jan. 28, 2016) (ASX Clear (Futures) Pty 

Limited), available at: https://www.cftc.gov/sites/ 

default/files/idc/groups/public/@otherif/ 

documents/ifdocs/ 

asxclearamdorderdcoexemption.pdf; Amended 

Order of Exemption from DCO Registration (May 

15, 2017) (Japan Securities Clearing Corporation), 

available at: https://www.cftc.gov/sites/default/files/ 

idc/groups/public/@otherif/documents/ifdocs/ 

jsccdcoexemptamdorder5-15-17.pdf; Order of 

Exemption from DCO Registration (Oct. 26, 2015) 

(Korea Exchange, Inc.), available at: https://

www.cftc.gov/sites/default/files/idc/groups/public/ 

@otherif/documents/ifdocs/krxdcoexemptorder10- 

26-15.pdf; and Order of Exemption from DCO 

Registration (Dec. 21, 2015) (OTC Clearing Hong 

Kong Limited), available at: https://www.cftc.gov/ 

sites/default/files/idc/groups/public/@otherif/ 

documents/ifdocs/otccleardcoexemptorder12-21- 

15.pdf. 

3See Directive of Chairman Heath P. Tarbert on 

the Use of Staff Letters and Guidance (Oct. 27, 

2020), available at: https://www.cftc.gov/ 

PressRoom/SpeechesTestimony/ 

tarbetstatement102720. 

4See Exemption From Derivatives Clearing 

Organization Registration, 84 FR 35456 (July 23, 

2019). 

5See Registration With Alternative Compliance 

for Non-U.S. Derivatives Clearing Organizations, 85 

FR 67160 (Oct. 21, 2020). 

1Sec. 5b(h) of the Commodity Exchange Act. 

2Cross-Border Application of the Registration 

Thresholds and Certain Requirements Applicable to 

SDs and Major Swap Participants (MSPs), 85 FR 

56924 (Sept. 14, 2020). 

3Comparability Determination for Australia: 

Margin Requirements for Uncleared Swaps for SDs 

and MSPs, 84 FR 12908 (Apr. 3, 2019); Amendment 

to Comparability Determination for Japan: Margin 

Requirements for Uncleared Swaps for SDs and 

MSPs, 84 FR 12074 (Apr. 1, 2019). 

4Amendment to Order of Exemption from SEF 

registration for Recognized Market Operators 

authorized in Singapore, Nov. 2, 2020, available at: 

https://www.cftc.gov/PressRoom/PressReleases/ 

8301-20; Amendment to Order of Exemption from 

SEF registration for E.U. multilateral trading 

facilities and organized trading facilities, July 23, 

2020, available at: https://www.cftc.gov/PressRoom/ 

PressReleases/8211-20; Order of Exemption from 

SEF registration for Japanese derivatives trading 

facilities, July 11, 2019, available at: https://

www.cftc.gov/PressRoom/PressReleases/7968-19. 

5Registration with Alternative Compliance for 

Non-U.S. DCOs, 85 FR 67160 (Oct. 21, 2020). 

6Regulation 30.10 orders issued to the Bombay 

Stock Exchange, National Stock Exchange Int’l 

Financial Service Centre Ltd. [India], Montreal 

Exchange, NZX Ltd. [New Zealand], and UBS AG 

[Switzerland], Nov. 2, 2020, available at: https://

www.cftc.gov/PressRoom/PressReleases/8300-20. 

7Reg. 39.6(a)(1)(i). 

8Reg. 39.6(c). 

9Exemption from DCO Registration, 84 FR 35456 

(July 23, 2019); Opening Statement of 

Commissioner Brian Quintenz before the Open 

Commission Meeting on July 11, 2019, available at: 

https://www.cftc.gov/PressRoom/ 

SpeechesTestimony/quintenzstatement071119. 

10Sec. 1a(18) of the Commodity Exchange Act. 

Appendices to Exemption From 

Derivatives Clearing Organization 

Registration—Commission Voting 

Summary, Chairman’s Statement, and 

Commissioners’ Statements 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Tarbert and 

Commissioners Quintenz, Behnam, Stump, 

and Berkovitz voted in the affirmative. No 

Commissioner voted in the negative. 

Appendix 2—Statement of Support of 

Chairman Heath P. Tarbert 

We are voting to approve a rule proposed 

in 2018 that codifies existing staff guidance 

by which the CFTC exempts derivatives 

clearing organizations (DCOs) from 

registration for the clearing of swaps.1

Pursuant to that guidance, we have exempted 

four clearinghouses that we determined are 

subject to ‘‘comparable, comprehensive 

supervision and regulation’’ by the clearing 

organization’s home country regulator.2

Codifying this framework through a noticeand-comment rulemaking is, frankly, good 

government. And doing so is in keeping with 

my recent directive on the use of staff letters 

and guidance, in which I noted that staff 

guidance and letters should supplement 

rulemakings, rather than themselves function 

as rules.3 This approach has many benefits, 

including providing increased transparency. 

It also furthers our strategic objective of 

enhancing the regulatory experience for 

market participants at home and abroad. 

This rulemaking is a modest first step. As 

is the case in the existing staff guidance, the 

rule does not permit exempt DCOs to clear 

for U.S. customers, but rather only for 

proprietary swap transactions for U.S. 

clearing members and futures commission 

merchants (FCMs). It reflects the CFTC’s 

continued efforts to foster cross-border 

cooperation and show deference to home 

country regulation that is deemed 

comparable to our own regulations. 

In 2019, the Commission issued a 

supplemental proposal that would have gone 

further and permitted exempt DCOs to clear 

swaps for U.S. eligible contract participants 

(ECPs) through foreign intermediaries.4 I 

would have supported finalizing that 

proposal for two reasons. First, the proposal 

would have provided greater flexibility and 

choice to our most sophisticated U.S. 

customers—ECPs—to access swaps cleared at 

non-U.S. clearinghouses. This would have 

given these sophisticated counterparties 

access to foreign-currency denominated 

instruments traded overseas that would 

enable them to hedge their various risks on 

a global basis. Second, exempting 

clearinghouses that do not pose a substantial 

risk to the U.S. financial system is consistent 

with principles of international comity. 

Because we have not worked through all 

the issues raised by the 2019 supplemental 

proposal to the satisfaction of our 

Commission, today we are adopting only the 

2018 proposal. Nonetheless, I support 

continued discussion on whether to permit 

Exempt DCOs additionally to clear certain 

non-U.S.-dollar denominated swaps for U.S. 

customers who are ECPs, either directly 

through foreign intermediaries or through 

U.S. FCMs. Although registration as a DCO— 

under either our traditional or recentlyestablished alternative framework 5—should 

be the preferred route for most non-U.S. 

clearinghouses, there are likely 

circumstances where U.S. customers would 

benefit from access to additional riskmitigating instruments offered overseas. 

Appendix 3—Supporting Statement of 

Commissioner Brian D. Quintenz 

I support today’s final rule to codify the 

CFTC’s existing practice of exempting nonU.S. derivatives clearing organizations 

(DCOs) from registration, pursuant to a 

provision of the Commodity Exchange Act 

that allows for U.S. swap market participants 

to access comparably regulated foreign 

DCOs.1 That provision authorizes the 

Commission to defer to its counterparts 

abroad, which I believe properly conserves 

the Commission’s resources and enables 

firms to avoid duplicative regulation, while 

providing U.S. market participants with 

greater choice. I am proud that today’s final 

rule provides yet another example of the 

CFTC deferring to foreign regulators that 

provide comparable regulation and 

supervision. During my tenure as a 

Commissioner, the CFTC has properly 

provided such deference in many areas, 

including swap dealer (SD) registration,2

uncleared swap margin requirements,3 swap 

execution facilities (SEFs),4 registered 

DCOs,5 and foreign futures.6 Like these other 

actions, today’s final rule holds exempt DCO 

to a high regulatory standard. Under the final 

rule, a DCO is only eligible for an exemption 

if its home country regulator ensures the 

clearinghouse complies with rules consistent 

with the internationally accepted ‘‘Principles 

for Financial Market Infrastructures’’ (PFMIs) 

issued by CPMI–IOSCO.7 Moreover, the 

exempt DCO must regularly provide the 

CFTC with margin information concerning 

U.S. clearing members, among other key 

information.8

I note that under the final rule, an exempt 

DCO will only be authorized to clear the 

proprietary positions of its U.S. clearing 

members. I had supported and still support 

the Commission’s 2019 proposal that would 

have expanded the exempt DCO framework 

to allow for U.S. customers, like asset 

managers and insurance companies, to clear 

at exempt DCOs directly to better manage 

and hedge their risk.9 I continue to believe 

that all participants meeting the Commodity 

Exchange Act’s definition of ‘‘eligible 

contract participant’’ 10 have the resources, 

sophistication, and incentives to adequately 

assess how customer protections provided by 

an exempt DCO may differ from protections 

established by CFTC regulations for 

registered DCOs. The CFTC should provide 

these market participants with the choice 

befitting their status, not only as 

sophisticated market participants, but as 

complex international organizations who 


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970 Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations 

1 7 U.S.C. 7a–1(a). 

2See Final Rule at II.B.2.a. and § 39.6(b)(1). 

3Exemption from Derivatives Clearing 

Organization Registration, 83 FR 39923 (proposed 

Aug. 13, 2018) (the ‘‘2018 Proposal’’). 

4Exemption from Derivatives Clearing 

Organization Registration, 84 FR 35456 (proposed 

July 23, 2019) (the ‘‘2019 Supplemental Proposal’’). 

5See Appendix 4—Dissenting Statement of 

Commissioner Rostin Behnam, Supplemental 

Proposal, 84 FR at 35476–35478. 

6 Id. at 35476. 7See CEA section 5b(c)(2), 7 U.S.C. 7a–1(c)(2). 

1Commodity Exchange Act section 5b(h). 

2See Dissenting Statement of Commissioner 

Berkovitz, 84 FR 35456 at 35479 (July 23, 2019). As 

discussed in my prior statement, in addition to my 

substantive concerns, the proposed rule would have 

relied on CEA Section 4(c) exemptive authority to 

exempt non-U.S. intermediaries that provide 

customer clearing at Exempt DCOs from the FCM 

registration requirement and the regulations 

applicable to registered FCMs. This reliance would 

have exceeded the clearly limited authority granted 

under Section 4(c). With the elimination of 

customer clearing in the Final Rule, the 

Commission no longer needs to resort to an overly 

expansive reading of Section 4(c) authority to adopt 

the Final Rule. 

need access to foreign markets, products, and 

a choice of liquidity pools. I hope the 

Commission will continue to consider the 

best way to expand the exempt DCO 

framework to allow for U.S. customer 

clearing. 

Appendix 4—Concurring Statement of 

Commissioner Rostin Behnam 

I respectfully concur with the Commodity 

Futures Trading Commission’s final rule 

regarding policies and procedures that it will 

follow with respect to granting exemptions 

from derivatives clearing organization (DCO) 

registration pursuant to authority under 

section 5b(h) of the Commodity Exchange 

Act (CEA) 1 (the ‘‘Final Rule’’). The Final 

Rule, with limited exceptions, codifies the 

policies and procedures followed by the 

Commission in issuing the four exempt DCO 

orders which currently limit clearing 

organizations organized outside of the United 

States to clearing only proprietary swap 

positions of U.S. persons and futures 

commission merchants, and not customer 

positions (‘‘exempt DCOs’’). Critical to my 

vote today, the Final Rule prohibits the 

clearing of U.S. customer positions at an 

exempt DCO.2

I supported the Commission’s 2018 notice 

of proposed rulemaking 3 as a means to 

promote transparency and accountability as 

well as a positive step towards increased 

cross-border cooperation and deference to 

our foreign regulatory counterparts. However, 

I was unable to support the Commission’s 

2019 supplement to the 2018 Proposal,4

which proposed permitting exempt DCOs to 

clear swaps for U.S. customers through 

foreign intermediaries that would be wholly 

outside the Commission’s direct regulation 

and oversight. As articulated more fully in 

my dissent,5 the 2019 Supplemental Proposal 

was not the product of internal consensus 

and its brief history and questionable 

timeline signaled a lack of appropriate 

scrutiny and evaluation of the critical 

financial, market, consumer protection, and 

systemic risk issues raised by diverging from 

the customer protection model provided by 

the CEA and U.S. Bankruptcy Code. It was 

and remains my view that if the Commission 

believes it is appropriate to provide U.S. 

customers with greater access to non-U.S. 

swap markets, then we can and should 

engage in a more careful analysis of options, 

assessment of alternatives, and evaluation of 

consequences consistent with the 

Administrative Procedure Act.6 As the 

Commission is declining to adopt the 2019 

Supplemental Proposal at this time, I am 

comfortable with supporting the Final Rule. 

One area in which I will remain vigilant is 

with regard to the Commission’s reliance on 

the Principles for Financial Market 

Infrastructures (PFMI) framework as the 

benchmark for making the comparability 

determination with respect to a foreign 

jurisdiction’s supervisory and regulatory 

scheme required by CEA section 5b(h). I 

believe that the Commission’s reliance on the 

PFMIs as providing a comprehensive 

framework for DCO supervision that is 

comparable to the statutory and regulatory 

requirements applicable to registered DCOs, 

with a particular focus on the DCO Core 

Principles,7 is within its discretion under 

CEA section 5b(h). However, I am concerned 

that the Commission’s decision to limit its 

reference to the PFMIs as they existed in 

2012 may lead to untenable divergence in the 

future should the Commission determine to 

incorporate subsequent amendments or 

revisions to the PFMIs or related 

interpretations and guidance into its own 

regulatory and supervisory DCO oversight. 

Alternatively, I am concerned that 

maintaining a static definition of the PFMIs 

to provide exempt DCOs with greater 

regulatory certainty with regard to their 

ongoing eligibility for the exemption could 

negatively impact the Commission’s 

consideration regarding whether to adopt or 

incorporate future changes to the PFMIs or 

related interpretations and guidance into its 

regulatory regime. However, I am reassured 

that the Commission explicitly reserves the 

ability to incorporate future amendments to 

the PFMIs into the Final Rule’s PFMI 

definition in § 39.2. As well, because the 

Commission also maintains broad discretion 

to condition an exemption on any facts and 

circumstances it deems relevant under new 

§ 39.6(b)(8), I believe the Commission has 

clear discretion and authority to make 

appropriate changes with regard to its 

consideration of exempt DCO eligibility 

criteria and ongoing compliance to maintain 

comprehensive application of and adherence 

to comparable regulatory and supervisory 

standards. 

My decision to support the Final Rule is 

largely based on the Commission’s 

determination to move forward with the 2018 

Proposal without adopting the 2019 

Supplemental Proposal. However, I remain 

supportive of the Commission’s endeavor to 

explore ways to adapt and—if appropriate— 

seek to adjust the current intermediary 

structure established under the CEA and 

Commission regulations to better 

accommodate both U.S. customer demand for 

increased access to clearing in foreign 

jurisdictions and evolving global swaps 

market structures. I remain open and look 

forward to the possibility of further 

discussing the regulatory and policy issues 

raised during this rulemaking. 

Appendix 5—Statement of 

Commissioner Dan M. Berkovitz 

I am voting for the final rule establishing 

procedures for granting registration 

exemptions to foreign derivatives clearing 

organizations (‘‘Exempt DCOs’’) to clear 

swaps for certain U.S. persons (‘‘Final Rule’’). 

The Final Rule exercises the exemptive 

authority provided by Congress in the 

Commodity Exchange Act (‘‘CEA’’) 1 in a 

limited, pragmatic manner that will provide 

U.S. financial services firms that operate 

globally with access to foreign clearinghouses 

and cleared swaps in order to more 

effectively manage the risks arising from their 

global operations. 

In July of last year, I dissented from the 

proposed exempt DCO rule, because it also 

would have permitted Exempt DCOs to clear 

for U.S. customers, but only through foreign 

intermediaries. In doing so, the proposed rule 

would have subjected U.S. customer 

accounts to foreign bankruptcy and other 

regulations, promoted the use of foreign 

intermediaries at the expense of U.S. firms, 

and exceeded this agency’s limited 

exemptive authority.2 Enabling U.S. 

customers to clear swaps and amass large 

positions in non-U.S. markets in this manner 

would not only pose risks to those customers, 

but also could have presented systemic risks 

to the U.S. financial system. 

In response to commenters who expressed 

similar objections, the Final Rule does not 

contain the concerning provisions. Neither 

registered FCMs nor their foreign 

intermediary counterparts can clear for U.S. 

person customers. With respect to clearing 

for U.S. persons, the Final Rule restricts 

clearing by an Exempt DCO to only U.S. 

firms that become clearing members of the 

Exempt DCO along with certain of their 

affiliates and persons associated with those 

firms in the manner identified in the 

definition of ‘‘proprietary account’’ in section 

1.3 of our regulations. In addition, registered 

FCMs, including U.S. firms, can also clear at 

exempt DCOs, but only for themselves and 

persons associated with the FCMs in the 

manner provided in the definition of 

‘‘proprietary account.’’ These sophisticated 

market participants are well equipped to 

assess the risks of clearing swaps under the 

foreign regime. Furthermore, by requiring 

that they be members of the Exempt DCO (or 

clear through an affiliate that is a member), 

the Commission assures that such entities 

have taken affirmative actions to assess and 

accept those risks. The margin funds and 

related obligations of these persons must also 

be segregated from customer funds held by 

registered FCMs thereby minimizing any 

impact on U.S. customers of the cleared 

positions at Exempt DCOs. These limitations 

are a reasonable, practical approach to 

implementing the authority provided to the 

Commission to exempt certain foreign DCOs 

without adding uncertain risk into our 

system of fully registered DCOs and FCMs. 


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Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations 971 

3Exemption from Derivatives Clearing 

Organization Registration, 83 FR 39923, 39926 

(proposed Aug. 13, 2018). 

4See Committee on Payment and Settlement 

Systems and the Technical Committee of the 

International Organization of Securities 

Commissions, Principles for financial market 

infrastructures (Apr. 2012), available at http://

www.iosco.org/library/pubdocs/pdf/IOSCOPD377-

PFMI.pdf. 

5See 17 CFR 39.30, 39.40. 

Furthermore, the Commission has, on an 

ad hoc basis, previously granted registration 

exemptions to four foreign clearinghouses 

limited to proprietary swap positions with 

effectively the same conditions and 

limitations as provided in the Final Rule. The 

Final Rule will therefore maintain 

consistency with the existing exemptions. 

The Final Rule also contains fairly detailed 

daily, quarterly, and annual reporting 

requirements, as well as special event notice 

requirements. These requirements allow the 

Commission to monitor U.S. person clearing 

activity at the Exempt DCO on a daily basis 

and keep the Commission informed of any 

material changes to the regulatory and 

financial status of the Exempt DCO in its 

home jurisdiction. While the Exempt DCOs 

will be able to operate under the compliance 

regime and oversight of its home country 

regulator, the CFTC can maintain limited, but 

up-to-date oversight of the activities that are 

relevant for U.S. market participants and that 

could have an impact on our financial 

system. 

As noted above, the Final Rule does not 

permit registered FCMs to clear U.S. 

customer swaps at Exempt DCOs. In the 

Commission’s initial 2018 proposal to 

establish a framework for Exempt DCOs, the 

Commission proposed this prohibition. The 

Commission explained: 

Section 4d(f)(1) of the CEA makes it 

unlawful for any person to accept money, 

securities, or property (i.e., funds) from a 

swaps customer to margin a swap cleared 

through a DCO unless the person is registered 

as an FCM. Any swaps customer funds held 

by a DCO are also subject to the segregation 

requirements of section 4d(f)(2) of the CEA, 

and in order for a customer to receive 

protection under this regime, particularly in 

an insolvency context, its funds must be 

carried by an FCM, and deposited with a 

registered DCO. Absent that chain of 

registration, the swaps customer’s funds may 

not be treated as customer property under the 

U.S. Bankruptcy Code and the Commission’s 

regulations. Because of this, it has been the 

Commission’s policy to allow exempt DCOs 

to clear only proprietary positions of U.S. 

persons and FCMs.3

The Final Rule notes that the Commission 

may revisit the prohibition on U.S. customer 

clearing in the future. While I agree with the 

outcome in the Final Rule as to customer 

clearing given the Commission’s 

interpretation of CEA Section 4d(f), if the 

above interpretation changes, whether by a 

change to the statute or by other appropriate 

means, I could support a further amendment 

of the Final Rule. Any such change should 

place U.S. FCMs on an equal footing with 

their foreign counterparts when competing 

for U.S. customer clearing at Exempt DCOs. 

In addition, such a change should not create 

an advantage for unregistered Exempt DCOs 

over registered DCOs who comply with all of 

our regulations. 

Finally, I note that CEA Section 5b(h) 

provides for the registration exemption if the 

foreign DCO is subject to ‘‘comparable, 

comprehensive supervision and home 

country regulation.’’ Under the Final Rule, to 

demonstrate comparability, the DCO must be 

subject to home country regulations that are 

consistent with, and the DCO must ‘‘observe 

in all material respects,’’ the ‘‘Principles for 

Financial Market Infrastructures’’ 4 (‘‘PFMIs’’) 

applicable to central counterparties. 

Several commenters objected to this 

approach to comparability determinations on 

a number of grounds. These commenters 

stated that the Commission should not 

substitute a commitment to adhere to the 

PFMIs for its own examination and 

assessment as to the comparability and 

comprehensiveness of the actual foreign 

regulations. As the PFMIs are only general 

principles, even when the PFMIs are 

implemented, material differences may exist 

between the PFMI-compliant regime and the 

Commission’s DCO core principles and 

regulations. Commenters further argued that 

Congress intended for the Commission to 

analyze comparability only by direct 

comparison to the CTFC’s laws and 

regulations. 

Over the past two years, I have expressed 

concerns over the erosion of the 

Commission’s standards and role in finding 

comparability for various CFTC regulations. 

The Commission’s approach has been 

increasingly deferential to other regulators, 

which has the potential to permit the 

importation of increased risks into the U.S. 

financial system. 

In this regard, I too have some concerns 

about the use of the PFMIs as a standard for 

comparability. However, for the purpose of 

granting DCO registration exemptions, I 

believe the approach taken in the Final Rule 

is reasonable. I have consistently said that 

comparability determinations should involve 

a detailed examination of the other 

jurisdiction’s standards, but also should be 

outcomes based. Regulators around the world 

take substantively different approaches to 

regulating DCOs, but that does not mean any 

one approach is necessarily better or worse 

than another as to its expected outcome. The 

PFMIs tend to be more general in nature than 

the DCO core principles and regulations in 

the CEA and CFTC regulations. However, 

regarding the general outcome of DCO 

regulation, the PFMIs—which the CFTC has 

contributed to and incorporated in 

regulation 5—are consistent with our DCO 

core principles. Furthermore, given the 

limited scope of the Final Rule in that it 

applies only to clearing of proprietary 

positions, using the PFMIs to find 

comparability is not unwarranted. Finally, 

the Final Rule allows for the Commission to 

assess the extent to which the home country 

regulations are consistent with the PFMIs 

and the extent to which the applying DCO is 

observing the PFMIs. As such, I believe the 

approach taken in the Final Rule is 

reasonable. 

In conclusion, the Final Rule creates a 

limited, practical set of policies and 

procedures for granting exemptions from 

registration for foreign DCOs. The Exempt 

DCOs can only clear swaps for U.S. persons 

who are proprietary traders and who are able 

to assess the specific risks of clearing at the 

Exempt DCO. The U.S. customer accounts at 

registered FCMs will not be commingled 

with accounts used for Exempt DCO clearing. 

Finally, U.S. FCMs are not put at a 

competitive disadvantage to their foreign 

counterparts. For these reasons, I support the 

changes made to the proposed rule that result 

in an appropriate, codified approach to 

exempting foreign DCOs who meet 

appropriate standards. 

[FR Doc. 2020–26527 Filed 1–6–21; 8:45 am] 

BILLING CODE 6351–01–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R09–OAR–2020–0358 and EPA–R09– 

OAR–2019–0423; FRL–10017–89–Region 9] 

Air Plan Partial Approval, Partial 

Disapproval, and Partial Conditional 

Approval; Arizona; Maricopa County 

Air Quality Department; Reasonably 

Available Control Technology State 

Implementation Plan and Surface 

Coating Rule 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Final rule. 

SUMMARY: The Environmental Protection 

Agency (EPA) is finalizing a partial 

approval, partial disapproval, and 

partial conditional approval of revisions 

to the Maricopa County Air Quality 

Department (MCAQD or County) 

portion of the Arizona State 

Implementation Plan (SIP). This action 

concerns the County’s demonstration 

regarding reasonably available control 

technology (RACT) requirements and 

negative declarations for the 2008 8- 

hour ozone National Ambient Air 

Quality Standards (NAAQS or 

‘‘standards’’) in the portion of the 

Phoenix-Mesa ozone nonattainment area 

under the jurisdiction of the MCAQD. 

The EPA is also finalizing a conditional 

approval of a MCAQD rule that 

regulates emissions from surface coating 

operations and was submitted with the 

RACT SIP demonstration. 

DATES: This rule is effective on February 

8, 2021. 

ADDRESSES: The EPA has established 

dockets for this action under Docket No. 

EPA–R09–OAR–2020–0358 and EPA– 

R09–OAR–2019–0423. All documents in 


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