Registration with Alternative Compliance for Non-U.S. 

Derivatives Clearing Organizations

August Imholtz, Special Counsel & Abigail Knauff, Special Counsel

Division of Clearing and Risk

December 17, 2020 GMAC Meeting
Derivatives Clearing Organization Registration Options

Original Registration

Framework

Alternative Compliance 

Framework (Subpart D)

Clearing 

Organization, 

Jurisdiction, 

and Clearing 

Activity

 U.S. DCO

 Non-U.S. DCO clearing 

F&O executed on DCM

 Non-U.S. DCO clearing 

swaps for U.S. persons, 

and poses a substantial 

risk to the U.S. financial 

system

 Any non-U.S. DCO that is 

eligible for subpart D 

registration

 Non-U.S. DCO clearing 

swaps for U.S. persons, 

and does not pose a 

substantial risk to the U.S.

financial system

Registration

Requirement

Section 5b(a) of CEA &

§ 39.3(a)(2)

Section 5b(a) of CEA &

§ 39.3(a)(3)

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Eligibility

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Alternative Compliance Framework (Subpart D)

 A non-U.S. DCO clearing swaps for U.S. persons is eligible for registration 

under Subpart D if:

1. The CFTC determines that a non-U.S. DCO’s compliance with its 

home country regulatory regime constitutes compliance with the DCO 

Core Principles in section 5b(c)(2) of the CEA;

2. A DCO is in good regulatory standing in its home country;

3. A DCO does not pose a substantial risk to the U.S. financial system; 

and

4. A memorandum of understanding is in effect between CFTC and the 

DCO’s home country regulator.

 CFTC may, in its discretion, grant registration subject to conditions to 

address core principles less related to risk if DCO’s home country 

regulatory regime lacks legal requirements
Substantial Risk Test

 The Test: A non-U.S. DCO poses substantial risk to the U.S. financial 

system if: 

 (1) it holds 20% or more of the required IM of U.S. clearing members for 

swaps across all registered and exempt DCOs; and 

 (2) 20% or more of the IM requirements for swaps at that DCO is from 

U.S. clearing members. 

 “U.S. clearing member” means an FCM, a clearing member organized 

in the U.S., or whose ultimate parent company is organized in the U.S. 

 Commission Discretion: Where a DCO is at or near the 20% thresholds. 

 Re-assessment: 

 Periodic Commission reassessments of DCOs’ risk profiles; and 

 Grace period for a DCO to change its registration status in the event the 

Commission determined that its risk profile had changed.

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Non-U.S. DCO Registration Compliance Requirements

Original Registration

Framework

Alternative Compliance 

Framework (Subpart D)

Regulatory 

Requirements

 Part 39 subparts A and B

 Part 39 subparts A-C (if 

FSOC designated DCO as 

SIDCO or DCO elected to 

be subject to subpart C)

 Part 39 subpart D

 CFTC customer protection 

regime

 CFTC customer protection 

regime

 Part 45 Swap data 

reporting

 Part 45 Swap data 

reporting

 Part 40 rule filings  Part 40 exemption unless 

rule changes related to 

customer protection or 

swap data reporting

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U.S. Customer Protection for Swaps

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 Same swaps customer protection regime for all DCOs registered 

pursuant to original registration or alternative compliance frameworks

 Section 4d(f)(1) of the CEA requires swaps customer funds to be 

held by a registered FCM 

 Section 4d(f)(2) requires swaps customer funds to be segregated 

from the FCM’s own funds

 An FCM must deposit customer funds with a bank, trust company, 

or DCO in order for the funds to be protected under the U.S. 

Bankruptcy Code.

 U.S. customers must clear through an FCM and the DCO must 

comply with:

 Section 4d(f) of the CEA; 

 Parts 1 and 22 of Commission regulations; and 

 Commission regulation 39.15 (treatment of funds).
DCO Registration Application

Original Registration

Framework

Alternative Compliance 

Framework (Subpart D)

Application

Documents

 All Form DCO exhibits 

(approximately 40 exhibits 

including subcomponents)

 Subpart C election form (if 

SIDCO or DCO elects to be 

subpart C DCO)

Only select Form DCO exhibits:

 Regulatory compliance chart;

 Proposed rulebook;

 Proposed clearing activities;

 Detailed business plan;

 Organizational structure;

 Legal status and good 

regulatory standing 

certificate;

 Pending legal proceedings;

 Treatment of funds (custody, 

segregation, investment, & 

service provider agreements); 

 Ring-fencing memorandum

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Conditions

 Applicable requirements of CEA & CFTC’s regulations

 Open access

 Consent to jurisdiction; designated agent 

 Compliance

 Inspection of books and records

 Representation of good regulatory standing

 Other conditions

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General Reporting Requirements

 Daily Reporting:

 Total IM requirements for all clearing members;

 IM requirements and IM on deposit for each U.S. clearing member, by house 

origin and by each customer origin, and by each individual customer account; and

 VM, separately listing the mark-to-market amount collected from or paid to each 

U.S. clearing member, by house origin and by each customer origin.

 Quarterly Reporting: List of U.S. clearing members that clear swaps at DCO

 Event-Specific Reporting: Provide notices of:

 Any change in home country regulatory regime; 

 Any examination report or findings, or the commencement of any enforcement or 

disciplinary action by a home country regulator;

 Any change with respect to the DCO’s licensure, registration, or other 

authorization to act as a CCP in its home country; 

 An event of default by clearing member; and

 Action taken against U.S. clearing member by the DCO.

 Part 45 Reporting: All part 45 swap data reporting requirements for DCOs

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Modification of Order of Registration

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 Commission has discretion to modify an order of registration for a Subpart D 

DCO if it determines there are:

 Changes to or omissions in facts and circumstances pursuant to which 

order was issued; or

 The terms and conditions of order are not met, including § 39.51(a) eligibility

 Commission provides written notice to DCO that it is considering a modification;

 DCO has 30 business days to respond in writing following receipt of notice;

 After Commission receipt of the DCO’s response or the expiration of the 

permitted response time, Commission may:

 I

t

i

ssue an order requiring the DCO to comply with all requirements applicable 

o DCOs in the CEA and Commission regulations (includes all part 39 

mplementing regulations) by a specified date;

 Issue an amended order of registration that modifies the terms and 

conditions of the order; or

 Notify DCO in writing that the order of registration will not change.
Questions

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