U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5000

Facsimile: (202) 418-5521

www.cftc.gov

Division of Clearing and 

Risk 

CFTC Letter No. 17-57

No-Action 

November 7, 2017 

Division of Clearing and Risk 

Geoffrey B. Goldman 

Shearman & Sterling LLP 

599 Lexington Avenue 

New York, NY 10022-6069 

Re: No-Action Relief for Banco Centroamericano de Integración Económica from the Swap 

Clearing Requirement in Section 2(h)(1) of the Commodity Exchange Act and 

Commodity Futures Trading Commission Regulations 50.2 and 50.4

Dear Mr. Goldman: 

On July 26, 2017, you sent a letter on behalf of Banco Centroamericano de Integración 

Económica (“CABEI”) (“Request Letter”), to the Division of Clearing and Risk (“Division”) of 

the Commodity Futures Trading Commission (“Commission”) requesting relief from the swap 

clearing requirement of section 2(h)(1) of the Commodity Exchange Act (“CEA”) (“Clearing 

Requirement”). Based on the facts described in the Request Letter, the Division has decided to 

not recommend that the Commission take enforcement action against CABEI for failure to 

comply with the Clearing Requirement as implemented by Commission regulations 50.2 and 

50.4.1 The Division believes that granting this no-action relief to CABEI would be consistent 

with the final Federal Register release adopting the end-user exception to the Clearing 

Requirement (“End-User Exception”),

2

 in which the Commission determined that certain 

international financial institutions should not be subject to the Clearing Requirement.3

 

1

 Clearing Requirement Determination Under Section 2(h) of the CEA, 77 Fed. Reg. 74,284 (Dec. 13, 2012) and 

Clearing Requirement Determination Under Section 2(h) of the CEA for Interest Rate Swaps, 81 Fed. Reg. 71,202 

(Oct. 14, 2016) (collectively, “Clearing Requirement Determination”). 

 

2

 End-User Exception to the Clearing Requirement for Swaps, 77 Fed. Reg. 42,560 (July 19, 2012) (“End-User 

Exception”). 

3

 End-User Exception, 77 Fed. Reg. at 42,561-42,562. 
Geoffrey B. Goldman 

November 7, 2017 

Page 2 

Applicable Regulatory Requirements 

Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 

(“Dodd-Frank Act”)4 amended the CEA by adding section 2(h), which establishes the Clearing 

Requirement. Under section 2(h)(1)(A) of the CEA and Commission regulation 50.2, it is 

unlawful for a person to engage in a swap that is required to be cleared by the Commission 

unless the swap is submitted for clearing to an eligible derivatives clearing organization. The 

Commission has determined that two classes of credit default swaps and four classes of interest 

rate swaps are required to be cleared.5 However, pursuant to the End-User Exception, certain 

non-financial entities may enter into non-cleared swaps that would otherwise be subject to the 

Clearing Requirement to hedge or mitigate commercial risks associated with their underlying 

businesses, such as energy exploration, manufacturing, farming, transportation, or other 

commercial activities.6 In addition, in the final Federal Register release adopting the End-User 

Exception, the Commission concluded that based on considerations of public policy and 

international comity, certain international financial institutions, as well as foreign governments 

and foreign central banks, “should not be subject to” the Clearing Requirement.7

 

The Commission provided the following reasons for its conclusion that international 

financial institutions should not be subject to the Clearing Requirement. First, because many 

international financial institutions operate with the benefit of certain privileges and immunities 

under U.S. law, they may be treated similarly in other contexts under certain circumstances. 

Second, the Commission noted that there is nothing in the text or history of the swap-related 

provisions of the Dodd-Frank Act to establish that Congress intended to deviate from the 

traditions of the international system by subjecting international financial institutions to the 

Clearing Requirement. Third, the Commission stated that it expects that if any international 

financial institution of which the U.S. is a member were to engage in swap transactions in 

foreign jurisdictions, then the actions of that entity with respect to those transactions would not 

be subject to foreign regulation.8 

 In 2013, the Division granted a request for relief from the Clearing Requirement to 

Corporación Andina de Fomento (“CAF”) because the Division found that CAF’s mission and 

 

4

 Pub. L. 111-203, 124 Stat. 1376 (2010). 

5

 Clearing Requirement Determination. 

6

 End-User Exception and Commission regulation 50.50. 

7

 End-User Exception, at 42,562. 

8

Id. For the purposes of the final release adopting the End-User Exception, the Commission considered 

international financial institutions as those institutions that are defined as “international financial institutions” in 22 

U.S.C. 262r(c)(2)(Annual Report by Chairman of National Advisory Council on International Monetary and 

Financial Policies) and those institutions defined as “multilateral development banks” in the Proposal for the 

Regulation of the European Parliament and of the Council on OTC Derivative Transactions, Central Counterparties 

and Trade Repositories, Council of the European Union Final Compromise Text, Article 1(4a(a)) (Mar. 19, 2012)

(published in final form on July 4, 2012 with no change to Article 1(4a(a))). CABEI is not included on either list.
Geoffrey B. Goldman 

November 7, 2017 

Page 3 

ownership structure was analogous to the missions and ownership structures of the international 

financial institutions referenced in the final Federal Register release adopting the End-User 

Exception.9

Summary of Request for Relief 

The Request Letter represents that CABEI serves the public interest by promoting 

economic integration and balanced economic and social development of the Central American 

region. CABEI’s activities consist primarily of making development loans to public and private 

borrowers, including in the areas of road infrastructure, water and sanitation, health, education, 

energy, security, and financial intermediation. CABEI enters into derivative transactions, 

including interest rate and currency derivatives, to hedge or mitigate the risks arising out of its 

business as a multilateral development bank or in connection with the provision of loans to 

clients. Pursuant to CABEI’s internal policies, CABEI may only enter into derivatives with 

investment grade counterparties or certain eligible institutions that are below investment grade if 

a collateral arrangement is in place. 

 CABEI was established pursuant to an international treaty in 1960. All of its 

shareholders are sovereign nations.10 These nations own 83.72% of CABEI’s authorized capital, 

and the remaining shares are available for subscription. CABEI’s Constitutive Agreement 

prohibits a private entity from purchasing shares in CABEI. Only a sovereign nation or 

multinational public sector institution, such as a multinational development bank, may purchase 

shares. CABEI is led by a Board of Governors and a Board of Directors. Each member country 

appoints a Governor, who is usually a finance minister, central bank president, or similar office 

holder. Directors are elected by member countries. CABEI’s member countries have granted it 

several legal privileges and immunities that are typical of those enjoyed by international 

financial institutions. CABEI, together with its income, property, and other assets, is exempt 

from taxation. CABEI’s property and assets are also free from expropriation, tariffs, and any 

controls, moratoria, regulations, or restrictions, including restrictions on convertibility and 

transferability of currency. 

In summary, the Request Letter asserts that the policy considerations on which the 

Commission relied to exclude international financial institutions from the Clearing Requirement,

and on which the Division subsequently relied to grant no-action relief from the Clearing 

Requirement to CAF, apply to CABEI. Like CAF and other international financial institutions, 

CABEI is a multilateral development bank serving the public interest and is owned by sovereign 

nations each of which grants CABEI legal privileges and immunities. 

 

9

 CFTC Letter 13-25 (June 10, 2013). 

10 CABEI has thirteen shareholders currently: Argentina, Belize, Colombia, Costa Rica, Dominican Republic, El 

Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, the Republic of China (Taiwan), and Spain. 
Geoffrey B. Goldman 

November 7, 2017 

Page 4 

Grant of No-Action Relief 

Based on the facts described by the Request Letter, the Division will not recommend that 

the Commission take enforcement action against CABEI for failure to comply with the Clearing 

Requirement. This letter does not, however, provide relief from other provisions of the CEA and 

Commission regulations, such as the recordkeeping and reporting requirements under parts 23 

and 45 of the Commission’s regulations, which would apply to a non-cleared swap entered into 

by CABEI opposite a counterparty who is subject to the CEA and Commission regulations with 

regard to that transaction.11

This letter represents the position of the Division only and does not necessarily represent 

the views of the Commission or those of any other division or office of the Commission. 

Because this position is based upon the representations contained in the Request Letter, it should 

be noted that any different, changed, or omitted material facts or circumstances may require a 

different conclusion or render this no-action letter void. Finally, as with all no-action letters, the 

Division retains the authority to condition further, modify, suspend, terminate, or otherwise 

restrict the terms of the no-action relief provided herein, in its discretion. 

Should you have questions regarding this matter, please contact Peter A. Kals, Special 

Counsel, at (202) 418-5466.

 

 

Sincerely, 

Brian A. Bussey 

Director 

 

11 End-User Exception, 77 Fed. Reg. at 42,562.