71202 Federal Register / Vol. 81, No. 199 / Friday, October 14, 2016 / Rules and Regulations 

1Clearing Requirement Determination Under 

Section 2(h) of the CEA for Interest Rate Swaps, 81 

FR 39506 (June 16, 2016). 

2Two DCOs that the Commission has exempted 

from registration, ASX Clear (Futures) Pty Ltd. 

(Australia) (ASX) and OTC Clearing Hong Kong 

Ltd., clear some of the swaps covered by this 

determination (AUD- and HKD-denominated 

interest rate swaps, respectively). Pursuant to 

Commission orders, these two DCOs are permitted 

to clear for U.S. proprietary accounts but not for 

U.S. customers. However, as discussed further 

below, should either of these two exempt DCOs 

decide that they wish to offer clearing to U.S. 

customers, they would be eligible to apply for 

registration as full DCOs. Because these DCOs have 

not submitted filings under Commission regulation 

39.5(b), this final rule addresses only those 

registered DCOs that have submitted swaps for 

consideration under that regulation. 

3See Table 1 for information regarding which 

registered DCOs clear which interest rate swaps. 

Each DCO submitted information about the interest 

rate swaps subject to this rulemaking to the 

Commission pursuant to regulation 39.5(b), which 

is discussed further below. 

4Clearing Requirement Determination Under 

Section 2(h) of the CEA, 77 FR 74284 (Dec. 13, 

2012) [hereinafter the First Clearing Requirement 

Determination]. The four classes of interest rate 

swaps defined under Commission regulation 50.4(a) 

include fixed-to-floating, basis, FRA, and OIS. In 

2012, the Commission required that, for the fixedto-floating, basis, and FRA classes, the top four 

currencies as measured by total notional amount be 

subject to required clearing. Those top four 

currencies were EUR, USD, GBP, and Japanese yen 

(JPY). All four currencies were specified in the 

fixed-to-floating, basis, and FRA classes under 

regulation 50.4(a). For OIS swaps, all the currencies 

except JPY were specified under the rule. 

5Section 2(h)(2) of the CEA provides the 

Commission with authority to issue a determination 

that a swap is required to be cleared pursuant to 

two separate review processes. Section 2(h)(2)(A) of 

the CEA provides for a Commission-initiated review 

process whereby the Commission, on an ongoing 

basis, must review swaps (or a group, category, type 

or class of swaps) to make a determination as to 

whether a swap (or group, category, type or class 

of swaps) should be required to be cleared. The 

other process provided under section 2(h)(2)(B) of 

the CEA entails the Commission’s review of swaps 

that are submitted by DCOs. Specifically, section 

2(h)(2)(B)(i) of the CEA requires that each DCO 

submit to the Commission each swap (or group, 

category, type or class of swaps) that it plans to 

accept for clearing. The swaps subject to this 

rulemaking were submitted by DCOs pursuant to 

section 2(h)(2)(B)(i) of the CEA and Commission 

regulation 39.5(b). 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 50 

RIN 3038–AE20 

Clearing Requirement Determination 

Under Section 2(h) of the Commodity 

Exchange Act for Interest Rate Swaps 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final rule. 

SUMMARY: The Commodity Futures 

Trading Commission (Commission or 

CFTC) is adopting an amendment to the 

Commission’s regulations to expand the 

existing clearing requirement for 

interest rate swaps pursuant to the 

pertinent section of the Commodity 

Exchange Act (CEA). The amended 

regulation requires that interest rate 

swaps denominated in certain 

currencies and having certain 

termination dates, as described herein, 

be submitted for clearing to a 

derivatives clearing organization (DCO) 

that is registered under the CEA 

(registered DCO) or a DCO that has been 

exempted from registration under the 

CEA (exempt DCO). 

DATES: The amended rule is effective 

December 13, 2016. Specific compliance 

dates are discussed in the 

Supplementary Information. 

FOR FURTHER INFORMATION CONTACT: 

Sarah E. Josephson, Deputy Director, 

Division of Clearing and Risk (DCR), at 

202–418–5684 or sjosephson@cftc.gov; 

Peter A. Kals, Special Counsel, DCR, at 

202–418–5466 or pkals@cftc.gov; 

Melissa A. D’Arcy, Special Counsel, 

DCR, at 202–418–5086 or mdarcy@

cftc.gov; Meghan A. Tente, Special 

Counsel, DCR, at 202–418–5785 or 

mtente@cftc.gov; Michael A. Penick, 

Economist, Office of the Chief 

Economist (OCE), at 202–418–5279 or 

mpenick@cftc.gov; or Lihong McPhail, 

Research Economist, OCE, at 202–418– 

5722 or lmcphail@cftc.gov, in each case 

at the Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. Clearing Requirement Proposal 

B. Regulatory Background 

C. Clearing Requirements in Other 

Jurisdictions 

D. Submissions From DCOs 

E. Commission Processes for Review and 

Surveillance of DCOs 

II. Comments on the Notice of Proposed 

Rulemaking 

A. Overview of Comments Received 

B. Determination Analysis 

C. Generally Applicable Comments 

III. Expanded and Amended Regulation 

50.4(a) 

IV. Implementation Schedule 

A. No Compliance Date Phase-In by Type 

of Market Participant 

B. Compliance Date Tied to a Non-U.S. 

Jurisdiction Clearing Requirement 

C. Clarifications to the Implementation 

Schedule 

D. Scope of Entities Subject to the 

Implementation Schedule 

E. Projected Compliance Dates 

V. Cost Benefit Considerations 

A. Statutory and Regulatory Background 

B. Overview of Swap Clearing 

C. Consideration of the Costs and Benefits 

of the Commission’s Action 

D. Costs and Benefits of the Commission’s 

Action as Compared to Alternatives 

E. Section 15(a) Factors 

VI. Related Matters 

A. Regulatory Flexibility Act 

B. Paperwork Reduction Act 

I. Background 

A. Clearing Requirement Proposal 

On June 16, 2016, the Commission 

published a notice of proposed 

rulemaking (NPRM) to establish an 

expanded interest rate swap clearing 

requirement under section 2(h)(1)(A) of 

the CEA and Commission regulation 

50.4(a).1 The Commission proposed 

requiring clearing of certain interest rate 

swaps offered for clearing at Chicago 

Mercantile Exchange, Inc. (CME), Eurex 

Clearing AG (Eurex), LCH.Clearnet Ltd. 

(LCH), and/or Singapore Exchange 

Derivatives Clearing Ltd. (SGX), each a 

Commission-registered DCO.2 The 

interest rate swaps proposed in the 

NPRM were: Fixed-to-floating interest 

rate swaps denominated in Australian 

dollar (AUD), Canadian dollar (CAD), 

Hong Kong dollar (HKD), Mexican peso 

(MXN), Norwegian krone (NOK), Polish 

zloty (PLN), Singapore dollar (SGD), 

Swedish krona (SEK), and Swiss franc 

(CHF) (collectively, the nine additional 

currencies); basis swaps denominated in 

AUD; forward rate agreements (FRAs) 

denominated in AUD, NOK, PLN, and 

SEK; overnight index swaps (OIS) 

denominated in AUD and CAD; and OIS 

having termination dates of up to three 

years that are denominated in U.S. 

dollar (USD), euro (EUR), or sterling 

(GBP).3

For the reasons discussed below, this 

final rulemaking expands the existing 

interest rate swap clearing requirement 

by requiring the clearing of all of the 

swaps covered by the NPRM, except for 

AUD-denominated FRAs. 

B. Regulatory Background 

The Commission’s first clearing 

requirement determination issued in 

2012 applied to four classes of interest 

rate swaps and two classes of credit 

default swaps.4 The Commission is 

adopting this clearing requirement 

determination to require the clearing of 

certain, additional interest rate swaps 

pursuant to section 2(h) of the CEA. 

Under section 2(h)(1)(A) of the CEA, it 

is unlawful for any person to engage in 

a swap unless that person submits such 

swap for clearing to a DCO that is 

registered under the CEA or a DCO that 

is exempt from registration under the 

CEA if the swap is required to be 

cleared. The Commission may initiate a 

clearing requirement determination 

pursuant to a swap submission from a 

registered DCO.5 Section 2(h)(2)(B)(i) of 


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6Section 2(h)(2)(B)–(C) of the CEA describes the 

process by which the Commission is required to 

review swap submissions from DCOs to determine 

whether the swaps should be subject to the clearing 

requirement. On June 23, 2016, the Commission 

published on its Web site for public comment 34 

submissions from DCOs submitted pursuant to 

section 2(h)(2)(B) of the CEA and CFTC regulation 

39.5(b) over the past few years. The public 

comment period closed on July 25, 2016, and five 

letters were submitted by that date. See CFTC Press 

Release, CFTC Requests Public Comment on Swap 

Clearing Requirement Submissions (June 23, 2016), 

available at: http://www.cftc.gov/PressRoom/Press

Releases/pr7396-16. Any future proposals for a new 

clearing requirement determination related to the 

swaps covered by those 34 submissions would be 

subject to a separate notice and comment 

rulemaking process. Market participants may offer 

additional comments or feedback on market 

developments related to those 34 submissions by 

contacting any of the DCR staff named above. 

7 In the future, it may be appropriate to propose 

a clearing requirement under the CEA covering 

swaps that are not yet the subject of a proposed or 

final clearing mandate issued by a non-U.S. 

jurisdiction. See generally comment letter from the 

International Swaps and Derivatives Association, 

Inc. (ISDA), at 5, (discussing the goal of 

harmonizing clearing mandates, commending the 

Commission’s independent analysis in the NPRM, 

and noting that ‘‘the CFTC does not have any 

control over the clearing mandates of its 

counterparts in non-U.S. jurisdictions and therefore 

should continue to conduct full and robust 

independent analysis prior to implementing any 

clearing mandates.’’). 

8As defined under ASIC’s final clearing rules, 

clearing entities subject to the Australian clearing 

mandate include Australian authorized deposittaking institutions (ADIs) and Australian financial 

services licensee (AFS Licensees) that hold a total 

gross notional outstanding position of AUD 100 

billion or more under specific circumstances, as 

measured at particular points in time. To account 

for non-Australian entities, ASIC’s final rules also 

define foreign clearing entities, opt-in clearing 

entities, and cross-reference to Australia’s 

Corporations Regulations 2001 definition of foreign 

internationally active dealers. ASIC Derivative 

Transaction Rules (Clearing) 2015, available at: 

https://www.comlaw.gov.au/Details/F2015L01960. 

9ASIC Derivative Transaction Rules (Clearing) 

2015, at section 1.2.7. 

10 Id., at section 1.2.3. 

11For the reasons discussed below, the 

Commission is not finalizing its proposed 

requirement to clear AUD-denominated FRAs at 

this time. 

12Canada’s provincial securities regulators are 

collectively referred to as the Canadian Securities 

Administrators, including representatives from: The 

Alberta Securities Commission; the British 

Columbia Securities Commission; the Manitoba 

Securities Commission; the Financial and 

Consumer Services Commission of New Brunswick; 

the Office of the Superintendent of Securities 

Service Newfoundland and Labrador; the Office of 

the Superintendent of Securities of the Northwest 

Territories; the Nova Scotia Securities Commission; 

the Nunavut Securities Offices; the Ontario 

Securities Commission; the Office of the 

Superintendent of Securities of Prince Edward 

Island; the Autorite ́ des marche ́s financiers; the 

Financial and Consumer Affairs Authority of 

Saskatchewan; and the Office of the Yukon 

Superintendent of Securities. See also, CSA 

Members, available at: http://www.csa-acvm.ca/

aboutcsa.aspx?id=80. 

13 Draft National Instrument 94–101 respecting 

Mandatory Central Counterparty Clearing of 

Derivatives. Summary available at: http://

www.albertasecurities.com/Regulatory%20

Instruments/5022685-v5-Proposed_NI_94-101_

package.pdf. 

the CEA requires a DCO to submit to the 

Commission each swap, or any group, 

category, type, or class of swaps that it 

plans to accept for clearing and provide 

notice to its members of the submission. 

Commission regulation 39.5(b) 

implements the procedural elements of 

section 2(h)(2)(B)–(C) by establishing 

the specific process for the submission 

of swaps by a DCO to the Commission 

for a clearing requirement 

determination.6

Accordingly, the Commission is 

issuing this final rulemaking to adopt an 

amendment to § 50.4(a) such that the 

following products are subject to the 

clearing requirement as set forth in 

regulation 50.4: (1) Fixed-to-floating 

swaps denominated in the nine 

additional currencies; (2) basis swaps 

denominated in AUD; (3) FRAs 

denominated in NOK, PLN, and SEK; (4) 

OIS denominated in AUD and CAD; and 

(5) OIS denominated in USD, EUR, and 

GBP that have termination dates of up 

to three years. 

C. Clearing Requirements in Other 

Jurisdictions 

The following is an updated summary 

of actions taken by other jurisdictions 

towards implementing clearing 

mandates for interest rate swaps. The 

Commission believes that it is important 

to harmonize its swap clearing 

requirement with clearing mandates 

promulgated in other jurisdictions. For 

example, if a non-U.S. jurisdiction 

issued a clearing requirement and a 

swap dealer (SD) located in the U.S. 

were not subject to that non-U.S. 

clearing requirement, then a swap 

market participant located in the nonU.S. jurisdiction might be able to avoid 

the non-U.S. clearing requirement by 

entering into a swap with the SD located 

in the U.S. 

As the Commission reviewed the 

regulation 39.5(b) submissions from 

DCOs, it considered whether those 

products offered for clearing at DCOs 

were subject, or were likely to be 

subject, to a clearing requirement in 

another jurisdiction. For those products 

that were the subject of a clearing 

requirement rule or proposal outside of 

the U.S., the Commission reviewed the 

specifications of the products and the 

processes used by non-U.S. regulators to 

impose a clearing mandate. In addition, 

the Commission reviewed data 

produced and made available to the 

public in connection with any rule 

proposals or final rules implementing a 

clearing requirement in non-U.S. 

jurisdictions. Finally, the Commission 

considered comments submitted in 

response to clearing mandate rule 

proposals in non-U.S. jurisdictions and 

any subsequent changes that regulators 

made to final rules implementing a 

clearing mandate. In this manner, the 

Commission was informed by its review 

of non-U.S. jurisdictions’ clearing 

mandates and considered those 

mandates in preparing this 

determination. 

Consequently, the scope of the swaps 

included in this final rulemaking 

reflects the Commission’s desire to 

harmonize with our counterparts abroad 

and is informed by the work of those 

regulators, as described below. In 

addition, the product specifications of 

the swaps included in this clearing 

requirement determination are intended 

to be consistent with those referenced in 

clearing mandates published by the 

Commission’s counterparts abroad.7

i. Australia 

The Australian Securities and 

Investments Commission (ASIC) has 

published regulations that require 

certain Australian and non-Australian 

entities 8 to clear AUD-, USD-, GBP-, 

EUR-, and JPY-denominated fixed-tofloating interest rate swaps, basis swaps, 

and FRAs, as well as AUD-, USD-, 

GBP-, and EUR-denominated OIS. The 

regulations’ swap classes are coextensive with those described in 

existing Commission regulation 50.4(a), 

except for the addition of AUDdenominated swaps. The first 

compliance date for an Australian 

market participant to comply with the 

Australian clearing mandate for AUDdenominated fixed-to-floating interest 

rate swaps and basis swaps was April 4, 

2016.9 The first compliance date for the 

Australian clearing mandate for AUDdenominated OIS will be October 3, 

2016 and for AUD-denominated FRAs 

April 2, 2018.10

As a result of this clearing 

requirement determination, the classes 

of swaps required to be cleared under 

Commission regulation 50.4(a) are 

expanded to include AUD-denominated 

fixed-to-floating interest rate swaps, 

basis swaps, and OIS swaps that are 

consistent with the AUD-denominated 

swaps that are, or will be, required to be 

cleared by ASIC.11

ii. Canada 

In 2015, Canada’s provincial 

securities regulators 12 published a draft 

rule that would require certain 

derivatives to be cleared.13 On February 

24, 2016, the Canadian provincial 

securities regulators published a revised 

draft rule that applies to certain 


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14The draft rule proposed by Canada’s provincial 

securities regulators would require central 

counterparty clearing for transactions entered into 

between a local counterparty and: (i) A clearing 

member of a regulated clearing agency that clears 

a mandatory clearable derivative; (ii) an affiliated 

entity of the clearing member described in (i); or 

(iii) a local counterparty that has, together with its 

local affiliates, an aggregate gross notional amount 

of more than CAD 500 million outstanding 

(excluding intragroup transactions). See, Draft 

Regulation 94–101 respecting Mandatory Central 

Counterparty Clearing of Derivatives (2nd 

Publication). Summary available at: http://

www.lautorite.qc.ca/files/pdf/reglementation/

instruments-derives/reglements/94-101/2016-02-24/

2016fev24-94-101-avis-cons-en.pdf. 

15 Id. The Canadian regulators’ draft regulation 

does not propose to include CAD-denominated 

basis swaps or FRAs. Therefore, the Commission is 

adding only CAD-denominated fixed-to-floating 

interest rate swaps and OIS to the CFTC’s clearing 

requirement under this determination. 

16The Commission staff has consulted with 

Canadian provincial authorities to confirm the 

timetable for implementation of the clearing 

obligation. 

17 Id. 

18The European Commission’s clearing 

requirement applies to all financial counterparties 

(e.g., banks, insurers, asset managers, etc.) and 

certain non-financial counterparties, which are 

European Union entities that do not fall within the 

definition of a financial counterparty, but exceed 

the clearing thresholds (non-financial 

counterparties above the applicable clearing 

threshold by asset class). The non-financial 

counterparty clearing threshold for interest rate 

swaps is EUR 3 billion in gross notional value. See 

European Commission Delegated Regulation (EU) 

No. 149/2013, available at: http://eur-lex.europa.eu/ 

LexUriServ/LexUriServ.do?uri=OJ:L:2013:052:

0011:0024:EN:PDF. 19European Commission press release 

announcing the European Clearing Obligation, 

available at: http://europa.eu/rapid/press-release_

IP-15-5459_en.htm. See also Regulation (EU) No. 

648/2012. 20European Commission Delegated Regulation 

(EU) No. 2015/2205, available at: http://eur-lex.

europa.eu/legal-content/EN/TXT/PDF/?uri=

CELEX:32015R2205&from=EN. 21 Id. Under the European Commission Delegated 

Regulation (EU) No. 2015/2205, Category 1 

counterparties are clearing members of at least one 

of the central counterparties authorized or 

recognized to clear at least one class of mandated 

derivatives, as of December 21, 2015; Category 2 

counterparties are entities that meet the EUR 8 

billion threshold of month-end average outstanding 

gross notional amounts of derivatives for a three 

month period, limited to financial counterparties or 

alternative investment funds that are non-financial 

counterparties; Category 3 counterparties are 

financial counterparties and alternative investment 

funds that are non-financial counterparties, that are 

not Category 1 or Category 2 counterparties; and 

Category 4 counterparties are non-financial 

counterparties that do not belong in Category 1, 2, 

or 3. 

22European Commission Delegated Regulation 

(EU) No. 2015/2205, available at: http://eurlex.europa.eu/legal-content/EN/TXT/PDF/?uri=

CELEX:32015R2205&from=EN. 

23See European Commission Delegated 

Regulation (EU) No. 2016/1178, available at: http:// 

eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=

CELEX:32016R1178&from=EN. This regulation 

contains a description of the categories of financial 

counterparties and non-financial counterparties 

subject to the European Union’s clearing obligation. 

This description is substantively the same as the 

one applicable to the European Union’s first 

clearing obligation related to interest rates swaps 

denominated in USD, EUR, GBP, and JPY, 

including OIS with a termination date of up to three 

years. 

24European Commission press release 

announcing new rules on central clearing for 

interest rate derivatives contracts denominated in 

specific European currencies, available at: http://

europa.eu/rapid/press-release_MEX-16-2171_

en.htm#9. See also European Commission 

Delegated Regulation (EU) No. 2016/1178, available 

at: http://eur-lex.europa.eu/legal-content/EN/TXT/ 

PDF/?uri=CELEX:32016R1178&from=EN. The 

Commission notes that Poland and Sweden are 

members of the European Union, but Norway is not. 

Accordingly, the Commission staff has consulted 

separately with staff from Norway’s financial 

regulators regarding this clearing requirement 

determination. 

25European Commission Delegated Regulation 

(EU) No. 2016/1178, available at: http://eur-lex.

europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:

32016R1178&from=EN. 

26 Id. Under the European Commission Delegated 

Regulation (EU) No. 2016/1178, Category 1 

counterparties are clearing members of at least one 

of the central counterparties authorized or 

recognized to clear at least one class of mandated 

derivatives, as of August 9, 2016; Category 2 

counterparties are entities that meet the EUR 8 

billion threshold of month-end average outstanding 

gross notional amounts of derivatives for a three 

month period, limited to financial counterparties or 

alternative investment funds that are non-financial 

counterparties; Category 3 counterparties are 

financial counterparties and alternative investment 

funds that are non-financial counterparties, that are 

not Category 1 or Category 2 counterparties; and 

Category 4 counterparties are non-financial 

counterparties that do not belong in Category 1, 2, 

or 3. 

Canadian market participants 14 and 

proposes subjecting the following 

classes of interest rate swaps to a 

clearing mandate: CAD-, USD-, EUR-, 

and GBP-denominated fixed-to-floating 

interest rate swaps; USD-, EUR-, and 

GBP-denominated basis swaps; USD-, 

EUR-, and GBP-denominated FRAs; and 

CAD-, USD-, EUR-, and GBPdenominated OIS.15 Subject to 

ministerial approvals, the Canadian 

provincial securities regulators’ revised 

rule will take effect on May 9, 2017.16

Consequently, it is the Commission’s 

understanding that May 9, 2017 is the 

first compliance date upon which a 

Canadian market participant will be 

required to comply with the clearing 

mandate.17

As a result of this clearing 

requirement determination, the classes 

of swaps required to be cleared under 

Commission regulation 50.4(a) are 

expanded to include CAD-denominated 

fixed-to-floating interest rate swaps and 

OIS swaps that are consistent with the 

CAD-denominated swaps that will be 

required to be cleared by the Canadian 

provincial securities regulators. 

iii. European Union 

On August 6, 2015, the European 

Commission adopted an initial interest 

rate swap clearing obligation for certain 

financial counterparties and nonfinancial counterparties 18 that the 

European Securities and Markets 

Authority (ESMA) developed pursuant 

to the European Market Infrastructure 

Regulation (EMIR).19 The initial 

European interest rate swap class is coextensive with the clearing 

requirements under regulation 50.4(a), 

except that with respect to OIS, the 

European class covers OIS with a 

termination date range of up to three 

years instead of two. Similarly, the 

initial European class covers interest 

rate swaps denominated in USD, EUR, 

GBP, and JPY, but not any of the nine 

additional currencies.20 Compliance 

with the European clearing obligation is 

required for transactions between 

clearing member counterparties at this 

time, and will be phased in between 

2016 and 2018 for additional 

transactions by type of counterparty.21

The first compliance date for a 

European market participant to comply 

with the clearing obligation for EUR-, 

USD-, and GBP-denominated OIS with 

termination dates ranging from seven 

days to three years was on June 21, 

2016.22 The EUR-, USD-, and GBPdenominated OIS with termination 

dates ranging from two years to three 

years that are included in this 

rulemaking are covered by the European 

Commission’s initial clearing obligation. 

On June 10, 2016, the European 

Commission adopted an expansion of 

the European Union clearing obligation 

for certain financial counterparties and 

non-financial counterparties 23 to cover 

NOK-, PLN-, and SEK-denominated 

fixed-to-floating interest rate swaps and 

FRAs.24 The first compliance date for a 

European market participant to comply 

with the NOK-, PLN-, and SEKdenominated fixed-to-floating interest 

rate swaps and FRA clearing obligation 

will be on February 9, 2017.25 The 

European Commission’s expanded 

clearing obligation will apply only to 

transactions between clearing member 

counterparties on February 9, 2017; the 

clearing obligation will be phased in for 

additional transactions by type of 

counterparty from 2017 to 2019.26

As a result of this clearing 

requirement determination, the classes 

of swaps required to be cleared under 

Commission regulation 50.4(a) are 

expanded to include (1) EUR-, USD-, 

and GBP-denominated OIS with 

termination dates ranging from two 

years to three years; (2) NOK-, PLN-, and 

SEK-denominated fixed-to-floating 

interest rate swaps; and (3) NOK-, 

PLN-, and SEK-denominated FRAs that 

are, or will soon be, required to be 

cleared by the European Commission. 


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27Consultation Conclusions and Further 

Consultation on Introducing Mandatory Clearing 

and Expanding Mandatory Reporting, available at: 

http://www.sfc.hk/edistributionWeb/gateway/EN/ 

consultation/conclusion?refNo=15CP4. 

28The Securities and Futures (OTC Derivative 

Transactions—Clearing and Record Keeping 

Obligations and Designation of Central 

Counterparties) Rules impose a clearing obligation 

on transactions between prescribed persons, 

including local and foreign (i) licensed 

corporations, (ii) authorized financial institutions, 

and (iii) approved money brokers, that have reached 

the clearing threshold of USD 20 billion during the 

applicable three month calculation period. In 

addition, any transactions between such a 

prescribed person and a financial services provider 

must also be cleared. Financial services providers 

are designated by the Hong Kong Securities and 

Futures Commission, with the consent of the Hong 

Kong Monetary Authority. 

29 Id. See also Securities and Futures (OTC 

Derivative Transactions—Clearing and Record 

Keeping Obligations and Designation of Central 

Counterparties) Rules, The Government of the Hong 

Kong Special Administrative Region Gazette, 

available at: http://www.gld.gov.hk/egazette/pdf/ 

20162005/es22016200528.pdf. 

30Securities and Futures (OTC Derivative 

Transactions—Clearing and Record Keeping 

Obligations and Designation of Central 

Counterparties) Rules, The Government of the Hong 

Kong Special Administrative Region Gazette, 

available at: http://www.gld.gov.hk/egazette/pdf/ 

20162005/es22016200528.pdf. 

31 Id. 

32 Id. 

33Banco de Me ́xico’s Rules for Derivatives 

Transactions (Circular 4/2012) limit the clearing 

mandate to transactions between local banks, 

brokerage firms, and institutional investors. The 

Banco de Me ́xico’s Rules also contemplate an 

exemption for small entities with notional amounts 

outstanding below the specified threshold of 10 

billion unidades de inversio ́n. 

34Rules for Derivatives Transactions (Circular 4/ 

2012), Banco de Me ́xico, available at: http://www.

banxico.org.mx/disposiciones/circulares/ 

%7BD7250B17-13A4-B0B7-F4E5-04AF29F3

7014%7D.pdf. 

35 Id. 

36Under MAS’ proposal, the clearing mandate 

applies to transactions between banks that exceed 

the SGD 20 billion gross notional outstanding 

derivatives contract threshold for each of the 

previous four calendar quarters. 

37Summary published by MAS available at: 

http://www.mas.gov.sg/News-and-Publications/ 

Media-Releases/2015/MAS-Consults-on-ProposedRegulations-for-Mandatory-Clearing-of-OTCDerivatives.aspx. 

38According to guidance from the Swiss 

Financial Market Supervisory Authority, 

derivatives transactions executed by and among 

financial counterparties and non-financial 

counterparties that meet the threshold requirements 

will be subject to the clearing requirement. 

Financial counterparties meet the threshold if their 

rolling averages for gross positions in outstanding 

derivatives transactions (over 30 working days) are 

at or above CHF 8 billion. Non-financial 

counterparties meet the threshold if their rolling 

averages for gross positions in outstanding 

derivatives transactions (over 30 working days) are 

at or above amounts specific to each product (e.g., 

CHF 3.3 billion in interest rate derivatives 

transactions). 

39Financial Stability Board, OTC Derivatives 

Market Reforms, Eleventh Progress Report on 

Implementation, Appendix C (Implementation 

timetable: Central clearing of standardised 

transactions) (Aug. 26, 2016), available at: 

www.fsb.org/2016/08/otc-derivatives-marketreforms-eleventh-progress-report-onimplementation/. 

40See Swiss Financial Market Supervisory 

Authority (FINMA), Guidance 01/2016 Financial 

Market Infrastructure Act: FINMA’s next steps (July 

6, 2016), available at: https://www.finma.ch/en/∼/ 

media/finma/dokumente/dokumentencenter/

myfinma/4dokumentation/finmaaufsichtsmitteilungen/20160707-finmaaufsichtsmitteilung-01-2016.pdf?la=en. 

iv. Hong Kong 

On February 5, 2016, the Hong Kong 

Securities and Futures Commission and 

the Hong Kong Monetary Authority 

jointly published conclusions to a 

consultation paper proposing 

mandatory clearing for certain interest 

rate swaps.27 The Legislative Council 

adopted final rules to implement a 

clearing mandate for transactions 

between certain local and foreignincorporated entities 28 covering fixedto-floating interest rate swaps and basis 

swaps denominated in USD, GBP, EUR, 

JPY, and HKD, as well as OIS 

denominated in USD, GBP, and EUR.29

The clearing mandate rules became 

effective on September 1, 2016. 

Although mandatory clearing for the 

designated products has not yet 

commenced, the first calculation period 

for determining which counterparties 

have an obligation to clear has begun.30

During the calculation period, certain 

market participants have to count their 

transactions toward the clearing 

threshold to determine whether they 

will be subject to Hong Kong’s clearing 

mandate.31 The first compliance date for 

a Hong Kong market participant to 

comply with the Hong Kong authorities’ 

clearing mandate will be on July 1, 

2017.32

As a result of this clearing 

requirement determination, the classes 

of swaps required to be cleared under 

Commission regulation 50.4(a) are 

expanded to include HKD-denominated 

fixed-to-floating interest rate swaps that 

will be required to be cleared by the 

Hong Kong Securities and Futures 

Commission and the Hong Kong 

Monetary Authority. 

v. Mexico 

In 2015, Banco de Me ́xico, the 

Mexican central bank, published a 

clearing mandate to require that certain 

Mexican financial institutions 33 clear 

MXN-denominated fixed-to-floating 

interest rate swaps having a termination 

date range of approximately two months 

to 30 years and that reference the 

Mexican ‘‘Interbank Equilibrium 

Interest Rate’’ (TIIE).34 The first 

compliance date for a Mexican market 

participant to comply with the Banco de 

Me ́xico’s clearing mandate was on April 

1, 2016.35

As a result of this clearing 

requirement determination, the classes 

of swaps required to be cleared under 

Commission regulation 50.4(a) are 

expanded to include MXN-denominated 

fixed-to-floating interest rate swaps that 

are required to be cleared by the Banco 

de Me ́xico. 

vi. Singapore 

In 2015, the Monetary Authority of 

Singapore (MAS) published proposed 

regulations that would require financial 

institutions 36 to clear SGDdenominated fixed-to-floating interest 

rate swaps referencing the Swap Offer 

Rate (SOR) and USD-denominated 

fixed-to-floating interest rate swaps 

referencing LIBOR.37

As a result of this clearing 

requirement determination, the classes 

of swaps required to be cleared under 

Commission regulation 50.4(a) are 

expanded to include SGD-denominated 

fixed-to-floating interest rate swaps that 

are likely to be the subject of final 

regulatory action by MAS establishing a 

clearing requirement, which will 

commence in 2017. 

vii. Switzerland 

In 2015, the Swiss parliament adopted 

legislation providing a framework for a 

swap clearing requirement. A clearing 

requirement for certain financial 

counterparties and non-financial 

counterparties 38 is expected to be 

phased in from 2016.39 It is not yet 

known exactly which products such a 

clearing requirement would cover, but 

based on the criteria required to be 

considered by the Swiss Financial 

Market Supervisory Authority (Finma), 

Finma may determine that the CHFdenominated fixed-to-floating interest 

rate swaps referencing LIBOR should be 

included.40

As a result of this clearing 

requirement determination, the classes 

of swaps required to be cleared under 

Commission regulation 50.4(a) are 

expanded to include CHF-denominated 

fixed-to-floating interest rate swaps that 

may be subject to a clearing requirement 

in 2017. 

D. Submissions From DCOs 

CME and LCH provided the 

Commission with regulation 39.5(b) 

submissions relating to: Fixed-tofloating interest rate swaps denominated 

in the nine additional currencies; AUDdenominated basis swaps; and USD-, 

EUR-, and GBP-denominated OIS with 

termination dates of up to 30 years. 

CME and LCH provided § 39.5(b) 

submissions pertaining to the FRAs and 

OIS listed in Table 1, below. CME and 


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41The 39.5(b) submissions are available on the 

Commission’s Web site at: http://www.cftc.gov/ 

IndustryOversight/IndustryFilings/index.htm. 

Submission materials that a submitting DCO 

marked for confidential treatment are not available 

for public review, pursuant to Commission 

regulations 39.5(b)(5) and 145.9(d). 

42LCH has filed a regulation 39.5(b) submission 

with the Commission as of September 23, 2016 for 

this swap. 

43Prior to offering these swaps for clearing, CME 

will need to file §§ 40.6 and 39.5(b) submissions 

with the Commission. 

44Based on its regulation 39.5(b) submission, 

LCH will offer clearing of MXN-denominated fixedto-floating interest rate swaps in early October 2016. 

45CME plans to offer clearing of AUDdenominated OIS interest rate swaps before the end 

of 2016. 46CME plans to offer clearing of CADdenominated OIS interest rate swaps before the end 

of 2016. 47 In their submissions, CME and LCH stated that 

they had provided notice of the submissions to 

members as required by regulation 39.5(b)(3)(viii). 

SGX stated that its § 39.5(b) submission was 

published on its Web site. Eurex stated that it 

would forward its § 39.5(b) submission to its 

members so that they could comment. 48CME, Eurex, LCH, and SGX are eligible to clear 

interest rate swaps under regulation 39.5(a). 

49The Commission considered FIA SEF Tracker 

data and ISDA SwapsInfo data. 

50The Commission notes that it also has access 

to data pursuant to part 45 of the Commission’s 

regulations (part 45 Data), which is used in the cost 

benefit considerations in section V. However, for 

the purposes of this determination, the Commission 

decided to use the part 43 Data in its determination 

analysis in section II.B to enable commenters to 

review the same data that the Commission reviewed 

in making the determination. In the future, the 

Commission may analyze part 45 Data and provide 

the public with aggregated and anonymized 

summaries of such data when considering whether 

other swaps should be subject to the clearing 

requirement. The Commission also may refer to 

other non-public data sources, as available. 

SGX provided submissions relating to 

MXN- and SGD-denominated fixed-tofloating interest rate swaps, 

respectively. Eurex provided a 

submission relating to CHFdenominated fixed-to-floating interest 

rate swaps and OIS denominated in 

USD, EUR, and GBP with terms up to 

30 years plus 10 business days.41 LCH 

will begin offering MXN-denominated 

fixed-to-floating interest rate swaps in 

early October 2016.42 Based on 

representations made by CME to the 

Commission, the Commission believes 

that CME will begin offering AUD- and 

CAD-denominated OIS before the end of 

2016.43

Table 1 summarizes the relevant 

interest rate swaps submitted by CME, 

Eurex, LCH, and SGX. 

TABLE 1—SUMMARY OF INTEREST RATE SWAP SUBMISSIONS UNDER REGULATION 39.5(b) 

Currency Floating 

rate index 

Maximum 

stated 

termination 

date 

CME Eurex LCH SGX 

Fixed-to-Floating Interest Rate Swaps 

AUD .......................................................................................... BBSW ................. 30 years ....... Yes ......... No .......... Yes ........ *No. 

CAD .......................................................................................... CDOR ................. 30 years ....... Yes ......... No .......... Yes ......... No. 

CHF .......................................................................................... LIBOR ................. 30 years ....... Yes ......... Yes ......... Yes ........ No. 

HKD .......................................................................................... HIBOR ................ 10 years ....... Yes ......... No .......... Yes ......... No. 

MXN ......................................................................................... TIIE–BANXICO ... 21 years ....... Yes ......... No .......... Yes 44 ..... No. 

NOK ......................................................................................... NIBOR ................ 10 years ....... Yes ......... No .......... Yes ......... No. 

PLN .......................................................................................... WIBOR ................ 10 years ....... Yes ......... No .......... Yes ......... No. 

SGD ......................................................................................... SOR–VWAP ....... 10 years ....... Yes ......... No .......... Yes ......... Yes. 

SEK .......................................................................................... STIBOR .............. 30 years ....... Yes ......... No .......... Yes ......... No. 

Basis Swaps 

AUD .......................................................................................... BBSW ................. 30 years ....... Yes ......... No .......... Yes ........ No. 

Overnight Index Swaps 

USD .......................................................................................... FedFunds ............ 30 years ....... Yes ......... Yes ......... Yes ......... No. 

EUR .......................................................................................... EONIA ................. 30 years ....... Yes ......... Yes ......... Yes ......... No. 

GBP .......................................................................................... SONIA ................. 30 years ....... Yes ......... Yes ........ Yes ......... No. 

AUD .......................................................................................... AONIA–OIS ........ 5.5 years ...... No 45 ...... No .......... Yes ......... No. 

CAD .......................................................................................... CORRA–OIS ....... 2 years ......... No 46 ...... No .......... Yes ......... No. 

Forward Rate Agreements 

AUD .......................................................................................... BBSW ................. 3 years ......... Yes ......... No .......... No .......... No. 

NOK ......................................................................................... NIBOR ................ 2 years ......... Yes ......... No .......... Yes ......... No. 

PLN .......................................................................................... WIBOR ................ 2 years ......... Yes ......... No .......... Yes ......... No. 

SEK .......................................................................................... STIBOR .............. 3 years ......... Yes ......... No .......... Yes ......... No. 

The Commission notes that these 

interest rate swaps are all single 

currency swaps without optionality, as 

defined by the applicable DCO. 

The submissions from CME, Eurex, 

LCH, and SGX provided the information 

required by regulation 39.5(b)(3)(i)– 

(viii), which, along with other 

information, has assisted the 

Commission in making a quantitative 

and qualitative assessment that these 

swaps should be subject to a clearing 

requirement determination.47 In making 

this clearing requirement determination, 

the Commission considered the ability 

of CME, Eurex, LCH, and SGX to clear 

a given swap, as well as data supplied 

cumulatively from each DCO for these 

swaps.48 The Commission also reviewed 

the existing rule frameworks and risk 

management policies of each DCO. 

Additionally, the Commission 

considered industry data 49 as well as 

other publicly available data sources, 

specifically data published by the Bank 

for International Settlements (BIS), and 

information that has been made publicly 

available pursuant to part 43 of the 

Commission’s regulations (part 43 

Data).50

This final rulemaking also reflects 

consultation with the staff of the 

Securities and Exchange Commission, 

U.S. prudential regulators, and 

international regulatory authorities. 

This consultation occurred prior to the 

approval of the NPRM, as well as prior 

to the approval of this final rulemaking 

by the Commission. The Commission 


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51See section 6c of the CEA. 

52See section 6b of the CEA. 

53See section 5e of the CEA. 

has benefitted from this close 

communication with its fellow 

authorities throughout this rulemaking 

process. 

Finally, the Commission considered 

the ten public comments received in 

response to the NPRM. 

E. Commission Processes for Review and 

Surveillance of DCOs 

i. Part 39 Regulations Set Forth 

Standards for Compliance 

Section 5b(c)(2) of the CEA sets forth 

18 core principles with which DCOs 

must comply to be registered and to 

maintain registration. The core 

principles address numerous issues, 

including financial resources, 

participant and product eligibility, risk 

management, settlement procedures, 

default management, system safeguards, 

reporting, recordkeeping, public 

information, and legal risk. 

Each of the DCOs that submitted the 

interest rate swaps subject to this 

rulemaking is registered with the 

Commission. The DCOs’ regulation 

39.5(b) submissions discussed herein 

identify swaps that the DCOs are 

currently clearing and are eligible to 

clear under regulation 39.5(a). 

Consequently, the Commission has been 

reviewing and monitoring compliance 

by the DCOs with the core principles for 

clearing the submitted swaps. 

The primary objective of the 

Commission’s supervisory program is to 

ensure compliance with applicable 

provisions of the CEA and 

implementing regulations, and, in 

particular, the core principles 

applicable to DCOs. A primary concern 

of the program is to monitor and 

mitigate potential risks that can arise in 

derivatives clearing activities for the 

DCO, its members, and entities using 

the DCO’s services. Accordingly, the 

Commission’s supervisory program 

takes a risk-based approach, and pays 

particular attention to the risks posed by 

stressed market conditions, and major 

market events, as well as market 

participants’ reactions to such 

conditions and events. 

In addition to the core principles set 

forth in section 5b(c)(2) of the CEA, 

section 5c(c) governs the procedures for 

review and approval of new products, 

new rules, and rule amendments 

submitted to the Commission by DCOs. 

Part 39 of the Commission’s regulations 

implements sections 5b and 5c(c) of the 

CEA by establishing specific 

requirements for compliance with the 

core principles, as well as procedures 

for registration, for implementing DCO 

rules, and for clearing new products. 

Part 40 of the Commission’s regulations 

sets forth additional provisions 

applicable to a DCO’s submission of rule 

amendments and new products to the 

Commission. 

The Commission has means to enforce 

compliance, including the 

Commission’s ability to sue the DCO in 

federal court for civil monetary 

penalties,51 issue a cease and desist 

order,52 or suspend or revoke the 

registration of the DCO.53 In addition, 

any deficiencies or other compliance 

issues observed during ongoing 

monitoring or an examination are 

frequently communicated to the DCO 

and various measures are used by the 

Commission to ensure that the DCO 

appropriately addresses such issues, 

including escalating communications 

within the DCO management and 

requiring the DCO to demonstrate, in 

writing, timely correction of such 

issues. 

ii. Initial Registration Application 

Review and Periodic In-Depth Reviews 

Section 5b of the CEA requires a DCO 

to register with the Commission. In 

order to do so, an organization must 

submit an application demonstrating 

that it complies with the core 

principles. During the review period, 

the Commission generally conducts an 

on-site review of the prospective DCO’s 

facilities, asks a series of questions, and 

reviews all documentation received. 

The Commission may ask the applicant 

to make changes to its rules to comply 

with the CEA and the Commission’s 

regulations. 

After registration, the Commission 

conducts examinations of DCOs to 

determine whether each DCO is in 

compliance with the CEA and 

Commission regulations. Each 

examination begins with a planning 

phase where staff reviews information 

the Commission has to determine 

whether the information raises specific 

issues and to develop an examination 

plan. The examination team participates 

in a series of meetings with the DCO at 

its facility. Commission staff also 

communicates with relevant DCO staff, 

including senior management, and 

reviews documentation. Data produced 

by the DCO is independently tested. 

Finally, when relevant, walk-through 

testing is conducted for key DCO 

processes. 

Commission staff also reviews DCOs 

that are systemically important 

(SIDCOs) at least once a year. Of the 

DCOs discussed in this rulemaking, 

only CME has been determined to be a 

SIDCO. 

iii. Commission Daily Risk Surveillance 

Commission risk surveillance staff 

monitors the risks posed to and by 

DCOs, clearing members, and market 

participants, including market risk, 

liquidity risk, credit risk, and 

concentration risk. The analysis 

includes review of daily, large trader 

reporting data obtained from market 

participants, clearing members, and 

DCOs, which is available at the trader, 

clearing member, and DCO levels. 

Relevant margin and financial resources 

information also is included within the 

analysis. 

Commission staff regularly conducts 

back testing to review margin coverage 

at the product level and follows up with 

the relevant DCO regarding any 

exceptional results. Independent stress 

testing of portfolios is conducted on a 

daily, weekly, and ad hoc basis. The 

independent stress tests may lead to 

individual trader reviews and/or futures 

commission merchant (FCM) risk 

reviews to gain a deeper understanding 

of a trading strategy, risk philosophy, 

risk controls and mitigants, and 

financial resources at the trader and/or 

FCM level. The traders and FCMs that 

have a higher risk profile are then 

reviewed during the Commission’s onsite review of a DCO’s risk management 

procedures. 

Given the importance of DCOs within 

the financial system and the heightened 

scrutiny as more transactions are moved 

into central clearing, the goal of the 

Commission risk surveillance staff is: (1) 

To identify positions in cleared 

products subject to the Commission’s 

jurisdiction that pose significant 

financial risk; and (2) to confirm that 

these risks are being appropriately 

managed. Commission risk surveillance 

staff undertakes these tasks at the trader 

level, the clearing member level, and the 

DCO level. That is, staff identifies both 

traders that pose risks to clearing 

members and clearing members that 

pose risks to the DCO. Staff then 

evaluates the financial resources and 

risk management practices of traders, 

clearing members, and DCOs in relation 

to those risks. Commission risk 

surveillance staff routinely monitors 

conditions in assigned markets 

throughout the day. Because of the work 

done in identifying accounts of interest, 

analysts are able to focus their efforts on 

those traders whose positions warrant 

heightened scrutiny under current 

market conditions. 

To gain insight into how markets 

operate during stressed market 

conditions, an essential technique in 


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54 DCOs that elect to be covered under subpart C 

of part 39 of the Commission’s regulations also are 

subject to this requirement. 

55Comment letters received in response to the 

NPRM may be found on the Commission’s Web site 

at: http://comments.cftc.gov/PublicComments/ 

CommentList.aspx?id=1711. The following 

organizations submitted comment letters: Asset 

Management Group of the Securities Industry and 

Financial Markets Association (SIFMA AMG); ASX 

Clear (Futures) Pty Limited (ASX); Better Markets 

Inc. (Better Markets); Citadel LLC (Citadel); CME 

Group Inc. (CME Group); International Swaps and 

Derivatives Association, Inc. (ISDA); Japanese 

Bankers Association (JBA); LCH Group Limited 

(LCH Group); the Managed Funds Association 

(MFA); and Scotiabank Inverlat, S.A. (Scotiabank). 

56See discussion of Scotiabank’s comment letter 

in section III. 

57See discussion of ASX’s comment letter in 

sections II and III. 

58See discussion of implementation issues and 

related comment letters in section IV. 

evaluating risk is the use of stress 

testing. Stress testing is the practice of 

determining the potential loss (or gain) 

to a position or portfolio based on a 

hypothetical price change or a 

hypothetical change in a price input 

such as option volatility. Commission 

risk surveillance staff conducts a wide 

array of stress tests. Some stress tests are 

based on the greatest price move over a 

specified period of time such as the last 

five years or the greatest historical price 

change. Another stress testing technique 

is the use of ‘‘event based’’ stress testing 

that replicates the price changes on a 

particular date in history, such as 

September 11, 2001, or the date that 

Lehman Brothers filed for bankruptcy in 

2008. Other specific events might 

include Hurricane Katrina, the U.S. 

Board of Governors of the Federal 

Reserve System’s implementation of the 

Commercial Paper Funding Facility as a 

liquidity backstop, or, most recently, the 

United Kingdom (U.K.)’s vote to exit 

from the European Union. Price changes 

can be measured as a dollar amount or 

a percentage change. This flexibility can 

be helpful when price levels have 

changed by a large amount over time. 

For example, the actual price changes in 

equity indices in October 1987 are not 

particularly large at today’s market 

levels but the percentage changes are 

meaningful. 

The general standard in designing 

stress tests is to use ‘‘extreme but 

plausible’’ market moves. After 

identifying accounts at risk and 

estimating the size of the risk, the third 

step is to compare that risk to the assets 

available to cover it. Because stress 

testing, by definition, involves extreme 

moves, hypothetical results will exceed 

initial margin requirements on a 

product basis, i.e., the price moves will 

be in the 1% tail. Many large traders, 

however, carry portfolios of positions 

with offsetting characteristics. In 

addition, many traders and clearing 

members deposit excess initial margin 

in their accounts. Therefore, even under 

stressed conditions, in many instances 

the total initial margin available may 

exceed potential losses or the shortfall 

may be relatively small. 

Each DCO maintains a financial 

resources package that protects the DCO 

against clearing member defaults. If a 

clearing member defaults on its 

obligations, the first layer of protection 

against a DCO default is the defaulting 

clearing member’s initial margin, as 

well as the defaulting clearing member’s 

guaranty fund contribution. The second 

layer of protection against a DCO 

default, after the defaulting clearing 

member’s initial margin and guaranty 

fund contribution, is the DCO’s capital 

contribution. The third layer of 

protection against a DCO default is the 

DCO’s mutualized resources, which 

often include guaranty fund 

contributions of non-defaulting clearing 

members and assessments of nondefaulting clearing members. These 

layers of protection comprise the DCO’s 

financial resources package. 

Commission risk surveillance staff 

compares the level of risk posed by 

clearing members to a DCO’s financial 

resources package on an ongoing basis. 

Pursuant to Commission regulation 

39.11(a), a DCO must have sufficient 

financial resources to cover a default by 

the clearing member posing the largest 

risk to the DCO. Pursuant to 

Commission regulation 39.33(a), a 

SIDCO 54 must have sufficient financial 

resources to cover defaults by the 

clearing members posing the two largest 

risks to the DCO. Commission risk 

surveillance staff periodically compares 

stress test results with DCOs to assess 

their financial capacity. 

Commission risk surveillance staff 

frequently discusses the risks of 

particular accounts or positions with 

relevant DCOs. For example, as a 

follow-up to a trader review, 

Commission risk surveillance staff 

might compare its stress test results 

with those of the DCO. As also noted 

above, in the case of FCMs, there have 

been instances where, as a result of 

Commission risk surveillance staff 

comments or inquiries, DCOs have 

taken action to revise their stress tests 

and/or financial resources package to 

align with Commission risk surveillance 

staff’s recommendations. 

II. Comments on the Notice of Proposed 

Rulemaking 

A. Overview of Comments Received 

The Commission received 10 

comment letters during the 30-day 

public comment period following 

publication of the NPRM.55

i. Majority of Commenters Express 

Support for Proposal 

Seven commenters (Better Markets, 

Citadel, CME Group, ISDA, LCH Group, 

MFA, and SIFMA AMG) voiced support 

for the proposed expansion of the 

clearing requirement and agreed with 

the Commission’s analysis that the 

expanded clearing requirement would 

enhance financial stability by reducing 

systemic risk, improving market 

integrity, or increasing transparency in 

the swap market. Two commenters, 

Scotiabank and ASX, provided 

clarifying comments with respect to 

product specifications, but did not 

express explicit support for the proposal 

overall. One commenter, JBA, requested 

that the Commission reconsider its 

proposal to expand the interest rate 

swaps clearing requirement in light of 

the increasing number of clearing 

brokers withdrawing from the swaps 

clearing business due to rising costs. 

ii. Substantive Issues Related to Product 

Specifications 

One commenter, Scotiabank, 

discussed the specifications of the 

MXN-denominated fixed-to-floating 

interest rate swaps included in the 

Commission’s proposed expanded 

fixed-to-floating interest rate swap 

class.56 Another commenter, ASX, 

addressed the Commission’s proposed 

inclusion of AUD-denominated FRAs in 

the expanded FRA class.57

iii. Implementation and Harmonization 

Most commenters responded to the 

NPRM’s request for comment 

concerning the advantages and 

disadvantages of a simultaneous 

effective date versus a series of 

compliance dates that would coordinate 

implementation with clearing 

requirements issued by non-U.S. 

jurisdictions.58

Six commenters, CME Group, Citadel, 

ISDA, LCH Group, MFA, and SIFMA 

AMG all supported the Commission’s 

goal of harmonizing its clearing 

requirement with those of non-U.S. 

jurisdictions. Citadel commented that 

such harmonization would lead to the 

benefit of eliminating regulatory 

arbitrage. LCH Group stated that such 

harmonization would promote certainty 

for market participants. SIFMA AMG 

commented that such harmonization 

would improve the functioning of swaps 

markets and reduce operational 


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59See section III.B.iii.a. 

60See discussion of ISDA’s comment letter in 

section II.C.ii. 

61See discussion of JBA’s and Scotiabank’s 

comment letters in section III. 

62See discussion of JBA’s comment letter in 

sections II.B.iii.d and V.C. 

63See discussion of CME Group’s comment letter 

in section II.C.i and section V.C. 

64See discussion of Citadel’s, ISDA’s, and SIFMA 

AMG’s comment letters in section II.C.iii. 

65Semi-Annual OTC Derivatives Statistics at EndJune 2015, published December 2015 available at: 

https://www.bis.org/statistics/d5_1.pdf. The BIS 

data provides the broadest market-wide estimates of 

interest rate swap activity available to the 

Commission. The Commission receives swaps 

market information pursuant to parts 43 and 45 of 

the Commission’s regulations. See also Swap Data 

Recordkeeping and Reporting Requirements, 77 FR 

2136 (Jan. 13, 2012); Real-Time Public Reporting of 

Swap Transaction Data, 77 FR 1182 (Jan. 9, 2012). 

However, this data only includes swaps subject to 

the Commission’s jurisdiction, i.e., those swaps 

subject to the CEA. The BIS data represents the 

broader swaps market, some of which is not 

reportable to the Commission under the CEA. 

66The negative specifications are product 

specifications that are explicitly excluded from the 

clearing requirement. All specifications are listed in 

regulation 50.4(a). 

67The First Clearing Requirement Determination 

described the term ‘‘conditional notional amount’’ 

as ‘‘notional amounts that can change over the term 

of a swap based on a condition established by the 

parties upon execution such that the notional 

amount of the swap is not a known number or 

schedule of numbers, but may change based on the 

occurrence of some future event. This term does not 

include what are commonly referred to as 

‘amortizing’ or ‘roller coaster’ notional amounts for 

which the notional amount changes over the term 

of the swap based on a schedule of notional 

amounts known at the time the swap is executed. 

Furthermore, it would not include a swap 

containing early termination events or other terms 

that could result in an early termination of the swap 

if a DCO clears the swap with those terms.’’ See 77 

FR at 74302 n. 108. 

68The core principles address numerous issues, 

including financial resources, participant and 

product eligibility, risk management, settlement 

procedures, default management, system 

safeguards, reporting, recordkeeping, public 

information, and legal risk. See sections 

5b(c)(2)(A)–(R) of the CEA and 17 CFR part 39, 

subparts B and C. 

69Currently, CME is the only registered DCO 

offering MXN-denominated fixed-to-floating 

interest rate swaps for clearing. As noted above, 

LCH has filed a § 39.5(b) submission regarding this 

swap and will begin offering MXN-denominated 

fixed-to-floating interest rate swaps for clearing 

beginning in early October 2016. Similarly, LCH is 

the only registered DCO clearing AUD- and CADdenominated OIS at this time. CME has confirmed 

that it intends to file § 39.5(b) submissions 

regarding these swaps before the end of 2016, and 

it is not likely to need to change its risk 

management framework to do so. 

complexity. ISDA commented that 

harmonization is crucial to effective and 

efficient implementation of all of the 

reforms of the derivatives markets 

sought by the G20. MFA commented 

that the Commission’s approach to 

harmonizing its clearing requirement 

with those of other jurisdictions would 

increase transparency and market 

integrity. MFA also suggested that if the 

Commission proceeds with the 

expanded clearing requirement, then 

other jurisdictions will follow. 

iv. Data Considered by the Commission 

One commenter, Citadel, 

complimented the Commission for 

assessing the extent of outstanding 

notional exposures of the swaps covered 

by the NPRM using multiple sources of 

data.59 Another commenter, ISDA, 

suggested that the Commission review 

data indicating the impact of the 

proposed expanded clearing 

requirement on market participants in 

particular jurisdictions.60

v. Clarification 

Two commenters, JBA and 

Scotiabank, requested clarification as to 

whether the expanded clearing 

requirement would only apply to new 

swaps entered into after the applicable 

compliance date and whether 

previously executed swaps would be 

required to be ‘‘backloaded’’ to 

clearing.61

vi. Access to DCOs and Clearing 

Members 

One commenter, JBA, raised concerns 

about market participants needing to 

establish a clearing relationship with a 

new DCO in order to comply with the 

expanded clearing requirement.62

Another commenter, CME Group, raised 

concerns about the ability of relatively 

small market participants to establish an 

account with a clearing member.63

vii. Trade Execution Requirement 

Three comment letters discussed the 

possibility of a trade execution 

requirement applying to some or all of 

the interest rate swaps subject to this 

rulemaking.64

B. Determination Analysis 

i. Background Information on Interest 

Rate Swaps 

Interest rate swaps generally are 

agreements wherein counterparties 

agree to exchange payments based on a 

series of cash flows over a specified 

period of time, typically calculated 

using two different rates, multiplied by 

a notional amount. As of June 2015, 

according to an estimate by BIS, there 

was approximately $435 trillion in 

outstanding notional of interest rate 

swaps, which represents approximately 

79% of the total outstanding notional of 

all derivatives.65

Section 2(h)(2)(A)(i) of the CEA 

provides that the Commission shall 

review each swap, or any group, 

category, type, or class of swaps to make 

a determination as to whether the swap 

or group, category, type, or class of 

swaps should be required to be cleared. 

This final rulemaking adds to the four 

classes of interest rate swaps that the 

Commission defined in the First 

Clearing Requirement Determination: 

1. Fixed-to-floating swaps: Swaps in 

which the payment or payments owed 

for one leg of the swap is calculated 

using a fixed rate and the payment or 

payments owed for the other leg are 

calculated using a floating rate. 

2. Basis swaps: Swaps for which the 

payments for both legs are calculated 

using floating rates. 

3. Forward rate agreements: Swaps in 

which payments are exchanged on a 

pre-determined date for a single 

specified period and one leg of the swap 

is calculated using a fixed rate and the 

other leg is calculated using a floating 

rate that is set on a pre-determined date. 

4. Overnight index swaps: Swaps for 

which one leg of the swap is calculated 

using a fixed rate and the other leg is 

calculated using a floating rate based on 

a daily overnight rate. 

Interest rate swaps within the classes 

described above are currently required 

to be cleared pursuant to regulation 

50.4(a) if they meet certain 

specifications: (i) Currency in which 

notional and payment amounts of a 

swap are specified; (ii) floating rate 

index referenced in the swap; and (iii) 

stated termination date of the swap. The 

Commission also included the following 

three ‘‘negative’’ specifications: 66 (i) No 

optionality; (ii) no dual currencies; and 

(iii) no conditional notional amounts.67

This clearing requirement determination 

analyzes the additional interest rate 

swaps submitted by CME, Eurex, LCH, 

and SGX according to these 

classifications and specifications. 

ii. Consistency With Core Principles for 

Derivatives Clearing Organizations 

Section 2(h)(2)(D)(i) of the CEA 

requires the Commission to determine 

whether a clearing requirement 

determination would be consistent with 

the core principles for registered DCOs 

set forth in section 5b(c)(2) of the CEA 

and implemented in part 39 of the 

Commission’s regulations.68 CME, 

Eurex, LCH, and SGX, each a registered 

DCO, already clear the swaps identified 

in the regulation 39.5(b) submissions 

described above.69 Accordingly, CME, 

Eurex, LCH, and SGX already are 

required to comply with the DCO core 

principles with respect to the interest 

rate swaps subject to this final 

rulemaking. Moreover, each of these 

DCOs has been, and is, subject to the 


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70The factors are: 

(1) The existence of significant outstanding 

notional exposures, trading liquidity, and adequate 

pricing data; 

(2) The availability of rule framework, capacity, 

operational expertise and resources, and credit 

support infrastructure to clear the contract on terms 

that are consistent with the material terms and 

trading conventions on which the contract is then 

traded; 

(3) The effect on the mitigation of systemic risk, 

taking into account the size of the market for such 

contract and the resources of the DCO available to 

clear the contract; 

(4) The effect on competition, including 

appropriate fees and charges applied to clearing; 

and 

(5) The existence of reasonable legal certainty in 

the event of the insolvency of the relevant DCO or 

one or more of its clearing members with regard to 

the treatment of customer and swap counterparty 

positions, funds, and property. 

71The Commission’s Market Risk Advisory 

Committee hosted a meeting on June 27, 2016, to 

discuss central counterparty coordination in default 

management, global systemically important bank 

resolution, and central counterparty resolution, 

webcast available at: http://www.cftc.gov/Exit/ 

index.htm?https:/youtu.be/fxQDh5lnh9c. See CFTC 

Press Release PR7386–16, announcing the meeting 

agenda (June 16, 2016), available at: http://

www.cftc.gov/PressRoom/PressReleases/pr7391-16. 

72See section 2(h)(2)(D)(ii) of the CEA. 

73See 77 FR 47170, 47193 and n. 100 (Aug. 7, 

2012) (citing Bank of England, ‘‘Thoughts on 

Determining Central Clearing Eligibility of OTC 

Derivatives,’’ Financial Stability Paper No. 14, 

March 2012, at 11, available at:http://www.bankof

england.co.uk/financialstability/Documents/fpc/ 

fspapers/fs_paper14.pdf.) As discussed above, the 

Commission receives data regarding swaps subject 

to its jurisdiction pursuant to parts 43 and 45 of the 

Commission’s regulations. The Commission also 

receives regular reporting from registered DCOs, as 

well as its registered entities. 

74The Commission reviews part 43 Data, as well 

as data from CME, Eurex, LCH, and SGX, on an 

ongoing basis. Although the part 43 Data that is 

included in section II.B.iii is dated as of the second 

quarter 2015, Commission staff has not observed 

significant changes in the level of trading activity 

that would cause the Commission to change its 

finding that there is regular trading activity in these 

markets, as well as a measurable amount of data, 

such that there are significant outstanding notional 

exposures and trading liquidity in the swaps subject 

to this determination. In addition, although the data 

from DCOs presented in section II.B.iii is dated as 

of the second quarter 2015, Commission staff has 

not observed significant changes in the notional 

amounts outstanding or the aggregate notional 

values of swaps being cleared that would cause the 

Commission to change its finding that there are 

significant outstanding notional exposures and 

trading liquidity in the swaps subject to this final 

rulemaking. No commenters raised concerns about 

this data or offered additional data. 

75CME SDR and BSDR LLC, each a provisionallyregistered SDR, accept data regarding interest rate 

swaps, but have not collected sufficient data 

relevant to the time periods considered by this 

determination. ICE Trade Vault, LLC, another 

provisionally-registered SDR, did not accept 

interest rate swap data during the time periods 

relevant to this final rulemaking. 

76 In the First Clearing Requirement 

Determination, the Commission also considered (i) 

market data published weekly by TriOptima that 

covered swap trade information submitted 

voluntarily by 14 large derivatives dealers and (ii) 

trade-by-trade data provided voluntarily by the 14 

dealers to the OTC Derivatives Supervisors Group 

(ODSG). See 77 FR at 74307. The Commission is not 

using these sources for the determination adopted 

today because TriOptima no longer collects its data, 

and the ODSG data was a one-time exercise 

conducted between June and August 2010. 

Commission’s review and surveillance 

procedures, as discussed above, with 

respect to these swaps. 

For the purposes of reviewing 

whether the regulation 39.5(b) 

submissions are consistent with the 

DCO core principles, the Commission 

has relied on both the information 

received in the regulation 39.5(b) 

submissions and, as discussed above, its 

ongoing review and risk surveillance 

programs. 

The Commission concludes that CME, 

Eurex, LCH, and SGX are capable of 

maintaining compliance with the DCO 

core principles following the adoption 

of this clearing requirement 

determination. The Commission has not 

found any evidence to conclude that 

subjecting any of the interest rates 

swaps identified herein to a clearing 

requirement would adversely affect 

compliance by CME, Eurex, LCH, or 

SGX with the DCO core principles. In 

response to the NPRM, LCH Group 

commented on this topic, stating that it 

does not believe that the clearing 

requirement would adversely impact its 

ability to comply with the DCO core 

principles. Accordingly, the 

Commission believes that each of the 

regulation 39.5(b) submissions 

discussed herein is consistent with 

section 5b(c)(2) of the CEA. 

iii. Consideration of the Five Statutory 

Factors for Clearing Requirement 

Determinations 

Section 2(h)(2)(D)(ii)(I)–(V) of the CEA 

identifies five factors that the 

Commission must ‘‘take into account’’ 

in making a clearing requirement 

determination.70 In regulation 39.5(b), 

the Commission developed a process for 

reviewing DCO swap submissions to 

determine whether such swaps should 

be subject to a clearing requirement 

determination. The following is the 

Commission’s consideration of the five 

factors as they relate to: (1) Fixed-tofloating interest rate swaps denominated 

in the nine additional currencies; (2) 

AUD-denominated basis swaps; (3) 

NOK-, PLN-, and SEK-denominated 

FRAs; and (4) USD-, EUR-, and GBPdenominated OIS with termination 

dates of up to three years; and AUD- and 

CAD-denominated OIS, as submitted by 

CME, Eurex, LCH, and/or SGX pursuant 

to regulation 39.5(b). 

As it reviewed the five statutory 

factors for this clearing requirement, the 

Commission considered the effect a new 

clearing mandate will have on a DCO’s 

ability to withstand stressed market 

conditions. The post-financial crisis 

reforms that have increased the use of 

central clearing also have increased the 

importance of ensuring that central 

counterparties are resilient, particularly 

in times of market stress. The 

Commission has been working with 

other domestic and international 

regulators to make sure that adequate 

measures are taken to address the 

potential financial stability risks posed 

by central counterparties.71 The 

Commission is focused on the financial 

stability of DCOs and is committed to 

monitoring all potential risks they face, 

including those related to increased 

clearing due to a new clearing 

requirement determination. 

Accordingly, how DCOs manage risk 

during times of market stress, as well as 

whether DCOs could manage the 

incremental risk in stressed market 

conditions that may result from the 

Commission requiring that these swaps 

be cleared, are critical factors that the 

Commission considered in issuing this 

final rulemaking. 

a. Factor (I)—Outstanding Notional 

Exposures, Trading Liquidity, and 

Adequate Pricing Data 

The first of the five factors requires 

the Commission to consider ‘‘the 

existence of significant outstanding 

notional exposures, trading liquidity, 

and adequate pricing data’’ related to ‘‘a 

submission made [by a DCO].’’ 72 As 

explained in the proposal for the First 

Clearing Requirement Determination, 

there is no single source of data for 

notional exposures and trading liquidity 

for individual products within the 

global interest rate swap market.73

Despite significant progress with regard 

to trade reporting over the years since 

the 2008 financial crisis, this remains 

true. Nonetheless, the Commission has 

considered multiple sources of data 74

on the interest rate swap market that 

provide the information the 

Commission needs to evaluate the first 

factor, including: (1) Publicly available 

real time data disseminated by DTCC 

Data Repository (U.S.) LLC (DDR), a 

provisionally-registered swap data 

repository (SDR),75 pursuant to part 43 

Data; (2) data from CME, Eurex, LCH, 

and SGX collected in their capacities as 

DCOs; (3) data from the BIS; (4) data 

from ISDA; and (5) data from the 

Futures Industry Association (FIA).76


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77A line of economic research papers analyzing 

the impact of central clearing on liquidity in overthe-counter derivatives have used three or more 

alternative methods of calculating liquidity based 

on academic research. These transaction-based 

methods for measuring liquidity are informative for 

assessing and understanding what constitutes an 

active market. See Loon, Y. C. and Zhong, Z. K., 

The impact of central clearing on counterparty risk, 

liquidity, and trading: Evidence from the credit 

default swap market. Journal of Financial 

Economics, 112 (1), 91–115 (2014) at 98, available 

at: http://papers.ssrn.com/sol3/papers.cfm

?abstract_id=2176561. See also Loon, Y. C. and 

Zhong, Z. K., Does Dodd-Frank affect OTC 

transaction costs and liquidity? Evidence from realtime CDS trade reports. Journal of Financial 

Economics, 119 (3), 645–672 (2016) at 647, 

available at: http://papers.ssrn.com/sol3/papers.cfm

?abstract_id=2443654. 

78The data on notional amounts the Commission 

receives for interest rate swaps pursuant to part 43 

is subject to caps, which vary based on currency, 

reference rate, swap class (e.g., FRA vs. OIS), and 

maturity of the underlying swap. As a result, the 

data in Table 2 will underestimate the amount of 

notional outstanding for the reported trades, as 

around 25% of the trades contained capped 

notional amounts. See 17 CFR 43.4(h). According to 

the adopting release accompanying part 43, the 

Commission caps notional amounts to ensure the 

anonymity of the parties to a large swap and 

maintain the confidentiality of business 

transactions and market positions. See Real-Time 

Public Reporting of Swap Transaction Data, 77 FR 

1182, 1213 (Jan. 9, 2012). The rules were amended 

in May 2013 as they relate to caps. See Procedures 

to Establish Appropriate Minimum Block Sizes for 

Large Notional Off-Facility Swaps and Block 

Trades, 78 FR 32866 (May 31, 2013). 

79See also further discussion of this topic in 

response to a comment from ISDA at section II.C.ii. 

80Under the Commission’s general policy, neither 

part 43 reporting nor the clearing requirement apply 

to a swap where neither counterparty is a U.S. 

person (although these requirements generally 

would apply, with the possibility of substituted 

compliance, to certain swaps involving foreign 

branches of U.S. SDs or major swap participants 

(MSPs), or non-U.S. persons that are guaranteed by 

or affiliate conduits of U.S. persons). See 

Interpretive Guidance and Policy Statement 

Regarding Compliance With Certain Swap 

Regulations, 78 FR 45292, 45369–70 (July 26, 2013). 

Therefore, part 43 reporting applies whenever at 

least one counterparty to a swap is a U.S. person. 

81This table reflects data that was publically 

disseminated by DDR and reported to it by the 

reporting counterparty, a swap execution facility 

(SEF), or designated contract market (DCM) 

pursuant to part 43. As such, the Commission did 

not independently verify the accuracy of the swap 

data. The transactions disseminated to the public 

were rounded pursuant to regulation 43.4(g). As a 

result, this table may underestimate the amount of 

notional outstanding for the reported trades. This 

table does not include cancelled and corrected 

swaps that counterparties reported under part 43. 

The Commission converted the notional amounts to 

USD according to the exchange rates of June 30, 

2015. Three other SDRs provisionally-registered 

with the Commission, CME SDR, BSDR LLC, and 

ICE Trade Vault LLC also accept information 

pursuant to part 43. During the second quarter of 

2015, none of those SDRs collected sufficient 

information regarding the interest rate swaps 

subject to this rulemaking. 

82As mentioned above, LCH will commence 

clearing fixed-to-floating interest rate swaps 

denominated in MXN in October 2016. 

83 Data includes zero coupon swaps and variable 

notional swaps and excludes basis swaps, FRAs, 

and OIS. LCH converted values to USD. All data 

from LCH cited in this rulemaking is ‘‘singlesided,’’ which means that the outstanding notional 

amounts correspond to the notional amounts of 

swaps submitted for clearing. Single-sided reporting 

from LCH, as well as data reported by CME and 

SGX, refers to the same concept insofar as all modes 

of reporting reflect the total notional amounts 

outstanding at the DCO based on the swaps 

submitted for clearing. When two counterparties 

submit a swap to the clearinghouse for clearing 

through novation, the clearinghouse becomes the 

new counterparty to each of the original 

counterparties. This novation process results in 

double-counting, and single-sided reporting reflects 

the actual number of trades submitted to a 

clearinghouse for clearing. See note 85 for an 

explanation of CME’s single-sided data. LCH 

publishes outstanding notional amounts of the 

swaps it has cleared. See LCH’s Web site, available 

at: http://www.swapclear.com/what/clearingvolumes.html. 

Outstanding Notional Exposures and 

Trading Liquidity: Fixed-to-Floating 

Interest Rate Swaps Denominated in the 

Nine Additional Currencies 

In assessing the extent of outstanding 

notional exposures and trading liquidity 

for a particular swap, the Commission 

reviews various data series to ascertain 

whether there is an active market for the 

swap, including whether the swap is 

traded on a regular basis as reflected by 

trade count and whether there is a 

measurable amount of notional 

exposures, such that a DCO can 

adequately risk manage the swap. In 

particular, the Commission reviewed 

the aggregate notional exposure and the 

trade count data from a number of 

sources for each swap subject to this 

determination. While there is no 

defined standard for an active market,77

the Commission believes the data 

indicates that there are sufficient 

outstanding notional exposures and 

trading liquidity for fixed-to-floating 

interest rate swaps denominated in the 

nine additional currencies to support a 

clearing requirement determination. The 

Part 43 Data presented in Table 2 

generally demonstrates that there is 

significant activity in new fixed-tofloating interest rate swap trades 

denominated in each of the nine 

additional currencies. Table 2 presents 

aggregate notional values and trade 

counts of fixed-to-floating interest rate 

swaps denominated in these currencies 

that were executed during the threemonth period from April 1 to June 30, 

2015.78

The Commission notes the market for 

any swap is global. Even if the bulk of 

the activity in a particular swap occurs 

between counterparties located in a 

single jurisdiction, Table 2 demonstrates 

that there is significant participation by 

U.S. persons in each of the swaps 

covered by this determination.79

Because Table 2 is based on Part 43 

Data, it should include only data related 

to those swaps for which at least one 

counterparty is a U.S. person.80

TABLE 2—PART 43 DATA FIXED-TOFLOATING INTEREST RATE SWAPS

AGGREGATE NOTIONAL AMOUNTS

AND TRADE COUNTS REPORTED

SECOND QUARTER 2015 81

Currency Aggregate notional 

(USD) Trade count 

MXN ........ $403,621,757,132 15,492 

CAD ......... 318,497,173,863 4,125 

AUD ......... 322,042,446,624 4,898 

SEK ......... 82,092,397,444 1,779 

PLN ......... 47,267,162,195 1,463 

NOK ......... 23,974,272,144 659 

SGD ......... 45,618,398,397 995 

CHF ......... 48,986,953,725 899 

HKD ......... 21,704,787,338 469 

Table 3.1 demonstrates the 

outstanding notional amounts of fixedto-floating interest rate swaps, 

denominated in each of the nine 

additional currencies except for MXN, 

cleared at LCH as of July 17, 2015.82

TABLE 3.1—LCH DATA FIXED-TOFLOATING INTEREST RATE SWAPS

OUTSTANDING NOTIONAL AMOUNTS

AS OF JULY 17, 2015 83

Currency Outstanding notional 

(USD) 

CAD ..................................... $3,479,830,407,148 

AUD ..................................... 3,311,898,621,627 

CHF ..................................... 1,110,123,528,868 

SEK ..................................... 942,508,451,280 

SGD ..................................... 735,450,982,935 

PLN ..................................... 500,992,688,256 

NOK ..................................... 402,746,575,455 

HKD ..................................... 385,067,416,327 

Table 3.2 describes the aggregate 

notional values and trade counts of 

fixed-to-floating interest rate swaps 

denominated in these currencies that 

were cleared at LCH during the threemonth period from April 1 to June 30, 

2015. 

TABLE 3.2—LCH DATA FIXED-TOFLOATING INTEREST RATE SWAPS

AGGREGATE NOTIONAL AMOUNTS

CLEARED AND TRADE COUNTS 84

SECOND QUARTER 2015 

Currency Aggregate notional 85

(USD) Trade count 

AUD ......... $747,580,867,222 11,675 

CAD ......... 591,935,914,049 8,097 

SEK ......... 192,434,187,521 5,827 

SGD ......... 188,573,379,738 4,872 

CHF ......... 175,203,370,522 3,659 

PLN ......... 99,184,390,887 4,249 

NOK ......... 72,569,065,080 2,855 

HKD ......... 65,655,762,520 1,868 


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84Like the outstanding notional data, this data 

includes zero coupon swaps and variable notional 

swaps. 

85The aggregate notional amounts cleared at LCH 

will appear to be greater than that reflected in the 

part 43 Data because the part 43 Data captures only 

swap data subject to the CEA, while LCH, an entity 

organized in the United Kingdom, clears swaps for 

entities that may not be subject to the Commission’s 

jurisdiction. The fact that LCH’s notional amounts 

are higher supports this clearing requirement 

determination because it suggests that there may be 

greater liquidity in these swaps outside the U.S., of 

which DCOs could take advantage in order 

successfully to risk manage and price these swaps. 

86CME uses the term ‘‘open interest’’ to refer to 

outstanding notional amounts. Both terms—‘‘open 

interest’’ and ‘‘outstanding notional amounts’’— 

refer to the same concept. CME converted the 

values to USD. As noted above, like the LCH data 

cited in this rulemaking, all data from CME is 

‘‘single-sided,’’ which means that the outstanding 

notional amounts correspond to the notional 

amounts of swaps submitted for clearing. 

87 Data excludes basis swaps, FRAs, and OIS. 

CME publishes open interest amounts of the swaps 

it has cleared. See CME’s Web site, available at: 

http://www.cmegroup.com/trading/interest-rates/ 

cleared-otc/#data. 

88SGX converted this value from SGD to USD. 

This figure is ‘‘single-sided,’’ which means that the 

outstanding notional amount corresponds to the 

notional amounts of swaps submitted for clearing. 

SGX publishes outstanding notional amounts on its 

Web site, available at: http://www.sgx.com. 

89BIS Triennial Central Bank Survey, Interest 

Rate Derivatives Market Turnover in 2013, Tables 

1 and 2.1–2.6 (December 2013), available at: http:// 

www.bis.org/publ/rpfxf13irt.pdf. 

90 Data as of April 2013. BIS converted the figures 

to USD. 

91 Interest rate derivatives by instrument, 

counterparty, and currency. Notional amounts 

outstanding, expressed in USD, at end June 2015, 

available at: http://stats.bis.org/statx/srs/table/ 

d7?p=20151&c=. This report does not provide data 

specific to interest rate swaps denominated in all 

nine additional currencies. 

92SwapsInfo provides data from two SDRs—DDR 

and BSDR LLC—that is ‘‘required to be disclosed 

under U.S. regulatory guidelines.’’ SwapsInfo does 

not provide information specific to interest rate 

swaps denominated in all nine additional 

currencies. The SwapsInfo referenced in Table 6 

only includes information from DDR. See 

SwapsInfo Web site, available at: http://www.swaps

info.org/charts/derivatives/price-transaction. 

93The Commission converted the values to USD 

as of Sept. 18, 2015. ISDA SwapsInfo does not 

provide data for CHF-, HKD-, NOK-, SEK-, or SGDdenominated interest rate swaps. 

94SEF Tracker is published periodically on FIA’s 

Web site, available at: https://fia.org/sef-tracker. 

95The SEFs include: BGC Derivatives Markets, 

L.P.; Bloomberg SEF LLC; DW SEF LLC; GFI Swaps 

Exchange LLC; Javelin SEF, LLC; ICAP SEF (US) 

LLC; ICAP Global Derivatives Limited; LatAm SEF, 

LLC; Tradition SEF, Inc.; trueEx LLC; tpSEF Inc.; 

and TW SEF LLC. The Commission recognizes that 

under section 2(h)(8) of the CEA and Commission 

regulations 37.10 and 38.12, the Commission could 

in the future act to adopt a trade execution 

requirement for some or all of the interest rate 

swaps subject to the clearing requirement adopted 

in this rulemaking. The adoption of a clearing 

requirement determination is a prerequisite for any 

subsequent trade execution requirement. See also 

note 76. 

96The published report does not contain 

information for CHF-, HKD-, and NOK-denominated 

Table 4.1 demonstratesthe 

outstanding notional amounts of fixedto-floating interest rate swaps, 

denominated in each of the nine 

additional currencies, cleared at CME as 

of July 17, 2015. 

TABLE 4.1—CME DATA FIXED-TOFLOATING INTEREST RATE SWAPS

OUTSTANDING NOTIONAL

AMOUNTS 86 AS OF JULY 17, 2015 87

Currency Outstanding notional 

(USD) 

CAD ..................................... $295,213,937,641 

MXN .................................... 283,989,842,748 

AUD ..................................... 192,208,979,188 

SEK ..................................... 30,834,434,233 

NOK ..................................... 25,396,100,018 

CHF ..................................... 18,322,872,584 

PLN ..................................... 4,157,627,521 

HKD ..................................... 1,937,495,645 

SGD ..................................... 1,014,201,616 

Table 4.2 describes the aggregate 

notional values and trade counts of 

fixed-to-floating interest rate swaps 

denominated in these currencies that 

were cleared at CME during the threemonth period from April 1 to June 30, 

2015. 

TABLE 4.2—CME DATA FIXED-TOFLOATING INTEREST RATE SWAPS

AGGREGATE NOTIONAL AMOUNTS

CLEARED AND TRADE COUNTS SECOND QUARTER 2015 

Currency Aggregate notional 

(USD) Trade count 

MXN ........ $193,941,151,671 7,749 

AUD ......... 51,591,005,387 1,194 

CAD ......... 91,523,261,511 2,995 

SEK ......... 9,712,957,726 998 

NOK ......... 5,298,232,932 422 

CHF ......... 2,665,840,791 173 

TABLE 4.2—CME DATA FIXED-TOFLOATING INTEREST RATE SWAPS

AGGREGATE NOTIONAL AMOUNTS

CLEARED AND TRADE COUNTS SECOND QUARTER 2015—Continued 

Currency Aggregate notional 

(USD) Trade count 

PLN ......... 1,097,490,552 577 

SGD ......... 355,136,534 32 

HKD ......... 211,815,688 16 

As of July 17, 2015, the outstanding 

notional amount of SGD-denominated 

fixed-to-floating interest rate swaps 

cleared at SGX was $58.5 billion.88

As another data source, the 

Commission looked to BIS data. BIS’ 

2013 triennial central bank survey for 

interest rate swaps describes the daily 

average notional values of interest rate 

swaps, including fixed-to-floating 

interest rate swaps, on a worldwide 

basis, denominated in each of the nine 

additional currencies. 

TABLE 5—EXCERPT FROM BIS TRIENNIAL CENTRAL BANK SURVEY

2013 89 OVER-THE-COUNTER SINGLE

CURRENCY INTEREST RATE DERIVATIVES TURNOVER

Currency 

Daily average notional 

of swaps 

(including fixed-tofloating), worldwide 

(USD) 90

AUD ..................................... $62,854,000,000 

CAD ..................................... 26,794,000,000 

SEK ..................................... 14,618,000,000 

MXN .................................... 9,285,000,000 

CHF ..................................... 5,335,000,000 

SGD ..................................... 3,349,000,000 

NOK ..................................... 2,560,000,000 

PLN ..................................... 2,138,000,000 

HKD ..................................... 1,992,000,000 

More recently, BIS has published 

statistics showing significant 

outstanding notional amounts for 

CAD-, CHF-, and SEK-denominated 

interest rate swaps: Approximately 

$10.3 trillion CAD-denominated, 

approximately $3.2 trillion CHFdenominated, and approximately $2.4 

trillion SEK-denominated.91

On a daily basis, using data collected 

from DDR, ISDA’s ‘‘SwapsInfo’’ report 

publishes the notional value and trade 

counts of fixed-to-floating interest rate 

swaps denominated in four of the nine 

additional currencies.92 For example, 

Table 6 shows the aggregate notional 

values and trade counts of such swaps 

entered into on September 15, 2015. 

TABLE 6—EXCERPT FROM ISDA 

SWAPSINFO INTEREST RATE DERIVATIVES—PRICE/TRANSACTION DATA

FIXED-TO-FLOATING INTEREST RATE

SWAPS

Currency 

Approximate 

aggregate notional 

amount executed on 

September 15, 2015 

(USD) 93

Aggregate 

trade count 

executed on 

September 15, 

2015 

AUD ......... $2,143,376,093 51 

CAD ......... 1,515,366,916 30 

MXN ........ 283,339,847 142 

PLN ......... 141,249,743 19 

The Commission also reviewed data 

published by the FIA, in its ‘‘SEF 

Tracker’’ report,94 consisting of weekly 

aggregate notional values of interest rate 

swaps, including FRAs, denominated in 

various currencies, including five of the 

nine additional currencies, which have 

been transacted on 12 SEFs that are now 

registered with the Commission.95 Table 

7 shows the aggregate notional values of 

interest rate swaps denominated in 

AUD, CAD, MXN, PLN, and SEK 

executed on SEFs during the week of 

May 25, 2015, as well as such swaps 

denominated in CHF, HKD, and NOK.96


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interest rate swaps. FIA provided figures for those 

swaps to the Commission. According to FIA, no 

SGD-denominated interest rate swaps were 

transacted on SEFs during the week of May 25, 

2015. During the week of July 26, 2015, the 

aggregate notional amount of SGD-denominated 

interest rate swaps executed on SEFs was 

$7,305,402. 

97May 2015 edition of FIA SEF Tracker, available 

at: https://fia.org/articles/fia-releases-sef-trackerreport-may. 

98FIA converted the values to USD. 

99This figure comes from data that was publically 

disseminated by DDR and reported to it by the 

reporting counterparty, a SEF, or a DCM pursuant 

to part 43. As such, the Commission did not 

independently verify the accuracy of the swap data. 

The transactions disseminated to the public were 

rounded pursuant to regulation 43.4(g). As a result, 

this figure may underestimate the amount of 

notional outstanding for the reported trades. This 

figure does not include cancelled and corrected 

swaps that counterparties reported under part 43. 

The Commission converted the aggregate notional 

amount to USD according to the exchange rates of 

June 30, 2015. 

100CME and LCH converted these figures to USD. 

101See ASIC Derivative Transaction Rules 

(Clearing) 2015, at 9, available at https://

www.comlaw.gov.au/Details/F2015L01960. 

102See also Aaron Woolner, ‘‘Australian clearing 

volumes steady despite new mandate,’’ Risk.net, 

Apr. 27, 2016, http://www.risk.net/asia-risk/news/ 

2456034/australian-clearing-volumes-steadydespite-new-mandate (explaining that Australian 

dollar FRAs present clearinghouses with an 

operational challenge insofar as AUD-denominated 

FRAs settle and fix on the same day, which creates 

problems for clearinghouses because their end-ofday process will not complete until the start of the 

next Asia-Pacific trading day) (article on file with 

the Commission and available upon request). 

103This table reflects data that was publically 

disseminated by DDR and reported to it by the 

reporting counterparty, a SEF, or DCM pursuant to 

part 43. As such, the Commission did not 

independently verify the accuracy of the swap data. 

The transactions disseminated to the public were 

rounded pursuant to regulation 43.4(g). As a result, 

this table may underestimate the amount of 

notional outstanding for the reported trades. This 

table does not include cancelled and corrected 

swaps that counterparties reported under part 43. 

The Commission converted the notional amounts to 

USD according to the exchange rates of June 30, 

2015. 

TABLE 7—FIA DATA WEEKLY NOTIONAL VOLUME OF INTEREST RATE

SWAPS (INCLUDING FRAS) BY CURRENCY 97

Currency 

Aggregate weekly 

notional executed 

on SEFs week 

of May 25, 2015 

(USD) 98

AUD ..................................... $36,194,670,000 

MXN .................................... 19,526,810,000 

CAD ..................................... 12,527,450,000 

CHF ..................................... 6,686,971,251 

SEK ..................................... 5,958,000,000 

PLN ..................................... 1,420,000,000 

NOK ..................................... 1,403,918,860 

HKD ..................................... 51,589,605 

In summary, the data indicates 

varying levels of activity, measured by 

outstanding notional amounts and trade 

counts, in fixed-to-floating interest rate 

swaps denominated in the nine 

additional currencies. The Commission 

acknowledges that the data comes from 

various, limited periods of time that do 

not explicitly include periods of market 

stress. However, the Commission 

concludes that the data demonstrates 

sufficient regular trading activity and 

outstanding notional exposures in the 

fixed-to-floating interest rate swaps 

denominated in the nine additional 

currencies to provide the liquidity 

necessary for DCOs to successfully risk 

manage these products and to support 

the adoption of a clearing requirement. 

Accordingly, the Commission concludes 

that there is sufficient regular trading 

activity and outstanding notional 

exposures for all fixed-to-floating swaps 

subject to this rulemaking. 

2. Outstanding Notional Exposures and 

Trading Liquidity: AUD-Denominated 

Basis Swaps 

The First Clearing Requirement 

Determination required the clearing of 

certain USD-, EUR-, GBP-, and JPYdenominated basis swaps. As part of 

this clearing requirement determination, 

the Commission is expanding the basis 

swap class to include AUDdenominated basis swaps, as proposed. 

According to part 43 Data, 366 new 

AUD-denominated basis swaps were 

executed during the three-month period 

from April 1 to June 30, 2015. The 

aggregate notional amount of these 

swaps was $32,559,762,900.99 Also, 

during this period, there was no volume 

of AUD-denominated basis swaps 

cleared at CME, but the outstanding 

notional amount in such swaps cleared 

at CME as of June 30, 2015 was 

$69,662,645,400. During the second 

quarter of 2015, 786 new AUDdenominated basis swaps were cleared 

at LCH. The aggregate notional amount 

of these swaps was $74,012,261,949. As 

of July 17, 2015, the outstanding 

notional amount of AUD-denominated 

basis swaps cleared at CME and LCH 

was $183,995,548,759 and 

$443,819,944,145, respectively.100

While the data considered above 

comes from limited periods of time that 

do not explicitly include periods of 

market stress, the Commission 

concludes that the data demonstrates 

sufficient regular trading activity and 

outstanding notional exposures in AUDdenominated basis swaps to provide the 

liquidity necessary for DCOs to 

successfully risk manage these products 

and to support the adoption of a 

clearing requirement, as proposed. 

Accordingly, the Commission concludes 

that there is sufficient regular trading 

activity and outstanding notional 

exposures for AUD-denominated basis 

swaps subject to this rulemaking. 

3. Outstanding Notional Exposures and 

Trading Liquidity: NOK-, PLN-, and 

SEK-Denominated FRAs 

The First Clearing Requirement 

Determination required the clearing of 

certain USD-, EUR-, GBP-, and JPYdenominated FRAs. As part of the 

clearing requirement determination 

issued today, the Commission has 

decided to amend the FRA class to 

include only the NOK-, PLN-, and SEKdenominated FRAs proposed. 

At this time, the Commission has 

decided not to include AUDdenominated FRAs as part of its 

expanded clearing requirement. This 

decision is based on several factors. 

First, the Australian authorities have 

postponed required clearing of AUDdenominated FRAs until July 2018.101

Second, ASX commented that it would 

not be prudent for the Commission to 

finalize a clearing requirement for this 

product in light of the delay in the 

Australian clearing requirement for this 

product. Finally, ASX stated that it has 

observed a general trend in the 

Australian domestic market away from 

FRAs and towards single-period swaps 

instead.102 While there is currently a 

date certain on which Australian 

authorities will require clearing in AUDdenominated FRAs, the Commission is 

electing not to finalize its proposal with 

regard to AUD-denominated FRAs, will 

continue to monitor the market for 

AUD-denominated FRAs, and may take 

further action with regard to this 

product as appropriate. 

Table 8 presents aggregate notional 

amounts and trade counts of NOK-, 

PLN-, and SEK-denominated FRAs 

executed during the second quarter of 

2015, collected by DDR. 

TABLE 8—PART 43 DATA FRAS AGGREGATE NOTIONAL AMOUNTS AND

TRADE COUNTS REPORTED SECOND

QUARTER 2015 103

Currency Aggregate notional 

(USD) Trade count 

SEK ......... $183,646,587,508 514 

NOK ......... 105,087,098,253 397 

PLN ......... 14,455,487,594 103 

Table 9.1 presents the outstanding 

notional amounts of NOK-, PLN-, and 

SEK-denominated FRAs cleared at LCH 

as of July 17, 2015. 


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104Although there was no clearing activity in 

NOK- or PLN-denominated FRAs during the second 

quarter of 2015, CME continues to offer clearing of 

these products. 105 In analyzing the volume and liquidity of 

NOK-, PLN-, and SEK-denominated fixed-tofloating interest rate swaps and FRAs, ESMA 

concluded that there was greater volume and 

liquidity in products denominated in these three 

currencies than in fixed-to-floating interest rate 

swaps and FRAs denominated in three other 

currencies (Czech koruna (CZK), Danish kroner 

(DKK), and Hungarian forint (HUF)). Therefore, 

ESMA included the 

NOK-, PLN-, and SEK-denominated products in its 

clearing obligation but not the CZK-, DKK-, and 

HUF-denominated products. In other words, ESMA 

ultimately determined that three currencies should 

be subject to the EU clearing obligation and three 

currencies should not be, a decision with which the 

European Commission concurred. See ESMA Final 

Report—Draft technical standards on the clearing 

obligation—interest rate OTC derivatives in 

additional currencies (ESMA/2015/1629, Nov. 10, 

2015), available at: https://www.esma_europa.eu/ 

sites/default/files/library/2015/11/esma-2015- 

1629_-_final_report_clearing_obligation_irs_other_

currencies.pdf. 

106See discussion of the pending European Union 

Clearing Obligation in section I.C. 

107This table reflects data that was publically 

disseminated by DDR and reported to it by the 

reporting counterparty, SEF, or DCM pursuant to 

part 43. As such, the Commission did not 

independently verify the accuracy of the swaps. 

The transactions disseminated to the public were 

rounded pursuant to regulation 43.4(g). As a result, 

this table may underestimate the amount of 

notional outstanding for the reported trades. This 

table does not include cancelled and corrected 

swaps that counterparties reported under part 43. 

The Commission converted the notional amounts to 

USD according to the exchange rates of June 30, 

2015. 

TABLE 9.1—LCH DATA FRAS OUTSTANDING NOTIONAL AMOUNTS AS

OF JULY 17, 2015 

Currency Outstanding notional 

(USD) 

SEK ..................................... $706,370,365,302 

NOK ..................................... 544,670,239,925 

PLN ..................................... 274,120,726,256 

Table 9.2 presents the aggregate 

notional values and trade counts of 

NOK-, PLN-, and SEK-denominated 

FRAs cleared at LCH during the second 

quarter of 2015. 

TABLE 9.2—LCH DATA FRAS AGGREGATE NOTIONAL AMOUNTS CLEARED

AND TRADE COUNTS SECOND QUARTER 2015 

Currency Aggregate notional 

(USD) Trade count 

SEK ......... $369,900,226,814 1,600 

NOK ......... 348,764,102,890 1,874 

PLN ......... 232,246,791,831 1,029 

Table 10.1 presents the outstanding 

notional amounts of NOK-, PLN-, and 

SEK-denominated FRAs cleared at CME 

as of July 17, 2015. 

TABLE 10.1—CME DATA FRAS OUTSTANDING NOTIONAL AMOUNTS AS

OF JULY 17, 2015 

Currency Outstanding notional 

(USD) 

SEK ..................................... $1,448,168,085 

PLN ..................................... 360,386,524 

NOK ..................................... 122,512,986 

Table 10.2 presents the aggregate 

notional amounts and trade counts of 

NOK-, PLN-, and SEK-denominated 

FRAs cleared at CME during the second 

quarter of 2015. 

TABLE 10.2—CME DATA FRAS AGGREGATE NOTIONAL AMOUNTS

CLEARED AND TRADE COUNTS SECOND QUARTER 2015 104

Currency Aggregate notional 

(USD) Trade count 

SEK ......... $1,504,300,488 6 

NOK ......... 0 0 

PLN ......... 0 0 

The Commission recognizes that the 

part 43 Data provided in Table 8 comes 

from a limited period of time that does 

not explicitly include periods of market 

stress. The Commission also notes the 

absence of any clearing activity at CME 

in NOK- or PLN-denominated FRAs 

during the second quarter of 2015. 

However, the Commission concludes 

that the part 43 Data provided in Table 

8, together with the LCH data provided 

in Tables 9.1 and 9.2, demonstrate 

sufficient regular trading activity and 

outstanding notional exposures in 

NOK-, PLN-, and SEK-denominated 

FRAs to provide the liquidity necessary 

for DCOs to successfully risk manage 

these products and to support the 

adoption of a clearing requirement. 

Moreover, the Commission notes that 

like the other products subject to this 

determination, these FRAs are subject to 

a clearing requirement issued by 

another jurisdiction, in this case the 

European Union.105 Accordingly, the 

Commission concludes that there is 

sufficient regular trading activity and 

outstanding notional exposures for all 

FRAs subject to this rulemaking. 

4. Outstanding Notional Exposures and 

Trading Liquidity: OIS With 

Termination Dates of Up to Three Years; 

and AUD- and CAD-Denominated OIS 

The First Clearing Requirement 

Determination required the clearing of 

certain USD-, EUR- and GBPdenominated OIS with a stated 

termination date range of seven days to 

two years. As part of this clearing 

requirement determination, the 

Commission is amending the maximum 

termination date to three years for USD- 

, EUR- and GBP-denominated OIS that 

have been required to be cleared 

pursuant to the First Clearing 

Requirement Determination. This will 

make the Commission’s OIS clearing 

requirement consistent with that in 

effect in the European Union.106

Table 11 presents aggregate notional 

values and trade counts of 

USD-, EUR-, and GBP-denominated OIS 

with terms of two to three years 

executed during the second quarter of 

2015, collected by DDR. 

TABLE 11—PART 43 DATA 2–3 YEAR

OIS AGGREGATE NOTIONAL

AMOUNTS AND TRADE COUNTS REPORTED 107 SECOND QUARTER 2015 

Currency Aggregate notional 

(USD) Trade count 

EUR ......... $7,582,189,400 47 

USD ......... 4,611,000,000 32 

GBP ......... 1,377,942,400 15 

Tables 12 and 13 present the 

outstanding notional amounts 

outstanding, the aggregate notional 

values cleared and trade counts, of USD- 

, 

EUR-, and GBP-denominated OIS with 

terms of two to three years. 

TABLE 12—LCH DATA 2–3 YEAR OIS OUTSTANDING NOTIONAL AMOUNTS, AGGREGATE NOTIONAL AMOUNTS CLEARED, 

AND TRADE COUNTS 108

Currency 

Outstanding notional 

as of July 17, 2015 

(USD) 

Aggregate notional 

cleared second 

quarter 2015 

(USD) 

Trade count 

second quarter 

2015 

EUR ......................................................................................................... $456,729,830,424 $369,018,669,593 1,252 


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108LCH converted the EUR and GBP values to 

USD. 

109CME converted the EUR and GBP values to 

USD. 

110See discussion of the Australian and Canadian 

swap clearing requirements in section I.C. 

111This table reflects data that was publically 

disseminated by DDR and reported to it by the 

reporting counterparty, SEF, or DCM pursuant to 

part 43. As such, the Commission did not 

independently verify the accuracy of the swaps. 

The transactions disseminated to the public were 

rounded pursuant to regulation 43.4(g). As a result, 

this table may underestimate the amount of 

notional outstanding for the reported trades. This 

table does not include cancelled and corrected 

swaps that counterparties reported under part 43. 

The Commission converted the notional amounts to 

USD according to the exchange rates of June 30, 

2015. 

112As discussed above, CME intends to begin 

offering to clear AUD- and CAD-denominated OIS 

before the end of 2016. 

113LCH converted the AUD values to USD. 

114LCH began clearing AUD-denominated OIS on 

January 4, 2016. 

TABLE 12—LCH DATA 2–3 YEAR OIS OUTSTANDING NOTIONAL AMOUNTS, AGGREGATE NOTIONAL AMOUNTS CLEARED, 

AND TRADE COUNTS 108—Continued 

Currency 

Outstanding notional 

as of July 17, 2015 

(USD) 

Aggregate notional 

cleared second 

quarter 2015 

(USD) 

Trade count 

second quarter 

2015 

GBP ......................................................................................................... 91,417,244,109 64,071,802,837 187 

USD ......................................................................................................... 90,058,657,103 46,523,581,500 120 

TABLE 13—CME DATA 2–3 YEAR OIS OUTSTANDING NOTIONAL AMOUNTS, AGGREGATE NOTIONAL AMOUNTS CLEARED, 

AND TRADE COUNTS 109

Currency 

Outstanding notional 

as of July 17, 2015 

(USD) 

Aggregate notional 

cleared second 

quarter 2015 

(USD) 

Trade count 

second quarter 

2015 

EUR ......................................................................................................... $53,456,578,566 $6,888,346,279 12 

USD ......................................................................................................... 151,923,747,195 9,334,544,737 6 

GBP ......................................................................................................... 27,764,067,455 857,520,000 4 

As part of this clearing requirement 

determination, the Commission also is 

adding AUD- and CAD-denominated 

OIS to the OIS class included in 

regulation 50.4(a). This will make the 

Commission’s OIS clearing requirement 

consistent with the requirements that 

will begin to take effect in Australia in 

October 2016 and in Canada in 2017.110

Table 14 presents aggregate notional 

amounts and trade counts of AUD- and 

CAD-denominated OIS executed during 

the second quarter of 2015 collected by 

DDR. 

TABLE 14—PART 43 DATA AUD- AND CAD–OIS AGGREGATE NOTIONAL AMOUNTS AND TRADE COUNTS REPORTED 111

SECOND QUARTER 2015 

Currency Aggregate notional 

(USD) Trade count 

AUD ................................................................................................................................................. $307,048,016,016 537 

CAD ................................................................................................................................................. 51,645,589,883 107 

Tables 15.1 and 15.2 present the 

outstanding notional amounts 

outstanding, as well as aggregate 

notional values cleared and trade 

counts, of AUD- and CAD-denominated 

OIS cleared at LCH.112

TABLE 15.1—LCH DATA AUD-DENOMINATED OIS OUTSTANDING NOTIONAL AMOUNT, AGGREGATE NOTIONAL AMOUNT

CLEARED, AND TRADE COUNT 113

Currency 

Outstanding notional 

as of 

January 15, 2016 114

(USD) 

Aggregate notional 

cleared 

January 4–15, 2016 

(USD) 

Trade count 

January 4–15, 2016 

AUD ......................................................................................................... $25,739,497,700 $26,199,691,300 25 

TABLE 15.2—LCH DATA CAD-DENOMINATED OIS OUTSTANDING NOTIONAL AMOUNT, AGGREGATE NOTIONAL AMOUNT

CLEARED, AND TRADE COUNT 115

Currency 

Outstanding notional 

as of 

July 17, 2015 

(USD) 

Aggregate notional 

cleared second 

quarter 2015 

(USD) 

Trade count 

second quarter 

2015 

CAD ......................................................................................................... $506,221,411,997 $216,524,096,571 260 


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115LCH converted the CAD values to USD. 116See section II.C.ii for a more lengthy 

discussion and analysis of BIS data with regard to 

U.S.-based market participants’ activity in global 

interest rate swap markets. 

The fact that Australian and Canadian 

regulators have included AUD- and 

CAD-denominated OIS, respectively, in 

their clearing requirements 

demonstrates that they believe that 

these swaps represent an important part 

of the derivatives portfolios of 

Australian and Canadian banks. The 

part 43 Data cited in Table 14 

demonstrates that there is also 

meaningful participation by U.S. swap 

market participants in these swaps. For 

example, U.S. SDs and their affiliated 

entities play an important role in the 

global swaps market, including in 

Australia and Canada. The Commission 

therefore believes that it is prudent for 

its clearing requirement to be consistent 

with those issued by other jurisdictions, 

even with respect to swaps that are 

relatively less frequently traded than 

other swaps.116

While the Commission recognizes that 

the data considered above comes from 

limited periods of time that do not 

explicitly include periods of market 

stress, the Commission concludes that 

the data demonstrates sufficient regular 

trading activity and outstanding 

notional exposures in USD-, GBP-, and 

EUR-denominated OIS with a 

termination date range of two to three 

years, as well as AUD- and CADdenominated OIS, to provide the 

necessary liquidity for DCOs to 

successfully risk manage these products 

and to support the adoption of a 

clearing requirement. Accordingly, the 

Commission concludes that there is 

sufficient regular trading activity and 

outstanding notional exposures for all 

OIS subject to this rulemaking. 

5. Pricing Data: Fixed-to-Floating Swaps 

Denominated in the Nine Additional 

Currencies; AUD-Denominated Basis 

Swaps; NOK-, PLN-, and SEKDenominated FRAs; USD-, GBP, and 

EUR–OIS With Termination Dates of up 

to Three Years; and AUD- and CAD–OIS 

The Commission regularly reviews 

pricing data on the interest rate swaps 

subject to this rulemaking and has 

found that these swaps are capable of 

being priced off of deep and liquid 

markets. Commission staff receives and 

reviews margin model information from 

CME, Eurex, LCH, and SGX that 

addresses how such DCOs would follow 

particular procedures to ensure that 

market liquidity exists in order to exit 

a position in a stressed market, 

including the products subject to this 

determination. In particular, 

Commission staff analyzes the level of 

liquidity in the specific product markets 

and assesses the time required to 

determine a price. Based on this 

information, the Commission staff has 

no reason to believe that there is, or will 

be, difficulty pricing the products 

subject to this determination in a 

stressed environment. 

Because of the stability of access to 

pricing data from these markets, the 

pricing data for non-exotic interest rate 

swaps that are currently being cleared is 

generally viewed as reliable. In 

addition, CME, Eurex, LCH, and SGX 

provided information that supports the 

Commission’s conclusion that there is 

adequate pricing data to warrant a 

clearing requirement for the swaps 

subject to this rulemaking. LCH and 

CME believe there is adequate pricing 

data for risk and default management. 

CME stated that its interest rate swap 

valuations are fully transparent and rely 

on pricing inputs obtained from wire 

service feeds. In its § 39.5(b) 

submission, SGX asserted that the 

valuation rate sources it uses, and the 

manner in which it determines mark-tomarket prices, are in alignment with 

industry practices. CME, Eurex, LCH, 

and SGX obtain daily prices from thirdparty data providers, clearing members, 

and/or major banks. 

As discussed above, the Commission 

reviews margin models and related 

pricing data submitted by CME, Eurex, 

LCH, and SGX. One source of 

information that they use to determine 

adequate pricing data is a regular survey 

of swap traders that asks the traders to 

estimate what it would cost to liquidate 

positions of different sizes in different 

currencies. The information obtained 

during these market participant surveys 

is incorporated into each of CME, Eurex, 

LCH, and SGX’s internal margin models 

so that each is confident that it will be 

able to withstand stressed market 

conditions. Establishing accurate 

pricing data is one component of each 

of CME, Eurex, LCH, and SGX’s ability 

to risk manage their interest rate swaps 

offered for clearing. The Commission 

believes that the methods used by these 

DCOs provide information on pricing 

that is accurate and demonstrates the 

ability to price the products subject to 

this determination successfully. 

Accordingly, the Commission concludes 

that there is adequate pricing data to 

support an extension of the clearing 

requirement to the swaps subject to this 

rulemaking. 

6. Comments Received Regarding 

Factor (I) 

In response to the NPRM, three 

commenters, Better Markets, Citadel, 

and CME Group agreed with the 

Commission’s analysis of the first factor 

under section 2(h)(2)(D)(ii). That is, 

these commenters agreed that there is 

sufficient outstanding notional 

exposures in all of the swaps covered by 

the NPRM for DCOs successfully to risk 

manage such swaps and that this 

supports a clearing requirement 

determination. In its comment letter, 

Citadel complimented the Commission 

for assessing the extent of outstanding 

notional exposures using multiple 

sources of data. Citadel noted further 

that the various sources of data the 

Commission referenced in discussing 

the extent of outstanding notional 

exposures demonstrate the variety of 

sources a DCO may rely on to access 

price data for risk and default 

management purposes. In addition, 

Better Markets, Citadel, and MFA 

commented that there is sufficient 

trading activity and liquidity in the 

swaps subject to this rulemaking to 

support a clearing requirement. MFA 

highlighted the fact that, as noted in the 

NPRM, a significant percentage of the 

market already clears the swaps 

voluntarily at Commission-registered 

DCOs. Citadel commented that the 

clearing requirement would enhance 

liquidity in cleared instruments to the 

benefit of investors. Similarly, SIFMA 

AMG commented that clearing improves 

market liquidity. 

With respect to pricing data, in their 

comment letters, CME Group and LCH 

Group agreed with the Commission that 

there is sufficient pricing data available 

for the swaps subject to this rulemaking 

such that CME Group and LCH Group 

can adequately manage the risks that 

would arise from the default of a 

clearing member. The Commission 

received no other comments related to 

the level of outstanding notional 

exposures and trading liquidity or 

adequacy of pricing data for the swaps 

subject to this rulemaking. 

For the reasons described above and 

in light of the comments received, the 

Commission reaffirms its conclusion 

stated in the NPRM that there are 

sufficient outstanding notional 

exposures and trading liquidity, as well 

as adequate pricing data, to expand the 

clearing requirement to include the 

swaps subject to this rulemaking, which 

are referenced in revised regulation 

50.4(a). 

b. Factor (II)—Availability of Rule 

Framework, Capacity, Operational 

Expertise and Resources, and Credit 

Support Infrastructure 

Section 2(h)(2)(D)(ii)(II) of the CEA 

requires the Commission to take into 

account the availability of rule 


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117Section 5c(c) of the CEA governs the 

procedures for review and approval of new 

products, new rules, and rule amendments 

submitted to the Commission by DCOs. Parts 39 and 

40 of the Commission’s regulations implement 

section 5c(c) by: (i) Establishing specific 

requirements for compliance with the core 

principles as well as procedures for registration, 

implementing DCO rules, and clearing new 

products; and (ii) establishing provisions for a 

DCO’s submission of rule amendments and new 

products to the Commission. 

118Each of CME, Eurex, LCH, and SGX has 

published a document outlining its compliance 

with the Principles for Financial Market 

Infrastructures (PFMIs) published by the Committee 

on Payments and Market Infrastructures (CPMI 

formerly CPSS) and the International Organization 

of Securities Commissions (IOSCO). See CME 

Clearing: Principles for Financial Market 

Infrastructures Disclosure, available at: http://www.

cmegroup.com/clearing/risk-management/files/ 

cme-clearing-principles-for-financial-marketinfrastructures-disclosure.pdf. See Assessment of 

Eurex Clearing AG’s compliance against the CPSS– 

IOSCO Principles for financial market 

infrastructures (PFMI) and disclosure framework 

associated to the PFMIs, available at: http://www.

eurexclearing.com/blob/148684/58e6fe89e3f54ebe1

69e530ac2235b43/data/cpss-iosco-pfmi_

assessment_2014_en.pdf. See LCH’s CPMI–IOSCO 

Self Assessment 2014, available at: http://www.

lchclearnet.com/documents/731485/762558/CPMI_

IOSCO_Assessment_of_LCH+ClearnetLtd+2014.pdf/ 

45876bd6-3818-4b76-a463-2952a613c326. See SGX 

PFMI Disclosure Documents, available at: http://

www.sgx.com/wps/portal/sgxweb/home/clearing/

derivatives/pfmi_disclosure. 

119For example, CME, Eurex, LCH, and SGX may 

use scenarios for stress testing and reverse stress 

testing that capture, among other things, historical 

price volatilities, shifts in price determinants and 

yield curves, multiple defaults over various time 

horizons, and simultaneous pressures in funding 

and asset markets. 

framework, capacity, operational 

expertise and resources, and credit 

support infrastructure to clear the swaps 

subject to this rulemaking on terms that 

are consistent with the material terms 

and trading conventions on which they 

are now traded. The Commission 

believes that CME, Eurex, LCH, and 

SGX have developed rule frameworks, 

capacity, operational expertise and 

resources, and credit support 

infrastructure to clear the interest rate 

swaps that they currently clear, 

including those products subject to this 

determination, on terms that are 

consistent with the material terms and 

trading conventions on which those 

swaps are being traded. 

1. Background 

The Commission subjects CME, 

Eurex, LCH, and SGX to ongoing review 

and risk surveillance programs to ensure 

compliance with the core principles for 

the submitted swaps.117 As discussed 

above, as part of a registered DCO’s 

initial registration review and periodic 

in-depth reviews thereafter, the 

Commission reviews the DCO’s rule 

framework, capacity, and operational 

expertise and resources to clear the 

submitted swaps. The Commission may 

request that the DCO or DCO applicant 

change its rules to comply with the CEA 

and Commission regulations. 

After registration, the Commission 

conducts examinations of DCOs to 

determine whether the DCO is in 

compliance with the CEA and 

Commission regulations. Moreover, 

Commission risk surveillance staff 

monitors the risks posed to and by the 

DCO, in ways that include regularly 

conducting back testing to review 

margin coverage at the product level 

and following up with the DCO and its 

clearing members regarding any 

exceptional results. 

CME, Eurex, LCH, and SGX have 

procedures pursuant to which they 

regularly review their clearing of the 

interest rate swaps subject to this 

rulemaking in order to confirm, or make 

adjustments to, margins and other risk 

management tools. When reviewing 

CME, Eurex, LCH, and SGX’s risk 

management tools, the Commission 

considers whether the DCO is able to 

manage risk during stressed market 

conditions to be one of the most 

significant considerations. 

CME, Eurex, LCH, and SGX have 

developed detailed risk management 

practices, including a description of the 

risk factors considered when 

establishing margin levels such as 

historical volatility, intraday volatility, 

seasonal volatility, liquidity, open 

interest, market concentration, and 

potential moves to default, among other 

risks.118 The Commission reviews and 

oversees CME’s, Eurex’s, LCH’s, and 

SGX’s risk management practices and 

development of margin models. Margin 

models are further refined by stress 

testing and daily back testing. When 

assessing whether CME, Eurex, LCH, 

and SGX can clear swaps safely during 

stressed market conditions, stress 

testing and back testing are key tools the 

Commission considers as well. 

CME, Eurex, LCH, and SGX design 

stress tests to simulate ‘‘extreme but 

plausible’’ market conditions based on 

historical analysis of product 

movements and/or based on 

hypothetical forward-looking scenarios 

that are created with the assistance of 

market experts and participants. 

Commission staff monitors and oversees 

the use and development of these stress 

tests. CME, Eurex, LCH, and SGX 

conduct stress tests daily. In addition, 

CME, Eurex, LCH, and SGX conduct 

reverse stress testing to ensure that their 

default funds are sized appropriately. 

Reverse stress testing uses plausible 

market movements that could deplete 

guaranty funds and cause large losses 

for top clearing members.119 These four 

DCOs analyze the results of stress tests 

and reverse stress tests to determine if 

any changes to their financial resources 

or margin models are necessary. 

Commission risk surveillance staff also 

monitors markets in real-time, performs 

stress tests against the DCOs’ margin 

models as an additional level of 

oversight, and may recommend changes 

to a margin model. 

CME, Eurex, LCH, and SGX conduct 

back testing on a daily basis to ensure 

that the margin models capture market 

movements for member portfolios. Back 

testing serves two purposes: It tests 

margin models to determine whether 

they are performing as intended and it 

checks whether the margin models 

produce margin coverage levels that 

meet the DCO’s established standards. 

CME conducts daily back testing for 

each major asset class, and SGX 

performs daily back testing on a contract 

level to examine margin models in more 

detail. LCH may call additional margin 

from clearing members if back testing 

demonstrates margin erosion. The back 

testing process helps CME, Eurex, LCH, 

and SGX determine whether their 

clearing members satisfy the required 

margin coverage levels and liquidation 

time frame. 

Before offering a new product for 

clearing, such as the interest rate swaps 

subject to this rulemaking, CME, Eurex, 

LCH, and SGX take stress tests and back 

testing results into account to determine 

whether the clearinghouse has sufficient 

financial resources to offer new clearing 

services. In addition, the Commission 

reviews margin models and default 

resources to ensure that the DCOs can 

risk manage their portfolio of products 

offered for clearing. The Commission 

believes that this combination of stress 

testing and back testing in anticipation 

of offering new products for clearing 

provides CME, Eurex, LCH, and SGX 

with greater certainty that new product 

offerings will be risk-managed 

appropriately. The process of stress 

testing and back testing also gives the 

DCOs practice incorporating the new 

product into their models. 

In addition to the Commission’s 

surveillance and oversight, CME, Eurex, 

LCH, and SGX continue to monitor and 

test their margin models over time so 

that they can operate effectively in 

stressed and non-stressed market 

environments. CME, Eurex, LCH, and 

SGX review and validate their margin 

models regularly and in the case of CME 

and SGX, no less than annually. To risk 

manage their margin coverage levels for 

interest rate swaps denominated in 


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120See definition of SD, codified in Commission 

regulation 1.3(ggg). 

121 In its regulation 39.5(b) submission, SGX 

asserts that central clearing reduces counterparty 

credit risk because the central counterparty 

interposes itself between the initial buyer and seller 

and because clearing creates efficiencies through 

the consolidation of collateral management. 

various currencies, CME and LCH also 

regularly survey traders to estimate 

what it would cost to liquidate positions 

of different sizes in different currencies 

and then incorporate those costs into 

the amount of initial margin that a 

clearing member is required to post, and 

tailor their margin models to account for 

several attributes specific to various 

currencies. 

Finally, aside from margin coverage 

requirements, CME, Eurex, LCH, and 

SGX can monitor and manage credit risk 

exposure by asset class, clearing 

member, account, or even by individual 

customers. They manage credit risk by 

establishing position and concentration 

limits based on product type or 

counterparty. The Commission 

recognizes that these limits reduce 

potential market risks so that DCOs are 

better able to withstand stressed market 

conditions. CME, Eurex, LCH, and SGX 

monitor exposure concentrations and 

may require additional margin deposits 

for clearing members with weak credit 

scores, with large or concentrated 

positions, with positions that are 

illiquid or exhibit correlation with the 

member itself, and/or where the 

member has particularly large exposures 

under stress scenarios. The ability to 

call for any additional margin, on top of 

collecting initial and variation margin, 

to meet the current DCO exposure is 

another tool that CME, Eurex, LCH, and 

SGX may use to protect against stressed 

market conditions. 

In support of its ability to clear the 

products subject to this rulemaking, 

CME’s § 39.5(b) submissions cite to its 

rulebook to demonstrate the availability 

of rule framework, capacity, operational 

expertise and resources, and credit 

support infrastructure to clear interest 

rate swap contracts on terms that are 

consistent with the material terms and 

trading conventions on which the 

contracts are then traded. LCH’s 

submissions state that LCH has the 

capability and expertise not only to 

manage the risks inherent in the current 

book of interest rate swaps cleared, but 

also to manage the increased volume 

that a clearing requirement for 

additional currently clearable products 

could generate. SGX’s submission states 

that SGD-denominated fixed-to-floating 

interest rate swaps are cleared under an 

established rule framework and 

operational infrastructure that has been 

accepted by SGX’s clearing members. 

SGX asserted further that it has the 

appropriate risk management, 

operations, and technology capabilities 

in place to ensure that it is able to 

liquidate positions in these swaps in an 

orderly manner should a default occur. 

Similarly, Eurex’s submission states that 

it clears interest rate swaps pursuant to 

its well-developed rule framework and 

support infrastructure. 

Importantly, the Commission notes 

that CME, Eurex, LCH, and SGX each 

developed their interest rate swap 

clearing offerings in conjunction with 

market participants and in response to 

the specific needs of the marketplace. In 

this manner, CME’s, Eurex’s, LCH’s, and 

SGX’s clearing services are designed to 

be consistent with the material terms 

and trading conventions of a bilateral, 

uncleared market. 

When assessing whether CME, Eurex, 

LCH, and SGX can clear the swaps 

subject to this rulemaking safely during 

times of market stress, the Commission 

reviewed the public disclosures 

published by CME, Eurex, LCH, and 

SGX. In addition, the Commission 

reviewed the risk management practices 

used by these DCOs, and the 

Commission has determined that the 

application of such practices to the 

products subject to this clearing 

requirement determination should 

ensure that the products can be cleared 

safely during times of market stress. 

Accordingly, the Commission concludes 

that at each of the four DCOs discussed 

above, there is an available rule 

framework, capacity, operations 

expertise and resources, and credit 

support infrastructure to clear the swaps 

subject to this rulemaking on terms that 

are consistent with the material terms 

and trading conventions on which they 

are now traded. 

2. Comments Received Regarding Factor 

(II) 

In response to the NPRM, Citadel 

agreed with the Commission’s 

conclusion that the existing DCO rule 

frameworks and infrastructure are 

satisfactory for clearing the swaps 

subject to the determination. Citadel 

commented that the already significant 

amount of voluntary clearing of these 

swaps demonstrates the suitability of 

the DCOs’ frameworks and 

infrastructures. LCH Group commented 

that its rule framework, capacity, 

operational expertise, resources, and 

credit support structure are adequate to 

clear the swaps covered by the 

rulemaking, including during times of 

market stress. Similarly, CME Group 

commented that it is capable of offering 

uninterrupted clearing services of these 

swaps, even during times of market 

stress. Finally, Better Markets 

commented that the second factor under 

section 2(h)(2)(D)(ii) is satisfied because 

registered DCOs are already clearing the 

swaps subject to the NPRM in 

compliance with the DCO core 

principles. Better Markets also urged the 

Commission strictly to surveil DCOs’ 

risk management procedures. 

The Commission received no other 

comments related to the existence of 

satisfactory DCO rule frameworks and 

infrastructure to support this expanded 

clearing requirement determination. 

For the reasons described above and 

in light of the comments received, the 

Commission reaffirms its conclusion 

stated in the NPRM that there are 

available rule frameworks, capacity, 

operations expertise and resources, as 

well as credit support infrastructures 

consistent with material terms and 

current trading conventions, to expand 

the clearing requirement to include the 

swaps subject to this rulemaking, which 

are referenced in revised regulation 

50.4(a). 

c. Factor (III)—Effect on the Mitigation 

of Systemic Risk 

Section 2(h)(2)(D)(ii)(III) of the CEA 

requires the Commission to take into 

account the effect of the clearing 

requirement on the mitigation of 

systemic risk, taking into account the 

size of the market for such contract and 

the resources of the DCO available to 

clear the contract. The Commission 

believes that the market for the swaps 

covered by this determination is 

significant and that mitigating 

counterparty risk through clearing likely 

will reduce systemic risk in that market 

generally. Data collected by SDRs 

demonstrates that Commissionregistered SDs are counterparties to an 

overwhelming majority of swaps 

reported to the Commission. Because 

only SDs with a significant volume of 

swaps activity are required to register 

with the Commission,120 by expanding 

the swap clearing requirement, a greater 

percentage of an SD’s swap activity will 

be centrally cleared and risk managed. 

For example, central clearing reduces 

the interconnectedness of the swap 

positions of SDs, and other swap market 

participants, because the DCO, an 

independent third party that takes no 

market risk, guarantees the 

collateralization of swap counterparties’ 

exposures. Mitigating counterparty 

credit risk for SDs with systemically 

important swap positions through 

clearing likely would reduce systemic 

risk in the swap market and the 

financial system as a whole.121


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122Margin Requirements for Uncleared Swaps for 

SDs and MSPs, 81 FR 636 (Jan. 6, 2016) (codified 

in subpart E of part 23 of the Commission’s 

regulations) (establishing initial and variation 

margin requirements for certain SDs and MSPs for 

which there is no prudential regulator); and Margin 

and Capital Requirements for Covered Swap 

Entities, 80 FR 74840 (Nov. 30, 2015) (establishing 

minimum margin and capital requirements for 

certain registered SDs, MSPs, security-based swap 

dealers, and major security-based swap participants 

regulated by one of the Office of the Comptroller of 

the Currency, the Board of Governors of the Federal 

Reserve System, the Federal Deposit Insurance 

Corporation, the Farm Credit Administration or the 

Federal Housing Finance Agency). See also section 

V for further discussion of this issue. 

123The exception and exemptions to the clearing 

requirement are codified in subpart C to part 50 of 

the Commission’s regulations. 

124See Commission regulation 23.151 (defining 

financial end user). See also Margin and Capital 

Requirements for Covered Swap Entities, 80 FR at 

74900 (defining financial end user for rules that are 

applicable to SDs and MSPs that have a prudential 

regulator). 

125Commission regulation 23.152. 

126For further discussion of treatment of 

customer and swap counterparty positions, funds 

and property in the event of a the insolvency of a 

DCO or one or more of its clearing members, please 

see Factor (V)—Legal certainty in the event of 

insolvency. See section II.B.iii. 

In addition to managing counterparty 

credit risk, centrally clearing the swaps 

covered by this rulemaking through a 

DCO will reduce systemic risk through 

the following means: Providing 

counterparties with daily mark-tomarket valuations and exchange of 

variation margin pursuant to a risk 

management framework; requiring 

posting of initial margin to cover 

potential future exposures in the event 

of a default; offering multilateral netting 

to substantially reduce the number and 

notional amount of outstanding bilateral 

positions; reducing swap counterparties’ 

operational burden by consolidating 

collateral management and cash flows; 

eliminating the need for novations or 

tear-ups because clearing members may 

offset opposing positions; and 

increasing transparency. 

The Commission recognizes that the 

new margin requirements for uncleared 

swaps for SDs and MSPs require some 

market participants to post and collect 

margin for those swaps not subject to 

the Commission’s clearing 

requirement.122 Neither the 

Commission’s nor the prudential 

regulators’ uncleared margin 

requirement was finalized at the time 

the Commission issued the First 

Clearing Requirement Determination. As 

a result, the Commission considered the 

clearing requirement in light of existing 

market practice. Going forward, the 

requirement to margin uncleared swaps 

in certain instances will mitigate the 

accumulation of risk between 

counterparties in a manner similar to 

that of central clearing. 

However, the Commission believes 

that central clearing, including required 

clearing such as that described herein, 

offers greater risk mitigation than 

bilateral margining for swaps that are 

sufficiently standardized and meet the 

Commission’s other requirements for 

suitability. First, absent any applicable 

exception or exemption,123 the clearing 

requirement applies to all transactions 

in swaps identified in regulation 50.4, 

whereas, generally speaking, the new 

uncleared margin requirements apply 

only to swaps executed between SDs 

and MSPs, and between an SD or MSP 

and its counterparty that is a ‘‘financial 

end-user.’’ 124 Second, this clearing 

requirement requires all swap 

counterparties to post initial margin 

with a DCO, whereas under the 

uncleared swap margin regulations, for 

certain swaps, specifically those 

between an SD or MSP and a financial 

end-user, initial margin is required to be 

posted and collected only if the 

financial end-user (together with its 

affiliates) has over $8 billion in gross 

notional exposures for uncleared 

swaps.125 Third, swaps transacted 

through a DCO are secured by the DCO’s 

guaranty fund and other available 

financial resources, which are intended 

to cover extraordinary losses that would 

not be covered by initial margin (‘‘tail 

risk’’), whereas swaps subject to the 

uncleared margin requirements are not 

secured by a guaranty fund or other 

financial resources available to the DCO 

but covered by unencumbered assets of 

the counterparty. 

1. DCO Mitigation of Risk and 

Concentration of Risk 

In their § 39.5(b) submissions, CME, 

Eurex, and LCH stated that subjecting 

interest rate swaps to central clearing 

helps mitigate systemic risk. According 

to LCH, if all clearable swaps were 

required to be cleared at a small number 

of central counterparties rather than 

being held bilaterally by a much larger 

group of swap counterparties, the robust 

risk management frameworks of 

clearinghouses, such as that operated by 

LCH, would serve to reduce operational 

and systemic risk in the interest rate 

swap market. CME stated that the 2008 

financial crisis demonstrated the 

potential for systemic risk arising from 

the interconnectedness of over-thecounter (OTC) derivatives market 

participants and asserted that 

centralized clearing will reduce 

systemic risk. 

While a clearing requirement removes 

a large portion of the 

interconnectedness of current OTC 

markets that leads to systemic risk, the 

Commission notes that central clearing, 

by its very nature, concentrates risk in 

a handful of entities. Similarly, SGX, in 

its § 39.5(b) submission, noted that the 

risk reducing and other benefits of 

central clearing must be weighed against 

the concentration of risk in a few 

clearinghouses. However, the 

Commission observes that central 

clearing was developed and designed to 

handle such concentration of risk. 

Moreover, as discussed at length above, 

the Commission’s review and risk 

surveillance programs monitor and 

attempt to mitigate potential risks that 

can arise in derivatives clearing 

activities for the DCO, its members, and 

other entities using the DCO’s services. 

Part of a DCO’s risk management 

framework includes procedures for 

responding in stressed circumstances, 

such as a clearing member’s default on 

its obligations. As discussed below, 

each of CME, Eurex, LCH, and SGX has 

a procedure for closing out and/or 

transferring a defaulting clearing 

member’s positions and collateral.126

Transferring customer positions to 

solvent clearing members in the event of 

a default is critical to reducing systemic 

risk. DCOs are designed to withstand 

defaulting positions and to prevent a 

defaulting clearing member’s loss from 

spreading further and triggering 

additional defaults. If the introduction 

of this expanded clearing requirement 

for interest rate swaps increases the 

number of clearing members and market 

participants in the swap market, then 

DCOs may find it easier to transfer 

positions from defaulting clearing 

members to other clearing members 

because there may be a larger pool of 

potential clearing members to receive 

the positions. If this were to occur, then 

this expanded interest rate swap 

clearing requirement would help to 

reduce systemic risk by increasing the 

number of clearing members and market 

participants in these swaps, which 

would be expected to provide DCOs 

with additional recipients for defaulting 

clearing members’ positions in the event 

of a default. 

Each DCO has experience risk 

managing interest rate swaps, and the 

Commission has determined that each 

of CME, Eurex, LCH, and SGX has the 

necessary resources available to clear 

the swaps that are the subject of its 

submission. Accordingly, the 

Commission concludes that it has 

considered the effect of the expanded 

clearing requirement on the mitigation 

of systemic risk and found that 

mitigating counterparty risk through 

required central clearing likely will 


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127See section II.C.ii for a further discussion of 

the market for interest rate swaps. 

128That said, the Commission recognizes that to 

the extent the clearing services market for the 

interest rate swaps subject to this rulemaking, after 

removing the alternative of not clearing such swaps, 

would be (1) limited to a concentrated few 

participants with highly aligned incentives, and (2) 

insulated from new competitive entry through 

barriers—e.g., high sunk capital cost requirements; 

high switching costs to transition from embedded 

incumbents; and access restrictions—this clearing 

requirement determination could have a negative 

competitive impact by increasing market 

concentration. However, no commenters agreed 

with this specific argument as articulated in the 

NPRM. 

129See, e.g., U.S. Dep’t. of Justice & Fed. Trade 

Comm’n, Horizontal Merger Guidelines (2010) 

section 9.2 (entry likely if it would be profitable 

which is in part a function of ‘‘the output level the 

entrant is likely to obtain’’). In addition, the 

Commission notes that there are clearing 

organizations that clear the swaps subject to this 

rulemaking that are not Commission-registered 

DCOs: (1) OTC Clearing Hong Kong, which the 

Commission has exempted from DCO registration 

and clears HKD-denominated interest rate swaps; 

(2) ASX, which the Commission also has exempted 

from DCO registration and clears AUD-denominated 

interest rate swaps; and (3) Asigna (Mexico), which 

clears MXN-denominated interest rate swaps. The 

Commission observes that each of these clearing 

organizations would be eligible to apply for 

registration as a DCO if the organization were 

interested in offering client clearing to U.S. 

customers. Exemptions from registration are 

conditioned on clearing only for U.S. proprietary 

accounts. 

generally reduce systemic risk in the 

swaps markets for the products subject 

to this determination. 

2. Comments Received Regarding Factor 

(III) 

Several comment letters agreed with 

the Commission’s conclusion that the 

clearing requirement would reduce 

systemic risk. Citadel commented that it 

believes that clearing reduces systemic 

risk by promoting open, efficient, and 

transparent markets and by reducing 

interconnectedness. In its comment 

letter, Citadel agreed with the 

Commission that central clearing does 

more to mitigate systemic risk than 

bilateral margining requirements. 

Citadel noted that unlike bilateral 

margining requirements, clearing 

eliminates the complex web of 

interconnected bilateral counterparty 

credit exposures. Citadel also 

commented that it believes that market 

participants benefit from the risk and 

default management frameworks that 

clearinghouses provide, including 

margin collection, end-of-day pricing, 

multilateral netting and compression, 

and a guaranty fund. 

SIFMA AMG commented that clearing 

promotes market integrity. Better 

Markets commented that increased 

clearing may reduce systemic risk 

because of a potential increase in the 

number of DCO-clearing members. LCH 

Group commented that its risk 

management framework is calibrated to 

the particular characteristics of the 

swaps covered by the NPRM. LCH 

Group commented further that it is 

capable of handling any increased risk 

that could result from the clearing 

requirement, including during stressed 

market conditions. 

The Commission received no other 

comments related to the effect of the 

expanded clearing requirement on the 

mitigation of systemic risk. 

For the reasons described above and 

in light of the comments received, the 

Commission reaffirms its conclusion, 

stated in the NPRM that CME, Eurex, 

LCH, and SGX would be able to manage 

the risks posed by clearing the 

additional swaps that will be required to 

be cleared by virtue of the expanded 

clearing requirement. In addition, the 

Commission believes that the required 

central clearing of the interest rate 

swaps subject to this rulemaking will 

serve to mitigate counterparty credit 

risk, and might increase the number of 

clearing members and market 

participants in these swaps, thereby 

potentially reducing systemic risk. 

Thus, the Commission has decided to 

expand the clearing requirement so that 

it includes the swaps subject to this 

rulemaking, which are referenced in 

revised regulation 50.4(a). 

d. Factor (IV)—Effect on Competition 

Section 2(h)(2)(D)(ii)(IV) of the CEA 

requires the Commission to take into 

account the effect on competition, 

including appropriate fees and charges 

applied to clearing. As discussed above, 

of particular concern to the Commission 

is whether this determination would 

harm competition by creating, 

enhancing, or entrenching market power 

in an affected product or service market, 

or facilitating the exercise of market 

power. Market power is viewed as the 

ability to raise prices, including clearing 

fees and charges, reduce output, 

diminish innovation, or otherwise harm 

customers as a result of diminished 

competitive constraints or incentives. 

1. Competition Analysis 

In the NPRM, the Commission 

identified one putative service market as 

potentially affected by this clearing 

requirement determination: A DCO 

service market encompassing those 

clearinghouses that currently clear, or 

could reasonably be expected to clear, 

the types of interest rate swaps subject 

to this rulemaking, i.e., CME, Eurex, 

LCH, and SGX. Without defining the 

precise contours of this market, the 

Commission recognizes that, depending 

on the interplay of several factors, this 

clearing requirement determination 

potentially could impact competition 

within the affected market.127 Several 

factors may influence whether any 

impact on competition is, overall, 

positive or negative. Of particular 

importance are: (1) Whether the demand 

for these clearing services and swaps is 

sufficiently elastic that a small but 

significant increase above competitive 

levels would prove unprofitable because 

users of the interest rate swaps and DCO 

clearing services would substitute other 

clearing services co-existing in the same 

market(s); and (2) the potential for new 

entry into this market. The availability 

of substitute clearing services to 

compete with those encompassed by 

this determination, and the likelihood of 

timely, sufficient new entry in the event 

that prices do increase above 

competitive levels, each operate 

independently to constrain 

anticompetitive behavior. 

Any competitive import from this 

determination likely would stem from 

the fact that it removes the alternative 

of not clearing for interest rate swaps 

subject to this rulemaking. On the other 

hand, this clearing requirement 

determination does not change who may 

or may not compete to provide clearing 

services for the interest rate swaps 

subject to this rulemaking (as well as 

those not required to be cleared). 

Removing the alternative of not 

clearing is not determinative of negative 

competitive impact. Other factors— 

including the availability of other 

substitutes within the market or 

potential for new entry into the 

market—may constrain market power. 

The Commission does not foresee that 

this determination constructs barriers 

that would deter or impede new entry 

into a clearing services market.128

Indeed, there is some basis to expect 

that the determination could foster an 

environment conducive to new entry. 

For example, this clearing requirement 

determination, and the prospect that 

more may follow, is likely to reinforce, 

if not encourage, growth in demand for 

clearing services. Demand growth, in 

turn, can enhance the sales opportunity, 

a condition hospitable to new entry.129

The Commission notes further, that 

while Eurex and SGX each clear only 

one of the interest rate swaps subject to 

this rulemaking, they are generally 

eligible to clear interest rate swaps 

under Commission regulation under 

§ 39.5(a) and may decide to add to their 

interest rate swap offerings in light of 

this rulemaking. 


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130See Citadel letter for further discussion of 

academic papers and possible cost savings. 

131FCMs provide their customers with access to 

DCOs in their capacity as DCO clearing members. 

132Commission regulation 1.3(y) defines 

proprietary account, and Commission regulation 

1.3(gggg) defines customer account. 

133Commission regulation 39.12(b)(6) requires a 

DCO to establish rules providing that upon 

acceptance of a swap for clearing, the original swap 

is extinguished and replaced by an equal and 

opposite swap between the DCO and each clearing 

member acting as principal for a house trade or 

acting as agent for a customer trade. This process 

extinguishes counterparty credit risk between the 

original executing counterparties. 

134See section V for additional discussion on the 

implications of clearing fees. In the aggregate 

clearing fees may go up, but clearing fees as 

measured by per unit cost may go down after the 

implementation of a new clearing requirement 

determination. 

2. Comments Received Regarding Factor 

(IV) 

Better Markets, Citadel, and MFA 

commented that the clearing 

requirement would have a positive 

effect on competition. According to both 

Citadel and Better Markets, central 

clearing of swaps generally increases the 

range of execution counterparties, 

increases liquidity and price 

competition, narrows bid-ask spreads, 

and improves access to best execution. 

Similarly, MFA commented that the 

clearing requirement would increase 

competition among potential trading 

counterparties and liquidity providers 

by reducing counterparty credit and 

operational risk and by allowing market 

participants to trade with a wider range 

of execution counterparties. Better 

Markets also commented that the 

clearing requirement could promote 

competition because it could remove 

barriers to entry to the market and 

suggested that the clearing requirement 

could enhance the ability of relatively 

small SDs and other relatively small 

swap participants to compete with 

larger dealers and participants. 

Citadel commented that by 

eliminating bilateral counterparty credit 

exposure and trading documentation, 

clearing can lead to market structure 

innovations such as trading solutions 

that allow investors to trade directly 

with one another instead of through 

intermediaries. 

Citadel also commented that clearing 

lowers execution costs in addition to 

increasing liquidity. Citadel cited 

academic research published in 2016 

indicating that the Commission’s 

existing IRS clearing requirement, 

together with trading reforms, have 

enabled swap market participants to 

save as much as $20 million to $40 

million per day, with between $7 

million and $13 million of the savings 

by market participants being attributed 

to market participants that do not act as 

dealers in the swaps market.130

Two commenters, JBA and Citadel, 

voiced contrasting views concerning the 

effects of only one DCO offering a swap 

subject to a clearing requirement. JBA 

stated that when only one DCO offers a 

swap for clearing, costs might increase 

for market participants to join that DCO 

or enter into new client clearing 

arrangements with clearing members of 

that DCO. JBA also commented that 

there may be lower liquidity for swaps 

newly offered at a particular DCO. 

By contrast, Citadel commented that 

the possibility of only one DCO offering 

to clear a particular swap would not 

have adverse effects because swap 

market participants generally prefer to 

clear swaps at one DCO instead of at 

multiple DCOs in order to reduce costs 

by maximizing netting, compression, 

and margin offsets. Citadel also 

commented that fees charged by FCMs, 

rather than fees charged by DCOs, are 

the major source of clearing costs.131

Moreover, according to Citadel, the fees 

charged by FCMs depend primarily on 

the portfolio the customer wishes to 

clear rather than on the number of DCOs 

offering to clear a particular swap. 

Finally, Citadel commented that the 

clearing requirement could lead a DCO 

or FCM to expand its clearing offerings 

because of the increased clearing 

volumes that may result from the 

clearing requirement. As more DCOs 

and/or FCMs enter the market or expand 

clearing offerings, price competition 

would increase and costs for customers 

would be expected to decrease. 

With regard to JBA’s comment, in 

light of the fact that there are only three 

swaps covered by the determination that 

are currently offered for clearing by 

solely one DCO (MXN-denominated 

fixed-to-floating interest rate swaps, 

currently offered for clearing only at 

CME; and AUD- and CAD-denominated 

OIS, currently offered for clearing only 

at LCH), and LCH and CME have 

indicated that they intend to begin 

offering to clear each of these swaps, 

respectively, before the end of 2016, the 

Commission believes that JBA’s 

competitive concerns about only one 

DCO offering a particular swap will be 

largely addressed. 

While not explicitly addressing the 

fourth factor under section 2(h)(2)(D)(ii) 

of the CEA, ISDA expressed concern 

about how the clearing requirement for 

AUD- and HKD-denominated interest 

rate swaps might affect competition due 

to the fact that the Commission 

exempted ASX and OTC Clearing Hong 

Kong from DCO registration, meaning 

that they may clear these swaps for U.S. 

proprietary accounts but not for U.S. 

customer accounts.132 As stated in note 

127 above, the Commission notes that 

these entities could apply to the 

Commission for DCO registration in 

order to clear for U.S. customer 

accounts should they decide to pursue 

that line of business at any time in the 

future. 

Citadel’s comments suggest that 

extinguishing bilateral counterparty 

credit exposure and eliminating 

complex bilateral trading 

documentation for swaps subject to a 

clearing requirement enables market 

participants to access a wider range of 

execution counterparties and 

encourages the entry of new liquidity 

providers.133 In Citadel’s view, 

competition among FCMs is more 

relevant to ensuring that the overall fees 

and charges applied to clearing are set 

at a reasonable level. In addition, the 

imposition of a clearing requirement 

may itself create the commercial 

rationale for another DCO or FCM to 

launch or expand its clearing offering. 

Under this view, price competition 

tends to increase, execution costs for 

investors and customers tend to 

decrease, and overall market liquidity 

would therefore improve for the swaps 

subject to the clearing requirement.134

For the reasons described above and 

in light of the comments received, the 

Commission concludes that it has 

considered the effect of the expanded 

clearing requirement on competition 

and found that it potentially could 

impact competition within the affected 

market, but anticompetitive behavior is 

likely to be constrained and demand for 

clearing services is expected to grow. 

Accordingly, the Commission reaffirms 

its conclusion stated in the NPRM that 

its consideration of competitiveness is 

sufficient to expand the clearing 

requirement to include the swaps 

subject to this rulemaking, which are 

referenced in revised regulation 50.4(a). 

e. Factor (V)—Legal Certainty in the 

Event of Insolvency 

Section 2(h)(2)(D)(ii)(V) of the CEA 

requires the Commission to take into 

account the existence of reasonable legal 

certainty in the event of the insolvency 

of the relevant DCO or one or more of 

its clearing members with regard to the 

treatment of customer and swap 

counterparty positions, funds, and 

property. The Commission is issuing 

this clearing requirement based on its 

view that, as stated in the NPRM, there 

is reasonable legal certainty with regard 

to the treatment of customer and swap 

counterparty positions, funds, and 

property in connection with cleared 


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135 In this case, the relevant DCOs are CME, LCH, 

and SGX. The Commission is not discussing Eurex 

in terms of this factor because Eurex’s DCO 

registration order does not currently permit Eurex 

to clear for customers. See Eurex DCO registration 

order, available at: http://www.cftc.gov/idc/groups/ 

public/@otherif/documents/ifdocs/orgdcoeurexclr

order212016.pdf. 

136The Commission observes that an FCM or 

DCO also may be subject to resolution under Title 

II of the Dodd-Frank Act to the extent it would 

qualify as a covered financial company (as defined 

in section 201(a)(8) of the Dodd-Frank Act). Under 

Title II, different rules would apply to the 

resolution of an FCM or DCO. Discussion in this 

section relating to what might occur in the event an 

FCM or DCO defaults or becomes insolvent 

describes procedures and powers that exist in the 

absence of a Title II receivership. 

137 If an FCM also is registered as a broker-dealer, 

certain issues related to its insolvency proceeding 

also would be governed by the Securities Investor 

Protection Act. 

138Claims seeking payment for the administration 

of customer property would share this priority. 

139The U.K. is bound by European Union 

legislation, including the Settlement Finality 

Directive (Council Directive 98/26/EC). The U.K.’s 

implementing legislation (The Financial Markets 

and Insolvency (Settlement Finality) Regulations 

1999) acts to disapply, in certain instances, national 

U.K. insolvency law in favor of the rules of a 

designated system, and LCH has been so 

designated. 

140Letters of counsel on file with the 

Commission. 

141Bank of England, Governor Mark Carney’s 

statement following EU referendum result (June 24, 

2016), available at: http://www.bankofengland.co.

uk/publications/Documents/news/2016/056.pdf. 

142U.K. Financial Conduct Authority, Statement 

on European Union referendum result (June 24, 

2016), available at: https://www.fca.org.uk/news/ 

european-union-referendum-result-statement. 

143Letter of counsel on file with the Commission. 

swaps, namely the fixed-to-floating 

interest rate swaps, basis swap, OIS, and 

FRAs subject to this determination, in 

the event of the insolvency of the 

relevant DCO or one or more of the 

DCO’s clearing members.135

1. Applicable Legal Regime—U.S. 

The Commission concludes that, in 

the case of a clearing member 

insolvency at CME, where the clearing 

member is the subject of a proceeding 

under the U.S. Bankruptcy Code, 

subchapter IV of Chapter 7 of the U.S. 

Bankruptcy Code (11 U.S.C. 761–767) 

and parts 22 and 190 of the 

Commission’s regulations would govern 

the treatment of customer positions.136

Pursuant to section 4d(f) of the CEA, a 

clearing member accepting funds from a 

customer to margin a cleared swap must 

be a registered FCM. Pursuant to 11 

U.S.C. 761–767 and part 190 of the 

Commission’s regulations, the 

customer’s interest rate swap positions, 

carried by the insolvent FCM, would be 

deemed ‘‘commodity contracts.’’ 137 As a 

result, neither a clearing member’s 

bankruptcy nor any order of a 

bankruptcy court could prevent CME 

from closing out/liquidating such 

positions. However, customers of 

clearing members would have priority 

over all other claimants with respect to 

customer funds that had been held by 

the defaulting clearing member to 

margin swaps, such as the interest rate 

swaps subject to this rulemaking.138

Thus, customer claims would have 

priority over proprietary claims and 

general creditor claims. Customer funds 

would be distributed to swap customers, 

including interest rate swap customers, 

in accordance with Commission 

regulations and section 766(h) of the 

Bankruptcy Code. Moreover, the 

Bankruptcy Code and the Commission’s 

rules thereunder (in particular 11 U.S.C. 

764(b) and 17 CFR 190.06) permit the 

transfer of customer positions and 

collateral to solvent clearing members. 

Similarly, 11 U.S.C. 761–767 and part 

190 would govern the bankruptcy of a 

DCO where the DCO is the subject of a 

proceeding under the U.S. Bankruptcy 

Code, in conjunction with DCO rules 

providing for the termination of 

outstanding contracts and/or return of 

remaining clearing member and 

customer property to clearing members. 

2. Applicable Legal Regime—U.K. 

With regard to LCH, the Commission 

understands that the default of a 

clearing member of LCH would be 

governed by LCH’s rules. LCH, a DCO 

based in the U.K., has represented that 

pursuant to European Union law, LCH’s 

rules would supersede English 

insolvency laws.139 Under its rules, LCH 

would be permitted to close out and/or 

transfer positions of a defaulting 

clearing member that is an FCM 

pursuant to the U.S. Bankruptcy Code 

and part 190 of the Commission’s 

regulations. According to LCH’s 

submission, the insolvency of LCH itself 

would be governed by English 

insolvency law, which protects the 

enforceability of the default-related 

provisions of LCH’s rulebook, including 

in respect of compliance with 

applicable provisions of the U.S. 

Bankruptcy Code and part 190 of the 

Commission’s regulations. LCH has 

obtained, and shared with the 

Commission, legal opinions that support 

the existence of such legal certainty in 

relation to the protection of customer 

and swap counterparty positions, funds, 

and property in the event of the 

insolvency of one or more of its clearing 

members.140

The Commission also considered the 

implications of the U.K.’s recent 

referendum vote to withdraw from the 

European Union. The terms of any such 

withdrawal cannot be known at this 

time. Negotiations have not begun, and 

the U.K. has not yet given notice under 

Article 50 of the Treaty on the European 

Union to begin the withdrawal process. 

Thus, there is no indication at this time 

that there will be changes to the U.K.’s 

financial regulation regime that is based 

on European Union law. On June 24, 

2016, the day after the vote, the Bank of 

England Governor Mark Carney 

indicated that the Bank of England’s 

responsibilities for monetary and 

financial stability were unchanged by 

the referendum’s result.141 In addition, 

the U.K.’s Financial Conduct Authority 

issued a statement confirming that U.K. 

financial regulation derived from 

European Union legislation would 

‘‘remain applicable until any changes 

are made.’’ 142

LCH has advised the Commission that 

it does not anticipate proposing any 

changes to its rulebook in light of the 

referendum, nor does it anticipate any 

changes to applicable law at this time. 

The Commission therefore expects 

LCH’s legal opinions related to 

insolvency to remain valid until further 

notice and expects that a default of a 

clearing member of LCH will continue 

to be governed by LCH’s rules. The 

Commission will continue to monitor 

developments related to the U.K. 

referendum. 

3. Applicable Legal Regime—Singapore 

With regard to SGX, the Commission 

understands that the default of an SGX 

clearing member, or SGX itself, would 

be governed by Singapore law, except 

for certain SGX rules relating to cleared 

swaps customer collateral, as part 22 of 

the Commission’s regulations defines 

that term, which are governed by U.S. 

law. Like LCH, SGX has obtained, and 

shared with the Commission, a legal 

opinion that support the existence of 

such legal certainty.143

4. Comments Received 

Better Markets and Citadel 

commented that they agree with the 

Commission that reasonable legal 

certainty exists in the event of an 

insolvency of a DCO or one or more of 

its clearing members with respect to the 

interest rate swaps covered by the 

NPRM. Citadel noted that the legal 

framework set forth in the CEA, the U.S. 

Bankruptcy Code, and Commission 

regulations applies equally to any swap 

cleared by a DCO. Citadel believes that 

the implementation of the Dodd-Frank 

Act has strengthened this legal 

framework. The Commission received 

no other comments related to legal 

certainty in the event of insolvency. 


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144See also discussion of JBA’s comment in 

section II.B.iii. 

145First Clearing Requirement Determination, 77 

FR at 74320. See also further discussion of this 

issue in the cost benefit consideration section 

below. 

146The Commission’s analysis and data used to 

support its assessment of each of the five factors is 

discussed in section II.B.iii. 

147 It is also possible that some market 

participants would respond to the new clearing 

requirement by decreasing their use of such swaps. 

See also the discussion in section V.B.ii. 

148BIS data refers to interest rate derivatives 

transactions, which include forward rate 

agreements, interest rate swaps, and interest rate 

options. For the purposes of this discussion on BIS 

data, the Commission uses the term ‘‘interest rate 

derivatives’’ because that is the terminology used by 

BIS to describe the interest rate swaps market. A 

description of the instruments included in the BIS’ 

Triennial Survey results is included in the BIS 

Triennial Bank Survey, OTC interest rate 

derivatives turnover in April 2013: preliminary 

global results (Sept. 2013), at 14, available at http:// 

www.bis.org/publ/rpfx13ir.pdf. 

149 ISDA requested data based on ‘‘jurisdiction’’ 

and the BIS reports its data by ‘‘country.’’ For 

purposes of this analysis and discussion, the terms 

‘‘country’’ and ‘‘jurisdiction’’ can be understood to 

mean the same thing. Furthermore, a market for a 

swap denominated in a particular currency can be 

understood to include both trading in the home 

country for that currency and trading outside of the 

home country for that currency. 

For the reasons described above and 

in light of the comments received, the 

Commission reaffirms its conclusion 

stated in the NPRM that reasonable legal 

certainty exists in the event of the 

insolvency of each of the relevant DCOs 

or one or more of their clearing 

members with regard to the treatment of 

customer and swap counterparty 

positions, funds, and property to 

expand the clearing requirement so that 

it includes the swaps subject to this 

rulemaking, which are referenced in 

revised regulation 50.4(a). 

C. Generally Applicable Comments 

The Commission received a number 

of generally applicable comments that 

are separated into three broad topics for 

discussion below: (i) Access to DCOs, 

(ii) additional data considered by the 

Commission in response to ISDA’s 

request, and (iii) the Commission’s trade 

execution requirement. 

i. Access to DCOs 

JBA raised concerns about possibly 

needing to establish a clearing 

relationship with a new DCO in order to 

comply with the proposed expanded 

clearing requirement.144 In light of the 

fact that there are only three swaps 

covered by the determination that 

currently are offered for clearing by 

solely one DCO (MXN-denominated 

fixed-to-floating interest rate swaps, 

currently offered for clearing only at 

CME; and AUD- and CAD-denominated 

OIS, currently offered for clearing only 

at LCH), and LCH and CME have 

indicated that they intend to begin 

offering to clear each of these swaps, 

respectively, before the end of 2016, the 

Commission believes that JBA’s 

concerns about a swap market 

participant having to establish a new 

clearing arrangement even if the 

participant already has a clearing 

arrangement in place at CME or LCH 

will be largely addressed. For certain 

products, if market participants do not 

have clearing arrangements in place at 

CME or LCH, they may need to establish 

a new clearing arrangement (either as a 

clearing member or as a customer of a 

clearing member) at one of those DCOs. 

CME Group raised concerns about 

market participants being able to 

establish an account with a clearing 

member. In response to comments about 

access to DCOs, the Commission notes, 

as it did in the First Clearing 

Requirement Determination, that any 

market participant may petition for 

relief under Commission regulation 

140.99 if the entity is unable to find an 

FCM to clear its swaps or if it needs 

additional time to complete requisite 

documentation.145

ii. Additional Data Considered by the 

Commission 

One commenter, ISDA, raised an issue 

about the type of data and analysis 

included in the NPRM. In its comment 

letter, ISDA said that based on the data 

presented in the NPRM, ‘‘it is difficult 

to determine the impact that the 

[clearing requirement expansion] would 

have on market participants,’’ 

particularly for ‘‘market participants in 

an individual jurisdiction.’’ ISDA 

requested data on (1) the volume of 

transactions entered into by entities 

subject to the CFTC’s new clearing 

requirement that currently enter into 

swaps subject to this rulemaking on an 

uncleared basis, and (2) the percentage 

of each swap subject to this rulemaking 

that is cleared voluntarily, on a 

jurisdiction-by-jurisdiction basis. 

The Commission notes that ISDA’s 

suggested data analysis is not 

specifically required under the five 

statutory factors that the Commission 

must consider when making a clearing 

requirement determination, as outlined 

in sections 2(h)(2)(D)(ii)(I)–(V) of the 

CEA.146 Furthermore, the Commission 

observes that it is difficult to determine 

with precision, at this point in time, 

what effect a new, expanded clearing 

requirement will have on market 

participants because some may choose 

to clear their transactions for the riskreducing benefits of clearing, regardless 

of whether the Commission adopts a 

new clearing requirement for such 

swaps.147 Nonetheless, the Commission 

considered relevant, publicly available 

data and conducted an analysis in order 

to address, and respond to, the concerns 

expressed in ISDA’s comment letter. 

This data and analysis is described 

below. 

a. Data Analysis 

Recognizing that the interest rate 

swaps market is global and market 

participants are interconnected, the 

Commission reviewed worldwide data 

collected in the BIS triennial central 

bank survey for interest rate 

derivatives 148 to consider further the 

effect that the expanded clearing 

requirement could have on market 

participants (data from this survey also 

is presented in Table 5 above). Table 16 

shows the daily average turnover of 

OTC single currency interest rate 

derivatives, in each of the nine 

additional currencies, by currency and 

by country.149


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150BIS Triennial Central Bank Survey, Interest 

Rate Derivatives Market Turnover in 2013, Tables 

3.1–3.6 (Dec. 2013), available at: http:// 

www.bis.org/publ/rpfxf13irt.pdf; CFTC staff 

calculations. 

151 Data as of April 2013. BIS converted the 

figures to USD. 

152Commission staff calculated percentages 

reflected in column B and rows E, G, and H. 

153The Commission notes that similar BIS data 

was presented in ESMA’s Consultation Paper on the 

Clearing Obligation under EMIR (no.4), at 26, 

available at: https://www.esma.europa.eu/sites/ 

default/files/library/2015/11/esma-2015-807_-_

consultation_paper_no_4_on_the_clearing_

obligation_irs_2.pdf. 

154Based on the same data from the BIS Triennial 

Central Bank Survey, Interest Rate Derivatives 

Market Turnover in 2013, the following represent 

percentages of turnover for each of the currencies 

that were subject to the Commission’s First Clearing 

Requirement Determination: Turnover of USDdenominated interest rate derivatives represented 

86.96% of the U.S. market; turnover of EURdenominated interest rate derivatives represented 

4.31% of the U.S. market; turnover of GBPdenominated interest rate derivatives represented 

0.50% of the U.S. market; and turnover of JPYdenominated interest rate derivatives represented 

0.69% of the U.S. market. 

In addition to the data on a 

jurisdiction-by-jurisdiction basis, Table 

16 includes calculations by Commission 

staff 152 presented in order to convey the 

relative amount of swaps activity taking 

place in each jurisdiction, as compared 

to other jurisdictions and the U.S.153 As 

this BIS data demonstrates, the turnover 

in each of the nine additional currencies 

represents a small percentage of the 

overall interest rate derivatives turnover 

in the U.S. market, especially as 

compared with the USD-denominated 

swaps subject to the First Clearing 

Requirement Determination.154 The data 

also shows that for most of these 

currencies, a significant percentage of 

the activity in the derivatives 

denominated in a particular currency 

occurs in the home country that issues 

that currency. 

According to Row E in Table 16, 

anywhere from 18% to 70% of the 

interest rate derivatives denominated in 

a particular currency are transacted in 

the home country that issued the 

currency. The percentage of activity that 

occurs in the home country supports the 

decision made by each domestic 

authority to establish a clearing mandate 

for particular interest rate swaps 

denominated in that currency. But in 

each case, there also is measurable 

trading activity taking place outside of 

the home country jurisdiction. 

In terms of which market participants 

are trading in particular markets, the 

BIS data available does not categorize 

the daily average turnover by 

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155For example, daily average turnover in MXNdenominated interest rate derivatives in the U.S. 

represented only 1.44% of the daily average 

turnover of all interest rate derivatives in the U.S. 

during April 2013 but represented 74% of the 

MXN-denominated interest rate derivatives market 

globally. 

156See, e.g., Report of the OTC Derivatives 

Regulators Group (ODRG) to G20 Leaders on CrossBorder Implementation Issues, November 2015, 

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

@internationalaffairs/documents/file/odrg

reportg20_1115.pdf (‘‘ODRG members previously 

agreed to a framework for consulting one another 

on mandatory clearing determinations, with the aim 

of harmonizing mandatory clearing determinations 

across jurisdictions to the extent practicable and as 

appropriate, subject to jurisdictions’ determination 

procedures. Inconsistent clearing mandates across 

jurisdictions may create the potential for regulatory 

arbitrage. ODRG members are considering ways to 

enhance the existing framework for such 

cooperation.’’) 

157See section V.C.ii for a discussion about the 

costs related to collateralization of cleared swaps 

positions compared to the costs of complying with 

the uncleared swap margin regulations. 

158Pursuant to section 2(h)(8) of the CEA, once 

a swap is subject to a Commission-issued clearing 

requirement, then a market participant must 

execute the swap on a SEF or DCM, if a SEF or DCM 

makes the swap available to trade (‘‘made-availableto-trade’’). The Commission issued regulations 

37.10 and 38.12 to implement the trade execution 

requirement. 

159 Interpretive Guidance and Policy Statement 

Regarding Compliance with Certain Swap 

Regulations, 78 FR 45292 (July 26, 2013). 

160 81 FR at 39516, n. 66. 

161First Clearing Requirement Determination, 77 

FR 74284 (Dec. 13, 2012). 

162 Id. 

U.S. market participants. As a result, the 

Commission cannot estimate precisely 

what portion of these transactions 

would be subject to this clearing 

requirement determination based on the 

BIS data. However, the estimated overall 

percentage of activity in the U.S. is 

shown in Rows G and H. In April 2013, 

the interest rate derivatives 

denominated in the currencies subject 

to this rulemaking represented between 

0.02% and 2.84% of the total U.S.-based 

interest rate derivatives market (i.e., the 

amount of daily average turnover that 

BIS estimated was taking place in the 

U.S.). The Commission recognizes that 

the interest rate derivatives transacted 

in the nine additional currencies do not 

represent a large percentage of the 

overall U.S. market for interest rate 

swaps, but the levels transacted are 

significant in the specific market for 

each currency.155

b. Policy Considerations 

Foreign jurisdictions have expressed 

concern that potential market 

dislocation and competitive 

disadvantage may result if there is no 

U.S. clearing requirement covering the 

same swaps that are mandated to be 

cleared by non-U.S. jurisdictions. This 

concern is driven by the fact that a 

market participant’s choice in 

counterparty may be influenced by the 

existence or absence of a clearing 

requirement. Similarly, from the U.S. 

perspective, distortion of market 

participants’ choices could be 

competitively detrimental to the extent 

that U.S. market participants are subject 

to a clearing requirement under U.S. 

law, but their competitors in a foreign 

jurisdiction are not. Recognizing this 

concern, international authorities agreed 

to harmonize clearing mandates across 

jurisdictions to the extent practicable 

and as appropriate.156

Another variable that likely is 

affecting decisions made by both U.S. 

and non-U.S. market participants vis-a`- 

vis central clearing is the imposition of 

margin for uncleared swaps. The new 

uncleared margin regulations began 

phasing in on September 1, 2016.157 To 

the extent that market participants have 

a choice of counterparties, and perceive 

the costs of maintaining uncleared 

transactions to be lower than the costs 

of clearing, market participants may 

choose to transact with counterparties 

that are not subject to mandatory 

clearing. Conversely, if market 

participants view the costs of clearing as 

less than the costs of margining their 

uncleared swaps then there will be an 

incentive to clear regardless of whether 

it is required under CFTC regulations or 

not. 

The Commission cannot predict 

exactly how market participants will be 

affected by the implementation of an 

analogous clearing requirement in the 

U.S., particularly in the current 

environment where multiple, changing 

factors, including new margin 

requirements, may influence a market 

participant’s decision about whether to 

clear a swap. The Commission and its 

staff are committed to monitoring 

market activity in order to assess the 

impact of its regulations on market 

behavior. In its ongoing work, the 

Commission intends to rely on publicly 

available data, such as the forthcoming 

BIS triennial survey, as well as the data 

market participants report to SDRs 

under part 45 of the Commission’s 

regulations. 

iii. Trade Execution Requirement 

Three comment letters discussed the 

possibility of a trade execution 

requirement concerning some or all of 

the interest rate swaps subject to this 

rulemaking.158 ISDA expressed concern 

that an expanded clearing requirement 

could lead to new trade execution 

requirements for swaps that have 

limited liquidity. Consequently, ISDA 

urged the Commission to take any 

available steps to ensure that a trade 

execution requirement applies only to 

swaps with sufficient trading liquidity. 

Finally, ISDA expressed particular 

concern about the interpretation of the 

term ‘‘U.S. person’’ described in the 

Commission’s cross-border guidance 

concerning swaps regulations,159 which 

ISDA asserted could lead to a 

potentially detrimental impact on 

trading liquidity outside the U.S., 

including possible market 

fragmentation. 

SIFMA AMG commented that the 

Commission should temporarily 

suspend acceptance of ‘‘made-availableto-trade’’ submissions, under 

Commission regulations 37.10 and 

38.12, for swaps covered by the 

expanded clearing requirement until 

amendments to the made-available-totrade process have been adopted. 

SIFMA AMG provided five specific 

comments on how the made-availableto-trade regulations should be amended. 

Finally, Citadel commented that the 

Commission should proceed with 

finalizing the expanded clearing 

requirement despite the ongoing 

discussions regarding a revised madeavailable-to-trade process. 

As the Commission stated in the 

NPRM, pursuant to section 2(h)(8) of the 

CEA and Commission regulations 37.10 

and 38.12, a trade execution 

requirement could, in the future, apply 

to some or all of the interest rate swaps 

covered by this rulemaking.160 The 

process for determining which swaps 

are subject to the trade execution 

requirement is separate from the 

clearing requirement determination 

process. Therefore, it is beyond the 

scope of this rulemaking for the 

Commission to address the suitability of 

particular swaps for a trade execution 

requirement or to address issues related 

to the ‘‘made-available-to-trade’’ 

process. 

III. Expanded and Amended Regulation 

50.4(a) 

The Commission promulgated 

regulation 50.4 in 2012 when it issued 

the First Clearing Requirement 

Determination, which applied to certain 

interest rate swaps and credit default 

swaps.161 Regulation 50.4 sets forth the 

basic specifications of the classes of 

swaps that the Commission requires to 

be cleared in order to allow 

counterparties contemplating entering 

into a swap to quickly determine 

whether or not the particular swap may 

be subject to a clearing requirement.162

Paragraph (a) of regulation 50.4 sets 

forth the four classes of interest rate 


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163See discussion of clearing requirements in 

other jurisdictions in section I.C. 

164 ‘‘TIIE’’ refers to the Mexican interbank 

equilibrium interest rate. 

165 In this final rulemaking, regulation 50.4(a) is 

amended to specify the ‘‘TIIE–BANXICO’’ rate 

instead of ‘‘TIIE,’’ as was proposed in the NPRM. 

CME’s regulation 39.5(b) submission specified the 

‘‘TIIE–BANXICO’’ rate. LCH’s offering in MXNdenominated fixed-to-floating swaps will reference 

this same rate. The Commission observes that 

‘‘TIIE’’ and ‘‘TIIE–BANXICO’’ both refer to the same 

rate; ‘‘BANXICO’’ simply refers to the Banco de 

Mexico, which calculates the ‘‘TIIE.’’ 166Asigna is not a Commission-registered DCO, 

and the Commission has not exempted Asigna from 

registration under section 5b(h) of the CEA. 167Section 2(h)(7) of the CEA. 

168See Commission regulation 50.5(b) (exempting 

from required clearing those swaps that are entered 

into after July 21, 2010 (the enactment date of the 

Dodd-Frank Act) but ‘‘before the application of the 

clearing requirement for a particular class of swaps 

under §§ 50.2 and 50.4 of this part’’). See also 

implementation schedule described in section IV. 

swaps that are currently required to be 

cleared. 

For the reasons discussed above, the 

Commission has decided to expand 

regulation 50.4(a) as proposed, with the 

exception of not adopting a requirement 

to clear AUD-denominated FRAs. Thus 

the Commission is adopting 

amendments to regulation 50.4(a) as 

follows: (i) Adding fixed-to-floating 

interest rate swaps denominated in the 

nine additional currencies; (ii) adding 

AUD-denominated basis swaps; (iii) 

adding NOK-, PLN-, and SEKdenominated FRAs; (iv) changing the 

maximum stated termination date for 

USD-, GBP-, and EUR-denominated OIS 

to three years from two years; and (v) 

adding AUD- and CAD-denominated 

OIS. The specifications of the swaps set 

forth in revised regulation 50.4(a) are 

consistent with those that are the 

subject of clearing requirements 

proposed or issued by other 

jurisdictions.163

In its comment letter, Scotiabank 

suggested that four of the specifications 

in proposed regulation 50.4(a) 

describing MXN-denominated fixed-tofloating interest rate swaps should be 

finalized differently from the 

specifications proposed. For the reasons 

described below, the Commission has 

decided to finalize the specifications as 

proposed. 

First, Scotiabank suggested that the 

floating rate index should be described 

as ‘‘TIIE 28’’ instead of ‘‘TIIE’’ 164

because the Mexican clearing 

requirement covers swaps referencing 

the 28-day average Mexican interbank 

interest rate. The Commission agrees 

that ‘‘TIIE 28’’ is the rate referenced in 

the Mexican clearing requirement, and 

it is also the rate to which amended 

regulation 50.4(a) is intended to refer. 

The Commission understands that (1) 

the 28-day average is the rate referenced 

by the MXN-denominated fixed-tofloating interest rate swaps accepted for 

clearing at CME; and (2) the 28-day 

average is the rate specified in the MXNdenominated fixed-to-floating interest 

rate swaps that will be offered for 

clearing at LCH. Therefore, the 

Commission intends for ‘‘TIIE– 

BANXICO’’ in amended regulation 

50.4(a) to refer to the 28-day TIIE.165

However, the Commission is opting to 

finalize the description of that rate 

without specifying the particular 

version of floating rates because it has 

not done so with regard to the other 

rates referenced in regulation 50.4(a), 

such as 3-month LIBOR or 6-month 

LIBOR. 

Second, Scotiabank commented that 

the maximum termination date range for 

MXN-denominated fixed-to-floating 

interest rate swaps covered by expanded 

regulation 50.4(a) should be 30 years in 

order to match the exact product 

specifications of the Mexican clearing 

requirement, instead of 21 years, as the 

Commission proposed. The Commission 

notes that CME, the only registered DCO 

currently offering to clear these swaps, 

offers to clear swaps having a maximum 

term of 21 years. Therefore, the 

Commission is finalizing the 

termination date range as proposed. 

Third, Scotiabank suggested that 

MXN-denominated fixed-to-floating 

interest rate swaps subject to the 

Commission’s clearing requirement 

should cover only swaps having 

notional amounts in multiples of MXN 

100,000 because Asigna, a Mexican 

clearinghouse, offers to clear only swaps 

having such notional amounts.166

However, because CME’s product 

specifications do not limit clearing 

MXN-denominated fixed-to-floating 

interest rate swaps to notional amounts 

in multiples of MXN 100,000, the 

Commission does not believe that it is 

necessary to limit regulation 50.4(a) in 

this manner. 

Fourth, Scotiabank suggested that the 

MXN-denominated fixed-to-floating 

interest rate swaps subject to the 

Commission’s clearing requirement 

should contain an exception for 

counterparties having ‘‘low net 

exposure,’’ in order to match the 

Mexican clearing requirement. As an 

initial matter, section 2(h) of the CEA 

defines the participant scope of the 

Commission’s clearing requirement: All 

swap market participants are expected 

to comply with a Commission-issued 

clearing requirement, except for certain 

non-financial end-users.167 The 

Commission has implemented this 

statutory exception, along with other 

limited exemptions, in subpart C of part 

50. This statutory and regulatory 

framework does not contemplate 

exclusions based on level of market 

activity, and the Commission believes it 

would not be appropriate to deviate 

from this framework for the MXNdenominated fixed-to-floating interest 

rate swaps subject to this rulemaking. 

In their comment letters, JBA and 

Scotiabank requested confirmation that 

a market participant subject to the 

expanded clearing requirement would 

be required to clear swaps subject to this 

final rulemaking that are executed on or 

after the effective date of the final 

rulemaking, but not be required to 

backload swaps executed prior to that 

date. In response to this comment, the 

Commission confirms, as it did in the 

First Clearing Requirement 

Determination, that market participants 

will not be required to clear swaps 

subject to this rulemaking that are 

executed prior to the effective date of 

this final rulemaking.168 In addition, the 

Commission will not require the 

backloading of swaps subject to this 

rulemaking that are executed after the 

effective date but before the applicable 

compliance date for this final 

rulemaking. 

IV. Implementation Schedule 

In the NPRM, the Commission stated 

that it did not intend to rely upon its 

schedule for phasing-in the clearing 

requirement by market participant type, 

as codified in Commission regulation 

50.25 and relied upon for the First 

Clearing Requirement Determination. 

The Commission further proposed two 

alternative methods for establishing a 

CFTC clearing requirement compliance 

date. 

The Commission received comments 

on four aspects of the overall proposed 

implementation schedule. First, 

commenters discussed whether the 

Commission should offer a compliance 

date phase-in by market participant 

type. The Commission addresses these 

comments in section IV.A below. 

Second, commenters discussed whether 

the Commission should adopt a single 

compliance date for all products subject 

to this determination, or whether the 

Commission should adopt compliance 

dates based on the effective date of a 

non-U.S. jurisdiction’s clearing 

mandate. The Commission addresses 

these comments in section IV.B below. 

Third, commenters requested 

clarifications on a number of discrete 

points related to the implementation 

schedule. The Commission addresses 

these comments in section IV.C below. 

Finally, commenters discussed whether 


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169See Swap Transaction Compliance and 

Implementation Schedule: Clearing Requirement 

Under Section 2(h) of the CEA, 77 FR 44441 (July 

30, 2012), [hereinafter referred to as the 

Implementation Release]. 170 In the Implementation Release, the 

Commission stated that the ‘‘use of the schedule 

contained in this [release] is at the Commission’s 

discretion; in situations where the Commission 

determines that the benefits of delayed 

implementation do not justify the additional costs 

of such a delay, the Commission may require 

immediate compliance. . . .’’ 77 FR 44441, 44450 

(July 30, 2012). 

171First Clearing Requirement Determination, 77 

FR at 74320 and n.172. 

172Commission regulation 140.99 sets forth the 

process for addressing requests for exemptive, noaction, and interpretative letters. 

the Commission should change the 

scope of its clearing requirement to 

match the categories of market 

participants that are required to clear 

the products under a non-U.S. 

jurisdiction’s clearing requirement. The 

Commission addresses these comments 

in section IV.D below. 

A. No Compliance Date Phase-In by 

Type of Market Participant 

The Commission proposed adopting 

one compliance date for all market 

participant types, rather than rely on the 

phase-in schedule codified in regulation 

50.25.169 The Commission has decided 

that because many market participants 

are currently clearing the products 

subject to this determination and 

because the Commission previously 

adopted a clearing requirement 

determination for the class of interest 

rate swaps subject to this final 

rulemaking, there is no need to phasein the compliance dates by type of 

market participant.170 A number of 

commenters agreed with the 

Commission’s position and advocated 

for a compliance date without a phasein by market participant type. 

i. Comments Received 

MFA supported the Commission’s 

proposal not to phase-in the compliance 

date by market participant type and 

agreed that market participants are 

ready, willing, and able to clear the 

swaps subject to this rulemaking. 

Citadel agreed with the Commission’s 

position that the phase-in by 

counterparty type is not necessary. 

Citadel pointed out that because market 

participants, in most cases, have 

established clearing arrangements with 

DCOs and are familiar with the process 

of central clearing, there is no need to 

delay compliance dates by including a 

phase-in by market participant type. 

LCH Group commented that while the 

use of a compliance date phase-in by 

market participant type was successful 

in connection with the Commission’s 

First Clearing Requirement 

Determination, it would not be equally 

beneficial in this context. 

Of the two commenters that requested 

a compliance date phase-in by market 

participant type, one thought that 

market participants would be unable to 

comply with the clearing requirement in 

the time frame established. ISDA urged 

the Commission to adopt an 

implementation schedule that 

incorporates the 270-day phase-in 

schedule outlined in Commission 

regulation 50.25. ISDA expressed 

concern about the consequences for 

entities that currently may not be 

subject to an analogous clearing 

mandate outside of the U.S. in terms of 

addressing legal, documentation, 

operational, and other considerations. 

SIFMA AMG also recommended that 

the Commission use a phase-in schedule 

by market participant type, but did not 

specify a reason for this 

recommendation. 

The Commission recognizes that the 

compliance date phase-in by market 

participant type was beneficial in the 

context of the First Clearing 

Requirement Determination. However, 

because market participants are 

experienced in clearing USD, EUR, GBP, 

and/or JPY-denominated interest rate 

swaps and there is a substantial amount 

of voluntary clearing activity in the 

swaps subject to this rulemaking, the 

Commission has decided that there is no 

need to phase-in the compliance dates 

for this clearing requirement by market 

participant type in accordance with 

regulation 50.25 or otherwise. 

Regulation 50.25 provides the 

Commission with the discretion to 

phase in compliance. Regulation 

50.25(b) provides that upon issuing a 

clearing requirement determination 

under section 2(h)(2) of the CEA, the 

Commission may determine, based on 

the group, category, type, or class of 

swaps subject to such determination, 

that the specified schedule for 

compliance with the requirements of 

section 2(h)(1)(A) of the CEA shall 

apply. 

A broad cross-section of market 

participants, including both direct 

clearing members and their clients or 

customers, has experience clearing the 

four classes of interest rate swaps under 

regulation 50.4(a) and has been clearing 

certain swaps subject to this final 

rulemaking on a voluntary basis. The 

Commission believes that most market 

participants that would be subject to the 

expanded clearing requirement already 

clear, or have clearing service 

arrangements in place to clear, the types 

of interest rate swaps subject to the 

existing clearing requirement. The 

Commission does not expect that these 

types of market participants, for the 

most part, would need to establish 

connectivity to DCOs, document new 

client clearing arrangements, or 

otherwise prepare themselves and/or 

their customers in order to comply with 

this clearing requirement determination 

as they may have needed to do in order 

to comply with the First Clearing 

Requirement Determination. The 

Commission will consider carefully any 

concerns raised by market participants 

that cannot gain access to a DCO in 

order to clear swaps subject to this 

rulemaking before an applicable 

compliance date. 

The Commission received similar 

comments concerning the difficulty 

market participants may have in 

accessing DCOs and establishing 

relationships with FCMs at the time it 

was considering the First Clearing 

Requirement Determination. In response 

to those comments, the Commission 

noted that ‘‘any market participant may 

petition for relief under regulation 

140.99 if that entity is unable to find an 

FCM to clear its swaps or if it needs 

additional time to complete requisite 

documentation.’’ 171 If a market 

participant is unable to find an FCM to 

clear its swaps, the Commission 

reaffirms the fact that market 

participants may petition for relief 

under regulation 140.99.172

B. Compliance Date Tied to a Non-U.S. 

Jurisdiction Clearing Requirement 

The Commission proposed two 

alternative implementation scenarios in 

the NPRM. Under the first scenario, all 

swaps subject to this rulemaking would 

be required to be cleared on the same 

date—60 days after the final rulemaking 

is published in the Federal Register 

(Scenario I). Under the second scenario, 

the compliance date for each swap 

product would be the earlier of: (a) 60 

days after the effective date of an 

analogous clearing mandate adopted by 

a regulator in a non-U.S. jurisdiction, 

provided that such requirement would 

not be effective until at least 60 days 

after the Commission’s final rule is 

published in the Federal Register, and 

(b) two years after the Commission’s 

final rule is published in the Federal 

Register (Scenario II). 

After reviewing comments on the two 

implementation scenarios proposed, the 

Commission has determined that it will 

adopt Scenario II and will tie the 

CFTC’s compliance date for each 

product to the first compliance date for 

a market participant in a non-U.S. 

jurisdiction. 


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173The Commission is clarifying the language in 

this final release to specify that the 60-day time 

period will be measured in calendar days; however, 

the Commission’s clearing requirement will begin 

only on the next available business day. See 

Projected Compliance Dates in section IV.E. This 

change was made in response to one commenter’s 

request to the Commission to clarify whether the 

60-day delay (between the date on which a non-U.S. 

jurisdiction’s clearing requirement takes effect and 

the date that compliance will be required with the 

Commission’s clearing requirement) is measured in 

calendar days or business days. See Scotiabank 

letter. 

174See also the discussion in section IV.A. 

i. Comments Received 

The Commission received eight 

comments on whether to implement 

Scenario I or Scenario II. MFA 

supported Scenario I because it would 

allow the Commission to move forward 

promptly with expanding the clearing 

requirement for the products subject to 

this determination. MFA noted that 

Scenario II was a reasonable option, but 

preferred Scenario I. Citadel stated that 

Scenario I was realistic and concluded 

that most market participants were 

prepared for the clearing requirement 

and had infrastructure in place to 

comply. Scenario I received support for 

its simple application and because it 

would bring the clearing requirement 

into force for certain products more 

quickly than under Scenario II. While 

the Commission agrees with these 

points, and notes that Scenario I would 

provide market participants with 

certainty and simplicity, it has decided 

to adopt Scenario II. 

To the extent practicable, the 

Commission believes it is important to 

account for non-U.S. jurisdictions’ 

timelines for mandating clearing when 

imposing a compliance date for U.S. 

market participants. The 

implementation schedule under 

Scenario II will provide flexibility for 

market participants, will facilitate 

compliance by phasing-in the clearing 

requirement by specific product, and 

will further the Commission’s goals of 

harmonizing clearing requirements with 

those abroad. 

Six commenters supported adoption 

of implementation Scenario II. JBA 

requested that the Commission adopt 

Scenario II in order to promote market 

liquidity and stability and to harmonize 

with clearing requirements issued by 

non-U.S. jurisdictions. ASX advocated 

for the Commission to adopt Scenario II 

to minimize any potential disruptions 

caused by differences in 

implementation timing of clearing 

mandates across jurisdictions. ISDA 

preferred Scenario II on the grounds that 

it would promote global harmonization 

and is consistent with maximizing 

liquidity and reducing risk. SIFMA 

AMG recommended Scenario II because 

it would further the Commission’s 

efforts to harmonize with other 

jurisdictions. LCH Group agreed with 

the Commission that Scenario II would 

provide flexibility and certainty and 

would foster further international 

harmonization of adoption of clearing 

requirements. Finally, CME Group 

stated that the Commission should work 

cooperatively with regulators in other 

jurisdictions and that it supports the 

extension of the Commission’s clearing 

requirement determination where it is 

necessary for global harmonization. 

The Commission has determined that 

Scenario II will be used to determine 

compliance dates for market 

participants subject to the Commission’s 

clearing requirements (hereinafter 

referred to as the Implementation 

Schedule). Thus, the Commission’s 

clearing requirement compliance date 

for each interest rate swap product 

covered by this determination will be 

the earlier of: (i) The first date that U.S. 

markets are open 60 calendar days after 

any person is first required to comply 

with an analogous clearing requirement 

that has been adopted by a regulator in 

a non-U.S. jurisdiction, provided that 

any such date for any swap covered by 

the final rule shall not be earlier than 

the date which is 60 calendar days after 

the Commission’s final rule is 

published, or (ii) the first date U.S. 

markets are open two years after the 

Commission’s final rule is published in 

the Federal Register. If the clearing 

requirement compliance date falls on a 

Saturday, Sunday, or U.S. federal public 

holiday, the compliance date shall be 

the next available business day. No 

compliance date shall be set on a day 

when markets are not open in the U.S. 

C. Clarifications to the Implementation 

Schedule 

A number of commenters raised 

questions about details in the 

Commission’s proposed implementation 

schedule, as it was described in the 

NPRM. The Commission responds 

below to each of the comments and 

provides clarifications to the 

Implementation Schedule, as 

appropriate. 

i. Comments Received—60-Day Delay 

SIFMA AMG suggested that the 

Commission extend the time period that 

will elapse between a non-U.S. 

jurisdiction adopting a clearing mandate 

and the Commission’s implementation 

of a compliance date for swaps subject 

to amended regulation 50.4(a). 

Specifically, SIFMA AMG 

recommended that the Commission wait 

180 days after an effective date in a nonU.S. jurisdiction before requiring 

compliance with this final rulemaking. 

The Commission has considered the 

timeframe necessary for U.S. market 

participants to prepare for, and comply 

with, a clearing requirement for the 

swaps subject to this determination and 

decided that 60 calendar days will 

provide enough time for U.S. market 

participants to comply.173 As noted 

above, the Commission does not expect 

market participants to need significant, 

additional time to prepare for this 

expansion of the clearing requirement 

because a number of market participants 

clear these products already and/or are 

familiar with clearing other interest rate 

swaps products.174

ii. Comments Received—Effective Date 

is the First Date Upon Which a Product 

is Required to be Cleared 

Citadel asked the Commission to 

clarify how the Commission would 

establish the ‘‘effective date’’ in a nonU.S. jurisdiction, which is used to 

determine the CFTC compliance date. 

Citadel pointed out that when a nonU.S. jurisdiction’s uses of a phased-in 

compliance schedule it could create 

ambiguity if the Commission’s rule is 

not clarified. 

The Commission recognizes that the 

term ‘‘effective date’’ can have a 

different meaning in different 

jurisdictions based on local law and 

procedure. Therefore, the Commission 

is clarifying that the CFTC’s clearing 

requirement will be based on the first 

date upon which any person in the nonU.S. jurisdiction is initially subject to a 

clearing mandate for new trades, i.e., 

any front-loading or back-loading 

requirements if they take effect earlier 

would not be relevant for purposes of 

the Implementation Schedule. 

iii. Comments Received—Two-Year 

Time Limit 

As proposed in the NPRM, Scenario II 

included a two-year time limit 

providing that compliance with the 

expanded clearing requirement would 

be required no later than two years after 

the final rule is published in the Federal 

Register. The Commission received five 

comment letters related to Scenario II’s 

two-year time limit and certainty 

regarding compliance dates. 

MFA commented that, while it 

preferred Scenario I, Scenario II was a 

reasonable option because the 

Commission included a two-year time 

limit. In its comment letter, Citadel 

recognized the importance of retaining 

the two-year time limit and noted that 

‘‘it is important to retain an outer bound 


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175Section I.C. contains a more detailed 

discussion of the regulatory regimes and 

compliance dates for mandatory clearing of these 

products adopted by non-U.S. regulators. 

of two years for when the final 

Commission rule may become effective 

in order to provide certainty to market 

participants regarding implementation.’’ 

LCH Group supported Scenario II 

because ‘‘this approach provides 

flexibility and certainty . . . [that] . . . 

will foster further international 

harmonization in the adoption of 

clearing requirements.’’ 

SIFMA AMG recommended that the 

Commission revise its proposed 

implementation schedule to remove the 

‘‘proviso’’ that would cause an 

automatic effective date no later than 

two years after the date that the final 

rulemaking is published in the Federal 

Register. SIFMA AMG expressed 

concern based on the idea that ‘‘clearing 

mandates [are] being imposed on U.S. 

market participants in the name of 

harmonization when there is ultimately 

no foreign clearing mandate with which 

to harmonize.’’ JBA noted that some 

uncertainty would remain even with a 

schedule that implements all clearing 

requirements no later than two years 

after publication, unless non-U.S. 

regulators align their regulatory actions 

with the Commission’s implementation 

schedule. 

The Commission observes that since 

the publication of the NPRM, significant 

progress has been made with regard to 

the status of clearing requirements in 

almost all non-U.S. jurisdictions 

relevant to this rulemaking. Five of the 

seven jurisdictions have established 

compliance dates for their market 

participants to begin clearing pursuant 

to their analogous clearing mandates. 

Only Singapore and Switzerland have 

not yet finalized their clearing mandates 

and set compliance dates. 

In order to assure market participants 

that there will be a date certain by 

which they will be required to comply 

with the clearing requirement for these 

swaps, particularly for the SGDdenominated fixed-to-floating and CHFdenominated fixed-to-floating interest 

rate swaps, the Commission has decided 

to retain the two-year time limit in the 

Implementation Schedule. In reaching 

this conclusion, the Commission is 

cognizant of its obligations to provide 

legal certainty under applicable 

statutory procedures. The Commission 

also recognizes the importance of 

providing market participants with 

certainty about compliance dates so that 

they can begin operational planning and 

preparation for required clearing of all 

swaps subject to this final rulemaking. 

To the extent that market participants 

need adequate time to onboard clients 

and establish connectivity to eligible 

DCOs, retaining the two-year time limit 

is important. 

In finalizing this rulemaking, the 

Commission seeks to balance flexibility 

with certainty in its Implementation 

Schedule. In the event that Singapore 

and Switzerland do not finalize their 

clearing mandates and set compliance 

dates within the two-year time limit, the 

Commission and Commission staff 

would be open to considering options 

for modifying the compliance deadline 

as necessary and appropriate. 

D. Scope of Entities Subject to the 

Implementation Schedule 

The Commission received a number 

of comments that requested an analysis 

of the scope of entities subject to the 

non-U.S. jurisdiction’s clearing 

requirement and consideration of 

whether the entities subject to the 

CFTC’s clearing requirement were 

‘‘analogous.’’ ASX suggested that the 

CFTC’s assessment of analogous 

clearing requirements in non-U.S. 

jurisdictions should include an analysis 

of the classes of counterparties that are 

subject to such clearing requirements. 

Scotiabank asked the Commission to 

consider the fact that the Banco de 

Me ́xico’s regulations contain an 

exception from the clearing mandate for 

entities with low net derivatives 

exposure. And ISDA pointed out that 

the scope of entities subject to a nonU.S. clearing mandate may be narrower 

than the scope of market participants 

subject to the Commission’s clearing 

requirement rules under part 50. 

By contrast, in its comment letter, 

Citadel cautioned that if the 

Commission were to adopt rules that 

incorporated the entity scope of each 

non-U.S. jurisdiction’s clearing 

mandate, the U.S. framework would 

‘‘become a confusing patchwork of 

foreign regulation, compelling U.S. 

market participants to apply different 

criteria on a currency-by-currency basis 

to determine whether (and when) they 

are in-scope.’’ 

As discussed above, section 2(h)(7) of 

the CEA sets forth the participant scope 

for the clearing requirement: It shall be 

unlawful for any person not to clear a 

swap if that swap is required to be 

cleared, except if one of the 

counterparties to the swap meets certain 

conditions enumerated in section 

2(h)(7) of the CEA. The Commission has 

implemented the statutory exception 

under section 2(h)(7), along with other 

limited exemptions, in subpart C of part 

50 of the Commission’s regulations. 

Based on this statutory and regulatory 

framework as well as its consideration 

of the comments presented, the 

Commission confirms that this final 

rulemaking applies to the same scope of 

market participants to which 

Commission regulation 50.4(a) currently 

applies. 

E. Projected Compliance Dates 

The Commission has been 

monitoring, and will continue to follow 

closely, clearing mandate developments 

in other jurisdictions that relate to this 

clearing requirement determination. As 

discussed above, the Commission’s 

clearing requirement compliance date is 

specific to each product and will be 

calculated by following the 

Implementation Schedule presented 

herein. With respect to products that do 

not yet have a compliance date set for 

an analogous clearing mandate in a nonU.S. jurisdiction, the Commission is 

including the date that is two years after 

the date of publication in the Federal 

Register. If a non-U.S. jurisdiction 

modifies any existing initial clearing 

requirement compliance date, or adopts 

a clearing requirement for either the 

CHF-denominated fixed-to-floating 

interest rate swaps or the SGDdenominated fixed-to-floating interest 

rate swaps that would require a CFTC 

compliance date for a market participant 

earlier than two years after the 

publication date in the Federal Register, 

then the Commission staff will publish 

a press release on the CFTC’s Web site 

setting forth the Commission’s clearing 

requirement compliance date for the 

relevant interest rate swaps in advance 

of the date upon which compliance will 

be required. 

Below is a chart identifying the 

projected compliance date for each of 

the products subject to this 

determination. 


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176Section 2(h)(2)(D) of the CEA. 

177Commission regulation 39.5(b)(3)(ii). 

Product 

First clearing 

requirement compliance 

date in a non-U.S. 

jurisdiction 175

CFTC clearing requirement compliance date 

AUD-denominated Fixed-to-floating interest rate swap.April 4, 2016 ...................... 60 days after publication of this final rulemaking in the Federal Register. 

CAD-denominated Fixed-to-floating interest rate swap.May 9, 2017 ...................... July 10, 2017. 

CHF-denominated Fixed-to-floating interest rate swap.None to date ..................... No later than 730 days after publication of this final rulemaking in the 

Federal Register. 

HKD-denominated Fixed-to-floating interest rate swap.July 1, 2017 ...................... August 30, 2017. 

MXN-denominated Fixed-to-floating interest rate swap.April 1, 2016 ...................... 60 days after publication of this final rulemaking in the Federal Register. 

NOK-denominated Fixed-to-floating interest rate swap.February 9, 2017 .............. April 10, 2017. 

PLN-denominated Fixed-to-floating interest rate swap.February 9, 2017 .............. April 10, 2017. 

SEK-denominated Fixed-to-floating interest rate swap.February 9, 2017 .............. April 10, 2017. 

SGD-denominated Fixed-to-floating interest rate swap.None to date ..................... No later than 730 days after publication of this final rulemaking in the 

Federal Register. 

AUD-denominated basis swap .............. April 4, 2016 ...................... 60 days after publication of this final rulemaking in the Federal Register. 

NOK-denominated FRA ........................ February 9, 2017 .............. April 10, 2017. 

PLN-denominated FRA ......................... February 9, 2017 .............. April 10, 2017. 

SEK-denominated FRA ......................... February 9, 2017 .............. April 10, 2017. 

EUR-denominated OIS (2–3 year term) June 21, 2016 ................... 60 days after publication of this final rulemaking in the Federal Register. 

GBP-denominated OIS (2–3 year term) June 21, 2016 ................... 60 days after publication of this final rulemaking in the Federal Register. 

USD-denominated OIS (2–3 year term) June 21, 2016 ................... 60 days after publication of this final rulemaking in the Federal Register. 

AUD-denominated OIS ......................... October 3, 2016 ................ 60 days after publication of this final rulemaking in the Federal Register. 

CAD-denominated OIS ......................... May 9, 2017 ...................... July 10, 2017. 

V. Cost Benefit Considerations 

A. Statutory and Regulatory Background 

Expanded Commission regulation 

50.4(a) identifies certain swaps that 

would be required to be cleared under 

section 2(h)(1)(A) of the CEA in addition 

to those currently required to be cleared 

by existing regulations 50.2 and 50.4(a). 

This clearing requirement determination 

is designed to standardize and reduce 

counterparty risk associated with swaps, 

and in turn, mitigate the potential 

systemic impact of such risks and 

reduce the likelihood for swaps to cause 

or exacerbate instability in the financial 

system. As stated in the NPRM, the 

Commission believes this determination 

is consistent with one of the 

fundamental premises of the DoddFrank Act and the 2009 commitments 

adopted by the G20 nations: The use of 

central clearing can reduce systemic 

risk. 

Regulation 39.5 provides an outline 

for the Commission’s review of swaps 

for required clearing. Regulation 39.5 

allows the Commission to review swaps 

submitted by DCOs. Under section 

2(h)(2)(D) of the CEA, in reviewing 

swaps for a clearing requirement 

determination, the Commission must 

take into account the following factors: 

(1) Significant outstanding notional 

exposures, trading liquidity and 

adequate pricing data; (2) the 

availability of rule framework, capacity, 

operational expertise and credit support 

infrastructure to clear the contract on 

terms that are consistent with the 

material terms and trading conventions 

on which the contract is then traded; (3) 

the effect on the mitigation of systemic 

risk; (4) the effect on competition; and 

(5) the existence of reasonable legal 

certainty in the event of the insolvency 

of the DCO or one or more of its clearing 

members.176 Regulation 39.5 also directs 

DCOs to provide to the Commission 

other information, such as product 

specifications, participant eligibility 

standards, pricing sources, risk 

management procedures, a description 

of the manner in which the DCO has 

provided notice of the submission to its 

members and any additional 

information requested by the 

Commission.177 This information is 

designed to assist the Commission in 

identifying those swaps that are 

required to be cleared. 

The following discussion is a 

consideration of the costs and benefits 

of the Commission’s action in this 

rulemaking, pursuant to the regulatory 

requirements above. The Commission 

exercises its discretion under section 

2(h)(2)(D) of the CEA to determine 

whether swaps that are submitted for a 

clearing requirement determination are 

required to be cleared. 

B. Overview of Swap Clearing 

i. How Clearing Reduces Risk 

When a bilateral swap is cleared, the 

DCO becomes the counterparty to each 

original counterparty to the swap. This 

arrangement mitigates counterparty 

credit risk because the DCO: (1) 

Monitors and mitigates the risk of a 

counterparty default; (2) collects 

sufficient initial margin to cover 

potential future exposures and regularly 

collects and pays variation margin to 

cover current exposures; (3) facilitates 

netting within portfolios of swaps and 

among counterparties; and (4) holds 

collateral in a guaranty fund in order to 

mutualize the remaining tail risk not 

covered by initial margin contributions 

among clearing members. Central 

clearing mitigates the 

interconnectedness among swap market 

participants, insofar as, upon 

acceptance of a swap for clearing, a DCO 

becomes the new counterparty to each 

of the original counterparties and 

guarantees performance on the contract. 

Moreover, DCOs are independent third 

parties that are subject to regulatory 

oversight—including, among other 

things, financial resources requirements 

and risk management requirements. 

Accordingly, from the perspective of 

market participants, DCOs pose 

significantly less counterparty credit 

risk than their original counterparties. 


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178See CME Group comment letter of Sept. 16, 

2013 in response the Commission’s notice of 

proposed rulemaking concerning DCOs and 

International Standards, 78 FR 50260 (Aug. 16, 

2013). The CME Group comment letter is available 

on the Commission’s Web site at: http://

comments.cftc.gov/PublicComments/ 

CommentList.aspx?id=1391. 

179 It is also possible that some market 

participants would respond to the rule’s 

requirement that certain interest rate swaps be 

cleared by decreasing their use of such swaps. This 

possibility contributes to the uncertainty regarding 

how the determination will affect the quantity of 

swaps that are cleared. 

180According to Citadel’s description of academic 

research, ‘‘the implementation of the Commission’s 

clearing and trading reforms in the USD interest 

rate swap market led to a significant improvement 

in liquidity and a significant reduction in execution 

costs.’’ (citations omitted). This comment from 

Citadel also is discussed in the Commission’s 

analysis of the fourth factor under section 2(h)(2)(D) 

in section II.B.iii. 

DCOs have demonstrated resilience in 

the face of past market stress. DCOs 

remained financially sound and 

effectively settled positions in the midst 

of turbulent financial conditions in 

2007–2008 that threatened the financial 

health and stability of many other types 

of entities. 

The Commission believes that central 

clearing through DCOs will continue to 

mitigate systemic risk because DCOs 

have numerous risk management tools 

available that are effective in monitoring 

and managing counterparty credit risk. 

These tools include the contractual right 

to: (1) Collect initial and variation 

margin associated with outstanding 

swap positions; (2) mark positions to 

market regularly, usually multiple times 

per day, and issue margin calls 

whenever the margin in a clearing 

member’s or customer’s account has 

dropped below predetermined levels set 

by the DCO; (3) adjust the amount of 

margin that is required to be held 

against swap positions in light of 

changing market circumstances, such as 

increased volatility in the underlying 

product; and (4) close out the swap 

positions of a clearing member or 

customer that does not meet margin 

calls within a specified period of time. 

Moreover, in the event that a clearing 

member defaults on its obligations to 

the DCO, the DCO has numerous 

remedies available to manage risk, 

including transferring the swap 

positions of the defaulted member to 

another clearing member, and covering 

any losses that may have accrued with 

the defaulting member’s margin on 

deposit. In order to transfer the swap 

positions of a defaulting member and 

manage the risk of those positions, the 

DCO has the ability to take a number of 

steps, including: (1) Hedge the portfolio 

of positions of the defaulting member to 

limit future losses; (2) partition the 

portfolio into smaller pieces; and (3) 

auction off the pieces of the portfolio, 

together with their corresponding 

hedges, to other members of the DCO. In 

order to cover the losses associated with 

such a default, the DCO would typically 

draw from: (1) The initial margin posted 

by the defaulting member; (2) the 

guaranty fund contribution of the 

defaulting member; (3) the DCO’s own 

capital contribution; (4) the guaranty 

fund contributions of non-defaulting 

members; and (5) an assessment on the 

non-defaulting members. These 

mutualized risk mitigation capabilities 

are largely unique to clearinghouses and 

help to ensure that they remain solvent 

and creditworthy swap counterparties 

even when clearing members default or 

there are stressed market circumstances. 

ii. The Clearing Requirement and Role 

of the Commission 

With the passage of the Dodd-Frank 

Act, Congress gave the Commission the 

responsibility for determining which 

swaps would be required to be cleared 

pursuant to section 2(h)(1)(A) of the 

CEA. Therefore, the costs and benefits 

associated with a clearing requirement 

are attributable to both the CEA, as 

amended by the Dodd-Frank Act, and 

the Commission acting in accordance 

with the CEA. As a result, it is difficult 

to distinguish between the costs 

associated with the Dodd-Frank Act 

itself, and the costs associated with the 

Commission exercising the authority 

granted to it by the Dodd-Frank Act. 

There also is evidence that the 

interest rate swaps market has been 

migrating into clearing for many years 

in response to market incentives, in 

anticipation of the Dodd-Frank Act’s 

clearing requirement, and as a result of 

the First Clearing Requirement 

Determination. This shift can be seen in 

the volumes of interest rate swaps 

currently being cleared by CME and 

LCH, the two DCOs that submitted a 

significant portion of the information 

contained in the NPRM as well as this 

determination. The open notional value 

of interest rate swaps cleared at CME 

has increased from approximately $2.2 

trillion to over $5.5 trillion between 

June 10, 2013 and September 10, 2013, 

two implementation dates for the First 

Clearing Requirement Determination.178

Because the volume of interest rate 

swaps being cleared also has increased 

voluntarily, it is impossible to precisely 

determine the extent to which any 

increased use of clearing would result 

from statutory or regulatory 

requirements, as compared to the desire 

of swap market participants to clear 

swaps for the risk-mitigating benefits.179

For these reasons, the Commission 

has determined that the costs and 

benefits related to the required clearing 

of the interest rate swaps subject to this 

rulemaking are attributable, in part to 

(1) Congress’s stated goal of reducing 

systemic risk by, among other things, 

requiring clearing of swaps and (2) the 

Commission’s exercise of its discretion 

in selecting swaps or classes of swaps to 

achieve those ends. The Commission 

will discuss the costs and benefits of the 

overall move from voluntary clearing to 

required clearing for the swaps subject 

to this rulemaking below. 

In the NPRM, the Commission 

requested comment concerning its 

assumption that a shift towards clearing 

may be due to the Dodd-Frank Act’s 

general clearing requirement or other 

motivations including independent 

business reasons and incentives from 

other regulators, such as prudential 

authorities. While no commenter 

answered this question directly, Citadel 

suggested that a shift towards clearing 

may be due to cost savings attributable 

to clearing swaps at central 

counterparties.180

C. Consideration of the Costs and 

Benefits of the Commission’s Action 

i. CEA Section 15(a) 

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. Section 

15(a) further specifies that the costs and 

benefits shall be evaluated in light of the 

following five broad areas of market and 

public concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness and 

financial integrity; (3) price discovery; 

(4) sound risk management practices; 

and (5) other public interest 

considerations (collectively referred to 

herein as the Section 15(a) Factors). 

Accordingly, the Commission considers 

the costs and benefits associated with 

the clearing requirement determination 

in light of the Section 15(a) Factors. 

The Commission notes that the 

consideration of costs and benefits 

below is based on the understanding 

that the markets function 

internationally, with many transactions 

involving U.S. firms taking place across 

international boundaries; with some 

Commission registrants being organized 

outside of the United States; with 

industry members typically conducting 

operations both within and outside the 

United States; and with industry 

members commonly following 

substantially similar business practices 

wherever located. Where the 


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181The Commission’s margin requirements for 

uncleared swaps are codified in subpart E of part 

23 of the Commission’s regulations. The prudential 

regulators also established minimum margin and 

capital requirements for certain registered SDs, 

MSPs, security-based swap dealers, and major 

security-based swap participants in November 

2015. 182See discussion of JBA’s comment in section 

II.A. In its comment letter, CME Group also 

generally expressed concern about participants 

being able to access cleared markets in light of 

capital considerations arising from the calculation 

of leverage ratio. 

183See discussion of Citadel’s comment letter in 

sections II.B.iii.d and V.B. 

184The Commission does not have current 

information regarding such fees. In the NPRM and 

in the First Clearing Requirement Determination (77 

FR 74284 at 74324), the Commission noted that it 

had been estimated that it would cost smaller 

financial institutions between $2,500 and $25,000 

to review and negotiate legal agreements to 

establish a new business relationship with an FCM 

(citing comment letters from Chatham Financial 

and Webster Bank submitted to the Commission in 

2012 in response to the Commission’s request for 

comment concerning the cost benefit analysis 

regarding a potential clearing exception for certain 

small financial institutions under the end-user 

exception, available at: http://comments.cftc.gov/ 

PublicComments/ViewComment.aspx?id=58077 

and http://comments.cftc.gov/PublicComments/ 

ViewComment.aspx?id=58076). The Commission 

received no new information from commenters 

regarding the costs of establishing a clearing 

relationship. 

Commission does not specifically refer 

to matters of location, the below 

discussion of costs and benefits refers to 

the effects of the final rules on all 

activity subject to the amended 

regulations, whether by virtue of the 

activity’s physical location in the 

United States or by virtue of the 

activity’s connection with or effect on 

U.S. commerce under section 2(i) of the 

CEA. 

As stated above, the Commission 

received 10 comment letters following 

publication of the NPRM, seven of 

which supported the proposed 

determination. Some commenters 

generally addressed the costs and 

benefits of the current rule. 

In the sections that follow, the 

Commission considers: (1) The costs 

and benefits of required clearing for the 

swaps subject to this clearing 

requirement determination; (2) the 

alternatives contemplated by the 

Commission and their costs and 

benefits; and (3) the impact of required 

clearing for the swaps subject to this 

final rulemaking and listed in expanded 

regulation 50.4(a) in light of the Section 

15(a) Factors. 

ii. Costs and Benefits of Required 

Clearing Under the Final Rule 

Market participants may incur certain 

costs in order to clear the interest rate 

swaps included in this adopting release. 

For example, market participants that 

are not already clearing interest rate 

swaps either voluntarily or pursuant to 

the First Clearing Requirement 

Determination may incur certain startup 

and ongoing costs related to developing 

technology and infrastructure, updating 

or creating new legal agreements, 

service provider fees, and 

collateralization of the cleared 

positions. The per-entity costs described 

above are likely to vary widely 

depending on the needs of each market 

participant. Such costs likely will be 

lower for the market participants that 

have experience clearing the interest 

rate swaps covered by the First Clearing 

Requirement Determination and/or that 

have been clearing the interest rate 

swaps subject to this clearing 

requirement determination on a 

voluntary basis. The opposite likely 

would be true for market participants 

that must begin clearing because of this 

expanded determination. Although 

these market participants may have 

otherwise incurred costs associated with 

margining their uncleared swaps with 

bilateral counterparties, as well as 

incurring other costs associated with 

bilateral uncleared swaps, such as 

startup or ongoing costs related to 

developing technology and 

infrastructure, and updating or creating 

new legal agreements related to their 

uncleared swaps positions. Moreover, 

operational costs for these market 

participants would increase based on 

the number of different counterparties 

with whom they enter into uncleared 

swaps. The overall costs of 

collateralization are likely to vary 

depending on whether or not an entity 

is subject to the new margin 

requirements for uncleared swaps,181

whether or not an entity is subject to 

capital requirements, and the 

differential between the cost of capital 

for the assets they use as collateral, and 

the returns realized on those assets. 

Market participants that would begin 

clearing the interest rate swaps subject 

to this rulemaking also will obtain the 

benefits associated with clearing. These 

benefits include reduced and 

standardized counterparty risk, 

increased transparency, and easier 

access to the swap markets. Together, 

these benefits will contribute 

significantly to the stability and 

efficiency of the financial system. 

However, these benefits are difficult to 

quantify with any degree of precision, 

and market participants already clearing 

these swaps already realize the benefits 

of clearing. 

In the NPRM, the Commission 

requested comment concerning the costs 

of clearing, including from both U.S. 

and non-U.S. swap counterparties that 

may be affected by the determination. 

The Commission also requested 

comment as to the benefits that market 

participants could realize as a result of 

the proposed rule. JBA generally 

commented that it was opposed to the 

proposed determination because rising 

costs incurred by clearing brokers, due 

to capital leverage requirements, for 

example, have decreased the number of 

available clearing brokers.182 By 

contrast, as mentioned above, Citadel 

suggested that the clearing requirement 

would create cost savings for market 

participants because central clearing, 

together with execution of swaps on 

SEFs, has brought down costs 

significantly.183

a. Technology, Infrastructure, and Legal 

Costs 

Market participants already clearing 

their swaps may incur costs in making 

necessary changes to technology 

systems to support the clearing required 

by the final rule. Market participants 

that are not currently clearing swaps 

may incur costs if they need to 

implement middleware technology to 

connect to FCMs that will clear their 

transactions. Similarly, legal costs will 

vary depending on the extent to which 

a market participant is already clearing 

swaps. The Commission does not have 

the information necessary to determine 

either the costs associated with entities 

that need to establish relationships with 

one or more FCMs or the costs 

associated with entities that already 

have relationships with one or more 

FCMs but need to revise their 

agreements.184 The costs are likely to 

depend on the specific business needs 

of each entity and would therefore vary 

widely among market participants. As a 

general matter, the Commission would 

expect that most market participants 

already will have undertaken the steps 

necessary to accommodate the clearing 

of required swaps based on the First 

Clearing Requirement Determination 

and that the burden associated with 

these additional interest rate swaps 

should be lessened. 

In the NPRM, the Commission 

requested comment, including any 

quantifiable data and analysis, on the 

changes that market participants will 

have to make to their technological and 

legal infrastructures in order to clear the 

interest rate swaps that would be subject 

to the expanded clearing requirement. 

JBA commented that swap market 

participants may incur costs as a result 

of having to become a clearing member 

of a new DCO, or enter into a new client 

clearing relationship with a DCO 

clearing member, if there is only one 

DCO offering to clear a particular swap 


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185See also discussion of JBA’s comment in the 

Commission’s analysis of the fourth factor under 

section 2(h)(2)(D) in section II.B.iii. 

186 Id. 

187See also discussion of Citadel’s comment in 

the Commission’s analysis of the fourth factor 

under section 2(h)(2)(D) in section II.B.iii. 

188LCH and Eurex their fees schedules on their 

Web sites, available at: http://www.lch.com/assetclasses/otc-interest-rate-derivatives/fees and http://

www.eurexclearing.com/clearing-en/marketsservices/eurex-otc-clear/about-eurex-otc-clear. 

189The Commission does not have current 

information regarding such fees. In the NPRM and 

in the First Clearing Requirement Determination (77 

FR 74284 at 74325), the Commission noted that 

customers that occasionally transact in swaps are 

typically required to pay a monthly or annual fee 

to each FCM that ranges from $75,000 to $125,000 

per year (citing comment letters from Chatham 

Financial and Webster Bank). The Commission 

received no new information from commenters 

regarding these costs. 

190FCMs provide their customers with access to 

DCOs in their capacity as DCO-clearing members. 

191See Consultation Paper: On the clearing 

obligation for financial counterparties with a 

limited volume of activity, Jul. 13, 2016, available 

at: https://www.esma.europa.eu/press-news/ 

consultations/consultation-clearing-obligationfinancial-counterparties-limited-volume. 

192 Id. at 9. 

193See Section 2(h)(7) of the CEA and subpart C 

of part 50 of the Commission’s regulations. 

194 In particular, ESMA’s consultation focuses on 

financial counterparties, and certain investment 

funds that qualify as non-financial counterparties, 

that satisfy the threshold level of derivatives 

activity (e.g., a gross notional value of EUR 3 billion 

for interest rate derivatives contracts) but have an 

outstanding gross notional amount of derivatives 

below EUR 8 billion for a particular point in time. 

195First Clearing Requirement Determination, 77 

FR at 74320. 

subject to the determination, and the 

swap market participant is not already 

a clearing member, or customer of a 

clearing member, of that DCO.185 As the 

Commission noted above, in light of the 

fact that there are three swaps covered 

by the determination that are currently 

offered for clearing by only one DCO 

(MXN-denominated fixed-to-floating 

interest rate swaps, currently offered for 

clearing only at CME; and AUD- and 

CAD-denominated OIS, currently 

offered for clearing only at LCH), and 

LCH and CME have indicated that they 

intend to begin offering to clear each of 

these swaps, respectively, before the 

end of 2016, the Commission believes 

that JBA’s concerns about a swap market 

participant having to establish a new 

clearing arrangement even if the 

participant already has a clearing 

arrangement in place at CME or LCH 

will be largely addressed.186 Moreover, 

Citadel commented that swap market 

participants generally prefer to clear 

swaps at one DCO instead of at multiple 

DCOs in order to reduce costs by 

maximizing netting, compression, and 

margin offsets.187

b. Ongoing Costs Related to FCMs and 

Other Service Providers 

In addition to costs associated with 

technological and legal infrastructures, 

market participants transacting in swaps 

subject to the expanded clearing 

requirement will face ongoing costs 

associated with fees charged by FCMs. 

DCOs typically charge each FCM an 

initial transaction fee for each cleared 

interest rate swap its customers enter, as 

well as an annual maintenance fee for 

each open position. CME, LCH, Eurex, 

and SGX offer a variety of fee schedules 

for clearing interest rate swaps. In 

general, the schedules depend on the 

length of a swap’s term, the number of 

swaps cleared per year, and/or a 

clearing member’s initial margin 

requirement at the DCO. For example, at 

LCH and Eurex, different fee schedules 

are available depending on whether a 

clearing member is clearing for its 

proprietary account or for a customer 

account.188 In the case of customer 

clearing, fees are generally charged to 

the clearing member, not the customer. 

The Commission understands that 

FCMs generally pass onto their 

customers the fees that they have been 

charged by the DCO. In addition, as 

noted in the NPRM, the Commission 

understands that customers that 

occasionally transact in swaps are 

typically required by their FCMs to pay 

a monthly or annual fee to each FCM.189

As discussed above, it is difficult to 

predict precisely how the requirement 

to clear the additional swaps covered by 

this final rulemaking will increase the 

use of swap clearing, as compared to the 

use of clearing that would occur in the 

absence of the requirement. The 

Commission expects that the expanded 

clearing requirement generally will 

increase the use of clearing, leading in 

most cases to an incremental increase in 

the clearing fees noted above. However, 

while total clearing fees may increase, it 

may nonetheless be the case that total 

costs come down due to offsetting 

benefits. For instance, market 

competition could cause swap prices to 

decrease, and market participants may 

realize benefits due to netting, 

compression, offsets, and portfolio 

margining. The Commission expects 

that most market participants already 

will have undertaken the steps 

necessary to accommodate the clearing 

of required swaps, and that the burden 

associated with the additional interest 

rate swaps should be lessened. 

In response to the NPRM, Citadel 

commented that fees charged by FCMs, 

rather than fees charged by DCOs, are 

the major source of clearing costs.190

Moreover, according to Citadel, the fees 

charged by FCMs depend primarily on 

the portfolio the customer wishes to 

clear rather than on the number of DCOs 

offering to clear a particular swap. 

Citadel also commented that the 

clearing requirement could lead a DCO 

or FCM to expand its clearing offerings 

because of the increased clearing 

volumes that may result from the 

clearing requirement. 

Finally, CME Group generally 

expressed concern about market 

participants being able to access 

clearinghouses due to the general 

reduction in clearing members’ 

‘‘appetite to provide clearing services 

for smaller firms.’’ CME Group 

referenced an ESMA consultation paper 

proposing a postponement of the 

implementation of its clearing mandate 

on such smaller market participants. 

The Commission is aware that ESMA 

released a consultation paper on July 13, 

2016, requesting comments on a 

proposal to extend the phase-in period 

for the clearing obligation for 

counterparties in a third category under 

the European Union’s clearing 

regime.191 ESMA acknowledges that the 

participant scope of Europe’s clearing 

obligation regulation is different than in 

most other jurisdictions because the 

underlying legislation (EMIR) does not 

contain the same types of exemptions 

from mandatory clearing for 

counterparties with limited activity.192

The Commission’s statutory authority 

under Dodd-Frank contains certain 

enumerated exceptions and exemptions 

from the clearing requirement.193 In 

light of the fact that there are 

counterparties that qualify for an 

exception or exemption from the CFTC’s 

clearing requirement, the Commission 

does not face the same policy 

considerations as its European 

counterparts with regard to certain 

entities under EMIR.194 As noted above, 

in response to CME Group’s comment, 

the Commission reiterates, that any 

market participant may petition for 

relief under Commission regulation 

140.99 if the entity is unable to find an 

FCM to clear its swaps or if it needs 

additional time to complete requisite 

documentation.195

c. Costs Related to Collateralization of 

Cleared Swap Positions 

Market participants that enter into the 

interest rate swaps subject to the 

amended rule will be required to post 

initial margin at a DCO. The 

Commission understands that some of 

the swaps subject to this rulemaking are 

currently being cleared on a voluntary 


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196See Clarus Newsletter by Chris Barnes (June 

14, 2016) available at: https://www.clarusft.com/ 

the-cftcs-new-clearing-mandate-2016/ (discussing 

the NPRM, its data, and the percentage of the 

interest rate swap market already cleared on a 

voluntary basis). 

197The Commission used part 45 Data to make 

these estimates based on swap activity occurring 

during the second quarter of 2015. Like the part 43 

Data referenced above, part 45 Data includes swaps 

entered into by U.S. persons as well as by certain 

non-U.S. persons. See Interpretive Guidance and 

Policy Statement Regarding Compliance With 

Certain Swap Regulations, 78 FR 45292, 45368–69 

(July 26, 2013). The data set used for Table 17 does 

not include swaps entered into by affiliated 

counterparties. Data from the third and fourth 

quarters of 2015 were used to calculate the 

estimates for EUR-, GBP-, and USD-denominated 

OIS with terms of two to three years. Data from 

January 2016 was used to calculate the estimates for 

AUD- and CAD-denominated OIS. 

198The Commission is not including margin data 

from Eurex for purposes of this calculation because 

it does not affect the overall percentages 

significantly. 

199The Commission made these calculations 

using the following formula: 

X/Y¥X. 

X = Current value of margin on deposit at DCOs 

for an interest rate swap denominated in a 

particular currency. 

Y = Percentage of the market for that swap that 

is currently cleared. This same methodology was 

used in the First Clearing Requirement 

Determination as a rough proxy for estimating the 

total costs of required clearing in terms of initial 

margin. As discussed above, commission risk 

surveillance staff has sophisticated tools for 

assessing risk-based margin methodologies and 

coverage levels. 

basis.196 In the NPRM, the Commission 

published the following estimates. 

TABLE 17—PART 45 DATA—ESTIMATED PERCENTAGES OF THE INTEREST RATE SWAP MARKET CLEARED VOLUNTARILY

[Second Quarter 2015] 197

Product Percentage of 

market cleared 

AUD-denominated fixed-to-floating interest rate swap .................................................................................................................. 65 

CAD-denominated fixed-to-floating interest rate swap .................................................................................................................. 72 

CHF-denominated fixed-to-floating interest rate swap .................................................................................................................. 83 

HKD-denominated fixed-to-floating interest rate swap .................................................................................................................. 49 

MXN-denominated fixed-to-floating interest rate swap ................................................................................................................. 25 

NOK-denominated fixed-to-floating interest rate swap ................................................................................................................. 40 

PLN-denominated fixed-to-floating interest rate swap .................................................................................................................. 66 

SEK-denominated fixed-to-floating interest rate swap .................................................................................................................. 45 

SGD-denominated fixed-to-floating interest rate swap ................................................................................................................. 24 

AUD-denominated basis swap ...................................................................................................................................................... 28 

NOK-denominated FRA ................................................................................................................................................................. 94 

PLN-denominated FRA .................................................................................................................................................................. 32 

SEK-denominated FRA ................................................................................................................................................................. 25 

EUR-denominated OIS (2–3 year term) ........................................................................................................................................ 100 

GBP-denominated OIS (2–3 year term) ........................................................................................................................................ 100 

USD-denominated OIS (2–3 year term) ........................................................................................................................................ 100 

AUD-denominated OIS .................................................................................................................................................................. 18 

CAD-denominated OIS .................................................................................................................................................................. 88 

With information provided by CME, 

LCH, and SGX,198 the Commission has 

estimated the amounts of initial margin 

currently on deposit at these three DCOs 

allocable to the interest rate swaps 

subject to this rulemaking. Using this 

information, the Commission estimated 

in the NPRM that this clearing 

requirement determination would 

require market participants to post the 

following amounts of additional initial 

margin with DCOs for each of the 

interest rate swaps covered by this 

determination.199 The amounts in Table 

18 below do not, however, account for 

any additional margin market 

participants would post to their bilateral 

counterparties under the new rules for 

uncleared swap margin. 

TABLE 18—AGGREGATE INITIAL MARGIN DUE TO DCOS UNDER CLEARING REQUIREMENT DETERMINATION

Swap Amount of margin 

USD equivalent 

AUD-denominated Fixed-to-floating interest rate swap ................................................................................................................ $1,107,287,108 

CAD-denominated Fixed-to-floating interest rate swap ................................................................................................................ 419,208,078 

CHF-denominated Fixed-to-floating interest rate swap ................................................................................................................. 105,963,972 

HKD-denominated Fixed-to-floating interest rate swap ................................................................................................................ 216,677,823 

MXN-denominated Fixed-to-floating interest rate swap ................................................................................................................ 1,867,370,001 

NOK-denominated Fixed-to-floating interest rate swap ................................................................................................................ 241,288,835 

PLN-denominated Fixed-to-floating interest rate swap ................................................................................................................. 84,789,768 

SEK-denominated Fixed-to-floating interest rate swap ................................................................................................................. 603,185,677 

SGD-denominated Fixed-to-floating interest rate swap ................................................................................................................ 1,113,041,264 

AUD-denominated basis swap ...................................................................................................................................................... 612,166,597 

NOK-denominated FRA ................................................................................................................................................................. 10,746,747 

PLN-denominated FRA .................................................................................................................................................................. 186,238,075 

SEK-denominated FRA ................................................................................................................................................................. 942,845,508 

EUR-denominated OIS (2–3 year term) ........................................................................................................................................ 0 

GBP-denominated OIS (2–3 year term) ........................................................................................................................................ 0 

USD-denominated OIS (2–3 year term) ........................................................................................................................................ 0 

AUD-denominated OIS .................................................................................................................................................................. 84,254,007 


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200See ISDA Margin Survey 2015 at page 12, 

Table 6, available at: http://www2.isda.org/ 

functional-areas/research/surveys/margin-surveys/. 

Although it is unclear exactly how many of the 

derivatives covered by this survey are swaps, it is 

reasonable to assume that a large part of them are. 

201Margin Requirements for Uncleared Swaps for 

Swap Dealers and Major Swap Participants, 81 FR 

636 (Jan. 6, 2016) and Margin and Capital 

Requirements for Covered Swap Entities, 80 FR 

74840 (Nov. 30, 2015) (together the ‘‘uncleared 

swap margin regulations’’). 

202See Subpart C of part 50 (Exceptions and 

Exemptions to the Clearing Requirement). There 

also is a possibility that the estimates listed in Table 

18 are lower than the actual figures because certain 

market participants with directional portfolios may 

be unable to benefit from margin offsets that could 

come from clearing. However, the Commission 

believes that the estimates listed in Table 18 are 

more likely to overstate the required additional 

margin amounts than to underestimate them. 

203Bank of America Merrill Lynch U.S. Corporate 

BBB effective yield for August 8, 2016. 

204On August 8, 2016, a 5-year U.S. treasury bond 

yielded 1.14%. 

205See Subpart E of part 23 of the Commission’s 

regulations. Swap clearing requirements under part 

50 of the Commission’s regulations apply to a 

broader scope of market participants than the 

Commission’s uncleared swap margin rules. For 

example, under subpart E of part 23, a financial 

end-user that does not have ‘‘material swaps 

exposure’’ (as defined by regulation 23.151) is not 

required to post initial margin, but such an entity 

may be subject to the swap clearing requirement. 

206Commission regulation 39.13(g)(2)(ii)(C). 

207Commission regulations 23.154(b)(2)(i) and 

23.159. See also Margin and Capital Requirements 

for Covered Swap Entities, 80 FR 74840 (Nov. 30, 

2015). For an uncleared swap, entered into by an 

SD or MSP supervised by a prudential regulator, 

which would be subject to the Commission’s 

clearing requirement under part 50 but is not 

cleared due to the election of the exemption for a 

swap between certain affiliated entities 

(Commission regulation 50.52), the margin period 

of risk is at least five days. For an uncleared swap, 

entered into by an SD or MSP supervised by the 

Commission, no margin is required if the swap is 

exempt from the uncleared margin regulations. 

TABLE 18—AGGREGATE INITIAL MARGIN DUE TO DCOS UNDER CLEARING REQUIREMENT DETERMINATION—Continued 

Swap Amount of margin 

USD equivalent 

CAD-denominated OIS .................................................................................................................................................................. 6,630,342 

Total ........................................................................................................................................................................................ 7,601,693,801 

As noted in the NPRM, the 

Commission believes that these 

estimates may be higher than the actual 

amounts of initial margin that would 

need to be posted as a result of this 

determination because these estimates 

are based on several assumptions. First, 

the estimates assume that none of the 

swaps that are currently executed on an 

uncleared basis are currently 

collateralized. By contrast, an ISDA 

survey reported that as of December 31, 

2014, 88.9% of all uncleared fixed 

income derivative transactions are 

subject to a credit support annex.200

Moreover, uncleared swaps between 

certain SDs, MSPs, and ‘‘financial endusers,’’ will be subject to initial and 

variation margin requirements pursuant 

to the Commission’s and the prudential 

regulators’ margin regulations for 

uncleared swaps, as discussed further 

below.201 Second, the estimates listed in 

Table 18 are based on the assumption 

that none of the swaps, when entered 

into on an uncleared basis, are priced to 

include implicit contingent liabilities 

and counterparty risk borne by the 

counterparty to the swap. Third, not all 

swaps having the additional 

denominations or maturities adopted 

herein will necessarily be eligible for 

clearing if they are not otherwise 

covered by the clearing requirement 

(i.e., the specifications set forth in 

revised regulation 50.4(a)) or if the 

swaps have terms that prevent them 

from being cleared. Finally, certain 

entities may elect an exception or 

exemption from the clearing 

requirement, which would not require 

such an entity to clear the swaps 

covered by this determination.202

The amounts of initial margin that the 

Commission estimates would be 

required to be posted due to this rule 

(listed in Table 18) do not include the 

costs that some market participants may 

incur to obtain this collateral. Some 

entities may have to raise funds to 

acquire assets that a DCO accepts as 

initial margin. The greater the funding 

cost relative to the rate of return on the 

asset used as initial margin, the greater 

the cost of procuring this asset. 

Quantifying this cost with any precision 

is challenging because different entities 

may have different funding costs and 

may choose assets with different rates of 

return. Moreover, funding costs will 

vary as interest rates and interest rate 

spreads vary. One way to estimate the 

funding cost of procuring assets to be 

used as initial margin is to compare the 

rate of return, or yield, on an asset that 

is usually accepted by a DCO for initial 

margin with the cost of funding the 

asset with debt financing. Based on the 

Commission’s experience and 

understanding, the Commission has 

decided to estimate this cost using an 

average borrowing cost of 3.35% 203 and 

then subtracting the 1.14% return that a 

5-year U.S. Treasury bond yields.204

This calculation produces an estimated 

funding cost of 2.21%. By multiplying 

the total estimated initial margin 

amount of $7,601,693,801 (Table 18) by 

2.21%, the Commission estimates that 

the cost of funding the total initial 

margin that will be required to be 

posted due to this rule is approximately 

$167,997,433. It also should be noted 

that some entities, such as pension 

funds and asset managers, may use as 

initial margin assets that they already 

own. In these cases, the market 

participants would not incur a funding 

cost in order to post initial margin. 

The Commission received no 

comments in response to its question 

about the cost of funding initial margin 

or funding costs that market participants 

may face due to interest rates on bonds 

issued by a sovereign nation. 

The Commission recognizes further 

that the new initial margin amounts that 

will be required to be posted as a result 

of this clearing requirement will, for 

entities required to post initial margin 

under either the clearing requirement or 

the uncleared swap margin regulations, 

replace current bilateral market practice. 

The new uncleared swap margin 

regulations require SDs and MSPs to 

post and collect initial and variation 

margin for uncleared swaps executed 

with their counterparties that are other 

SDs or MSPs or are ‘‘financial endusers,’’ subject to various conditions 

and limitations.205

The Commission expects that the 

initial margin that will be required to be 

posted for a cleared swap subject to this 

determination will typically be less than 

the initial margin that would be 

required to be posted for uncleared 

swaps pursuant to the uncleared swap 

margin regulations. Whereas the initial 

margin requirement for cleared swaps 

must be established according to a 

margin period of risk of at least five 

days,206 under the uncleared swap 

margin regulations, the minimum initial 

margin requirement is generally set with 

a margin period of risk of 10-days or, 

under certain circumstances, less or no 

initial margin for inter-affiliate 

transactions.207 The uncleared swap 

margin regulations are being phased in 


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71236 Federal Register / Vol. 81, No. 199 / Friday, October 14, 2016 / Rules and Regulations 

208Under part 50 of the Commission’s 

regulations, the clearing requirement applies to all 

market participants except for those subject to an 

exception or exemption under subpart C of part 50. 

Under part 23 of the Commission’s regulations, the 

Commission’s uncleared swap margin rules apply 

only to swaps between Commission-registered SDs 

and/or MSPs that do not have a prudential regulator 

and to swaps between such an entity and certain 

‘‘financial end users.’’ See Commission regulations 

23.151 (definition of financial end users), 23.152 

(collection and posting of initial margin), and 

23.153 (collection and posting of variation margin). 

Commission-registered SDs and MSPs that have a 

prudential regulator are subject to uncleared swap 

margin rules promulgated by those authorities. 

Thus, part 50 has a broader scope than part 23. See 

also note 212. 

209See Antonio S. Mello and John E. Parsons, 

‘‘Margins, Liquidity, and the Cost of Hedging.’’ MIT 

Center for Energy and Environmental Policy 

Research, May 2012, available at: http://

dspace.mit.edu/bitstream/handle/1721.1/70896/ 

2012-005.pdf?sequence=1. 

210See id., Mello and Parsons state in their paper: 

‘‘[h]edging is costly. But the real source of the cost 

is not the margin posted, but the underlying credit 

risk that motivates counterparties to demand that 

margin be posted.’’ Id. at 12. They go on to 

demonstrate that, ‘‘[t]o a first approximation, the 

cost charged for the non-margined swap must be 

equal to the cost of funding the margin account. 

This follows from the fact that the non-margined 

swap just includes funding of the margin account 

as an embedded feature of the package.’’ Id. at 15– 

16. 

211 81 FR at 39531. 

212Section II.B.iii sets forth the Commission’s 

view that central clearing offers greater risk 

mitigation than bilateral margining for swaps. 

Included in that section was a summary of Citadel’s 

comment agreeing with the Commission’s view. As 

noted above, the clearing requirement applies to a 

broader scope of market participants than the 

Commission’s uncleared swap margin rules. 

between September 1, 2016 and 

September 1, 2020. 

With respect to swaps that will be 

subject to this clearing requirement 

determination, but not subject to the 

uncleared swap margin regulations, the 

Commission believes that the new 

initial margin amounts that will be 

posted at the DCO will be a 

displacement of a cost that is currently 

embedded in the prices and fees for 

transacting the swaps on an uncleared 

and perhaps uncollateralized basis 

rather than a new cost.208 Entering into 

a swap is costly for any market 

participant because of the default risk 

posed by its counterparty, whether the 

counterparty is a DCO, SD, MSP, or 

other market participant. When a market 

participant faces the DCO, the DCO 

accounts for that counterparty credit 

risk by requiring collateral to be posted, 

and the cost of capital for the collateral 

is part of the cost that is necessary to 

maintain the swap position. When a 

market participant faces an SD or other 

counterparty in an uncleared swap, 

however, the uncleared swap contains 

an implicit line of credit upon which 

the market participant effectively draws 

when its swap position is out of the 

money. 

Counterparties charge for this implicit 

line of credit in the spread they offer on 

uncollateralized, uncleared swaps. It 

has been argued that the cash flows of 

an uncollateralized swap (i.e., a swap 

with an implicit line of credit) are, over 

time, substantially equivalent to the 

cash flows of a collateralized swap with 

an explicit line of credit.209 And 

because the counterparty credit risk 

created by the implicit line of credit is 

the same as the counterparty risk that 

would result from an explicit line of 

credit provided to the same market 

participant, to a first order 

approximation, the charge for each 

should be the same as well.210 This 

means that the cost of capital for 

additional collateral posted as a 

consequence of requiring 

uncollateralized swaps to be cleared 

takes a cost that is implicit in an 

uncleared, uncollateralized swap and 

makes it explicit. This observation 

applies to capital costs associated with 

both initial margin and variation 

margin. 

In addition, the rule may result in 

added operational costs. With uncleared 

swaps, counterparties may agree not to 

collect variation margin until certain 

thresholds of exposure are reached, thus 

reducing or entirely eliminating the 

need to exchange variation margin as 

exposure changes. DCOs, on the other 

hand, collect and pay variation margin 

on a daily basis and sometimes more 

frequently. As a consequence, increased 

required clearing may increase certain 

operational costs associated with 

exchanging variation margin with the 

DCO (although the exchange of variation 

margin may be expected to provide the 

benefit of lowering the build-up of 

current exposure). On the other hand, 

increased clearing also could lead to 

reduced operational costs related to 

valuation disputes about posted 

collateral, as parties to cleared swaps 

agree to post collateral that is less 

susceptible to valuation disputes. 

The rule also may result in additional 

costs for clearing members in the form 

of guaranty fund contributions. 

However, it also could decrease 

guaranty fund contributions for certain 

clearing members. Once the expanded 

clearing requirement takes effect, market 

participants that currently transact 

swaps bilaterally must either become 

clearing members of a DCO or submit 

such swaps for clearing through an 

existing clearing member. A market 

participant that becomes a direct 

clearing member must make a guaranty 

fund contribution, while a market 

participant that clears its swaps through 

a clearing member may pay higher fees 

if the clearing member passes the costs 

of the guaranty fund contribution to its 

customers. While not certain, the 

possible addition of new clearing 

members and/or new customers for 

existing clearing members may result in 

an increase in guaranty fund 

requirements. However, it should be 

noted that if (1) any new clearing 

members are not among the two clearing 

members used to calculate the guaranty 

fund and (2) any new customers trading 

through a clearing member do not 

increase the size of uncollateralized 

risks at either of the two clearing 

members used to calculate the guaranty 

fund, all else held constant, existing 

clearing members may experience a 

decrease in their guaranty fund 

requirement. 

In the NPRM, the Commission 

requested comment regarding the total 

amount of additional collateral that 

would be required due to the proposed 

clearing requirement. In particular, the 

Commission sought quantifiable data 

and analysis.211 No commenter 

addressed the quantitative approach 

laid out by the Commission in the 

NPRM. Nor did any commenter provide 

quantifiable data and analysis to 

support or refute such analysis. 

d. Benefits of Clearing 

As noted above, the benefits of swap 

clearing are generally significant. The 

Commission believes that while the 

requirement to margin uncleared swaps 

in certain circumstances also will 

mitigate counterparty credit risk, such 

risk is mitigated further for swaps that 

are cleared through a central 

counterparty. Moreover, as discussed 

above, the clearing requirement under 

part 50 of the Commission regulations 

applies to a larger set of market 

participants than the uncleared swaps 

margin regulations.212 Thus, to the 

extent that the clearing requirement for 

additional interest rate swaps leads to 

increased clearing, these benefits are 

likely to be realized. 

As is the case for the costs noted 

above, it is impossible to predict the 

precise extent to which the use of 

clearing will increase as a result of the 

final rule, and therefore the benefits of 

the final rule cannot be precisely 

quantified. However, the Commission 

believes that the benefits of increased 

central clearing resulting from the rule 

will be substantial, because the 

additional swaps required to be cleared 

by the rule have significant volumes 

within the overall interest rate swap 

market. 


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213See summary of these comments in section 

II.B. 

214See discussion, including summary of 

comments received, in section IV. 

The rule’s requirement that certain 

swaps be cleared is expected to increase 

the use of central clearing, as well as the 

number of swap market participants that 

will benefit from reduced counterparty 

credit risk and the other risk mitigating 

tools offered by central clearing through 

DCOs that are subject to CFTC 

regulation and supervisory oversight. 

As noted above, several commenters 

praised the Commission’s approach to 

further harmonizing the Commission’s 

swap clearing requirement with 

requirements issued by non-U.S. 

jurisdictions.213 Citadel commented that 

such harmonization would lead to the 

benefit of eliminating regulatory 

arbitrage. LCH Group stated that such 

harmonization would promote certainty 

for market participants. SIFMA AMG 

commented that such harmonization 

would improve the functioning of swaps 

markets and reduce operational 

complexity. ISDA commented that 

harmonization is crucial to effective and 

efficient implementation of all of the 

reforms of the derivatives markets 

sought by the G20. MFA commented 

that the Commission’s approach to 

harmonizing its clearing requirement 

with those of other jurisdictions would 

increase transparency and market 

integrity. MFA also suggested that if the 

Commission proceeds with the 

expanded clearing requirement, then 

other jurisdictions will follow. 

D. Costs and Benefits of the 

Commission’s Action as Compared to 

Alternatives 

As noted in the NPRM, this 

determination is a function of both the 

market importance of these products 

and the fact that they already are widely 

cleared. The Commission believes the 

interest rate swaps subject to this 

rulemaking are appropriate to require to 

be cleared because they are widely used 

and already have a blueprint for clearing 

and risk management. 

Given the implementation of the 

Commission’s First Clearing 

Requirement Determination for interest 

rate swaps, and the widespread use of 

central clearing for the additional 

products included in this 

determination, DCOs, FCMs, and market 

participants already have experience 

clearing the types of swaps subject to 

this rulemaking. The Commission 

therefore expects that DCOs and FCMs 

are prepared to handle the increases in 

volumes and outstanding notional 

amounts in these swaps that are likely 

to result from this determination. 

Because of the widespread use of these 

swaps and their importance to the 

market, and because these swaps are 

already successfully being cleared, the 

Commission has determined that certain 

additional interest rate swaps be subject 

to the clearing requirement. 

The Commission considered two 

alternative implementation scenarios. 

First, the Commission considered a 

scenario under which the clearing 

requirement for all swaps subject to the 

rulemaking would take effect at the 

same time, regardless of whether an 

analogous clearing requirement has 

been promulgated by an authority of a 

non-U.S. jurisdiction. The benefits 

associated with implementing the 

clearing requirement for all swaps 

subject to this rulemaking on a single 

date would include giving market 

participants certainty and making it 

easier for industry members to update 

relevant policies and procedures at one 

time. 

As a second option, the Commission 

considered a scenario under which 

compliance with the clearing 

requirement would be required upon 

the earlier of (a) the date 60 days after 

the effective date of an analogous 

clearing requirement that has been 

adopted by a regulator in a non-U.S. 

jurisdiction, provided that any such 

date for any swap covered by the final 

rule shall not be earlier than the date 

which is 60 days after the Commission’s 

final rule is published in the Federal 

Register, or (b) the date two years after 

the Commission’s final rule is published 

in the Federal Register. As described in 

the NPRM, the second scenario allows 

the Commission to coordinate 

compliance dates with the effective 

dates set by non-U.S. jurisdictions in 

order to promote international 

harmonization of clearing requirements 

while maintaining certainty that 

compliance with the expanded clearing 

requirement will be required within a 

specific time period (i.e., all products 

subject to the determination will be 

subject to a clearing requirement no 

later than two years after the final rule 

is published). 

As discussed above, after considering 

comments on the two proposed 

implementation schedules, the 

Commission has decided to proceed 

with the second option, a schedule that 

is tied to the first date upon which any 

person in a non-U.S. jurisdiction is first 

subject to a clearing mandate issued by 

a non-U.S. jurisdiction, not including 

any front-loading or back-loading 

requirements.214 Compared to the first 

option of requiring implementation of 

the clearing requirement for all products 

on a single date, the second option will 

delay implementation of the clearing 

requirement for certain products, and 

thus will delay the realization of the 

costs and benefits of mandatory clearing 

for these products. However, the 

Commission is adopting the second 

option in light of the benefits of 

international harmonization of clearing 

requirements on a jurisdiction-byjurisdiction basis, including mitigation 

of regulatory arbitrage. 

E. Section 15(a) Factors 

As noted above, the requirement to 

clear the fixed-to-floating interest rate 

swaps, basis swaps, FRAs, and OIS 

covered by this adopting release is 

expected to result in increased use of 

central clearing, although it is not 

feasible to quantify with certainty the 

extent of that increase. Thus, this 

section discusses the expected results 

from an overall increase in the use of 

swap clearing in terms of the factors set 

forth in section 15(a) of the CEA. 

i. Protection of Market Participants and 

the Public 

As described above, required clearing 

of the interest rate swaps identified in 

this clearing requirement determination 

is expected to most likely reduce 

counterparty risk for market participants 

that clear those swaps because they will 

face the DCO rather than another market 

participant that lacks the full array of 

risk management tools that the DCO has 

at its disposal. This also reduces 

uncertainty in times of market stress 

because market participants facing a 

DCO are less concerned with the impact 

of such stress on the solvency of their 

counterparty for cleared trades. 

By requiring clearing of certain 

interest rate swaps, all of which are 

already available for clearing, the 

Commission expects, as it stated in the 

NPRM, that this rule will encourage a 

smooth transition by creating an 

opportunity for market participants to 

work out challenges related to required 

clearing of swaps while operating in 

familiar terrain. More specifically, the 

DCOs currently clearing these interest 

rate swaps, CME, Eurex, LCH, and SGX, 

will clear an increased volume of swaps 

that they already understand and have 

experience managing. Similarly, FCMs 

likely will realize increased customer 

and transaction volume as a result of the 

requirement, but will not have to 

simultaneously learn how to 

operationalize clearing for the covered 

interest rate swaps. The experience of 

FCMs with these types of products also 

is likely to benefit any customers that 

are new to clearing, as the FCM guides 


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215See sections II.B.iii. and V.C.ii for a summary 

of JBA’s comment concerning the potential costs of 

establishing a new clearing arrangement at a DCO 

in response to this rulemaking, and the 

Commission’s response to that comment. 

216See section II.C.iii. 217Commission regulation 39.12(b)(6) requires a 

DCO to establish rules providing that upon 

acceptance of a swap for clearing, the original swap 

is extinguished and replaced by an equal and 

opposite swap between the DCO and each clearing 

member acting as principal for a house trade or 

acting as agent for a customer trade. This process 

extinguishes counterparty credit risk between the 

original executing counterparties. 

218See section II.B.iii for full discussion of 

comments related to competition issues. 

219For example, there is a small risk of a sudden 

price move so large that a counterparty would be 

unable to post sufficient variation margin to cover 

them through initial experiences with 

cleared swaps. 

In addition, uncleared swaps subject 

to collateral agreements can be the 

subject of valuation disputes. These 

valuation disputes sometimes require 

several months or longer to resolve. 

Potential future exposures can grow 

significantly and even beyond the 

amount of initial margin posted during 

that time, leaving one of the two 

counterparties exposed to counterparty 

credit risk. DCOs significantly reduce 

and potentially may eliminate valuation 

disputes for cleared swaps, as well as 

the risk that uncollateralized exposure 

can develop and accumulate during the 

time when such a dispute would have 

otherwise occurred, thus providing 

additional protection to market 

participants that transact in swaps that 

are required to be cleared. 

As far as costs are concerned, market 

participants that do not currently have 

established clearing relationships with 

an FCM will have to set up and 

maintain such a relationship in order to 

clear swaps that are required to be 

cleared. As discussed above, market 

participants that conduct a limited 

number of swaps per year likely will be 

required to pay monthly or annual fees 

that FCMs charge to maintain both the 

relationship and outstanding swap 

positions belonging to the customer. In 

addition, the FCM is likely to pass along 

fees charged by the DCO for establishing 

and maintaining open positions.215

It is expected that most market 

participants already will have had 

experience complying with prior 

clearing requirements and that the 

incremental burdens associated with 

clearing the additional interest rate 

swaps subject to this rulemaking should 

be minimal, especially given the 

similarities that these products have to 

those already included within the prior 

clearing requirement determination and 

the fact that they are already widely 

cleared products. 

ii. Efficiency, Competitiveness, and 

Financial Integrity of Swap Markets 

The Commission continues to expect 

that swap clearing will reduce 

counterparty risk in times of market 

stress and promote liquidity and 

efficiency during those times. Increased 

liquidity promotes the ability of market 

participants to limit losses by exiting 

positions effectively and efficiently 

when necessary in order to manage risk 

during a time of market stress. 

In addition, to the extent that 

positions move from facing multiple 

counterparties in the bilateral market to 

being cleared through a smaller number 

of clearinghouses, clearing facilitates 

increased netting. This reduces the 

amount of collateral that a party must 

post in margin accounts. 

As discussed above, in setting forth 

this new clearing requirement 

determination, the Commission took 

into account a number of specific factors 

that relate to the financial integrity of 

the swap markets. Specifically, the 

NPRM and the discussion above include 

an assessment of whether CME, Eurex, 

LCH, and SGX, each of which currently 

clears interest rate swaps, have the rule 

framework, capacity, operational 

expertise and resources, and credit 

support infrastructure to clear these 

swaps on terms that are consistent with 

the material terms and trading 

conventions on which the contract is 

now traded. The Commission also 

considered the resources of DCOs to 

handle additional clearing during 

stressed and non-stressed market 

conditions, as well as the existence of 

reasonable legal certainty in the event of 

a clearing member or DCO 

insolvency.216

In considering the efficiencies, 

competitiveness, and financial integrity 

of the swap markets associated with this 

clearing requirement determination, the 

Commission observes that the use of 

bilateral swaps generates a need for 

market participants to conduct due 

diligence on each potential counterparty 

due to concerns about counterparty 

credit risk. Requiring certain types of 

swaps to be centrally cleared reduces 

the number of separate counterparties 

for which such due diligence is 

necessary, thereby potentially 

contributing to the overall efficiency 

and competitiveness of the swap 

markets. 

In support of this reasoning, Citadel’s 

comments suggest that extinguishing 

bilateral counterparty credit exposure 

and eliminating complex bilateral 

trading documentation for swaps subject 

to a clearing requirement enables market 

participants to access a wider range of 

execution counterparties and 

encourages the entry of new liquidity 

providers.217 As a result, when a 

clearing requirement is in effect, price 

competition tends to increase, execution 

costs for investors and customers tend 

to decrease, and overall market liquidity 

would therefore improve for the swaps 

subject to the clearing requirement. 

Citadel also notes that the imposition of 

a clearing requirement may create the 

commercial rationale for another DCO 

or FCM to launch or expand its clearing 

offering given the expected increase in 

overall cleared volumes. 

In adopting this clearing requirement 

for interest rate swaps, the Commission 

must consider the effect on competition, 

including appropriate fees and charges 

applied to clearing. As discussed in 

more detail in section II.B.iii, there are 

a number of potential outcomes that 

may result from required clearing. Some 

of these outcomes may impose costs, 

such as if a DCO possessed market 

power and exercised that power in an 

anticompetitive manner, and some of 

the outcomes would be positive, such as 

if the clearing requirement facilitated a 

stronger entry opportunity for 

competitors.218

iii. Price Discovery 

As the Commission noted in the 

NPRM, central clearing, in general, 

encourages better price discovery 

because it eliminates the importance of 

counterparty creditworthiness in pricing 

swaps cleared through a given DCO. 

That is, by making the counterparty 

creditworthiness of all swaps of a 

certain type essentially the same, prices 

should reflect factors related to the 

terms of the swap, rather than the 

idiosyncratic risk posed by the entities 

trading it. 

As discussed in section II.C.iii.a 

above, CME, Eurex, LCH, and SGX 

obtain adequate pricing data for the 

interest rate swaps that they clear. Each 

of these DCOs establishes a rule 

framework for its pricing methodology 

and rigorously tests its pricing models 

to ensure that the cornerstone of its risk 

management regime is as sound as 

possible. 

iv. Sound Risk Management Practices 

If a firm enters into uncleared and 

uncollateralized swaps to hedge certain 

positions and then the counterparty to 

those swaps defaults unexpectedly, the 

firm could be left with large outstanding 

exposures. Even for uncleared swaps 

that are subject to the new uncleared 

swap margin regulations, some 

counterparty credit risk remains.219 As 


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the loss, which may exceed the amount of initial 

margin posted, and could be forced into default. 

220As discussed in sections I.E.iii, II.B.iii, and 

V.B., sound risk management practices are critical 

for all DCOs, especially those offering clearing for 

interest rate swaps. In section II.B.ii, the 

Commission considered whether each § 39.5(b) 

submission under review was consistent with the 

core principles for DCOs. In particular, the 

Commission considered the DCO submissions in 

light of Core Principle D, which relates to risk 

management. See also section II.B.iii for a 

discussion of the effect on the mitigation of 

systemic risk in the interest rate swap market, as 

well as the protection of market participants during 

insolvency events at either the clearing member or 

DCO level. 

221See Dietrich Domanski, Leonardo Gambacorta, 

and Cristina Picillo, ‘‘Central clearing: Trends and 

current issues,’’ BIS Quarterly Review (Dec. 2015), 

available at: http://www.bis.org/publ/qtrpdf/r_

qt1512g.pdf. and 2015 Financial Stability Report 

published by the Office of Financial Research of the 

U.S. Department of the Treasury (Dec. 15, 2015), 

available at: http://financialresearch.gov/financialstability-reports/files/OFR_2015-Financial-StabilityReport_12-15-2015.pdf. 222The G20 Leaders Statement made in 

Pittsburgh is available at: http://www.g20.utoronto.

ca/2009/2009communique0925.html. 223 5 U.S.C. 601 et seq. 224 81 FR at 39534–39535. 225 66 FR 20740, 20743 (Apr. 25, 2001). 226 44 U.S.C. 3507(d). 

explained in the NPRM and as stated 

above, when a swap is cleared the DCO 

becomes the counterparty facing each of 

the two original participants in the 

swap. This standardizes and reduces 

counterparty risk for each of the two 

original participants. To the extent that 

a market participant’s hedges comprise 

swaps that are required to be cleared, 

the requirement enhances the market 

participant’s risk management practices 

by reducing its counterparty risk. 

In addition, required clearing reduces 

the complexity of unwinding or 

transferring swap positions from large 

entities that default. Procedures for 

transfer of swap positions and 

mutualization of losses among DCO 

members are already in place, and the 

Commission anticipates that they are 

much more likely to function in a 

manner that enables rapid transfer of 

defaulted positions than legal processes 

that would surround the enforcement of 

bilateral contracts for uncleared 

swaps.220

Central clearing has evolved since the 

2009 G20 Pittsburgh Summit, when G20 

leaders committed to central clearing of 

all standardized swaps. The percentage 

of the swap market that is centrally 

cleared has increased significantly, 

clearinghouses have expanded their 

offerings, and the range of banks and 

other financial institutions that submit 

swaps to clearinghouses has broadened. 

At the same time, the numbers of swap 

clearinghouses and swap clearing 

members has remained highly 

concentrated. This has created concerns 

about a concentration of credit and 

liquidity risk at clearinghouses that 

could have systemic implications.221

However, the Commission believes that 

DCOs are capable of risk managing the 

interest rate swaps subject to this 

rulemaking. Moreover, because only a 

very small percentage of the swap 

market will be affected by this clearing 

requirement determination and because 

significant percentages of the swaps 

covered by this determination are 

already cleared voluntarily, this clearing 

requirement determination will not 

significantly increase credit risk and 

liquidity risk to DCOs. The Commission 

requested comment on this issue and 

did not receive any comments in 

response. 

v. Other Public Interest Considerations 

In September 2009, the President and 

the other leaders of the G20 nations met 

in Pittsburgh and committed to a 

program of action that includes, among 

other things, central clearing of all 

standardized swaps.222 The Commission 

believes that this clearing requirement 

will represent another step toward the 

fulfillment of the G20’s commitment. 

VI. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

requires agencies to consider whether 

the rules they propose will have a 

significant economic impact on a 

substantial number of small entities 

and, if so, provide a regulatory 

flexibility analysis respecting the 

impact.223 As stated in the NPRM, this 

clearing requirement determination will 

not affect any small entities, as the RFA 

uses that term.224 Pursuant to section 

2(e) of the CEA, only eligible contract 

participants (ECPs) may enter into 

swaps, unless the swap is listed on a 

DCM. The Commission has previously 

determined that ECPs are not small 

entities for purposes of the RFA.225 As 

stated in the NPRM, the clearing 

requirement determination will only 

affect ECPs because all persons that are 

not ECPs are required to execute their 

swaps on a DCM, and all contracts 

executed on a DCM must be cleared by 

a DCO, as required by statute and 

regulation, not by operation of any 

clearing requirement determination. The 

Commission did not receive comments 

on this conclusion. Therefore, the 

Chairman, on behalf of the Commission, 

hereby certifies pursuant to 5 U.S.C. 

605(b) that this rulemaking will not 

have a significant economic impact on 

a substantial number of small entities. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act 

(PRA) 226 imposes certain requirements 

on federal agencies, including the 

Commission, in connection with 

conducting or sponsoring any collection 

of information as defined by the PRA. 

This rulemaking will not require a new 

collection of information from any 

persons or entities. The Commission did 

not receive any comments relating to the 

PRA in response to the NPRM. 

List of Subjects in 17 CFR Part 50 

Business and industry, Clearing, 

Swaps. 

For the reasons set forth in the 

preamble, the Commodity Futures 

Trading Commission amends 17 CFR 

part 50 as follows: 

PART 50—CLEARING REQUIREMENT 

AND RELATED RULES 

■ 1. The authority citation for part 50 

continues to read as follows: 

Authority: 7 U.S.C. 2(h) and 7a–1 as 

amended by Pub. L. 111–203, 124 Stat. 1376. 

■ 2. Revise § 50.4(a) to read as follows: 

§ 50.4 Classes of swaps required to be 

cleared. 

(a) Interest rate swaps. Swaps that 

have the following specifications are 

required to be cleared under section 

2(h)(1) of the Act, and shall be cleared 

pursuant to the rules of any derivatives 

clearing organization eligible to clear 

such swaps under § 39.5(a) of this 

chapter. 


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TABLE 1a 

Specification Fixed-to-floating swap class 

1. Currency ....................... Australian Dollar 

(AUD).

Canadian Dollar 

(CAD).

Euro (EUR) ............. Hong Kong Dollar 

(HKD).

Mexican Peso 

(MXN).

Norwegian Krone 

(NOK). 

2. Floating Rate Indexes .. BBSW ..................... CDOR ..................... EURIBOR ................ HIBOR ..................... TIIE–BANXICO ....... NIBOR. 

3. Stated Termination Date 

Range.

28 days to 30 years 28 days to 30 years 28 days to 50 years 28 days to 10 years 28 days to 21 years 28 days to 10 years. 

4. Optionality ..................... No ........................... No ........................... No ........................... No ........................... No ........................... No. 

5. Dual Currencies ............ No ........................... No ........................... No ........................... No ........................... No ........................... No. 

6. Conditional Notional 

Amounts.

No ........................... No ........................... No ........................... No ........................... No ........................... No. 

TABLE 1b 

Specification Fixed-to-floating swap class 

1. Currency .................. Polish Zloty 

(PLN).

Singapore Dollar 

(SGD).

Swedish Krona 

(SEK).

Swiss Franc 

(CHF).

Sterling (GBP) .... U.S. Dollar (USD) Yen (JPY). 

2. Floating Rate Indexes.WIBOR ............... SOR–VWAP ....... STIBOR .............. LIBOR ................. LIBOR ................. LIBOR ................. LIBOR. 

3. Stated Termination 

Date Range.

28 days to 10 

years.

28 days to 10 

years.

28 days to 15 

years.

28 days to 30 

years.

28 days to 50 

years.

28 days to 50 

years.

28 days to 30 

years. 

4. Optionality ................ No ....................... No ....................... No ....................... No ....................... No ....................... No ....................... No. 

5. Dual Currencies ....... No ....................... No ....................... No ....................... No ....................... No ....................... No ....................... No. 

6. Conditional Notional 

Amounts.

No ....................... No ....................... No ....................... No ....................... No ....................... No ....................... No. 

TABLE 2 

Specification Basis swap class 

1. Currency ...................... Australian Dollar (AUD) .. Euro (EUR) ..................... Sterling (GBP) ................ U.S. Dollar (USD) ........... Yen (JPY). 

2. Floating Rate Indexes BBSW ............................. EURIBOR ....................... LIBOR ............................. LIBOR ............................. LIBOR. 

3. Stated Termination 

Date Range.

28 days to 30 years ....... 28 days to 50 years ....... 28 days to 50 years ....... 28 days to 50 years ....... 28 days to 30 years. 

4. Optionality .................... No ................................... No ................................... No ................................... No ................................... No. 

5. Dual Currencies ........... No ................................... No ................................... No ................................... No ................................... No. 

6. Conditional Notional 

Amounts.

No ................................... No ................................... No ................................... No ................................... No. 

TABLE 3 

Specification Forward rate agreement class 

1. Currency .................. Euro (EUR) ......... Polish Zloty 

(PLN).

Norwegian Krone 

(NOK).

Swedish Krona 

(SEK).

Sterling (GBP) .... U.S. Dollar (USD) Yen (JPY). 

2. Floating Rate Indexes.EURIBOR ........... WIBOR ............... NIBOR ................ STIBOR .............. LIBOR ................. LIBOR ................. LIBOR. 

3. Stated Termination 

Date Range.

3 days to 3 years 3 days to 2 years 3 days to 2 years 3 days to 3 years 3 days to 3 years 3 days to 3 years 3 days to 3 

years. 

4. Optionality ................ No ....................... No ....................... No ....................... No ....................... No ....................... No ....................... No. 

5. Dual Currencies ....... No ....................... No ....................... No ....................... No ....................... No ....................... No ....................... No. 

6. Conditional Notional 

Amounts.

No ....................... No ....................... No ....................... No ....................... No ....................... No ....................... No. 

TABLE 4 

Specification Overnight index swap class 

1. Currency ...................... Australian Dollar (AUD) .. Canadian Dollar (CAD) .. Euro (EUR) ..................... Sterling (GBP) ................ U.S. Dollar (USD). 

2. Floating Rate Indexes AONIA–OIS .................... CORRA–OIS .................. EONIA ............................ SONIA ............................ FedFunds. 

3. Stated Termination 

Date Range.

7 days to 2 years ........... 7 days to 2 years ........... 7 days to 3 years ........... 7 days to 3 years ........... 7 days to 3 years. 

4. Optionality .................... No ................................... No ................................... No ................................... No ................................... No. 

5. Dual Currencies ........... No ................................... No ................................... No ................................... No ................................... No. 

6. Conditional Notional 

Amounts.

No ................................... No ................................... No ................................... No ................................... No. 


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* * * * * 

Issued in Washington, DC, on September 

28, 2016, by the Commission. 

Christopher J. Kirkpatrick, 

Secretary of the Commission. 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendices to Clearing Requirement 

Determination Under Section 2(h) of the 

Commodity Exchange Act for Interest 

Rate Swaps—Commission Voting 

Summary and Chairman’s Statement 

Appendix 1—Commission Voting Summary 

On this matter, Chairman Massad and 

Commissioners Bowen and Giancarlo voted 

in the affirmative. No Commissioner voted in 

the negative. 

Appendix 2—Statement of Chairman 

Timothy G. Massad 

Central clearing is one of the great 

innovations of the financial system. Indeed, 

increasing the use of central clearing for overthe-counter swaps is one of the most 

important goals of the 2009 G20 Leaders’ 

agreement and the Dodd-Frank Act. 

Of course, central clearing does not 

eliminate the risk of transactions. But 

clearinghouses can monitor and mitigate that 

risk, which can make our financial system 

more stable. 

In just a few short years, the percentage of 

over-the-counter swaps being cleared has 

increased substantially. And today, I am very 

pleased that we are continuing this progress 

by expanding the Commission’s swap 

clearing requirement to include interest rate 

swaps denominated in nine additional 

currencies. Our counterparts in the relevant 

non-U.S. jurisdictions have mandated, or are 

expected soon to mandate, central clearing 

for these products, and our requirements will 

be phased based on when the corresponding 

clearing requirements have taken effect in 

non-U.S. jurisdictions. 

The Commission’s first clearing 

requirement, adopted in 2012, applied to 

interest rate swaps denominated in four 

currencies—U.S. dollar, euro, British sterling, 

and Japanese yen. Today, we have expanded 

the interest rate swap clearing requirement to 

include those denominated in the Australian 

dollar, Canadian dollar, Hong Kong dollar, 

Singapore dollar, Mexican peso, Norwegian 

krone, Polish zloty, Swedish krona, and 

Swiss franc. 

Requiring clearing for these swaps will 

further reduce risk within our financial 

system. Today’s determination also 

represents another important step toward 

cross-border harmonization of swaps 

regulations, which is critically important to 

creating an effective regulatory framework. 

This rule reflects the CFTC’s close 

coordination with our fellow regulatory 

authorities from the various jurisdictions 

with whom we are seeking to harmonize. We 

also consulted and coordinated with our 

fellow financial regulators here in the United 

States. 

I want to thank the hardworking CFTC staff 

for their efforts on this important measure. 

I’d also like to thank my fellow 

Commissioners Bowen and Giancarlo for 

their support. 

[FR Doc. 2016–23983 Filed 10–13–16; 8:45 am] 

BILLING CODE 6351–01–P 


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