1

6351-01-P

COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 39 and 140

RIN 3038-AE87

Registration with Alternative Compliance for Non-U.S. Derivatives Clearing 

Organizations

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

SUMMARY: The Commodity Futures Trading Commission (Commission) is adopting 

regulations that will permit derivatives clearing organizations (DCOs) organized outside 

of the United States (hereinafter referred to as “non-U.S. DCOs”) to be registered with 

the Commission yet comply with the core principles applicable to DCOs set forth in the 

Commodity Exchange Act (CEA) through compliance with their home country 

regulatory regimes, subject to certain conditions and limitations. The Commission is also 

amending certain related delegation provisions in its regulations.

DATES: This rule is effective [INSERT DATE 30 DAYS AFTER DATE OF 

PUBLICATION IN THE FEDERAL REGISTER].

FOR FURTHER INFORMATION CONTACT: Eileen A. Donovan, Deputy Director, 

(202) 418-5096, edonovan@cftc.gov; August A. Imholtz III, Special Counsel, (202) 418-

5140, aimholtz@cftc.gov; Abigail S. Knauff, Special Counsel, (202) 418-5123, 

aknauff@cftc.gov; Division of Clearing and Risk, Commodity Futures Trading 

Commission, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581; 

Theodore Z. Polley III, Associate Director, (312) 596-0551, tpolley@cftc.gov; Joe Opron, 
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Special Counsel, (312) 596-0653, jopron@cftc.gov; Division of Clearing and Risk, 

Commodity Futures Trading Commission, 525 West Monroe Street, Chicago, Illinois 

60661.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

A. Introduction

B. DCO Registration Framework

C. Overview of the New Requirements

D. Comments on the Notice of Proposed Rulemaking

II. Amendments to Parts 39 and 140 of the Commission’s Regulations

A. Regulation 39.2 – Definitions

B. Regulation 39.3(a) – Application Procedures

C. Regulation 39.4 – Procedures for Implementing DCO Rules and Clearing New 

Products

D. Regulation 39.9 – Scope

E. Subpart D – Provisions Applicable to DCOs Subject to Alternative Compliance

F. Part 140 – Organization, Functions, and Procedures of the Commission

G. Responses to Additional Requests for Comment

H. Additional Comments

III. Related Matters

A. Regulatory Flexibility Act

B. Paperwork Reduction Act

C. Cost-Benefit Considerations

D. Antitrust Considerations

I. Background

A. Introduction

In July 2019, the Commission proposed changes to its registration and compliance 

framework for DCOs that would permit a non-U.S. DCO to be registered with the 

Commission yet comply with the core principles applicable to DCOs set forth in the CEA

(DCO Core Principles) through compliance with its home country regulatory regime, 
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subject to certain conditions and limitations.1 To implement these changes, the 

Commission proposed a number of amendments to part 39 of the Commission’s

regulations (Part 39), as well as select amendments to part 140. After considering the 

comments received in response to the proposal, the Commission is adopting the 

amendments largely as proposed.2

B. DCO Registration Framework

Section 5b(a) of the CEA provides that a clearing organization may not “perform 

the functions of a [DCO]”3 with respect to futures4 or swaps unless the clearing 

organization is registered with the Commission.5 The CEA permits the Commission to 

exempt a non-U.S. clearing organization from registration as a DCO for the clearing of 

 1 See Registration With Alternative Compliance for Non-U.S. Derivatives Clearing Organizations, 84 FR 

34819 (July 19, 2019).

2 The Commission has made several clarifying changes to the rule text that do not otherwise alter the 

substance of the rules. In addition, in light of comments received, the Commission is adding a process for 

current non-U.S. DCOs to avail themselves of the new compliance regime without requiring de novo

registration, but rather by amending the DCO’s registration order in accordance with § 39.3(d).

3 The term “derivatives clearing organization” is defined in the CEA to mean a clearing organization in 

general. However, for purposes of the discussion in this release, the term “DCO” refers to a Commissionregistered DCO, the term “exempt DCO” refers to a derivatives clearing organization that is exempt from 

registration, and the term “clearing organization” refers to a clearing organization that: (a) is neither 

registered nor exempt from registration with the Commission as a DCO; and (b) falls within the definition 

of “derivatives clearing organization” under section 1a(15) of the CEA, 7 U.S.C. 1a(15), and “clearing 

organization or derivatives clearing organization” under § 1.3, 17 CFR 1.3.

4 Section 4(a) of the CEA restricts the execution of a futures contract to a designated contract market 

(DCM), and § 38.601 of the Commission’s regulations requires any transaction executed on or through a 

DCM to be cleared at a DCO. See 7 U.S.C. 6; 17 CFR 38.601. Trades executed on or through a registered 

foreign board of trade must be cleared through a DCO or a clearing organization that observes the CPMIIOSCO Principles for Financial Market Infrastructures and is in good regulatory standing in its home 

country jurisdiction. See 17 CFR 48.7(d).

5 7 U.S.C. 7a-1(a). Under section 2(i) of the CEA, 7 U.S.C. 2(i), activities outside of the United States are 

not subject to the swap provisions of the CEA, including any rules prescribed or regulations promulgated 

thereunder, unless those activities either “have a direct and significant connection with activities in, or 

effect on, commerce of the United States,” or contravene any rule or regulation established to prevent 

evasion of a CEA provision enacted under the Dodd-Frank Wall Street Reform and Consumer Protection 

Act, Pub. L. 111–203, 124 Stat. 1376 (Dodd-Frank Act). Therefore, pursuant to section 2(i), the DCO 

registration requirement extends to any clearing organization whose clearing activities outside of the United 

States have a “direct and significant connection with activities in, or effect on, commerce of the United 

States.”
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swaps if the clearing organization is “subject to comparable, comprehensive supervision 

and regulation” by its home country regulator.6

 The Commission has granted exemptions 

from DCO registration but so far has limited exempt DCOs to clearing only proprietary 

swaps for U.S. persons due to uncertainty regarding the bankruptcy treatment of funds 

used to margin, guarantee, or secure cleared swaps customer positions if cleared at an 

exempt DCO.

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 As a result, some non-U.S. clearing organizations have opted to register 

with the Commission as a DCO in order to clear swaps for customers of futures 

commission merchants (FCMs).

The CEA requires that, in order to register and maintain registration as a DCO, a 

clearing organization must comply with each of the DCO Core Principles and any

requirement that the Commission imposes by rule or regulation.8 The Commission 

adopted the regulations in subpart B of Part 39 to implement the DCO Core Principles.9

Of the 15 DCOs currently registered with the Commission, five are organized 

outside of the United States.

10 These DCOs are also registered (or have comparable 

status) in their respective home countries, which means they are required to comply with 

 6 Section 5b(h) of the CEA, 7 U.S.C. 7a-1(h). Section 5b(h) also permits the Commission to exempt from 

DCO registration a securities clearing agency registered with the Securities and Exchange Commission; 

however, the Commission has not granted, nor developed a framework for granting, such exemptions.

7 In 2018, the Commission proposed regulations that would codify the policies and procedures that the 

Commission currently follows with respect to granting exemptions from DCO registration to non-U.S. 

clearing organizations. See Exemption From Derivatives Clearing Organization Registration, 83 FR 39923 

(Aug. 13, 2018). On July 11, 2019, as a supplement to that proposal, the Commission proposed to permit 

exempt DCOs to clear swaps for U.S. customers through foreign intermediaries. See Exemption From 

Derivatives Clearing Organization Registration, 84 FR 35456 (Jul. 23, 2019). All references to exempt 

DCOs contained in this release relate to the existing exempt DCO regime and are not indicative of the 

Commission’s response to comments received on either of the proposals referenced in this paragraph.

8 7 U.S.C. 7a-1(c)(2)(A)(i).

9 Derivatives Clearing Organization General Provisions and Core Principles, 76 FR 69334 (Nov. 8, 2011).

10 The five DCOs organized outside of the United States are Eurex Clearing AG, ICE Clear Europe Ltd, 

ICE NGX Canada Inc., LCH Ltd, and LCH SA.
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the CEA and Part 39 as well as their home country regulatory regimes, and they are 

subject to oversight by both the Commission and their home country regulators. There 

are, however, meaningful differences in the extent to which these non-U.S. DCOs clear 

swaps for U.S. persons. For example, nearly half of the swap clearing activity at LCH 

Limited, if measured on the basis of required initial margin, is attributable to U.S. 

persons,

11 whereas the percentage of clearing activity generated by U.S. persons at other

non-U.S. DCOs is far less. The Commission, recognizing this regulatory overlap yet 

mindful of its responsibilities, proposed and is adopting changes to its DCO registration 

and compliance framework to differentiate between DCOs organized in the United States 

(U.S. DCOs) and non-U.S. DCOs. The framework also distinguishes non-U.S. DCOs

that do not pose substantial risk to the U.S. financial system from those that do.

The alternative compliance framework is not available to U.S. DCOs. U.S. DCOs

must comply with the CEA and all Commission regulations applicable to DCOs, 

including all of subparts A and B of Part 39.

12 In addition, any non-U.S. DCO registered

to clear futures listed for trading on a DCM is not eligible for the alternative compliance 

regime at this time. Most non-U.S. DCOs are registered for the purpose of clearing 

swaps only, and as noted in the proposal, the Commission’s regulatory framework 

already distinguishes between clearing of futures executed on a DCM, for which DCO 

registration is required, and clearing of foreign futures, for which it is not.

 11 Nearly half of the total required initial margin that U.S. persons post globally in connection with cleared 

swaps is held at LCH Limited.

12 In addition, any DCO that has elected to be subject to subpart C of Part 39, or that has been designated as 

systemically important by the Financial Stability Oversight Council, must comply with subpart C.
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Under Part 39 as now amended, a non-U.S. clearing organization that wants to 

clear only swaps for U.S. persons has two registration options. First, the non-U.S. 

clearing organization may apply for DCO registration under the existing procedures in § 

39.3(a)(2) and be subject to all Commission regulations applicable to DCOs, including 

subpart B of Part 39. If, however, the non-U.S. clearing organization does not pose 

substantial risk to the U.S. financial system and meets the requirements of § 39.51, as 

discussed below, it now has the option to be registered and maintain registration as a 

DCO by relying largely on its home country regulatory regime, in lieu of full compliance 

with Commission regulations.

C. Overview of the New Requirements

The CEA requires a DCO to comply with the DCO Core Principles and any 

requirement that the Commission imposes by rule or regulation.13 The CEA further 

provides that, subject to any rule or regulation prescribed by the Commission, a DCO has 

“reasonable discretion” in establishing the manner by which the DCO complies with each 

DCO Core Principle.14 Currently, a DCO is required to comply with all of the 

regulations in subpart B of Part 39, which were adopted to implement the DCO Core 

Principles. The Commission is amending its regulations to allow a non-U.S. clearing 

organization that seeks to clear swaps for U.S. persons,15 including FCM customers, to 

register as a DCO and, in most instances, comply with the applicable legal requirements 

 13 7 U.S.C. 7a-1(c)(2)(A)(i).

14 7 U.S.C. 7a-1(c)(2)(A)(ii).

15 The Commission proposes to use the interpretation of “U.S. person” as set forth in the Commission’s 

Interpretive Guidance and Policy Statement Regarding Compliance With Certain Swap Regulations, 78 FR 

45292, 45316 – 45317 (July 26, 2013) (“Cross-Border Guidance”), as such definition may be amended or 

superseded by a definition of the term “U.S. person” that is adopted by the Commission.
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in its home country as an alternative means of complying with the DCO Core 

Principles.16

A non-U.S. clearing organization applying for registration as a DCO subject to

alternative compliance will be eligible if: (1) the Commission determines that the clearing 

organization’s compliance with its home country regulatory regime would satisfy the 

DCO Core Principles;17 (2) the clearing organization is in good regulatory standing in its 

home country; and (3) a memorandum of understanding (MOU) or similar arrangement 

satisfactory to the Commission is in effect between the Commission and the clearing 

organization’s home country regulator. Each of these requirements is described in 

greater detail below.

An applicant for DCO registration subject to alternative compliance will be 

required to file only certain exhibits of Form DCO,18 including a regulatory compliance 

chart in which the applicant identifies the applicable, legally binding requirements in its 

home country that correspond with each DCO Core Principle and explains how the 

applicant satisfies those requirements. If the application is approved by the Commission, 

the DCO will be permitted to comply with its home country regulatory regime rather than 

the regulations in subpart B of Part 39, with the exception of § 39.15, which concerns 

 16 The Commission is promulgating the final rule pursuant to its authority in section 5b(c)(2)(A), 7 U.S.C. 

7a-1(c)(2)(A). The section confers on the Commission the authority and discretion to establish 

requirements for meeting DCO Core Principles through rules and regulations issued pursuant to section 

8a(5), 12 U.S.C. 12a(5). In exercise of that discretion, the Commission has developed an alternative 

compliance regime whereby a non-U.S. DCO may comply with the Core Principles through compliance 

with its home jurisdiction’s requirements.

17 As described further below, if a non-U.S. DCO fails to demonstrate compliance with a particular DCO 

Core Principle, the DCO may nevertheless be able to rely on alternative compliance for those DCO Core 

Principles for which it is able to demonstrate compliance.

18 Whereas an applicant for DCO registration must file the numerous and extensive exhibits required by 

Form DCO, an applicant for alternative compliance will only be required to file certain exhibits. See

Appendix A to Part 39, 17 CFR part 39, appendix A.
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treatment of funds, and certain regulations related to those Core Principles for which the 

applicant has not demonstrated that compliance with the home country requirements 

satisfies them. Because the DCO will be permitted to clear swaps for customers19

through registered FCMs, the DCO will be required to fully comply with the 

Commission’s customer protection requirements,20 as well as the swap data reporting 

requirements in part 45 of the Commission’s regulations. The DCO also will be required 

to comply with certain ongoing and event-specific reporting requirements that are more 

limited in scope than the reporting requirements for existing DCOs. The eligibility 

criteria, conditions, and reporting requirements will be set forth in new subpart D of Part 

39.

Assuming all other eligibility criteria continue to be met, the non-U.S. DCO will 

be eligible for alternative compliance unless and until its U.S. clearing activity (as 

measured by initial margin requirements attributable to U.S. clearing members) increases 

to the point that the Commission determines the DCO poses substantial risk to the U.S. 

financial system, as described below.

D. Comments on the Notice of Proposed Rulemaking

The Commission requested comment on the proposed rulemaking and invited 

commenters to provide data and analysis regarding any aspect of the proposal. The 

 19 Section 2(e) of the CEA makes it unlawful for any person, other than an eligible contract participant, to 

enter into a swap unless the swap is entered into on, or subject to the rules of, a DCM. 7 U.S.C. 2(e). 

“Eligible contract participant” is defined in section 1a(18) of the CEA and § 1.3 of the Commission’s 

regulations. 7 U.S.C. 1a(18); 17 CFR 1.3.

20 Section 4d(f)(1) of the CEA makes it unlawful for any person to accept money, securities, or property 

(i.e., funds) from a swaps customer to margin a swap cleared through a DCO unless the person is registered 

as an FCM. 7 U.S.C. 6d(f)(1). Any swaps customer funds held by a DCO are also subject to the 

segregation requirements of section 4d(f)(2) of the CEA and related regulations.
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Commission received a total of 15 substantive comment letters in response.21 After the 

initial sixty-day comment period expired, the Commission extended the comment period 

for an additional sixty days.22 After considering the comments, the Commission is 

largely adopting the rule changes as proposed, for the reasons explained below. In the 

discussion below, the Commission highlights topics of particular interest to commenters 

and discusses comments that are representative of the views expressed on those topics. 

The discussion does not explicitly respond to every comment submitted; rather, it 

addresses the most significant issues raised by the proposed rulemaking and analyzes 

those issues in the context of specific comments.

II. Amendments to Parts 39 and 140 of the Commission’s Regulations

A. Regulation 39.2 - Definitions

1. Good Regulatory Standing

The Commission proposed that, to be eligible for registration with alternative 

compliance, a DCO would have to be in good regulatory standing in its home country. 

The Commission further proposed that “good regulatory standing” be defined to mean 

either that there has been no finding by the home country regulator of material nonobservance of the relevant home country legal requirements, or there has been a finding 

by the home country regulator of material non-observance of the relevant home country 

 21 The Commission received comment letters addressing the proposal submitted by the following: ASX 

Clear (Futures) Pty Ltd (ASX); Better Markets, Inc. (Better Markets); CCP12; The Clearing Corporation of 

India Ltd. (CCIL); Citadel; Eurex Clearing AG (Eurex); Futures Industry Association (FIA); 

Intercontinental Exchange, Inc. (ICE); International Swaps and Derivatives Association, Inc. (ISDA); Japan 

Securities Clearing Corporation (JSCC); Kermit R. Kubitz; LCH Ltd and LCH SA (LCH); Securities 

Industry and Financial Markets Association (SIFMA); World Federation of Exchanges (WFE); and ASX, 

JSCC, Korea Exchange Inc., and OTC Clearing Hong Kong Limited (“ASX, JSCC, KRX, and OTC 

Clear”).

22 See Registration With Alternative Compliance For Non-U.S. Derivatives Clearing Organizations, 84 FR 

49072 (Sept. 18, 2019).
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legal requirements but any such finding has been or is being resolved to the satisfaction 

of the home country regulator by means of corrective action taken by the DCO.

In connection with the proposed definition of “good regulatory standing,” the 

Commission also requested comment on the following question: “Although the 

Commission proposes to incorporate a standard of ‘material’ non-observance in the 

definition, should it instead remove references to materiality, and thus capture all 

instances of non-observance?”

The Commission did not receive any comments on the requirement that a DCO be

in good regulatory standing in its home country to be eligible for registration with 

alternative compliance, but several commenters addressed the definition of “good 

regulatory standing.” Eurex, ICE, and CCIL supported the definition’s standard of 

“material” non-observance. In contrast, Better Markets argued that the definition does 

not provide sufficient assurance of the DCO’s compliance with relevant home country 

regulations because it allows non-U.S. DCOs that have been found non-compliant with 

certain home country regulations to maintain good regulatory standing. Better Markets 

argued that a non-U.S. DCO should be required to secure a representation from its 

regulator that it remains in good regulatory standing, without allowing for “material nonobservance” of applicable law when that non-observance is in the process of being 

resolved to the satisfaction of the home country regulator.

The Commission is adopting the definition of “good regulatory standing” largely 

as proposed.23 The Commission’s supervisory experience with DCOs has shown that 

 23 In an earlier, separate rulemaking, the Commission had proposed to define “good regulatory standing” in 

a way that would apply only to exempt DCOs. See Exemption From Derivatives Clearing Organization 

Registration, 83 FR at 39933. Therefore, in the proposal for this rulemaking, the Commission proposed a 
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even well-functioning DCOs will experience instances of non-observance of applicable 

requirements – both material and immaterial. The Commission therefore seeks to refrain

from adopting a mechanical or hyper-technical approach whereby isolated instances of 

non-observance would be disqualifying.24 The Commission further believes that the 

definition provides adequate assurance of compliance with home country regulation, 

because any material non-observance must be resolved to the satisfaction of the home 

country regulator in order for the DCO to be deemed to be in good standing.

2. Substantial Risk to the U.S. Financial System

The Commission has a strong supervisory interest in any DCO that is registered, 

or required to register, with the Commission, regardless of its location. Given the global 

nature of the swaps market, these DCOs typically operate in multiple jurisdictions and are 

subject to overlapping or duplicative regulations. In developing the alternative 

compliance regime, the Commission has strived to allow for greater deference to foreign 

jurisdictions so as to reduce overlapping supervision and regulatory inefficiencies, while 

retaining direct oversight over non-U.S. DCOs that – due to the level of their U.S. 

clearing activity - raise a greater level of supervisory interests (relative to other non-U.S. 

 

definition of “good regulatory standing” that retained the previously proposed definition for exempt DCOs 

but added a separate provision that would apply only to DCOs subject to alternative compliance. See 

Registration With Alternative Compliance for Non-U.S. Derivatives Clearing Organizations, 84 FR at 

34831. The Commission is adopting only that portion of the definition that applies to DCOs subject to 

alternative compliance. The Commission will amend the definition of “good regulatory standing” as 

necessary if it finalizes the rulemaking on exempt DCOs.

24 While the Commission expects, in almost all cases, to defer to the home country regulator’s 

determination of whether an instance of non-compliance is or is not material, it does retain the discretion, in 

the context of the application of these rules of the Commission, to make that determination itself, and, in 

order to make such a determination, to obtain information from the home country regulator pursuant to the 

relevant MOU.
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DCOs).

25 The proposed “substantial risk” test is designed to assist the Commission’s 

assessment of its supervisory interest in a particular non-U.S. DCO.

For purposes of this rulemaking, the Commission proposed to define the term 

“substantial risk to the U.S. financial system” to mean, with respect to a non-U.S. DCO, 

that (1) the DCO holds 20 percent or more of the required initial margin26 of U.S. 

clearing members for swaps across all registered and exempt DCOs; and (2) 20 percent or 

more of the initial margin requirements for swaps at that DCO is attributable to U.S. 

clearing members; provided, however, where one or both of these thresholds are close to 

20 percent, the Commission may exercise discretion in determining whether the DCO 

poses substantial risk to the U.S. financial system.

The first prong of the test addresses systemic risk, and the Commission’s primary 

systemic risk concern arises from the potential for loss of clearing services for a 

significant part of the U.S. swaps market in the event of a catastrophic occurrence 

affecting the DCO. The second prong respects international comity27 by ensuring that the 

 25 In developing the alternative compliance regime, the Commission is guided by principles of international 

comity, which counsel courts and agencies to act reasonably and with due regard for the important interests 

of foreign sovereigns in exercising jurisdiction with respect to activities taking place abroad. See

Restatement (Third) of Foreign Relations Law of the United States (the Restatement). With regard to 

deference, the G20 “agree[d] that jurisdictions and regulators should be able to defer to each other when it 

is justified by the quality of their respective regulatory and enforcement regimes, based on similar 

outcomes, in a non-discriminatory way, paying due respect to home country regulation regimes.” G20 

Leaders’ Declaration, St. Petersburg Summit, para. 71 (Sept. 6, 2013).

26 In general, initial margin requirements are risk-based and are meant to cover a DCO’s potential future 

exposure to clearing members based on price movements in the interval between the last collection of 

variation margin and the time within which the DCO estimates that it would be able to liquidate a 

defaulting clearing member’s portfolio. This risk-based element of the test focuses on the initial margin 

attributable to those clearing members who, by virtue of their relationship and connection to the U.S. 

financial system, raise systemic risk concerns. Accordingly, the Commission believes the relative risk that 

a DCO poses to the U.S. financial system can be identified by the cumulative sum of initial margin 

attributable to U.S. clearing members collected by the DCO.

27 In developing this rulemaking, the Commission was guided by principles of international comity, which 

counsel due regard for the important interests of foreign sovereigns. See Restatement (Third) of Foreign 

Relations Law of the United States (the Restatement).
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substantial risk test captures only those non-U.S. DCOs with clearing activity attributable 

to U.S. clearing members sufficient to warrant more active oversight by the Commission. 

Even if a non-U.S. DCO satisfies the first prong, it may still qualify for registration 

subject to alternative compliance if the proportion of U.S. activity it clears does not 

satisfy the second prong.

Under the test, the term ‘‘substantial’’ would apply to proportions of 

approximately 20 percent or greater. The Commission reiterates that this is not a brightline test; by offering this figure, the Commission does not intend to suggest that, for 

example, a DCO that holds 20.1 percent of the required initial margin of U.S. clearing 

members would potentially pose substantial risk to the U.S. financial system, while a 

DCO that holds 19.9 percent would not. The Commission is instead indicating how it 

would assess the meaning of the term ‘‘substantial’’ in the test.

The Commission recognizes that if a test were to rely solely on initial margin 

requirements of U.S. clearing members, it may not fully capture the risk of that DCO to 

the U.S. financial system. Therefore, under the substantial risk test, the Commission

retains a degree of discretion to determine whether a non-U.S. DCO poses substantial risk 

to the U.S. financial system. In making its determination, the Commission may look at 

other factors that may reduce or mitigate the DCO’s risk to the U.S. financial system, or 

provide other indication of the systemic risk presented by the DCO.

The Commission specifically requested comment on the following question: “Is

the proposed test for ‘substantial risk to the U.S. financial system’ the best measure of 

such risk? If not, please explain why, and if there is a better measure/metric that the 

Commission should use, please provide a rationale and supporting data, if available.”
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The Commission received a variety of comments regarding the substantial risk 

test. Some comments were generally supportive of the test and its component parts, but 

the majority of comments raised questions and concerns about the test, including the 

elements of the test, the discretion afforded to the Commission, and the operation of the 

test and its ramifications. LCH and CCIL both supported the substantial risk test. In 

particular, LCH supported using initial margin as an indicator of a non-U.S. DCO’s risk 

to the U.S. financial system. LCH asserted that initial margin is superior to gross 

notional for analyzing risk, arguing that for cleared swaps gross notional does not provide 

a clear indication of risk and could lead to an over-estimation of the underlying risk 

managed by the DCO. CCIL agrees with the proposed test for substantial risk to the U.S. 

financial system based on the joint application of the two thresholds in the test.

Two commenters questioned how the Commission developed the substantial risk 

test, particularly the thresholds in the test, and requested additional information regarding 

this process. ICE stated that it is not clear from the proposal how the Commission 

determined that the 20 percent thresholds indicate that a non-U.S. DCO poses a 

substantial risk to the U.S. financial system. ICE requested that the Commission provide 

an explanation of the basis for this determination. Citadel requested that the Commission 

provide further information regarding how the criteria were developed, as well as the 

expected practical impact if the test were applied, including how many currently 

registered non-U.S. DCOs the Commission would identify as posing substantial risk to 

the U.S. financial system. Better Markets specifically opposed the first prong of the 

substantial risk test, which asks whether the DCO holds 20 percent or more of the 

required initial margin of U.S. clearing members for swaps across all registered and 
15

exempt DCOs. It argued that because the Commission did not provide data regarding the 

value of 20 percent of the U.S. clearing members’ initial margin across all swaps, and did 

not provide a data-based rationale for choosing 20 percent as the appropriate threshold, 

the implications of this prong of the test are highly speculative, which in turn limits the 

ability of the public to meaningfully comment on the proposal. Based on its analysis of 

2018 data from ISDA, Better Markets suggested that LCH Ltd. would be the only nonU.S. DCO to meet the criteria for presenting a substantial risk to the U.S. financial 

system. Better Markets further noted that, based on the ISDA data, ICE Clear Credit 

(were it not U.S.-based) would be eligible for alternative compliance under the first prong 

of the definition, despite being deemed systemically important by the Financial Stability 

Oversight Council (FSOC).

In developing the “substantial risk” test, the Commission applied its experience in 

regulating non-U.S. DCOs, including circumstances in which there can be substantial 

overlap between the regulatory and supervisory activity of the DCO’s home country 

regulator and that of the Commission, as well as any associated benefits and challenges. 

The Commission anticipates that based on current clearing activity, one non-U.S. DCO, 

LCH Ltd, would satisfy the substantial risk test. With respect to the reference to FSOC 

designation, the Commission observes that while both the substantial risk inquiry and 

FSOC designation relate generally to issues of systemic risk, the related assessments will 

necessarily differ given their different purposes and consequences. 28 The substantial risk 

 28 Section 804 of the Dodd-Frank Act provides the FSOC the authority to designate a financial market 

utility (FMU), including a DCO, that the FSOC determines is or is likely to become systemically important 

because the failure of or a disruption to the functioning of the FMU could create, or increase, the risk of 

significant liquidity or credit problems spreading among financial institutions or markets and thereby 

threaten the stability of the U.S. financial system. See Authority to Designate Financial Market Utilities as 

Systemically Important, 76 FR 44763 (July 27, 2011).
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test is designed to better calibrate the Commission’s oversight of non-U.S. DCOs, based 

on the principle of deference to their home country regulators, while at the same time 

taking into consideration risk to U.S. clearing members and ultimately, the U.S. financial 

system. If a non-U.S. DCO is determined to pose “substantial risk,” the Commission 

may not defer to the home country regulatory regime and the DCO will be required to 

comply with both Commission requirements and its home country requirements if it 

conducts activities requiring registration with the Commission. On the other hand, the 

FSOC designation process focuses on identifying those FMUs whose failure or disruption 

could threaten the U.S. financial system.29 The consequence of FSOC designation is that 

the FMU becomes subject to enhanced regulatory supervision. To date, the only DCOs 

designated by FSOC have been U.S. DCOs. Nevertheless, a non-U.S. DCO designated 

by FSOC would not be eligible for alternative compliance.

30

The Commission disagrees that commenters did not have access to sufficient 

information to comment on the first prong of the substantial risk test. Better Markets’ 

analysis of how the test would apply to various DCOs based on publicly available 

information is inconsistent with that claim. The Commission continues to believe that the 

first prong of the test is properly calibrated to capture those non-U.S. DCOs that pose 

 29 In making a determination with respect to whether a FMU is, or is likely to become, systemically 

important, the FSOC takes into consideration: the aggregate monetary value of transactions processed by 

the FMU; the aggregate exposure of the FMU to its counterparties; the relationship, interdependencies, or 

other interactions of the FMU with other FMUs or payment, clearing, or settlement activities; the effect that 

the failure of or a disruption to the FMU would have on critical markets, financial institutions, or the 

broader financial system; and any other factors the FSOC deems appropriate. See 12 CFR 1320.10.

30 The Commission did not propose to amend § 39.30(b), which subjects a “systemically important [DCO]” 

(defined in §39.2 as a DCO designated by the FSOC for which the Commission acts as the Supervisory 

Agency) to the provisions of subparts A and B of Part 39.
17

substantial risk to the U.S. financial system. The Commission also observes that no 

commenter offered an alternative version of the test.

Several commenters supported the first prong of the substantial risk test but 

questioned the wisdom and utility of the second prong. ISDA opposed the second prong 

and requested that it be eliminated. ISDA stated that although it generally supports clear 

thresholds for determining whether a DCO poses substantial risk to the U.S. financial 

system, the second prong of the test does not gauge the risk of the relevant non-U.S. 

DCO to the U.S. financial system, but instead signifies the importance of U.S. clearing 

members to that particular DCO.31 ISDA further argued that the second prong may 

incentivize non-U.S. DCOs to limit clearing for U.S. persons to avoid being designated as 

posing substantial risk to the U.S. financial system, and thus being ineligible for 

registration with alternative compliance. ISDA argued that this situation would harm 

U.S. banking groups, and could be viewed as violating the spirit of the Principles for 

Financial Market Infrastructures requirement to provide non-discriminatory treatment of 

all clearing members.32 WFE and Eurex also acknowledged the first prong as an 

appropriate measure of risk, but questioned the second prong on similar grounds.

As the Commission explained previously, the second prong ensures that the test 

will capture a non-U.S. DCO only if a sufficiently large portion of its clearing activity is

attributable to U.S. clearing members such that the United States has a substantial interest 

 31 ISDA also did not recognize that the proposed definition of “substantial risk to the financial system” 

requires that both prongs of the test, and not only one or the other, be satisfied in order for a non-U.S. DCO 

to satisfy the test. Based on this misunderstanding, ISDA argued that the second prong does not provide an 

independent basis for finding that a non-U.S. DCO presents substantial risk to the financial system. In 

response to this comment, the Commission reaffirms that the substantial risk test is a two-prong test in 

which both the first and second prongs must be satisfied.

32 See CPMI–IOSCO, Principles for Financial Market Infrastructures (PFMIs), at Principle 18 (Apr. 2012), 

available at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD377-PFMI.pdf. 
18

warranting more active Commission oversight. While a non-U.S. DCO could

theoretically be incentivized to discriminate against U.S. clearing members to avoid 

satisfying the second prong, the Commission does not view this as a significant risk as a 

practical matter. It is unlikely that a DCO would have enough U.S. clearing member 

activity to satisfy the first prong, but would be able to avoid satisfying the second prong 

by manipulating its U.S. clearing member activity. In any event, the discretion afforded 

the Commission in the substantial risk test should dull any incentive for a DCO to reject 

U.S. clearing member business for the purposes of the test.

Three commenters questioned whether the substantial risk test should account for

other factors, including the market share a non-U.S. DCO has with respect to clearing 

certain classes of products, as well as the DCO’s size. Citadel questioned, given the 

relative size of the interest rate swap market, whether a DCO clearing swaps in another 

asset class (such as CDS) could ever be considered to pose substantial risk to the U.S. 

financial system under the proposed criteria. Citadel asserted that it would be a strange 

outcome if only non-U.S. DCOs clearing interest rate swaps would be subject to the 

Commission’s full regulatory framework for DCOs. Similarly, Better Markets argued 

that the systemic risk of a non-U.S. DCO does not turn solely on the percentage of U.S. 

clearing member initial margin posted as a percentage of the clearing market as a whole, 

but also depends on other critical systemic risk factors, such as the prominence of a 

particular clearing organization in a particular market (such as credit-related swaps), and 

the potential for correlated losses to occur across U.S. and non-U.S. DCO clearing 

members participating in that and other markets. Because these considerations are not 
19

part of the substantial risk test, Better Markets believes that the substantial risk test does 

not sufficiently addresses systemic risk concerns.

The Commission recognizes that a test based solely on initial margin 

requirements may not fully capture the risk of a given DCO. That is why the 

Commission proposed to retain discretion in determining whether a non-U.S. DCO poses 

substantial risk to the U.S. financial system, particularly where the DCO is close to 20 

percent on both prongs of the test. The Commission noted that, in making its 

determination in these cases, it would look at other factors that may reduce or mitigate 

the DCO’s risk to the U.S. financial system or provide a better indication of the DCO’s 

risk to the U.S. financial system.33 In appropriate circumstances, the factors cited by the 

commenters, along with other similar factors, may be considered in connection with an 

exercise of Commission discretion. The Commission discusses these considerations in 

additional detail below, in connection with the discussion of Commission discretion. The

Commission disagrees with the assertion that the test does not account for the size of the 

DCO. The first prong of the test, whether the DCO holds 20 percent or more of the 

required initial margin of U.S. clearing members for swaps across all registered and 

exempt DCOs, is closely correlated with the size of the DCO in that only a large DCO 

will hold that amount of initial margin.

Some commenters supported the proposal that the Commission retain the ability 

to exercise discretion for a prong of the substantial risk test that is close to the 20 percent 

threshold, as opposed to being limited to a mechanical application. WFE warned against 

 33 See Registration with Alternative Compliance for Non-U.S. Derivatives Clearing Organizations, 84 FR at 

3822.
20

any automatic trigger, stating that the Commission should be able to determine that a 

non-U.S. DCO does not pose substantial risk to the U.S. financial system, even if the 

DCO exceeds both thresholds in the substantial risk test. LCH supports the 

Commission’s ability to exercise its discretion, but only when the non-U.S. DCO is close 

to 20 percent on both prongs of the substantial risk test. Similarly, CCP12 and JSCC 

requested that the Commission clarify that the Commission would exercise its discretion 

only if both of the two thresholds are close to 20 percent. Citadel recommended that the 

Commission retain sufficient discretion to conduct a thorough analysis of the systemic 

risks associated with each non-U.S. DCO seeking to use the alternative compliance 

framework, taking into account both U.S. participation on that DCO (including clearing 

members, customers, and affiliates of U.S. firms) and the DCO’s market position within 

the relevant asset class.

Multiple commenters questioned or criticized the scope of the Commission’s

discretion under the substantial risk test. ICE argued that the potential scope of 

discretion, and the lack of definition of relevant factors that the Commission may 

consider, could create significant uncertainty as to how the Commission may classify a 

DCO, even potentially resulting in inconsistent determinations. ICE also argued that this 

lack of specificity could lead to unnecessary delays in the assessment of an applicant, 

which would increase compliance costs and may discourage clearing organizations from 

submitting an application. FIA similarly argued that the Commission’s discretion should 

be subject to some parameters so as to create more transparency and clarity. FIA 

suggested that the Commission list factors it will consider in determining whether a nonU.S. DCO poses substantial risk. Similarly, LCH recommended there be greater 
21

transparency around the qualitative factors that may be considered in a non-U.S. DCO’s 

substantial risk assessment, noting that any such factors should be measurable and 

relevant to addressing risk in the U.S. financial system. ISDA expressed concern about 

the Commission’s proposed ability to retain discretion, arguing that this discretion 

undermines the Commission’s objective to provide a bright-line test, and may lead to 

legal and compliance uncertainty. ISDA requested that the Commission clarify the 

factors that might reduce, mitigate, or provide a better indication of a non-U.S. DCO’s 

risk to the U.S. financial system.

CCIL cautioned that the Commission’s discretion to determine whether a nonU.S. DCO poses substantial risk based on one or both of the thresholds may have the 

effect of “undoing” the proposed test. FIA argued that if the Commission can exercise its 

discretion even when a DCO is approaching the threshold of only one prong of the test, 

then there would be no clarity or certainty regarding whether any particular DCO satisfies 

the test. Both FIA and CCP12 argued that the possibility that the Commission might 

exercise discretion and determine that a small non-U.S. DCO presents substantial risk to 

the U.S. financial system based on being close to the threshold on the second prong may 

create uncertainty that could lead to market fragmentation, possibly exacerbate systemic 

risk, or otherwise harm market participants, especially if the DCO attempts to reduce its 

existing U.S. clearing business, or limit new U.S. clearing business, to mitigate against

perceived uncertainty.

Better Markets argued that the Commission retained too much discretion in its 

proposed definition of substantial risk, including discretion to determine that non-U.S. 

DCOs above both thresholds do not pose substantial risk to the U.S. financial system and 
22

therefore remain eligible for alternative compliance. Better Markets further stated that

due to the breadth of this discretion, the substantial risk test effectively only provides one 

indication of how the Commission might consider eligibility for alternative compliance. 

In the view of Better Markets, the level of discretion appears to justify determinations

that a given DCO does or does not pose substantial risk based on almost any criteria or 

factors, and thus asks the public to foresee the discretionary application of vague 

regulations with a potentially wide range of possible outcomes.

In response to comments expressing concern about the Commission exercising 

discretion on the substantial risk determination as a whole based on only one of the two 

prongs being close to a 20 percent threshold, the Commission has revised the rule text to 

clarify when it will exercise discretion. Specifically, the rule text has been revised to 

provide that where one or both of these thresholds are identified as being close to 20

percent, the Commission may exercise discretion in determining whether an identified 

threshold is satisfied for the purpose of determining whether the DCO poses substantial 

risk to the U.S. financial system. This was always the Commission’s intent with respect 

to the exercise of discretion, but the Commission agrees with commenters who indicated 

that the language in the proposal was not sufficiently clear.

The Commission intends to consider all factors it believes are relevant to 

determine whether a non-U.S. DCO poses substantial risk to the U.S. financial system. 

The following non-exclusive examples illustrate the factors the Commission may

consider in exercising discretion under the substantial risk test: the market share of the 

DCO in clearing a given asset class, and the importance of those products to the U.S. 

financial system; whether positions cleared at the DCO are portable to another DCO and 
23

the potential disruptions associated with transferring positions; whether the sudden failure 

of the DCO would significantly reduce the availability of clearing services to U.S. 

clearing members; and whether settlements at the DCO are primarily denominated in 

U.S. dollars.

As one commenter correctly observed, the Commission retained discretion to 

determine that non-U.S. DCOs above both thresholds nevertheless remain eligible for 

alternative compliance. The Commission wishes to clarify, however, that it does not 

intend to exercise discretion in a manner that would have the effect of negating the test. 

Exercising discretion is the exception, not the rule, and the Commission accordingly 

intends to exercise its discretion sparingly, and on a case-by-case basis, weighing and 

considering factors that possibly are unique to the DCO and its profile in the marketplace. 

Lastly, the Commission wishes to clarify that it intends to exercise its discretion on a 

sliding scale where the further the non-U.S. DCO is from the thresholds, the more 

numerous or compelling the factors will need to be for the Commission to exercise 

discretion.

The Commission received a number of process-related comments regarding the 

substantial risk test. Some of the comments were directly responsive to the 

Commission’s request in the proposal for comment regarding the frequency with which 

the Commission should reassess whether a DCO presents substantial risk to the U.S. 

financial system, and across what time period after the DCO is registered under the 

alternative compliance regime, or otherwise addressed that same topic.

34 Additionally, a 

 34 See Registration With Alternative Compliance for Non-U.S. Derivatives Clearing Organizations, 84 FR 

at 34826.
24

number of commenters had other comments, questions, and recommendations regarding 

the process by which the Commission would apply the substantial risk test, as well as the 

nature and scope of a DCO’s obligations in connection with that process.

With regard to the frequency with which the Commission will assess whether a 

DCO poses substantial risk to the U.S. financial system, LCH suggested that the 

Commission reassess a DCO’s risk to the U.S. financial system annually. CCIL, CCP12, 

and JSCC stated that the Commission should reassess a DCO every two years, and 

CCP12 added that the Commission should also reassess following a material change to 

the DCO’s clearing services or home country regulatory framework. CCP12 also 

suggested that the reassessment be regarded more as a “check-up” than a complete reapplication process in which the DCO would have to resubmit already available data, 

because the Commission already would have been receiving regular reports from the 

DCO. FIA stated that the substantial risk test should not be applied too frequently, to 

avoid DCOs oscillating between being eligible or ineligible for alternative compliance. 

CCP12 and JSCC suggested that the Commission look at an average of the previous 12 

months when reassessing each threshold to ensure that the results are not overly 

influenced by any specific event, such as quarter-end or year-end.

With regard to reassessments of a DCO’s status under the substantial risk test,

ICE asserted that it would be difficult for a DCO to determine where it stands in relation 

to the threshold in the first prong of the test because this information is not available to 

DCOs. ICE argued that although the Commission may have this information, the 

standard needs to be one that is predictable and assessable for the DCOs themselves. ICE 

further stated that it is not clear how often a DCO must test whether it poses substantial 
25

risk to the U.S. financial system, or how long it would have to come into compliance with 

all requirements applicable to DCOs that are not eligible for alternative compliance if it 

ceases to be eligible. Similarly, ISDA requested that the Commission affirm that the 

Commission will monitor the 20 percent threshold test by analyzing the data DCOs 

already report to the Commission, and that a non-U.S. DCO has no obligations with 

respect to the monitoring of the 20 percent threshold apart from its reporting 

requirements. CCP12 recommended that the Commission use an observation period of 

sufficient duration before determining that a non-U.S. DCO exceeds the thresholds in the 

substantial risk test, to verify whether the breach is a structural trend or a temporary 

condition.

FIA stated that there should be a formal process to designate a DCO as one that 

poses substantial risk to the U.S. financial system, and that the Commission should 

clearly establish the frequency with which the substantial risk test will be applied to 

DCOs. WFE suggested that the Commission adopt and implement formal milestones in 

the substantial risk determination process. Specifically, WFE suggested that when a 

DCO approaches a threshold in the substantial risk test, but prior to any Commission 

determination that the DCO poses substantial risk, the Commission should initiate 

discussions with both the DCO and its home country supervisor, and allow the DCO to 

raise substantive and procedural issues with the Commission. In addition, WFE stated 

that if the Commission determines that a DCO poses substantial risk to the U.S. financial 

system, that the determination should be accompanied by a communication outlining the 

factors the Commission took into consideration in making the determination, and that 

DCOs should be able to appeal the determination.
26

FIA stated that the DCO, home country regulator, and, if practicable, other 

interested parties should be given the opportunity to provide feedback to the Commission

when it is determining whether a DCO presents substantial risk, and that the DCO should 

be given a grace period during which time it can attempt to drop under the relevant 

thresholds. FIA stated that the Commission should make clear what is expected to occur 

if a DCO that is registered subject to alternative compliance and clears for U.S. customers 

becomes ineligible for alternative compliance, and should allow an appropriate timeframe 

for the orderly transfer or close out of any accounts held by U.S. customers at the relevant 

DCO in the event the non-U.S. DCO decides to limit clearing activity by U.S. clearing 

members to attempt to remain below the thresholds in the substantial risk test. FIA 

argued that it is vital that clearing members be given ample notice of a proposed 

determination by the Commission, together with the basis for such determination. 

CCP12 also requested that the Commission provide sufficient notice to the DCO to 

permit it to adjust its clearing business prior to a determination that the DCO poses 

substantial risk to the U.S. financial system.

FIA asserted that because the substantial risk test is applied on an ongoing basis, 

the Commission should commit to publishing and updating as appropriate a list of nonU.S. DCOs that pose substantial risk to the U.S. financial system and are therefore 

ineligible for alternative compliance. FIA explained that market participants will assume 

that a DCO that does not currently pose substantial risk to the U.S. financial system will 

continue to be able to facilitate U.S. customer clearing. Firms will be better positioned to 

plan for, and potentially mitigate, the business and market disruptions that could result 

from a DCO’s addition to the list if they have notice of the Commission’s intention.
27

The Commission is mindful of the concerns raised by commenters regarding the 

frequency with which the Commission should assess whether a DCO presents substantial 

risk to the U.S. financial system. At this time, however, the Commission declines to

define a specific time period for reassessment of whether a DCO presents substantial risk. 

The Commission notes that because it will be receiving the relevant data from DCOs 

daily, it intends to monitor whether a non-U.S. DCO subject to alternative compliance 

presents “substantial risk to the U.S. financial system” on an ongoing basis.

In response to the concerns commenters expressed regarding the process that the 

Commission will use to determine whether a non-U.S. DCO satisfies the substantial risk 

test, and to inform the DCO of that determination, the Commission notes that it has 

extensive experience with engaging DCOs on a cooperative basis, and anticipates doing 

so in circumstances in which a non-U.S. DCO may pose substantial risk to the U.S. 

financial system. The Commission anticipates early and significant dialogue with nonU.S. DCOs if they approach the thresholds, and welcomes engagement with the DCO and 

its home country regulators, especially if it appears that the DCO is projected to exceed

the thresholds in the substantial risk test. In applying the test, the Commission will focus 

on the non-U.S. DCO’s current U.S. clearing member activity relative to the thresholds, 

and whether any increases in activity by U.S. clearing members appear to be temporary, 

or are part of a persistent trend. The Commission does not intend that, absent 

extraordinary circumstances, non-U.S. DCOs will alternate between traditional 

registration and registration with alternative compliance, as that would not benefit the 

non-U.S. DCO, market participants, or the Commission. Lastly, the Commission does 

not intend to publish a list of non-U.S. DCOs that pose substantial risk to the U.S. 
28

financial system. If a non-U.S. DCO subject to alternative compliance becomes 

ineligible for alternative compliance for any reason, the Commission will modify the 

DCO’s registration order, which is public, to provide that it must comply with all 

Commission regulations applicable to DCOs and to provide a reasonable period of time 

for it to do so, pursuant to § 39.51(d)(4). This process should not result in any disruption 

to market participants. In the unlikely event that a non-U.S. DCO responds to a 

determination that it is no longer eligible for alternative compliance by requesting a 

vacation of its registration, the Commission will work with the DCO and market 

participants to minimize market disruption.

The Commission is adopting the substantial risk test as proposed, with one 

exception. As explained above, the Commission is modifying the rule text to clarify the 

scope of Commission discretion under the test.

3. U.S. Clearing Member

The substantial risk test focuses on the clearing activity of U.S. clearing members 

at non-U.S. DCOs. For purposes of the test, the Commission proposed to define “U.S. 

clearing member” as a clearing member of a non-U.S. DCO that falls within one of three 

categories: it is organized in the United States; it is an FCM, which means it may clear 

for U.S. customers; or it is a non-U.S. entity whose ultimate parent company is organized 

in the United States.

The comments focused on one aspect of the proposed definition of U.S. clearing 

member. Specifically, ICE, ISDA, WFE, CCP12, FIA, JSCC, and Eurex opposed the 

definition’s inclusion of clearing members that are organized outside of the United States, 
29

but whose ultimate parent company is organized in the United States.35 For example, 

ICE stated that the definition of “U.S. clearing member” is overbroad and should instead 

focus only on the location and activity of the clearing member itself. ICE argued that the 

fact that a clearing member located outside of the United States has a U.S. parent does 

not mean that its clearing activity at a non-U.S. DCO has or can be expected to have an

effect on U.S. markets. FIA stated that affiliates with parent companies in the U.S. are 

significant participants in the four currently exempt DCOs and that it is not clear why all 

trades cleared by such a clearing member would be considered to pose risk to the U.S. 

financial system. WFE argues that rather than considering a non-U.S. clearing member 

with a U.S. parent to be a U.S. clearing member in every instance, that the Commission 

consider clearing members’ legal organization (including with respect to separate 

capitalization) and parent organization recovery and resolution plans and make a 

determination based on the particular facts and circumstances.

Two commenters argued that this aspect of the proposed definition of U.S. 

clearing member is inconsistent with the Commission’s existing cross-border risk 

management framework for swaps.36 ISDA recommended that non-U.S. subsidiaries of 

U.S. swap dealers be excluded from the definition of U.S. clearing member, on the basis 

that the Commission’s Cross-Border Guidance provides that non-U.S. subsidiaries of 

U.S. swap dealers are not considered U.S. persons simply because they are part of a U.S. 

 35 CCP12, JSCC, and ISDA expressed concern that defining U.S. clearing member to include non-U.S. 

entities could lead small non-U.S. DCOs with significant clearing activity from non-U.S. subsidiaries of 

U.S. parents to satisfy the substantial risk test, given the increased likelihood that they would satisfy the 

second prong. As discussed above, both prongs of the test must be satisfied for the Commission to 

determine that a non-U.S. DCO poses substantial risk, and small DCOs will not satisfy the test because 

they will not satisfy the first prong.

36 See Cross-Border Guidance, 78 FR 45292, 45316 – 45317 (July 26, 2013).
30

banking group. CCP12 argued that section 2(i) of the CEA requires that the focus be on 

whether a non-U.S. clearing organization’s activities have a direct and significant 

connection with activities in, or effect on, commerce of the United States. CCP12 

believes that, under this approach, the focus should be on the non-U.S. clearing 

organization’s clearing for U.S. participants.

The Commission is adopting the definition of “U.S. clearing member” as 

proposed, including in the definition those clearing members that are organized outside of 

the United States, but whose ultimate parent company is organized in the United States. 

The Commission acknowledges that the definition of “U.S. clearing member” is more 

expansive than the definition of “U.S. person” in the Cross-Border Guidance in that a

clearing member organized outside of the United States is always considered to be a 

“U.S. clearing member” if it has a U.S. parent. Because the risk associated with a nonU.S. clearing member can potentially flow to its U.S. parent, the Commission believes 

that it is appropriate to consider that activity, aggregated together with other relevant 

activity, in applying the substantial risk test. This approach has the important advantage 

of being easily administered as a bright-line test, making the calculation more predictable 

than it would be under an approach based on specific facts and circumstances. The 

Commission believes this is appropriate here, where the definition does not have 

jurisdictional consequences impacting issues such as the need for registration. 

Furthermore, this definition will be used in both the numerator and denominator to 

measure clearing activity as a percentage for the purposes of the first prong, limiting its 

impact in terms of the number of non-U.S. DCOs satisfying the test.
31

B. Regulation 39.3(a)(3) – Application Procedures

The Commission proposed to amend § 39.3(a) to establish application procedures 

for a non-U.S. clearing organization seeking to register as a DCO subject to alternative 

compliance. Proposed § 39.3(a) would require an applicant to submit to the Commission 

the following sections of Form DCO, in some instances modified as described: cover 

sheet, Exhibit A-1 (regulatory compliance chart), Exhibit A-2 (proposed rulebook), 

Exhibit A-3 (narrative summary of proposed clearing activities), Exhibit A-4 (detailed 

business plan), Exhibit A-7 (documents setting forth the applicant’s corporate 

organizational structure), Exhibit A-8 (documents establishing the applicant’s legal status 

and certificate(s) of good standing or its equivalent), Exhibit A-9 (description of pending 

legal proceedings or governmental investigations), Exhibit A-10 (agreements with 

outside service providers with respect to the treatment of customer funds), Exhibits F-1 

through F-3 (documents that demonstrate compliance with the treatment of funds 

requirements with respect to FCM customers), and Exhibit R (ring-fencing 

memorandum).

As proposed, an applicant would be required to demonstrate to the Commission in 

Exhibit A-1 the extent to which compliance with the applicable legal requirements in its 

home country would constitute compliance with the DCO Core Principles. To satisfy this 

requirement, the applicant would be required to provide in Exhibit A-1 the citation and 

full text of each applicable legal requirement in its home country that corresponds with 

each DCO Core Principle and an explanation of how the applicant satisfies those 

requirements. In the event the home country lacks legal requirements that correspond 
32

with a particular DCO Core Principle, the applicant should explain how it would satisfy 

the DCO Core Principle nevertheless.

The Commission requested comment on whether it should require additional, or 

less, information from an applicant for alternative compliance as part of its application 

under proposed § 39.3(a)(3). Several commenters stated that the Commission should 

require less information from applicants. CCP12 stated that the proposed application 

procedure is substantial and therefore burdensome in terms of processes and 

administrative filings. ICE stated that the requirement that an applicant submit a chart 

comparing its home country’s requirements to each DCO Core Principle would require 

extensive work. ICE suggested that the Commission permit applicants to meet this 

requirement in a more flexible manner than by requiring the provision of a mapping 

document, such as by allowing applicants to address categories of regulatory objectives 

under the Dodd-Frank Act or Commission regulations. CCIL stated that the Commission 

should require applicants to provide only the information required to be disclosed by the 

quantitative and qualitative disclosure requirements under the PFMI standards. ICE 

similarly stated that the Commission should benchmark its comparability assessment with 

regard to compliance with international standards and, in particular, the PFMIs. Eurex 

and LCH recommended that an existing DCO applying for alternative compliance should 

not have to submit all of the exhibits required under proposed § 39.3(a)(3) because the 

Commission would already be aware of many of the documents required by the 

application.

One commenter, Mr. Kubitz, suggested that the Commission should require 

additional information from applicants, and specifically, the applicant’s current clearing 
33

volume, an explanation of any differences between the DCO Core Principles and the 

applicant’s home country regulatory regime, and a justification for any differences in the 

applicant’s home country reporting requirements.

After reviewing the comments, the Commission continues to believe that the 

information required of applicants under proposed § 39.3(a)(3) is appropriate and 

necessary to evaluate an applicant’s eligibility for alternative compliance. This includes

the regulatory compliance chart in Exhibit A-1 of Form DCO, which is necessary to 

ensure that an applicant is subject to requirements in its home country jurisdiction that 

would satisfy the DCO Core Principles. The Commission must receive this information

also to ensure that an applicant for alternative compliance actually satisfies the DCO 

Core Principles, as is required of all registered DCOs under the CEA.37 In addition, the 

Commission could not evaluate an application based on PFMI compliance because the 

CEA specifically requires compliance with the DCO Core Principles.

The Commission also does not believe that it needs to require additional 

information beyond that contained in proposed § 39.3(a)(3). If the Commission 

determines that it needs additional information to process a particular application, 

existing § 39.3(a)(3) (proposed to be renumbered as § 39.3(a)(4)) permits the 

Commission to request that the applicant provide that information.

With respect to a DCO that has already registered with the Commission pursuant 

to the procedures in § 39.3(a)(2), and that may wish to be subject to alternative 

compliance, those DCOs would not need to follow the procedures set forth in proposed § 

39.3(a)(3). Rather, a currently registered DCO that wishes to be subject to alternative 

 37 7 U.S.C. 7a-1(c)(2)(A)(i).
34

compliance would need to submit a request to amend its order of registration pursuant to 

§ 39.3(d). The initial request would need to include only Exhibits A-1 and A-8 as 

described in proposed § 39.3(a)(3). Recognizing that many of the current non-U.S. 

DCOs are subject to the European Market Infrastructure Regulation (EMIR), the 

Commission has undertaken an analysis of EMIR against the DCO Core Principles that a 

non-U.S. DCO that wishes to apply for alternative compliance may use in preparing 

Exhibit A-1.38

The Commission received some additional comments on proposed § 39.3(a) that 

do not relate to the request for comment. LCH stated that it supports the alternative 

compliance application process under proposed § 39.3(a)(3). Citadel and Mr. Kubitz 

suggested that the Commission provide a public comment period for alternative 

compliance applications, and Mr. Kubitz specifically suggested a period of 90-120 days. 

Citadel stated that market participants should be provided with an opportunity to 

comment on each application because the costs and benefits of alternative compliance, 

including the impact on U.S. market participants, may vary greatly depending on the 

specific application and the associated home country regulatory regime. Mr. Kubitz 

suggested that the MOU between the Commission and the applicant’s home country 

regulator should be made public, and that alternative compliance applications should be 

provided to relevant Congressional committees, the Federal Reserve, and the Department 

of Treasury.

The Commission is declining to require a public comment period for alternative 

compliance applications. There is no Commission regulation requiring a comment period 

 38 The analysis is provided in the appendix to this release.
35

for applications for DCO registration, and the Commission believes that it is wellequipped, with the benefit of the information applicants will need to submit to the 

Commission pursuant to § 39.3(a)(3), to determine whether an applicant should be 

registered subject to alternative compliance. However, the Commission notes that, even 

without a required comment period, DCO applications may be posted for public comment 

when the Commission believes it is warranted.39 In response to Mr. Kubitz, the 

Commission notes that it already publishes MOUs on its website.40 Finally, the 

Commission does not believe that it should require that alternative compliance 

applications be provided to Congressional committees, the Federal Reserve, or the 

Department of Treasury given that these bodies have no role assigned by statute or 

regulation in deciding whether to approve or deny an application.

The Commission is adopting § 39.3(a)(3) as proposed, but with one modification. 

In those cases where an applicant’s home country lacks legal requirements that 

correspond to a particular DCO Core Principle, the applicant would need to explain how 

it would comply with the DCO Core Principle nevertheless. The Commission is adding a 

sentence at the end of § 39.3(a)(3) to clarify that point.

 39 See, e.g., CFTC Press Release, CFTC Requests Public Comment on Related Applications Submitted by 

LedgerX, LLC for Registration as a Derivatives Clearing Organization and Swap Execution Facility (Dec. 

15, 2014), https://www.cftc.gov/PressRoom/PressReleases/pr7078-14.

40 See Memoranda of Understanding, available at:

https://www.cftc.gov/International/MemorandaofUnderstanding/index.htm.
36

C. Regulation 39.4 – Procedures for Implementing DCO Rules and Clearing 

New Products

Regulation 39.4(b) requires a DCO to submit proposed new or amended rules to 

the Commission pursuant to the self-certification procedures of § 40.6,41 as required by 

section 5c(c) of the CEA,42 unless the rules are voluntarily submitted for Commission 

approval pursuant to § 40.5. Pursuant to the Commission’s authority under section 4(c) 

of the CEA,43 the Commission proposed to revise § 39.4(c)44 to exempt DCOs that are 

subject to alternative compliance from submitting rules pursuant to section 5c(c) of the 

CEA and § 40.6, unless the rule is related to the DCO’s compliance with the 

requirements of part 45 of the Commission’s regulations,

45 or with section 4d(f) of the 

CEA,46 parts 1 or 22 of the Commission’s regulations,

47 or § 39.15,48 which set forth the 

 41 17 CFR 40.6. A “rule,” by definition, includes any constitutional provision, article of incorporation, 

bylaw, rule, regulation, resolution, interpretation, stated policy, advisory, terms and conditions, trading 

protocol, agreement or instrument corresponding thereto, including those that authorize a response or 

establish standards for responding to a specific emergency, and any amendment or addition thereto or 

repeal thereof, made or issued by a registered entity or by the governing board thereof or any committee 

thereof, in whatever form adopted. 17 CFR 40.1(i).

42 7 U.S.C. 7a-2(c).

43 7 U.S.C. 6(c). Section 4(c) of the CEA provides that, in order to promote responsible economic or 

financial innovation and fair competition, the Commission, by rule, regulation, or order, may exempt any 

transaction or class of transactions subject to futures trading restrictions under section 4(a), 7 U.S.C. 6(a), 

(including any person or class of persons offering, entering into, rendering advice, or rendering other 

services with respect to, the transaction) from any of the provisions of the CEA other than certain 

enumerated provisions, if the Commission determines that the exemption would be consistent with the 

public interest and the purposes of the CEA, that the transactions will be entered into solely between 

appropriate persons, and that the exemption will not have a material adverse effect on the ability of the 

Commission or any contract market to discharge its regulatory or self-regulatory responsibilities under the 

CEA. Section 2(d) of the CEA, 7 U.S.C. 2(d), extends the Commission’s section 4(c) exemptive authority 

to swaps.

44 The Commission is also renumbering existing § 39.4(c) through (e) as § 39.4(d) through (f).

45 17 CFR part 45 (setting forth swap data reporting and recordkeeping requirements).

46 7 U.S.C. 6d(f) (relating to segregation of customer funds).

47 17 CFR parts 1 and 22 (setting forth general regulations under the CEA, including treatment of customer 

funds, and requirements for cleared swaps, respectively).
37

Commission’s customer protection requirements, as such DCOs would remain subject to 

compliance with these requirements. The Commission proposed to adopt this limited 

exemption from the standard rule submission requirements given that DCOs subject to 

alternative compliance will be subject to the applicable laws in their home country and 

oversight by their respective home country regulators.

1. Rule Submission and Review Requirement

The Commission requested comment on whether it should require, as a condition 

of eligibility for alternative compliance, that an applicant be subject to a home country 

regulatory regime that has a rule review or approval process.

CCIL stated that it is unnecessary for the Commission to require an applicant’s 

home country regime to have a rule review or approval process given the requirement 

that the home country regulator represent that an applicant is in good regulatory standing. 

ICE noted that regulators take different approaches to rule reviews and as such, the 

Commission should not require that the home country regulator have a process to review 

every rule, but rather should consider only whether material rule changes are reviewed by 

the home country regulator. ICE commented that the review process of the Bank of 

England, the home country regulator for central counterparties (CCPs) within the United 

Kingdom, only requires CCPs to file major initiatives and does not require a CCP to file 

each rule amendment for approval. ICE argued that as long as material rule changes are 

subject to review by the home country regulator, the Commission should neither deny 

alternative compliance nor impose a review of every rule change by either the home 

country regulator or the Commission for a non-U.S. DCO to be eligible for alternative 

 48 17 CFR 39.15 (setting forth requirements for the treatment of customer funds).
38

compliance. Better Markets argued that permitting alternative compliance for a DCO

with a home country regulatory regime that does not have a rule submission and review 

process commensurate with at least the Commission’s part 40 rule certification process 

would constitute a “black hole in DCO oversight.”

The Commission agrees with the general premise of CCIL and ICE’s comments 

that the Commission should defer to the home country regulator, which is best situated to 

determine what rule submissions, if any, are necessary to effectively oversee a non-U.S. 

DCO’s clearing activities given the other regulatory and supervisory elements of the 

home country regulatory regime. A DCO subject to alternative compliance will still be

required to submit to the Commission rules related to critical customer protection 

safeguards and swap data reporting requirements. In addition, the DCO will be subject to 

the full extent of its home country regulator’s oversight of the DCO’s compliance with its

home country legal requirements, compliance with which must constitute compliance 

with the DCO Core Principles. Even if that home country regime does not include a rule 

review or approval process, the lack of that specific process does not amount to an 

absence of oversight. The Commission further believes that its MOU with a non-U.S. 

DCO’s home country regulator will provide the Commission with access to any 

additional information that it might need to evaluate or review the DCO’s continued 

compliance with registration requirements. Therefore, the Commission is not adopting a 

requirement that the home country regulator of an applicant for alternative compliance 

have a rule review or approval process that is comparable to the Commission’s part 40 

rule submission procedures.
39

The Commission also requested comment on whether it should require a DCO to 

file other rules pursuant to section 5c(c) of the CEA in addition to rules that relate to the 

DCO’s compliance with the requirements of section 4d(f) of the CEA, parts 1, 22, or 45

of the Commission’s regulations, or § 39.15. If so, the Commission further requested 

comment on whether it should retain discretion in determining which other rules must be 

filed based on, for example, the particular facts and circumstances, or whether it should 

enumerate the types of rules that must be filed (e.g., rules related to certain products 

cleared by the DCO).

Citadel argued that part 40 of the Commission’s regulations, which among other 

things requires that a DCO publicly disclose its rule filings, is critical to providing U.S. 

market participants with sufficient transparency into a DCO’s governance and operations, 

including with respect to the DCO’s risk management and default management 

frameworks. Citadel argued that the Commission should ensure that market participants 

continue to have access to this information from DCOs registered under the alternative 

compliance framework. The Commission believes that the rules of a DCO subject to

alternative compliance will remain sufficiently transparent, as the DCO will be subject to 

requirements that satisfy Core Principle L, which, among other things, requires a DCO to 

make information concerning the rules and operating and default procedures governing 

its clearing and settlement systems available to market participants.49

Better Markets criticized the scope of the Commission’s rule certification 

exemption in § 39.4(c) as “fatally and legally flawed” because the Commission 

determined that it only needed to receive rule submissions in the customer protection and 

 49 7 U.S.C. 7a-1(c)(2)(L).
40

swap data reporting areas in which it will continue to exercise direct oversight. Better 

Markets did not, however, identify any specific additional rules that the Commission 

should require DCOs subject to alternative compliance to submit. Better Markets also

suggested that the Commission require a DCO subject to alternative compliance to 

provide a notice filing for rules subject to the exemption in § 39.4(c) that demonstrates 

that a rule was filed with the home country regulator, and that discloses the nature and 

content of such a rule. The Commission is not adopting this suggestion, as a requirement 

along these lines would be inconsistent with the Commission’s approach of deferring to 

the home country regulator on whether and to what extent the regulator reviews a DCO’s 

rules.

2. CEA Section 4(c) Exemptive Authority

As noted in the proposal, the Commission believes the exemption in § 39.4(c) is 

consistent with the public interest and the purposes of the CEA, as required by section 

4(c),50 as it will allow the Commission to focus on reviewing those rules that relate to 

areas where the Commission exercises direct oversight. The exemption reflects the 

Commission’s view that the protection of customers – and safeguarding of money, 

securities, or other property deposited by customers – is a fundamental component of the 

Commission’s regulatory oversight of the derivatives markets and hence, DCOs subject 

to alternative compliance should be required to certify rules relating to the Commission’s 

customer protection requirements. These customer protection-related rules will remain 

 50 CEA section 4(c)(1) permits the Commission to exempt any agreement, contract, or transaction (or class 

thereof) that is otherwise subject to subsection (a) (including any person or class of persons offering, 

entering into, rendering advice or rendering other services with respect to, the agreement, contract, or 

transaction) from any of the requirements of subsection (a), which pertains to futures trading, or from any 

other provision of the CEA. 7 U.S.C. 6(c)(1).
41

transparent to FCMs and their customers, as § 40.6(a)(2) requires a DCO to certify that it 

has posted on its website a copy of the rule submission.51 At the same time, the 

exemption in § 39.4(c) will reduce the time and resources necessary for DCOs to file 

rules unrelated to the Commission’s customer protection or swap data reporting 

requirements.

The Commission also believes the exemption will not have a material adverse 

effect on the ability of the Commission or any contract market to discharge its regulatory 

or self-regulatory duties under the CEA, as the Commission will continue to receive 

submissions for new rules or rule changes concerning customer protection and swap data 

reporting, matters for which a DCO subject to alternative compliance will still be subject 

to compliance with Commission regulation. Further, DCOs subject to alternative 

compliance satisfy section 4(c)(2)’s “appropriate person” element in clearing transactions 

(a rendered service) for U.S. persons.52 These DCOs exclusively clear off-DCM swaps, 

which by virtue of section 2(e) of the CEA, a U.S. person cannot lawfully transact unless 

they qualify as an eligible contract participant (“ECP”). 53 As the Commission has 

 51 The Commission also publicly posts on its website all § 40.6 rule certifications for which confidential 

treatment is not requested.

527 U.S.C. 6(c)(2). Under section 4(c)(2)(B)(i) of the CEA, in order for DCOs subject to alternative 

compliance—i.e., a class of persons that render clearing services for swap transactions—to be exempted 

from CEA provisions, the transactions they clear must “be entered into solely between appropriate 

persons.” 7 U.S.C. 6(c)(2)(B)(i). Section 4(c)(3) specifies categories of persons within the defined term 

“appropriate person.” 7 U.S.C. 6(c)(3). Subparagraph (K) defines “appropriate person” to include such 

other persons that the Commission determines to be appropriate in light of their financial or other 

qualifications, or the applicability of appropriate regulatory protections. 7 U.S.C. 6(c)(3)(K).

53 Section 2(e) of the CEA makes it unlawful for any person, other than an eligible contract participant, to 

enter into a swap unless the swap is entered into on, or subject to the rules of, a DCM. 7 U.S.C. 2(e). 

“Eligible contract participant” is defined in section 1a(18) of the CEA and § 1.3 of the Commission’s

regulations. 7 U.S.C. 1a(18); 17 CFR 1.3. See also, Clearing Exemption for Swaps Between Certain 

Affiliated Entities, 78 FR 21750, 21754 (Apr. 11, 2013) (noting that the elements of the ECP definition set 

forth in section 1a(18)(A) and Commission regulation 1.3(m) generally are more restrictive than the 

comparable elements of the enumerated section 4(c)(3) “appropriate person” definition).
42

previously affirmed, ECPs are appropriate persons within the scope of CEA section

4(c)(3)(K).54

The Commission requested comment as to whether the proposed exemption in § 

39.4(c) from the rule submission requirements of section 5c(c) of the CEA meets the 

standards for exemptive relief set out in section 4(c) of the CEA.

Better Markets stated that the Commission should have proposed an exemption 

under section 5b(h) of the CEA (i.e., the provision that permits the Commission to 

exempt DCOs from registration) instead of section 4(c). It argued that section 4(c)’s 

exemptive authority cannot be used to exempt non-U.S. DCOs from rule submission 

requirements, as doing so would impermissibly expand the Commission’s general 

exemptive authority beyond its plain language. Better Markets contended that the plain 

language of section 4(c) limits the Commission to exempt agreements, contracts, or 

transactions that are subject to section 4(a), which only applies to futures, and that section 

4(c) is best read not to contemplate an exemption with respect to swap activities at all. 

Therefore, Better Markets indirectly concluded that section 4(c) cannot be relied on to 

exempt non-U.S. DCOs, which may only list swaps, from rule submission procedures.55 

Further, Better Markets argued that relying on section 4(c) would inappropriately 

supersede the CEA’s more specific exemptive authority within section 5b(h), and without 

specific, required statutory analyses.

 54 See, e.g., Exemption from Derivatives Clearing Organization Registration, 84 FR at 35458; Clearing 

Exemption for Swaps Between Certain Affiliated Entities, 78 FR at 21754.

55 See Better Markets, Inc. Letter on Exemption for Non-U.S. Derivatives Clearing Organizations, RIN 

3038-AE65 (Nov. 22, 2019) at 7-8 (as cross-referenced in Better Markets Inc. Letter on Registration with 

Alternative Compliance for Non-U.S. Derivatives Clearing Organizations (Nov. 18, 2019) at n74).
43

The Commission disagrees with Better Markets’ arguments. Section 5b(h) 

permits the Commission to exempt a DCO from registration if the Commission 

determines that the DCO is subject to “comparable, comprehensive supervision and 

regulation” by its home country regulator. The exemption at issue, however, is not an 

exemption from registration, and section 5b(h) does not provide the Commission with the 

ability to exempt a registered DCO from other requirements of the CEA. In addition, 

Better Markets’ interpretation that the Commission’s exemptive authority under section 

4(c) is strictly limited to futures agreements, contracts, or transactions subject to section 

4(a) of the CEA ignores section 2(d) of the CEA,56 which extends the Commission’s 

section 4(c) exemptive authority for futures transactions to swaps transactions.57

The Commission believes that section 5b(h) reflects Congress’s intent that the 

Commission defer to other regulators that offer “comparable, comprehensive supervision 

and regulation” of DCOs, in appropriate circumstances and to an appropriate extent. 

With this rulemaking, the Commission has endeavored to defer to a non-U.S. DCO’s

home country regulator while allowing the DCO to maintain its registration and clear for 

FCM customers. The Commission believes its use of its section 4(c) exemptive authority 

in this context is appropriate and fully meets the requisite statutory standards, as outlined 

in the proposal and explained above.

 56 7 U.S.C. 2(d).

57 The Commission also notes that section 4(c) provides that the Commission may use the exemptive 

authority thereunder “except” with respect to certain enumerated swap provisions, unless there is an 

expressed authorization within the specific provision. Section 4(c) does not provide that the Commission 

may only use the 4(c) exemptive authority with respect to the enumerated provisions. Thus, a plain reading 

of the relevant text, joined with section 2(d), indicates that Congress extended the Commission’s general 

exemptive authority under section 4(c) to swaps transactions with respect to those provisions that are not in 

the enumerated list. Section 5c(c) of the CEA is not included in the enumerated list. Further, the 

Commission has previously exercised its 4(c) exemptive authority with respect to swaps. See, e.g.,

Exemptive Order Regarding Compliance with Certain Swap Regulations, 78 FR 43785 (July 22, 2013).
44

The Commission is adopting § 39.4(c) as proposed.

D. Regulation 39.9 – Scope

The Commission proposed to amend § 39.9 to provide that the provisions of 

subpart B of Part 39 apply to any DCO, except as otherwise provided by Commission 

order. In the context of alternative compliance, the Commission’s order of registration

would provide for the inapplicability of most subpart B provisions and address those that 

do apply, such as § 39.15 and those requirements corresponding to any DCO Core 

Principle for which the Commission does not find there to be alternative compliance in 

the DCO’s home country regulatory regime (in those cases in which the Commission 

determines nevertheless to grant alternative compliance). Amended § 39.9 would also

allow the Commission to not apply to a particular DCO any subpart B requirement that 

the Commission deems irrelevant or otherwise inapplicable due to, for example, certain 

characteristics of the DCO’s business model. The Commission did not receive any 

comments on this proposal. The Commission is adopting § 39.9 largely as proposed.58

E. Subpart D – Provisions Applicable to DCOs Subject to Alternative 

Compliance

1. Regulation 39.50 – Scope

The Commission proposed new § 39.50 to state that the provisions of subpart D 

of part 39 apply to any DCO that is registered through the process described in § 

39.3(a)(3) (i.e., registration with alternative compliance). The Commission did not 

 58 The Commission had included in the proposal a previously proposed change to § 39.9 that would clarify 

that the provisions of subpart B do not apply to any exempt DCO. See Exemption from Derivatives 

Clearing Organization Registration, 83 FR at 39929 (proposing an addition to § 39.9 providing that the 

provisions of subpart B do not apply to any exempt DCO, as defined in § 39.2). The Commission will 

amend § 39.9 as necessary if it finalizes the rulemaking on exempt DCOs.
45

receive any comments on this proposal. However, the Commission is modifying § 39.50 

by adding language that would allow subpart D to apply to a DCO “as otherwise 

provided by order of the Commission.” This will allow for subpart D to apply to a DCO 

registered pursuant to § 39.3(a)(2) that subsequently applies to amend its DCO 

registration order in accordance with § 39.3(d).

2. Regulation 39.51 – Alternative Compliance

a. Eligibility for Alternative Compliance

The Commission proposed new § 39.51(a) to permit the Commission to register a 

non-U.S. clearing organization subject to alternative compliance for the clearing of swaps 

for U.S. persons if all of the eligibility requirements listed in proposed § 39.51(a)(1) and 

(a)(2) are met. Proposed § 39.51(a) also provides that the Commission could subject 

registration to any terms and conditions that the Commission determines to be 

appropriate.

The Commission proposed § 39.51(a)(1)(i) to require a Commission

determination that a clearing organization’s compliance with its home country regulatory 

regime would satisfy the DCO Core Principles; § 39.51(a)(1)(ii) to require that a clearing 

organization be in good regulatory standing in its home country; and § 39.51(a)(1)(iii) to 

require a Commission determination that the clearing organization does not pose 

substantial risk to the U.S. financial system.

The Commission proposed § 39.51(a)(1)(iv) to require that the Commission and 

the clearing organization’s home country regulator59 have an MOU or similar 

 59 In jurisdictions where more than one regulator supervises and regulates a clearing organization, the 

Commission would expect to enter into an MOU or similar arrangement with more than one regulator. See
46

arrangement satisfactory to the Commission in effect. Among other things, the 

Commission proposed to require the home country regulator to agree within the MOU to 

provide the Commission with any information that the Commission deems appropriate to 

evaluate the clearing organization’s initial and continued eligibility for registration and to 

review compliance with any conditions of registration. The Commission clarified in the 

proposal that satisfactory MOUs or similar arrangements would include provisions for 

information sharing and cooperation, as well as for notification upon the occurrence of 

certain events.60 Although the Commission would retain the right to conduct site visits, 

the Commission stated that it did not expect to conduct routine site visits to DCOs subject 

to alternative compliance.

The Commission proposed § 39.51(a)(2) to provide the Commission with 

discretion to grant registration with alternative compliance subject to conditions if the 

clearing organization’s home country regulatory regime lacks legal requirements that 

correspond to certain DCO Core Principles, if the relevant DCO Core Principles are less 

related to risk.

The Commission specifically requested comment on whether the Commission 

should take into account regulations in Part 39, in addition to the DCO Core Principles, in 

determining whether alternative compliance is appropriate for a non-U.S. clearing 

organization.

 

Registration With Alternative Compliance for Non-U.S. Derivatives Clearing Organizations, 84 FR at 

34824 n.38.

60 For existing non-U.S. DCOs that wish to be subject to alternative compliance, the Commission believes 

the MOUs currently in place with their respective home country regulators would be sufficient to satisfy 

this requirement. Id. at n.39.
47

Eurex opined that the set of requirements applicable to non-U.S DCOs under the 

proposed alternative compliance framework was already substantial and therefore should 

not take into account additional regulations in Part 39.

Citadel argued that while the Commission should not require a foreign regulatory 

regime to precisely replicate the U.S. framework, the Commission should take into 

account more than just the “relatively high-level” DCO Core Principles when conducting 

its analysis. Citadel argued that several aspects of the Commission’s implementing 

regulations, such as non-discriminatory access within various subsections of § 39.12, 

straight-through processing within § 39.12(b)(7), and public rule certifications pursuant 

to part 40, provide critical protections to U.S. market participants that are not explicit in 

the DCO Core Principles. Citadel was concerned that not requiring DCOs to provide 

these “fundamental protections” to U.S. market participants could negatively impact 

market transparency, liquidity, and competition, as swaps cleared by such DCOs may be 

accessible to only certain types of market participants, thereby impairing market access 

and choice of trading counterparties. Citadel argued that the Commission recognized the 

importance of these key aspects of its underlying regulations when it assessed the 

comparability of the EU regulatory framework. Citadel urged the Commission to 

“maintain this approach for purposes of other jurisdictions,” and further recommended 

that the Commission reserve sufficient flexibility to conduct a case-by-case analysis of 

each non-U.S. clearing organization’s application for alternative compliance.

The Commission agrees with Citadel that it should not require a non-U.S. DCO’s 

home country regulatory regime to precisely replicate the U.S. framework. The 

Commission, however, disagrees with Citadel’s suggestion that it should add other 
48

Commission regulations to the list of core customer protection and swap data reporting 

regulations with which all DCOs subject to alternative compliance will be required to 

comply. To provide a meaningful framework for deference to home country regulators, 

the Commission has determined to limit the universe of applicable regulations to those 

that provide critical protections such as those related to customer protection. In all cases, 

the non-U.S. DCO must still comply with home country requirements that constitute 

compliance with the DCO Core Principles, which the Commission’s regulations were 

intended to implement. For example, DCO Core Principle C requires all DCOs to 

establish appropriate admission and continuing eligibility standards for members and 

participants of the DCO that are objective, publicly disclosed, and permit fair and open 

access to the DCO. Beyond that, the Commission may require that a given non-U.S. 

DCO comply with additional Commission regulations as specified in its registration order 

based on its particular facts and circumstances, most significantly if the Commission 

finds the DCO’s home country requirements lacking, but the Commission does not 

believe it is appropriate to require compliance with additional Commission regulations as 

a matter of course.

While a non-U.S. DCO subject to alternative compliance will only be required to 

certify new and amended rules related to customer protection and swap data reporting 

pursuant to § 39.4(c), the DCO will still have to publicly disclose its rules and operating 

and default procedures governing its clearing and settlement systems pursuant to DCO 

Core Principle L.

61 This will provide transparency for the DCO’s rules even if the DCO 

does not certify all of its rules pursuant to part 40.

 61 7 U.S.C. 7a-1(c)(2)(L).
49

The Commission believes that Citadel’s reference to the review that the 

Commission undertook to determine comparability with the European Union’s 

regulations for dually-registered DCOs and CCPs in 2016 is misplaced.

62 That exercise 

was by its nature a regulation-by-regulation review to determine comparability with 

respect to Commission regulatory requirements, and the fact that the Commission 

examined individual regulations in that context is not determinative of the degree of 

deference that should be extended to a DCO’s home jurisdiction in the context at issue 

here.

The Commission believes that § 39.51(a) establishes clear eligibility standards by 

which the Commission can determine whether a non-U.S. DCO’s home country 

regulatory regime is consistent with the DCO Core Principles, and also reserves adequate 

flexibility for the Commission to grant exceptions, in its discretion, as appropriate. If a 

non-U.S. clearing organization’s home country regulatory regime lacks legal 

requirements that correspond to the DCO Core Principles less related to risk (e.g., Core 

Principle N on antitrust considerations), or if the Commission determines that other 

conditions are appropriate to achieve compliance with a specific DCO Core Principle(s), 

§ 39.51(a)(2) and (b)(7) would allow the Commission to, in its discretion, grant 

registration with alternative compliance subject to conditions that address the specific 

facts and circumstances at issue.

Better Markets argued that the Commission must consider Part 39 and other 

applicable regulations when determining whether alternative compliance is appropriate 

 62 See Comparability Determination for European Union: Dually-Registered Derivatives Clearing 

Organizations and Central Counterparties, 81 FR 15260 (Mar. 22, 2016).
50

for a non-U.S. clearing organization, as section 5b(c)(2)(A)(i) of the CEA63 requires all 

registered DCOs to comply with both the DCO Core Principles and “any [DCO] 

requirement that the Commission may impose by rule or regulation.” Better Markets 

argued that the alternative compliance framework should be re-proposed as the 

Commission failed to properly cite to and rely upon its exemptive authority under section 

5b(h) of the CEA,

64 which Better Markets believes provides the appropriate basis for 

exemptions from the statutory requirements in section 5b(c) of the CEA. Better Markets 

argued that section 5b(h) requires that the Commission must have a reasonable basis to 

conclude not only that a non-U.S. DCO has satisfied all statutory elements of section 

5b(c) of the CEA, but also that the applicable home country regulatory framework is 

comparable to, and as comprehensive as, the statutory and regulatory requirements for 

registered DCOs to be able to grant an exemption pursuant to section 5b(h). Better 

Markets premised this conclusion on Congress’ inclusion of the phrase “supervision and 

regulation” within section 5b(h) of the CEA, which Better Markets opined made no 

distinction between U.S. statutory and U.S. regulatory requirements with respect to the 

Commission’s exemptive authority for DCOs. Better Markets argued that as a result, 

non-U.S. DCOs could not receive an exemption unless their home country regulatory 

regime essentially mirrors the statutory and regulatory regime for U.S. DCOs.

The Commission believes that Better Markets’ analysis misunderstands the status 

of DCOs that would be subject to the alternative compliance framework. A non-U.S. 

DCO subject to alternative compliance will still be a registered DCO pursuant to section 

 63 7 U.S.C. 7a–1(c)(2)(A)(i).

64 7 U.S.C. 7a-1(h).
51

5b(a) of the CEA. In contrast, section 5b(h) of the CEA relates to exempting DCOs from 

registration, which is not at issue here.

Better Markets correctly notes that section 5b(c)(2)(A)(i) of the CEA requires 

DCOs to comply with the DCO Core Principles and any requirement that the 

Commission may impose by rule or regulation pursuant to section 8a(5) of the CEA,

which provides the Commission with discretionary rulemaking authority to make and 

promulgate such rules and regulations as, in the judgment of the Commission, are 

reasonably necessary to effectuate any of the provisions or to accomplish any of the 

purposes of the CEA.

65 The Commission exercised that authority in adopting Part 39 and 

initially applying it to all DCOs. Here, the Commission is further exercising that 

authority to provide in new § 39.51 that DCOs subject to alternative compliance are 

subject to the DCO Core Principles and other specified requirements, but not to all of the 

provisions that have until now applied to all DCOs.

Three commenters discussed the potential role of the PFMIs in the Commission’s 

approach to registration with alternative compliance. LCH commented that the use of the 

DCO Core Principles to determine whether an applicant’s home country requirements are 

comparable to the Commission’s requirements is appropriate. LCH opined that the DCO 

Core Principles are consistent with the PFMIs, which have been agreed by the 

international regulatory community as essential to strengthening and preserving financial 

stability.

ICE commented that an outcomes-based approach that assesses an applicant’s

home country regulatory regime as a whole, instead of with a rule-by-rule comparison, 

 65 7 U.S.C. 12a(5).
52

would provide appropriate deference to the foreign jurisdiction. However, ICE

questioned how the Commission would make an assessment of the home country 

regulatory regime. ICE cautioned that the Commission should not determine that a 

jurisdiction is non-comparable or non-equivalent on the basis of “discrete” differences 

from a Part 39 requirement. ICE further argued that an assessment of comparability or 

equivalence should accept that there will be differences between the manner in which a 

clearing organization’s home country regulator achieves international standards and the 

Commission’s regulations, and these differences should not be disqualifying. Otherwise, 

ICE warned that the alternative compliance regime would likely be of little benefit, or 

result in substantial delays in implementation as equivalence is determined. ICE 

encouraged the Commission to benchmark its comparability assessment with regard to 

compliance with international standards such as the PFMIs as an alternative to the DCO 

Core Principles. CCIL also suggested that the Commission should be satisfied with 

adherence by a non-U.S. DCO to the PFMIs, as certified by its home country regulator.

The Commission notes that a determination of whether compliance with a home 

country regulatory regime constitutes compliance with the DCO Core Principles is not a 

comparability or equivalence determination. The Commission nevertheless agrees with 

the general premise of LCH and ICE’s comments, and the alternative compliance 

framework reflects an outcomes-based approach rather than a regulation-by-regulation 

comparison between Commission regulations and a non-U.S. DCO’s home country 

regulatory regime, which is suboptimal in this context in which the Commission is 

showing appropriate deference to the home country regulator. The Commission must 

however look to the DCO Core Principles, and not the PFMIs, as the basis for 
53

determining compliance. As previously noted, all DCOs, including those DCOs subject 

to alternative compliance, are required by the CEA to comply with each DCO Core

Principle in order to be registered and to maintain registration.

The Commission is adopting § 39.51(a) as proposed.

b. Conditions of Alternative Compliance

The Commission proposed new § 39.51(b) to set forth the conditions that a nonU.S. clearing organization must satisfy for the Commission to grant registration with 

alternative compliance.66 Proposed § 39.51(b)(1) provides that a DCO subject to 

alternative compliance must comply with the DCO Core Principles through compliance 

with applicable legal requirements in its home country, and any other requirements 

specified in its registration order including, but not limited to, the customer protection

requirements of section 4d(f) of the CEA, parts 1 and 22, and § 39.15 of the 

Commission’s regulations; the part 45 swap data reporting requirements; and subpart A 

of Part 39.

The Commission proposed § 39.51(b)(2) to codify the “open access” 

requirements of section 2(h)(1)(B) of the CEA with respect to swaps cleared by a DCO to 

which one or more of the counterparties is a U.S. person. Proposed § 39.51(b)(2)(i) 

would require a DCO to have rules providing that all such swaps with the same terms and 

conditions (as defined by product specifications established under the DCO’s rules) 

submitted to the DCO for clearing would be economically equivalent and could be offset 

 66 In doing so, the Commission explained that the eligibility requirements listed in proposed § 39.51(a)(1) 

and (a)(2) and the conditions set forth in proposed § 39.51(b) would be pre-conditions to the Commission’s 

issuance of a registration order in this regard. Additional conditions that are unique to the facts and 

circumstances specific to a particular clearing organization could be imposed upon that clearing 

organization in the Commission’s registration order. Registration With Alternative Compliance for NonU.S. Derivatives Clearing Organizations, 84 FR at 34824 n.37.
54

with each other, to the extent that offsetting is permitted by the DCO’s rules. Proposed § 

39.51(b)(2)(ii) would require that a DCO have rules providing for non-discriminatory 

clearing of such a swap executed either bilaterally or on or subject to the rules of an 

unaffiliated electronic matching platform or trade execution facility, e.g., a swap 

execution facility.

The Commission proposed § 39.51(b)(3) to require that a DCO: consent to 

jurisdiction in the United States; designate, authorize, and identify to the Commission an 

agent in the United States to accept any notice or service of process, pleadings, or other 

documents issued by or on behalf of the Commission or the U.S. Department of Justice in 

connection with any actions or proceedings brought against, or any investigations relating 

to, the DCO or any of its U.S. clearing members; and promptly inform the Commission 

of any change of agent to accept such notice or service of process.

The Commission proposed § 39.51(b)(4) to require a DCO to comply, and 

demonstrate compliance as requested by the Commission, with any condition of the 

DCO’s registration order.

The Commission proposed § 39.51(b)(5) to require a DCO to make all 

documents, books, records, reports, and other information related to its operation as a 

DCO (hereinafter, “books and records”) open to inspection and copying by any 

Commission representative, and to promptly make its books and records available and 

provide them directly to Commission representatives, upon the request of a Commission 

representative.

The Commission proposed § 39.51(b)(6) to require that a DCO request and the 

Commission receive an annual written representation from a home country regulator that 
55

the DCO is in good regulatory standing within 60 days following the end of the DCO’s 

fiscal year.

Finally, under proposed § 39.51(b)(7), the Commission may condition alternative 

compliance on any other facts and circumstances it deems relevant.

As discussed below, the Commission received comments on the applicable 

requirements proposed in § 39.51(b)(1) including customer protection and swap data 

reporting requirements; the open access condition proposed in § 39.51(b)(2); the 

inspection of books and records condition proposed in § 39.51(b)(5); and the 

Commission’s ability to grant registration subject to other conditions as proposed in § 

39.51(b)(7).

i. Applicable Requirements of the CEA and Commission Regulations

Proposed § 39.51(b)(1) provided that a DCO subject to alternative compliance 

must comply with the DCO Core Principles through compliance with applicable legal 

requirements in its home country, and any other requirements specified in its registration 

order including, but not limited to, the customer protection requirements of section 4d(f) 

of the CEA, parts 1 and 22, and § 39.15 of the Commission’s regulations; the part 45 

swap data reporting requirements; and subpart A of Part 39. The Commission received 

comments on customer segregation and customer portability aspects of the proposed 

customer protection requirements and comments on the proposed part 45 swap data 

reporting requirements.

(1) Customer Segregation Requirements

ASX, JSCC, KRX, and OTC Clear, all currently exempt DCOs, opined in a joint 

letter that requiring DCOs subject to alternative compliance to comply with the 
56

Commission’s customer segregation requirements, including the treatment of U.S. 

customer collateral under the U.S. Bankruptcy Code, lacked any deference by the 

Commission to foreign regulators. They indicated that, as a result, none of them plan to 

register under the alternative compliance framework.

JSCC separately argued that because the alternative compliance framework is 

limited to DCOs that do not pose substantial risk to the U.S. financial system, the 

Commission should not impose its own unique customer protection requirements. JSCC 

recommended that the Commission defer to a home country’s customer protection 

requirements so long as they are consistent with the PFMIs. JSCC reasoned that the 

direct application of the U.S. Bankruptcy Code for the protection of customer funds 

would create little benefit while imposing a significant burden on non-U.S. DCOs whose

home country regulators have implemented their own customer protection framework in 

compliance with the PFMIs. JSCC stated that requiring non-U.S. DCOs to comply with 

both their home country regime and the U.S. regime in this regard could be impractical 

when those regimes are incompatible with each other.

JSCC explained that it cannot strictly comply with section 4d(f) of the CEA, 

which requires that customer funds be segregated at all times, as Japanese law and 

JSCC’s rulebook require JSCC to settle customer collateral for a period of a few hours 

through an account at the Bank of Japan.67 JSCC argued that, as a result, it would be 

unable to register under the alternative compliance regime, despite the fact that swaps

 67 JSCC attempted to register with the Commission as a DCO but, due to the issues JSCC discussed in its 

comment letter, JSCC ultimately sought and received an exemption from DCO registration. See JSCC 

Order of Exemption from Registration (Oct. 26, 2015), available at 

https://www.cftc.gov/sites/default/files/idc/groups/public/@otherif/documents/ifdocs/jsccdcoexemptorder10

-26-15.pdf. Exempt DCOs are not currently permitted to clear for U.S. customers. See Exemption from 

Derivatives Clearing Organization Registration, 83 FR 39923, 39926 (Aug. 13, 2018).
57

customers would be protected under regulations and supervision that fully conforms with 

the relevant PFMIs and provides sufficient safety for customers in all of the jurisdictions 

where JSCC operates.

Similarly, ASX opined that its client protection model is consistent with the 

PFMIs and meets Australian financial stability standards, but that because it is not exactly 

aligned with U.S. customer protection requirements, ASX would not be able to register 

under the alternative compliance framework.

The Commission is not persuaded by the comments. While the PFMIs are the 

international standards for FMIs, they are not designed to address all of the 

Commission’s responsibilities in this area.

The focus of the PFMIs is “to limit systemic risk and foster transparency and 

financial stability. ... Other objectives, which include ... specific types of investor and 

consumer protections, can play important roles in the design of [FMIs], but these issues 

are generally beyond the scope of” the PFMIs.68 By contrast, the purposes of the CEA 

and thus the responsibilities of the Commission notably include “avoidance of systemic 

risk” and “ensur[ing] the financial integrity of all transactions subject to [the CEA],” but 

also include “protect[ing] all market participants from . . . misuses of customer assets.”69

While no FCM customer should suffer a loss of access to their assets for any 

period of time, customers of clearing members registered as FCMs have fared uniquely 

well in cases of FCM bankruptcy, both in protecting against loss of customer assets, and 

particularly in transferring all, or at least most, customer assets to a solvent FCM in the 

 68 CPMI–IOSCO, PFMIs, ¶1.15 and n. 16.

69 7 U.S.C. 5(b).
58

days (rather than months or years) following a bankruptcy. These very positive outcomes 

are a result of the combination of the customer collateral segregation requirements of 

section 4d of the CEA and the regulations thereunder, operating in an interlinked and 

mutually supporting manner with the relevant provisions of the Bankruptcy Code, 

Subchapter IV of Chapter 7,70 the Commission’s authorities under section 20 of the 

CEA,71 and the Commission’s bankruptcy regulations under part 190.

The Commission is adopting § 39.51(b)(1) as proposed, including the requirement 

that the DCO comply with section 4(d)(f) of the CEA, parts 1 and 22 of the 

Commission’s regulations, and § 39.15.

(2) Customer Portability in the Event of a Default

ASX and JSCC both commented that they would not be able to register pursuant 

to the alternative compliance framework as they could not feasibly maintain a sufficient 

number of FCM clearing members to support U.S. customer clearing. ASX believes that 

it would be difficult to add multiple FCMs as clearing members of ASX as an FCM may 

already have a non-U.S. affiliate clearing member of ASX that provides access to 

exchange-traded futures and options products under the foreign board of trade model. 

Similarly, JSCC noted that entities active in swaps customer clearing are global banking 

groups, many of which serve customers for swaps clearing through subsidiaries in the 

non-U.S. markets, including Japan. JSCC noted that very few non-U.S. entities are 

registered as FCMs, and the overall number of FCMs has been decreasing. ASX and 

JSCC commented that the cost of onboarding an FCM, such as an additional foreign 

 70 See 11 U.S.C. 761 – 767.

71 See 7 U.S.C. 24.
59

affiliate, solely to provide over-the-counter swaps clearing services to U.S. customers 

would be prohibitively expensive. As a result, ASX and JSCC concluded that non-U.S. 

DCOs would be unlikely to find enough FCM clearing members, particularly to achieve 

portability of customer positions in the event of an FCM default, as required by 

Commission regulations and the PFMIs. JSCC believes the requirement to have swaps

customers clear through an FCM at a non-U.S. DCO likely would continue to concentrate 

U.S. customers at a limited number of DCOs.

The Commission is not persuaded by the commenters’ suggestion that a dearth of 

FCMs clearing at non-U.S. DCOs should negate the requirement that a U.S. swaps 

customer clear through an FCM at a DCO, including a DCO subject to alternative 

compliance. There are multiple non-U.S. DCOs that have successfully implemented an

FCM customer clearing model. The Commission believes the alternative compliance 

option will make registration less burdensome for non-U.S. clearing organizations, which 

may incentivize additional ones to register. As a result, U.S. customers could have more 

clearing options without sacrificing any of the protections they have come to expect and 

rely upon.72 As stated above, the Commission is adopting § 39.51(b)(1) as proposed.

(3) Swap Data Reporting

ICE commented that, if an applicant’s home country reporting rules correspond 

with the Commission’s swap data reporting regulations in part 45, the Commission 

should consider obtaining swap data from the applicant’s home country regulator through 

an MOU. ICE noted that compliance with the Commission’s rules in addition to home 

 72 Moreover, while both Commission regulations and the PFMIs call for a DCO to have rules 

(arrangements) that foster portability (see 17 CFR 190.06(a); CPMI–IOSCO, PFMIs, Principle 14, Key 

Consideration 3), neither Commission regulations nor the PFMIs require DCOs to ensure that there are 

clearing members that are willing and able transferees.
60

jurisdiction swap reporting rules could be very costly for DCOs, and provide little 

additional benefit. The Commission intends for this rule to provide deference to foreign 

regulators on non-U.S. DCO supervision, depending on the risk the DCO poses to the 

U.S. financial system, and notes that the part 45 swap data reporting regulations, to which

DCOs are already subject, are unrelated to DCO supervision and outside the intended 

scope of this rule. The Commission believes that issues relating to deference on swaps 

data reporting by DCOs have broad real and potential cross-border implications and 

should instead be addressed in a larger, comprehensive review of swaps data reporting by 

non-U.S. entities that the Commission may undertake through future Commission action. 

Therefore, the Commission is adopting the requirement that DCOs subject to alternative 

compliance comply with part 45 as proposed.

ii. Open Access

With respect to proposed § 39.51(b)(2) which the Commission proposed to 

require a DCO to treat swaps with the same terms and conditions as economically 

equivalent, allow offset to the extent permitted by the DCO, and provide nondiscriminatory clearing for swaps executed bilaterally or on unaffiliated trading 

platforms, ICE stated that it is not clear why this requirement is necessary if a DCO’s 

home jurisdiction has a comparable requirement. Regulation 39.51(b)(2) would codify 

for DCOs subject to alternative compliance the requirements of section 2(h)(1)(B) of the 

CEA, with respect to swaps cleared by a DCO to which one or more of the counterparties 

is a U.S. person. Even if the Commission did not adopt § 39.51(b)(2), the statutory 

requirements would still apply. The Commission is codifying these requirements and 

adopting § 39.51(b)(2) as proposed.
61

iii. Consent to Jurisdiction; Designation of Agent for Service of Process

The Commission proposed § 39.51(b)(3) to require that a DCO: consent to U.S. 

jurisdiction; designate, authorize, and identify an agent in the United States; and promptly 

inform the Commission of any change of its U.S. agent. The Commission did not receive 

any comments on this aspect of the proposal. The Commission is adopting § 39.51(b)(3) 

as proposed.

iv. Compliance

The Commission proposed § 39.51(b)(4) to require a DCO to comply, and 

demonstrate compliance as requested by the Commission, with any condition of the 

DCO’s registration order. The Commission did not receive any comments on this aspect 

of the proposal. The Commission is adopting § 39.51(b)(4) as proposed.

v. Inspection of Books and Records

The Commission proposed § 39.51(b)(5) to require a DCO to make all books and 

records open to inspection and copying by any Commission representative, and to 

promptly make its books and records available and provide them directly to Commission 

representatives, upon the request of a Commission representative.

CCIL stated that the proposed approach may create a “parallel structure of 

regulatory bodies.” CCIL also argued that it may undermine and conflict with principles 

of international comity and the home country laws and regulations of the DCO.

ICE stated that the Commission should state explicitly that it would defer to the 

home country regulator’s examination of the DCO’s books and records provided that the 

home country regulator shares the results of the examination with the Commission. As 

explained in the proposal, the Commission does not anticipate conducting routine site 
62

visits to DCOs subject to alternative compliance. However, the Commission may request 

a DCO to provide access to its books and records in order for the Commission to ensure 

that, among other things, the DCO continues to meet the eligibility requirements for 

alternative compliance as well as the conditions of its registration. The Commission is 

adopting § 39.51(b)(5) as proposed.

vi. Representation of Good Regulatory Standing

The Commission proposed § 39.51(b)(6) to require that a DCO request and the 

Commission receive an annual written representation from a home country regulator that 

the DCO is in good regulatory standing within 60 days following the end of the DCO’s 

fiscal year. The Commission received comments on the definition of “good regulatory 

standing” as discussed above, but did not receive comments on the existence of the 

condition. The Commission is adopting § 39.51(b)(6) as proposed.

vii. Other Conditions

The Commission proposed § 39.51(b)(7) to provide that the Commission may 

condition alternative compliance on any other facts and circumstances it deems relevant. 

ICE supported the Commission’s ability to, in its discretion, grant registration subject to 

conditions, provided that this flexibility is applied consistently for similarly situated 

DCOs from the same jurisdiction and that sufficient deference is granted to the overall 

home country regulatory regime. ICE agreed that the Commission should be mindful of 

the principles of international comity, noting that the proposal stated that the Commission 

may take into account, in placing conditions on alternative compliance, the extent to 

which the home country regulator defers to the Commission with respect to the oversight 
63

of U.S. DCOs.73 ICE cautioned that any such approach should not be applied to create 

uncertainty for a DCO relying on the relief, and that such an approach might result in 

other regulators taking similar positions, which could have the effect of lessening crossborder cooperation. The Commission appreciates ICE’s comments. As noted in the 

proposal, the Commission intends to use its discretion to “advance the goal of regulatory 

harmonization, consistent with the express directive of Congress that the Commission 

coordinate and cooperate with foreign regulatory authorities on matters related to the 

regulation of swaps.”74 The recognition that market participants and market facilities in a 

global swap market are subject to multiple regulators and potentially duplicative 

regulations, and can therefore benefit from regulatory harmonization and mutual

deference among regulators, underpins the alternative compliance framework. The 

framework is intended to encourage collaboration and coordination among U.S. and 

foreign regulators in establishing comprehensive regulatory standards for swaps clearing. 

In addition, the framework seeks to promote fair competition and a level playing field for 

all DCOs. As a result, the Commission will consider the degree of deference that a home 

country regulator extends to the Commission’s oversight of U.S. DCOs in determining 

whether to extend the benefits of alternative compliance to DCOs in that jurisdiction, 

both at the point of initially registering a non-U.S. DCO subject to alternative 

 73 See Registration With Alternative Compliance for Non-U.S. Derivatives Clearing Organizations, 84 FR 

at 34825.

74 In order to promote effective and consistent global regulation of swaps, section 752 of the Dodd-Frank 

Act directs the Commission to consult and coordinate with foreign regulatory authorities on the 

establishment of consistent international standards with respect to the regulation of swaps, among other 

things. Section 752 of the Dodd-Frank Act, Public Law 111–203, 124 Stat. 1376 (2010), codified at 15 

U.S.C. 8325.
64

compliance, and in determining whether compliance under that framework should 

continue. The Commission is adopting § 39.51(b)(7) as proposed.

c. General Reporting Requirement

Proposed § 39.51(c) sets forth general reporting requirements pursuant to which a 

DCO subject to alternative compliance must provide certain information directly to the 

Commission (1) on a periodic basis (daily or quarterly); and (2) after the occurrence of a 

specified event, each in accordance with the submission requirements of § 39.19(b).

Proposed § 39.51(c)(1) requires a DCO to provide to the Commission the

information specified in § 39.51(c) (and described below), as well as any other 

information that the Commission deems necessary, including, but not limited to,

information for use in evaluating the continued eligibility of the DCO for alternative 

compliance, reviewing the DCO’s compliance with any conditions of its registration, and 

conducting oversight of U.S. clearing activity.

Proposed § 39.51(c)(2)(i) requires a DCO to compile a report as of the end of 

each trading day, and submit the report to the Commission by 10:00 a.m. U.S. Central 

time on the following business day, containing the following information with respect to 

swaps: (A) total initial margin requirements for all clearing members; (B) initial margin 

requirements and initial margin on deposit for each U.S. clearing member, by house 

origin and by each customer origin, and by each individual customer account; and (C) 

daily variation margin, separately listing the mark-to-market amount collected from or 

paid to each clearing member, by house origin and by each customer origin, and by each 

individual customer account.
65

Proposed § 39.51(c)(2)(ii) requires a DCO to compile a report as of the last day of 

each fiscal quarter, and submit the report to the Commission no later than 17 business 

days after the end of the fiscal quarter, containing a list of U.S. clearing members, with 

respect to the clearing of swaps.

Proposed § 39.51(c)(2)(iii) through (vii) requires a DCO to provide information to 

the Commission upon the occurrence of certain specified events. Proposed § 

39.51(c)(2)(iii) requires a DCO to provide prompt notice to the Commission regarding 

any change in its home country regulatory regime. Proposed § 39.51(c)(2)(iv) requires a 

DCO to provide to the Commission, to the extent that it is available to the DCO, any 

examination report or examination findings by a home country regulator, and notify the 

Commission within five business days after it becomes aware of the commencement of 

any enforcement or disciplinary action or investigation by a home country regulator. 

Proposed § 39.51(c)(2)(v) requires a DCO to provide immediate notice to the 

Commission of any change with respect to its licensure, registration, or other 

authorization to act as a clearing organization in its home country. Proposed § 

39.51(c)(2)(vi) requires a DCO to provide immediate notice to the Commission in the 

event of a default (as defined by the DCO in its rules) by any clearing member, including 

the amount of the clearing member’s financial obligation. If the defaulting clearing 

member is a U.S. clearing member, the notice must also include the name of the U.S. 

clearing member and a list of the positions it held. Proposed § 39.51(c)(2)(vii) requires a 

DCO to provide notice of any action that it has taken against a U.S. clearing member, no 

later than two business days after the DCO takes such action.
66

The Commission requested comment on whether DCOs subject to alternative 

compliance should be excused from reporting any particular data streams in order to limit 

duplicative reporting obligations in the cross-border context without jeopardizing U.S. 

customer protections, particularly given the existence of an MOU between the 

Commission and the DCO’s home country regulator as a requirement for eligibility for 

alternative compliance.75

In response to the Commission’s request for comment, CCP12 and Eurex stated 

that a global harmonization of reporting requirements would eliminate duplicative 

requirements and enable regulators to share data on the basis of MOUs. Eurex stated that 

the Commission should eliminate proposed § 39.51(c)(2)(i) and (ii) in order to enhance 

the benefits of alternative compliance as compared to traditional registration. CCP12 

suggested that the Commission limit the daily reporting requirements of proposed § 

39.51(c)(2)(i) to information related to FCM clearing members. Without specifying 

particular provisions, CCP12 also argued that in some cases the proposed reporting 

requirements would be costly and would overlap with requirements imposed by home 

country regulators. CCIL generally supported avoiding duplicative reporting through the 

use of MOUs.

Because none of the commenters identified specific proposed reporting 

requirements as duplicative of existing obligations, the Commission is declining to 

modify proposed § 39.51(c). In this rulemaking, the Commission has attempted to limit 

required reporting to that information it will need to perform its supervisory function. 

 75 See Registration With Alternative Compliance for Non-U.S. Derivatives Clearing Organizations, 84 FR 

at 34826.
67

The Commission believes that the reporting requirements in § 39.51(c) are appropriately 

tailored to accomplish that goal with respect to DCOs subject to alternative compliance. 

For this reason, the Commission disagrees with Eurex that § 39.51(c)(2)(i) and (ii) should 

be eliminated, and notes that Eurex did not identify any particular faults with these 

provisions. The Commission also disagrees that the daily reports required by § 

39.51(c)(2)(i) should be limited to information related to FCM clearing members. 

Limiting daily reports in this way would provide the Commission with incomplete data 

and would thus frustrate its ability to assess the risk exposure of U.S. persons and the 

extent of a non-U.S. DCO’s U.S. clearing activity.76

The Commission also requested comment on the proposed requirement in § 

39.51(c)(2)(iii) that a DCO provide prompt notice to the Commission regarding any 

change in its home country regulatory regime. Specifically, the Commission asked

whether it should instead require a DCO subject to alternative compliance to provide 

prompt notice of any material change in its home country regulatory regime. The

Commission did not receive any comments directly responsive to this question.

The Commission did receive several comments on proposed § 39.51(c)(1) that do 

not relate to the specific requests for comment. Mr. Kubitz stated that the reporting 

requirements for DCOs subject to alternative compliance should be at least as 

comprehensive as the requirements for other DCOs. The Commission believes that the 

reporting requirements in § 39.51(c) are appropriately tailored to protect its regulatory 

 76 The Commission noted in the proposal that the goal of § 39.51(c)(2)(i) is to provide the Commission 

with information regarding the cash flows associated with U.S. persons clearing swaps through DCOs 

subject to alternative compliance in order for the Commission to assess the risk exposure of U.S. persons 

and the extent of the DCO’s U.S. clearing activity. See Registration With Alternative Compliance for NonU.S. Derivatives Clearing Organizations, 84 FR at 34825.
68

interests without requiring information on topics on which it intends to defer to the home 

country regulator, and notes that Mr. Kubitz did not identify why he believes the 

reporting requirements in § 39.51(c) are insufficient. If the Commission subsequently 

determines that it needs additional information, § 39.51(c)(1) requires a DCO subject to 

alternative compliance to provide the Commission with any information that it deems 

necessary.

In regards to proposed § 39.51(c)(2)(iii), CCIL stated that a DCO subject to 

alternative compliance should not have to notify the Commission regarding a change in 

its home country regulatory regime because notification could be addressed through an 

MOU between the Commission and the home country regulator. The Commission notes 

than an MOU would not obligate the home country regulator to notify the Commission 

and believes that it is therefore appropriate to require the DCO, as the Commission’s 

registrant, to be responsible for reporting this information.

With regard to the event-specific reporting requirements of § 39.51(c)(2)(vi) and 

(vii), ICE noted that events involving U.S. clearing members would be subject to greater

reporting requirements than those related to non-U.S. clearing members, and argued that 

requirements related to U.S. clearing members should be no greater than those related to 

other clearing members. The Commission has a greater supervisory interest in U.S 

clearing members and believes that this incremental difference in reporting obligations is 

justified as a result.

In light of the foregoing, the Commission is adopting § 39.51(c) as proposed.
69

d. Modification of Registration Upon Commission Initiative

Proposed § 39.51(d) permits the Commission to modify the terms and conditions 

of a DCO’s order of registration, in its discretion and upon its own initiative, based on 

changes to or omissions in facts or circumstances pursuant to which the order was issued, 

or if any of the terms and conditions of the order have not been met. For example, the 

Commission could modify the terms of a registration order upon a determination that 

compliance with the DCO’s home country regulatory regime does not satisfy the DCO 

Core Principles, the DCO is not in good regulatory standing in its home country, or the 

DCO poses substantial risk to the U.S. financial system.

Proposed § 39.51(d)(2) through (4) set forth the process for modification of 

registration upon the Commission’s initiative. Proposed § 39.51(d)(2) requires the 

Commission to first provide written notification to a DCO that the Commission is 

considering modifying the DCO’s order of registration and the basis for that 

consideration. Proposed § 39.51(d)(3) provides up to 30 days for a DCO to respond to 

the Commission’s notification in writing following receipt of the notification, or at such 

later time as the Commission may permit in writing. Proposed § 39.51(d)(4) provides 

that, following receipt of a response from the DCO, or after expiration of the time 

permitted for a response, the Commission may: (i) issue an order requiring the DCO to 

comply with all requirements applicable to DCOs registered pursuant to § 39.3(a)(2), 

effective as of a date to be specified in the order, which is intended to provide the DCO 

with a reasonable amount of time to come into compliance with the CEA and 

Commission regulations or request a vacation of registration in accordance with § 

39.3(f); (ii) issue an amended order of registration that modifies the terms and conditions 
70

of the order; or (iii) provide written notification to the DCO that its order of registration 

will remain in effect without modification to its terms and conditions.

The Commission received four comments on proposed § 39.51(d). ICE stated 

that modification should be limited to instances covered by proposed § 39.51(d)(1)(i), 

where there has been a change in the home country regulatory regime such that it no 

longer satisfies the DCO Core Principles. ICE argued that the Commission should 

identify the process by which the Commission will notify the DCO subject to alternative 

compliance of the basis for a modification and provide the DCO with an opportunity to 

respond. LCH recommended that, if after registering a DCO subject to alternative 

compliance the Commission determines that the DCO poses substantial risk to the U.S. 

financial system, the Commission should clearly indicate the timeframe by which the

DCO needs to become fully compliant with Commission regulations. CCP12 and Eurex 

stated that the Commission should establish a streamlined “re-application” process for 

any DCO registered under the existing framework which later applies for alternative 

compliance but then is subsequently deemed to pose substantial risk to the U.S. financial 

system and thus must again become DCOs, including all of subpart B of Part 39.

The Commission disagrees that it should only modify an order of registration 

granted to a DCO subject to alternative compliance when there has been a change in the 

DCO’s home country regulatory regime such that it no longer satisfies the DCO Core 

Principles. The Commission must be able to modify an order if there are changes to the 
71

facts and circumstances pursuant to which the order was issued, or if any of the terms and 

conditions of the order have not been met.

77

In response to ICE’s suggestion that the Commission identify the process by 

which the Commission will notify a DCO subject to alternative compliance of the basis 

for a modification of its order and provide the DCO with an opportunity to respond, the

Commission notes that this process is provided in § 39.51(d)(2) and (3). In response to 

LCH’s comment that the Commission should clearly indicate the timeframe within which 

a DCO determined to pose substantial risk to the U.S. financial system would need to 

become fully compliant with Commission regulations, the Commission notes that § 

39.51(d)(4)(i) requires the Commission to provide the DCO “with a reasonable amount of 

time to come into compliance.” The Commission believes it is inappropriate to set a 

specific timeframe in the regulation because how much time a DCO would need will 

depend on how far removed its current practices are from what is required by 

Commission regulations. In response to CCP12 and Eurex, the Commission notes that a 

DCO that is no longer eligible for alternative compliance would not have to re-apply for 

registration because it would already be registered. The DCO would only have to be able 

to demonstrate that it has come into compliance with the applicable requirements of the 

CEA and Commission regulations by the date specified by the Commission pursuant to § 

39.51(d)(4)(i), which it could do through the annual compliance report required by § 

39.10(c)(3) (a requirement which would now apply to the DCO).

For the above stated reasons, the Commission is adopting § 39.51(d) as proposed.

 77 The Commission also notes that it has the authority to suspend or revoke a DCO’s registration for the 

failure to comply with any provision of the CEA, regulations promulgated thereunder, or any order of the

Commission, pursuant to section 5e of the CEA. 7 U.S.C. 7b.
72

F. Part 140 – Organization, Functions, and Procedures of the Commission

The Commission proposed amendments to § 140.94(c) to delegate authority to the 

Director of the Division of Clearing and Risk for all functions reserved to the 

Commission in proposed § 39.51, except for the authority to grant registration to a DCO, 

prescribe conditions to alternative compliance of a DCO, and modify a DCO’s 

registration order. The Commission did not receive any comments on the proposed 

changes to § 140.94(c) and is adopting them as proposed.

G. Responses to Additional Requests for Comment

In section IV of the proposal, the Commission requested comment on eight 

specific issues. In the six instances in which these requests related to particular aspects of 

the proposal, the responses were included in the discussion above. This section addresses 

the other two requests.

1. Request for Comment No. 1

In the proposal, the Commission asked whether the proposed alternative 

compliance regime, including both the application process and the ongoing requirements, 

strikes the right balance between the Commission’s regulatory interests and the 

regulatory interests of non-U.S. DCOs’ home country regulators.

Several commenters expressed support for the proposed alternative compliance 

regime. SIFMA stated that it supports the steps taken by the proposal to provide greater

deference to home country regulation of non-U.S. DCOs. SIFMA also supported the 

proposal’s risk-based measures to calibrate the extent of extraterritorial U.S. regulations. 

LCH stated that the proposal adequately balances the Commission’s regulatory interests 

with the regulatory interests of home country regulators, and noted that the proposal 
73

appropriately accounts for both the Commission’s risk-related concerns and international 

comity. CCIL stated that the proposed alternative compliance framework provides a 

better alternative to the existing structure. Specifically, CCIL supported the definitions of 

“good regulatory standing” and “substantial risk” in proposed § 39.2, stating that these 

definitions and the alternative compliance framework as a whole rightly endorse the 

primacy of the home country regulator and compliance under home country 

requirements. CCP12 stated that it welcomes the Commission’s alternative compliance 

approach because it recognizes the importance of regulatory deference and increased

cross-border cooperation. Eurex stated that the proposed framework brings welcome 

relief from the Part 39 rules for non-U.S. DCOs that do not pose systemic risk to the U.S. 

financial system. WFE advocated for an approach of regulatory deference and 

international comity, without taking a position on whether the proposed alternative 

compliance regime is such an approach. WFE added that departing from the international 

principle of regulatory deference should only be required if there is a clear and truly 

substantial risk to the financial stability of the host-authority jurisdiction.

Many of the commenters that expressed support for the proposed alternative 

compliance regime also recommended improvements. CCP12 recommended alleviating 

some of the requirements of alternative compliance, but it did not identify the

requirements to which it objected. Eurex argued that the Commission should reduce the 

number of reporting requirements applicable to DCOs subject to alternative compliance. 

CCIL stated that a DCO subject to alternative compliance should not have to comply with 

the DCO Core Principles because its home country regulator will alternatively assess its

compliance with the PFMIs. Furthermore, CCIL argued that if each country requires
74

compliance with its own regulations, it could create a complex web of requirements that 

could result in a huge compliance burden on clearing organizations and confusion as to 

how to comply with conflicting regulations.

After reviewing these comments, the Commission continues to believe that the 

alternative compliance regime strikes the right balance between the Commission’s 

regulatory interests and the regulatory interests of home country regulators. As 

previously discussed, the Commission does not agree that the level of reporting required 

of DCOs subject to alternative compliance should be further reduced. In response to 

CCIL, the Commission notes that the CEA requires a DCO to meet the DCO Core 

Principles in order to be registered and to maintain its registration, and therefore the 

Commission must ensure that DCOs, including DCOs subject to alternative compliance,

meet the DCO Core Principles, not simply the PFMIs as implemented by each home 

country regulator. The Commission further notes that a non-U.S. clearing organization 

that wishes to meet only the PFMIs can apply for an exemption from DCO registration.

2. Request for Comment No. 2

In the proposal, the Commission asked whether there are additional regulatory 

requirements under the CEA or Commission regulations that should not apply to DCOs 

subject to alternative compliance in the interest of deference and allowing such DCOs to 

satisfy the DCO Core Principles through compliance with their home country regulatory 

regimes while still protecting the Commission’s regulatory interests.

CCIL argued that the Commission should be satisfied with a certification by a 

home country regulator that a DCO subject to alternative compliance complies with the

PFMIs. As previously noted, the CEA requires DCOs to comply with the DCO Core 
75

Principles. The Commission could not permit a DCO to be registered solely on the basis 

of a home country regulator’s certification that the DCO complies with the PFMIs.

CCP12 stated that DCOs subject to alternative compliance could face a significant 

challenge complying with section 4d(f) of the CEA and the Commission’s customer 

protection requirements, mainly because these requirements apply customer protections 

consistent with the U.S. Bankruptcy Code and part 190 of the Commission’s regulations 

irrespective of the home country laws applicable to a non-U.S. DCO and its FCM 

clearing members. The Commission notes that all DCOs, including non-U.S. DCOs, are 

currently subject to these customer protection requirements. The proposal would simply 

leave the requirements in place. Given that CCP12 did not identify how the customer 

protection requirements would present new challenges for DCOs subject to alternative 

compliance, the Commission continues to believe that the protections afforded to 

customers by the requirements outweigh the burdens of compliance for these DCOs, for 

the reasons previously discussed.

Eurex and CCP12 each identified reporting requirements that they argued should 

not apply to DCOs subject to alternative compliance. In regards to the reporting 

requirements of § 39.51(c), CCP12 stated that oversight of U.S. customers’ swaps 

clearing activity could be fulfilled with “less regular and more relevant data information,”

and suggested that the daily reports required by § 39.51(c)(2)(i) be limited to FCMs. 

Eurex stated that the reporting requirements of proposed § 39.51(c)(2)(i) and (ii) and the 

part 45 reporting requirements should not apply to non-U.S. DCOs because these 

requirements are costly and overlap to a large degree with existing requirements imposed 

by home country regulators. Eurex recognized that the Commission needs data to 
76

evaluate eligibility for and compliance with the alternative compliance framework; 

however, Eurex would instead prefer a global standardization of reporting and 

cooperation among data repositories. CCP12 also encouraged international standardsetting bodies to standardize data fields and promote cooperation among repositories to 

avoid duplicative reporting.

As previously discussed, the Commission disagrees that the reporting required 

under § 39.51(c) should not apply to DCOs subject to alternative compliance, and that the 

daily reports required by § 39.51(c)(2)(i) should be limited to FCMs. With respect to the 

part 45 requirements, the Commission believes that the transparency into the swaps 

market provided by the swap data recordkeeping and reporting requirements—

requirements applicable to all currently registered DCOs, including non-US, and exempt 

DCOs—strongly warrants the burden of requiring non-U.S. DCOs subject to alternative 

compliance to report such information. In response to Eurex and CCP12’s comments 

about international reporting standards, the Commission agrees that global harmonization 

of reporting standards and cooperation between international regulators could reduce 

duplicative reporting. However, such an arrangement is beyond the scope of this 

rulemaking, and in the absence of such a regime, the Commission must require reporting 

at a level that will allow it to protect its regulatory interests. The Commission believes 

that the reporting requirements in proposed § 39.51(c) are appropriately tailored to 

accomplish that goal with respect to DCOs subject to alternative compliance.

H. Additional Comments

In addition to the comments discussed above, the Commission received several 

comments that did not directly relate to a specific part of the proposal or respond to a 
77

specific request for comment. The Commission appreciates the additional feedback. In 

the instances where these comments do not address proposed changes and are therefore 

outside the scope of this rulemaking, the Commission may take the comments under 

advisement for future rulemakings.

Citadel argued that the proposed alternative compliance framework did not appear 

to be specifically contemplated in the CEA. Citadel suggested that the Commission 

should proceed cautiously based on the lack of clear statutory guidance.

As discussed in the proposal, the Commission believes the CEA provides the 

Commission with the authority to adopt the regulations implementing the alternative 

compliance framework. The Commission has broad authority under section 8a(5) of the 

CEA to make and promulgate such rules and regulations as, in the judgment of the 

Commission, are reasonably necessary to effectuate any of the provisions or to 

accomplish any of the purposes of the CEA.78 Section 5b(c)(2)(A)(i) of the CEA 

provides that, to be registered and to maintain registration as a DCO, a DCO must 

comply with each DCO Core Principle and any requirement that the Commission may 

impose by rule or regulation pursuant to section 8a(5). Section 5b(c)(2)(A)(ii) of the 

CEA further provides that, subject to any rule or regulation prescribed by the 

Commission, a DCO has reasonable discretion in establishing the manner by which it 

complies with each DCO Core Principle. The Commission first adopted regulations to 

implement the DCO Core Principles in subpart B of Part 39, which, until now, have 

applied to all DCOs. With the adoption of the regulations implementing the alternative 

compliance framework, the Commission is using its authority under section 8a(5) of the 

 78 7 U.S.C. 12a(5).
78

CEA to establish a second, separate path to compliance with the DCO Core Principles for 

non-U.S. DCOs that do not pose substantial risk to the U.S. financial system.

ICE noted that the proposal does not address the requirement under § 39.5 for 

DCOs to make certain filings before clearing new swaps or categories of swaps, and 

asked that the Commission clarify that § 39.5 filings would not be required of DCOs 

subject to alternative compliance. The Commission notes that because DCOs subject to 

alternative compliance would still be registered, they, in fact, would be required to 

comply with subpart A of Part 39, which includes § 39.5.

ICE noted that there are non-U.S. clearing organizations that clear both swaps and 

futures, and believes that to the extent possible, any relief for swaps clearing (including 

under the alternative compliance framework) should also apply to swaps cleared at a 

DCO that clears both futures and swaps, and suggests that the final rules be clarified to 

make this explicit. As explained in the proposal, the Commission’s regulatory 

framework already distinguishes between clearing of futures executed on a DCM, for 

which DCO registration is required, and clearing of foreign futures, for which it is not. 

The Commission had not contemplated permitting a non-U.S. DCO that clears futures 

listed for trading on a DCM to be eligible for alternative compliance as most non-U.S. 

DCOs are registered to clear swaps only. The Commission would have to amend the 

rules being adopted herein to allow non-U.S. DCOs that clear DCM futures to be eligible; 

for example, the Commission would have to adjust the substantial risk test to account for 

futures. The Commission will give this idea further consideration.
79

FIA requested that the Commission confirm that its 2016 EU comparability 

determination79 remains in place and is not replaced or amended in any way by this 

rulemaking such that market participants may continue to rely on it. The EU 

comparability determination compared Part 39 with EU regulations and identified those 

instances where the requirements are so similar that compliance with the Part 39

regulation(s) would constitute compliance with the EU regulation(s) as well. Unless any

of the regulations included in the determination have been amended or repealed, the 

Commission’s determination stands.

Better Markets argued that providing DCOs with the options of traditional 

registration, exemption from registration, and registration subject to alternative 

compliance is unnecessarily complex and over time would create competitive disparities 

and differences in DCO risk management and other practices. Better Markets further 

argued that the proposed framework would facilitate forum shopping and regulatory 

arbitrage, deferring to non-U.S. DCOs to determine for themselves how they comply with 

U.S. requirements.

The Commission does not believe that presenting clearing organizations with the 

additional option of registration with alternative compliance will result in material 

disparities in DCO risk management practices because all registered DCOs will still be 

required to satisfy the DCO Core Principles. Moreover, the Commission does not believe 

that the alternative compliance framework will result in regulatory arbitrage because it 

 79 See Comparability Determination for the European Union: Dually-Registered Derivatives Clearing 

Organizations and Central Counterparties, 81 FR 15260 (Mar. 22, 2016).
80

will only be available to an applicant that can demonstrate, among other things, that 

compliance with its home country requirements would satisfy the DCO Core Principles.

Citadel suggested that the primary beneficiaries of the alternative compliance 

framework will be non-U.S. DCOs which are already registered with the Commission 

(and not exempt DCOs or clearing organizations that currently have no status with the 

Commission). Citadel stated that permitting certain non-U.S. DCOs to use an alternative 

compliance framework means that these DCOs will be able to provide clearing services 

to U.S. market participants without complying with as many U.S. regulatory 

requirements as U.S. DCOs, potentially creating an un-level competitive playing field 

where lower operational and regulatory costs allow non-U.S. DCOs to increase market 

share at the expense of U.S. DCOs. Such a concern may be particularly relevant where 

the home jurisdiction of the non-U.S. DCO has failed to grant similar deference to U.S. 

DCOs. As a result, Citadel recommends that the Commission assess the foreign 

jurisdiction’s treatment of U.S. DCOs prior to granting a non-U.S. DCO’s application for 

alternative compliance.

The Commission believes that non-U.S. DCOs, exempt DCOs, and non-U.S. 

clearing organizations that are neither registered nor exempt may benefit from the 

alternative compliance framework, but notes that each current non-U.S. DCO had to 

demonstrate compliance with each of the requirements of subpart B of Part 39 during its 

application process, which will not be required of new applicants for registration subject 

to alternative compliance. The Commission noted in the proposal that one of the goals of 

the alternative compliance framework is to ease the regulatory burden on non-U.S. DCOs

that do not pose substantial risk to the U.S. financial system, including some current 
81

DCOs. The Commission believes that doing so is appropriate because these DCOs are 

subject to multiple regulators and regulatory regimes, and face duplicative regulations. 

However, as previously noted here and in the proposal, the Commission may condition 

alternative compliance on any other facts and circumstances it deems relevant. In doing 

so, the Commission would be mindful of principles of international comity. The 

Commission could take into account the extent to which the relevant foreign regulatory 

authorities defer to the Commission with respect to oversight of U.S. DCOs, in light of 

international comity.

SIFMA argued that the Commission should use this opportunity to promote the 

competitiveness of U.S. FCMs and swap dealers by expanding their ability to access nonU.S. clearing organizations. Specifically, SIFMA believes the Commission should (1) 

permit U.S. FCMs to use an omnibus clearing structure for foreign cleared swaps like 

they currently use for foreign futures and (2) allow a non-U.S. clearing organization to 

accept foreign branches of U.S. bank swap dealers as members without requiring the nonU.S. clearing organization to register with the Commission as a DCO or obtain an 

exemption from DCO registration. SIFMA argues that these changes would also promote 

customer choice and reduce market concentration. The Commission appreciates this 

additional feedback and will give it further consideration.

ASX, JSCC, KRX, and OTC Clear argued that the Commission should finalize 

the exempt DCO rulemaking notwithstanding the outcome of this rulemaking.

ASX, JSCC, KRX, and OTC Clear stated that a clearing member of a non-U.S. 

DCO should be able to clear swaps for U.S. customers without registering as an FCM. 

ASX, JSCC, KRX, OTC Clear, and ICE specifically suggested that the Commission 
82

adopt an exemption similar to the § 30.10 exemption for foreign futures and foreign 

options. ASX believes that adopting a part 30-type regime for swaps could achieve cost 

savings and improved customer experience for some U.S. customers of non-FCM 

clearing members by allowing them to access both foreign futures markets and exempt 

DCOs for swaps under an aligned framework. In addition, ASX, JSCC, KRX, and OTC 

Clear suggested that an exemption could help address their concern that U.S. customers 

are being forced to concentrate their clearing in a limited number of DCOs and FCM 

clearing members. They argued that the situation is further exacerbated for those U.S. 

customers who must clear swaps denominated in foreign currencies subject to the 

Commission’s clearing requirement, as they cannot always access swaps markets in the 

home country of the relevant currency where, as JSCC observed, the highest liquidity and 

best prices are available.

The Commission believes that the alternative compliance framework for non-U.S. 

DCOs registered with the Commission should retain protections available to U.S. 

customers by clearing through FCMs. The Commission appreciates the several 

comments on this topic and will give them further consideration in connection with the 

exempt DCO rulemaking.

III. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) requires that agencies consider whether the 

regulations they propose will have a significant economic impact on a substantial number 

of small entities and, if so, provide a regulatory flexibility analysis on the impact.80 The 

 80 5 U.S.C. 601 et seq.
83

regulations being adopted by the Commission will affect only DCOs. The Commission 

has previously established certain definitions of “small entities” to be used by the 

Commission in evaluating the impact of its regulations on small entities in accordance 

with the RFA.81 The Commission has previously determined that DCOs are not small 

entities for the purpose of the RFA.82 Accordingly, the Chairman, on behalf of the 

Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the regulations adopted 

herein will not have a significant economic impact on a substantial number of small 

entities.

B. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (PRA)83 imposes certain requirements on 

Federal agencies (including the Commission) in connection with their conducting or 

sponsoring a collection of information as defined by the PRA. The regulations adopted 

herein would result in such a collection, as discussed below. A person is not required to 

respond to a collection of information unless it displays a currently valid control number 

issued by the Office of Management and Budget (OMB). The regulations include a 

collection of information for which the Commission has previously received control 

numbers from OMB. The title for this collection of information is “Requirements for 

Derivatives Clearing Organizations, OMB control number 3038-0076.”

The Commission did not receive any comments regarding its PRA burden 

analysis in the preamble to the proposal. The Commission is revising Information 

Collection 3038-0076 to include the collection of information in revised § 39.3(a)(3) and 

 81 See 47 FR 18618 (Apr. 30, 1982).

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

83 44 U.S.C. 3501 et seq.
84

new § 39.51, as well as changes to the existing information collection requirements for 

DCOs as a result of these changes. The Commission does not believe the regulations as 

adopted impose any other new collections of information that require approval of OMB 

under the PRA.

1. Alternative DCO Application Procedures under § 39.3(a)(3)

Regulation 39.3(a)(2) sets forth the requirements for filing an application for 

registration as a DCO. The Commission is adopting new § 39.3(a)(3), which establishes 

the application procedures for DCOs that wish to be subject to alternative compliance. 

Currently, Information Collection 3038-0076 reflects that each application for DCO 

registration takes 421 hours to complete, including all exhibits. Because the alternative 

application procedures will require substantially fewer documents and exhibits, the 

Commission is estimating that each such application would require 100 hours to 

complete.

DCO application for alternative compliance, including all exhibits, supplements 

and amendments:

Estimated number of respondents: 1

Estimated number of reports per respondent: 1

Average number of hours per report: 100

Estimated gross annual reporting burden: 100
85

2. Ongoing Reporting Requirements for DCOs Subject to Alternative 

Compliance in Accordance With New § 39.51

New § 39.51 includes reporting requirements for DCOs subject to alternative 

compliance that are substantially similar to those proposed for exempt DCOs.84 The 

estimated number of respondents is based on approximately three existing registered 

DCOs that may choose to convert to alternative compliance and one new registrant per 

year.

Daily reporting

Estimated number of respondents: 6

Estimated number of reports per respondent: 250

Average number of hours per report: 0.1

Estimated gross annual reporting burden: 150

Quarterly reporting

Estimated number of respondents: 6

Estimated number of reports per respondent: 4

Average number of hours per report: 1

Estimated gross annual reporting burden: 24

Event-specific reporting

Estimated number of respondents: 6

Estimated number of reports per respondent: 1

Average number of hours per report: 0.5

Estimated gross annual reporting burden: 3

 84 See Exemption From Derivatives Clearing Organization Registration, 83 FR 39923 (Aug. 13, 2018).
86

Annual certification of good regulatory standing

Estimated number of respondents: 6

Estimated number of reports per respondent: 1

Average number of hours per report: 1

Estimated gross annual reporting burden: 6

Under § 39.4(c), DCOs subject to alternative compliance will not be required to 

comply with § 40.6 regarding certification of rules, other than rules relating to customer 

protection. Although this change could potentially reduce the burden related to rule 

submissions by registered entities, which is covered in Information Collection 3038-

0093, the Commission is not proposing any changes to that information collection burden 

because its current estimate of 50 responses annually per respondent covers a broad range 

of the number of annual submissions by registered entities. Therefore, no adjustment to 

Information Collection 3038-0093 is necessary.

3. Adjustment to Part 39 Reporting and Recordkeeping Requirements

As noted above, the Commission anticipates that approximately three current 

DCOs may seek registration under the alternative compliance process; accordingly, the 

information collection burden applicable to DCO applicants and DCOs will be reduced. 

Currently, collection 3038-0076 reflects that there are two applicants for DCO 

registration annually and that it takes each applicant 421 hours to complete and submit 

the form, including all exhibits. The Commission is reducing the number of applicants 

for traditional DCO registration from two to one based on the expectation that one of the 

annual DCO applicants will seek registration subject to alternative compliance.
87

Form DCO - § 39.3(a)(2)

Estimated number of respondents: 1

Estimated number of reports per respondent: 1

Average number of hours per report: 421

Estimated gross annual reporting burden: 421

The information collection burden for DCOs, based on the Commission’s 

alternative compliance regime, is estimated to be reduced by three, from 16 to 13. The 

reduction in the number of respondents is the sole change in the burden estimates 

previously stated for DCOs.85 The revised burden estimates are as follows:

CCO annual report

Estimated number of respondents: 13

Estimated number of reports per respondent: 1

Average number of hours per report: 73

Estimated gross annual reporting burden: 949

Annual financial reports

Estimated number of respondents: 13

Estimated number of reports per respondent: 1

Average number of hours per report: 2626

Estimated gross annual reporting burden: 34,138

 85 There are minor differences in the burden estimates for quarterly and annual financial reports and eventspecific reporting from the proposal, which was based on the burden estimates stated in the Commission’s 

proposed amendments to Part 39 (84 FR 22226 (May 16, 2019)). The Commission adopted the 

amendments to Part 39 (85 FR 4800 (Jan 27, 2020)) with some minor changes, so the corresponding 

revisions to the burden estimates are reflected in the figures stated herein.
88

Quarterly financial reports

Estimated number of respondents: 13

Estimated number of reports per respondent: 4

Average number of hours per report: 7

Estimated gross annual reporting burden: 364

Daily reporting

Estimated number of respondents: 13

Estimated number of reports per respondent: 250

Average number of hours per report: 0.5

Estimated gross annual reporting burden: 1625

Event-specific reporting

Estimated number of respondents: 13

Estimated number of reports per respondent: 14

Average number of hours per report: 0.5

Estimated gross annual reporting burden: 91

Public information

Estimated number of respondents: 13

Estimated number of reports per respondent: 4

Average number of hours per report: 2

Estimated gross annual reporting burden: 104

Governance disclosures

Estimated number of respondents: 13

Estimated number of reports per respondent: 6
89

Average number of hours per report: 3

Estimated gross annual reporting burden: 234

DCOs - Recordkeeping

Estimated number of respondents: 13

Estimated number of reports per respondent: 1

Average number of hours per report: 150

Estimated number of respondents-request to vacate: 1

Estimated number of reports per respondent-request to vacate: 0.33

Average number of hours per report-request to vacate: 1

Estimated gross annual recordkeeping burden: 195186

New § 39.4(c) exempts DCOs subject to alternative compliance from certifying 

rules unless the rule relates to the requirements under section 4d(f) of the CEA, parts 1, 

22, or 45 of the Commission’s regulations, or § 39.15. While this change is likely to 

reduce the number of rule certification submissions that would otherwise be required for 

DCOs subject to alternative compliance, the Commission is not expecting that this will 

affect the overall burden for rule certification filings by all registered entities, covered in 

Information Collection 3038-0093. The number of rule submissions in that information 

collection is intended to represent an average number of submissions per registered 

entity. Because the average number of submissions covers a wide range of variability in 

the actual numbers of rule certification submissions by registered entities, the 

Commission believes that the small number of DCOs subject to alternative compliance 

 86 The total annual recordkeeping burden estimate reflects the combined figures for 13 DCOs with an 

annual burden of one response and 150 hours per response (13 x 1 x 150=1950), and one vacated DCO 

registration every three years with an annual burden of one hour, which is not affected by this rulemaking.
90

which will not be required to certify all rules would be covered by the existing burden 

estimate in Information Collection 3038-0093.

C. Cost-Benefit Considerations

1. Introduction

Section 15(a) of the CEA requires the Commission to consider the costs and 

benefits of its actions before promulgating a regulation under the CEA or issuing certain 

orders.87 Section 15(a) further specifies that the costs and benefits shall be evaluated in 

light of five broad areas of market and public concern: (1) protection of market 

participants and the public; (2) efficiency, competitiveness, and financial integrity of 

futures markets; (3) price discovery; (4) sound risk management practices; and (5) other 

public interest considerations. The Commission considers the costs and benefits resulting 

from its discretionary determinations with respect to the section 15(a) factors.

2. Amendments to Part 39

a. Summary and Baseline for the Final Rule

Section 5b(a) of the CEA requires a clearing organization that clears swaps to be 

registered with the Commission as a DCO. Once registered, a DCO is required to 

comply with the CEA and all Commission regulations applicable to DCOs, regardless of 

whether the DCO is subject to regulation and oversight in other legal jurisdictions. The 

Commission is adopting amendments to Part 39 that allow a non-U.S. DCO that the 

Commission determines does not pose substantial risk to the U.S. financial system, as 

defined in an amendment to§ 39.2, to be subject to an alternative compliance regime that 

relies in part on the DCO’s home country regulatory regime and will result in reduced 

 87 7 U.S.C. 19(a).
91

regulatory obligations as compared to the existing registration requirements. 

Specifically, under the final rule, the non-US DCO will comply with the DCO Core 

Principles established in section 5b(c)(2) of the CEA by complying with its home 

country’s legal requirements rather than the requirements of subpart B of Part 39 (with 

the exception of § 39.15). The non-US DCO will remain subject to subpart A of Part 39 

and the Commission’s customer protection and swap data reporting requirements, as well 

as certain reporting requirements and other conditions in its registration order. Lastly, 

under the final rule, § 39.4(c) exempts non-US DCOs that are subject to alternative 

compliance from self-certifying rules pursuant to § 40.6, unless the rule relates to the 

Commission’s customer protection or swap data reporting requirements.

The baseline for these cost and benefit considerations is the current statutory and 

regulatory requirements applicable to non-US DCOs, including those related to 

application procedures for registration and self-certification of rules. Under current 

requirements, a non-U.S. DCO seeking to clear for U.S. participants has two options: (1) 

it can pursue registration under part 39 as it exists today (and comply with the DCO Core 

Principles and relevant Commission regulations) and have the same access to U.S. 

customer business as a registered U.S. DCO; or (2) it can seek exemption from DCO 

registration pursuant to CEA section 5b(h), but forgo access to U.S. customers (while 

accepting business from self-clearing U.S. proprietary traders).

Where reasonably feasible, the Commission has endeavored to estimate 

quantifiable costs and benefits. Where quantification is not feasible, the Commission 

identifies and describes costs and benefits qualitatively. Additionally, the initial and 

recurring compliance costs for any particular non-US DCO will depend on its size, 
92

existing infrastructure, level of clearing activity, practices, and cost structure. In 

considering the effects of the final rule and the resulting costs and benefits, the 

Commission acknowledges that the swaps markets have several types of market 

participants including DCOs, clearing members, and their clients (who could be 

professional investors, public and non-public operating firms) and function 

internationally with: (i) transactions that involve U.S. firms occurring across different 

international jurisdictions; (ii) some entities organized outside of the United States that 

are prospective Commission registrants; and (iii) some entities that typically operate both 

within and outside the United States and that follow substantially similar business 

practices wherever located. Where the Commission does not specifically refer to matters 

of location, the discussion of costs and benefits below refers to the effects of the 

amendments on all relevant swaps activities, whether based on their actual occurrence in 

the United States or on their connection with, or effect on U.S. commerce pursuant to, 

section 2(i) of the CEA.88

b. Benefits

The Commission believes that the primary benefit of the alternative compliance 

framework for non-US DCOs is that it will promote and encourage international comity 

by showing deference to non-U.S. regulators in the oversight of non-U.S. DCOs that do 

not pose substantial risk to the U.S. financial system. The second prong of the substantial 

risk test in particular is directed at comity by making a non-U.S. DCO that satisfies the 

 88 Pursuant to section 2(i) of the CEA, activities outside of the United States are not subject to the swap 

provisions of the CEA, including any rules prescribed or regulations promulgated thereunder, unless those 

activities either “have a direct and significant connection with activities in, or effect on, commerce of the 

United States;” or contravene any rule or regulation established to prevent evasion of a CEA provision 

enacted under the Dodd-Frank Act, Pub. L. 111–203, 124 Stat. 1376. 7 U.S.C. 2(i).
93

first prong of the test eligible for registration subject to alternative compliance if the 

proportion of U.S. activity it clears is not at a level that warrants more active oversight by 

the Commission. Based on its past, and continued, coordination with non-U.S. 

regulators, the Commission expects that non-U.S. regulators will, in turn, defer to the 

Commission in the supervision and regulation of DCOs organized in the United States, 

thereby reducing the regulatory and compliance burdens of these U.S. DCOs.89 While 

the Commission believes that international comity will occur, it acknowledges that the 

realization of the benefit from international comity is dependent on the actions of nonU.S. regulators and therefore, may not come to fruition.

There are currently 15 DCOs registered with the Commission, five of which are 

organized outside of the United States and have comparable registration status in their 

respective home countries. The Commission expects that, in light of the substantial risk 

test as discussed below, four of these DCOs may be eligible for alternative compliance.

The Commission reviewed quarterly statistics for six registered DCOs, including 

four non-U.S. DCOs, that account for the vast majority of swaps initial margin (IM) held 

in the United States. The statistics included the share of total U.S. swaps IM held by each 

DCO and the U.S. share of total IM held by each DCO. These statistics were calculated 

by Commission staff for the period from first quarter 2018 through second quarter 2020. 

Regarding the first prong of the substantial risk test (the DCO’s share of U.S. swaps IM), 

Commission staff found that one non-U.S. DCO consistently accounted for at least 47% 

of U.S. swaps IM, while none of the other three non-U.S. DCOs ever exceeded 5% of 

 89 As the Commission previously noted, the G20 “agree[d] that jurisdictions and regulators should be able 

to defer to each other when it is justified by the quality of their respective regulatory and enforcement 

regimes, based on similar outcomes, in a non-discriminatory way, paying due respect to home country 

regulation regimes.” G20 Leaders’ Declaration, St. Petersburg Summit, para. 71 (Sept. 6, 2013).
94

U.S. swaps IM (and thus may be eligible for alternative compliance). Any threshold 

between 10% and 40% would have yielded the same results, but the 20% level is more 

likely to result in a stable set of DCOs eligible for alternative compliance than other 

possible thresholds. This is because the share of the three smaller non-U.S. DCOs would 

have to at least quadruple to approach 20% while the share of the largest non-U.S. DCO 

(LCH Limited) would have to be cut in half to approach the threshold. A stable set of 

eligible DCOs due to large distances from the threshold should benefit DCOs by reducing 

concerns that a DCO could lose its eligibility for alternative compliance.

Regarding the second prong (U.S. IM as a share of DCO IM), U.S. swaps IM as a 

share of IM at LCH Limited has consistently been at least 45%, which is more than 

double the 20% threshold. The Commission notes that the level of the second prong does 

not matter if a DCO is below the threshold for the first prong.

The adoption of the alternative compliance framework will benefit qualifying 

non-US DCOs by potentially reducing their regulatory requirements to the extent that the 

non-US DCOs’ home country laws and regulations impose obligations similar to those 

imposed by the CEA. Furthermore, the option of seeking registration with alternative 

compliance will also benefit the qualifying non-U.S. DCOs by allowing them to accept 

U.S. customer business at lower cost.

The Commission also believes that the non-US DCOs that qualify for the 

alternative compliance framework will benefit from amendments to § 39.4(c), which 

remove the requirement to certify their rules that do not relate to the Commission’s 

customer protection or swap data reporting requirements, by reducing their ongoing 

compliance costs. In 2019, the four non-U.S. DCOs potentially eligible for alternative 
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compliance submitted 108 rule certifications to the Commission, ranging from a low of 

10 submissions for one DCO to a high of 62 submissions for another DCO. Based on its 

experience reviewing DCO rule submissions, the Commission expects that a DCO 

subject to alternative compliance would make few, if any, rule submissions each year. 

The Commission receives very few rule submissions from DCOs that relate to customer 

protection or swap data reporting.

Non-U.S. clearing organizations applying for DCO registration with alternative 

compliance will benefit from new § 39.3(a)(3), which simplifies and reduces the 

application procedures from the current list of over three dozen exhibits to only a dozen 

sections of Form DCO, mostly drawn from Exhibits A and F thereto. The Commission 

has estimated that an applicant must spend 421 hours preparing a complete Form DCO.90 

As noted in the PRA discussion above, the Commission estimates that preparing the 

sections of Form DCO that would be required under the alternative compliance 

application procedures would take 100 hours.

Given the lower initial application and ongoing compliance costs, the 

Commission anticipates that some non-U.S. clearing organizations that are not currently 

registered as DCOs, including, but not limited to, exempt DCOs, may pursue registration 

with alternative compliance. Exempt DCOs in particular would receive the additional 

benefit of being able to accept U.S. customer clearing through FCMs.91 Because of the 

reduced requirements under the alternative compliance regime, the Commission believes 

 90 See Derivatives Clearing Organization General Provisions and Core Principles, 85 FR 4800, 4828 - 4829 

(Jan. 27, 2020).

91 If the Exempt DCO rulemaking is finalized, exempt DCOs would be able to accept U.S. customer 

clearing through non-FCM intermediaries, which could reduce, but would not eliminate, the relative benefit 

of registering with alternative compliance. All DCOs would still need to register with (or without) 

alternative compliance to accept U.S. customer clearing through FCMs.
96

it may be eliminating barriers to entry for these non-U.S. clearing organizations that are 

not currently registered with the Commission, which may increase the number of nonU.S. DCOs providing services to U.S. customers over time. To the extent that new nonU.S. DCO entrants decide to compete with existing DCOs to increase their share of the 

U.S. customer market, U.S. customers and clearing members may benefit from more 

clearing options, including potentially lower fees and access to cleared products that are 

not otherwise available.

The Commission received several comments on the proposing release describing 

the benefits of the alternative compliance framework. SIFMA stated that by enhancing 

deference to foreign regulation of non-U.S. DCOs and implementing risk-based measures 

to calibrate the extent of U.S. regulations, the alternative compliance framework will help 

expand opportunities for U.S. customers, promote globally integrated swaps markets, 

reduce undue regulatory duplication and burdens, responsibly make more effective use of 

the Commission’s resources, and encourage reciprocal deference by foreign regulators. 

LCH commended the Commission’s efforts to enhance regulatory deference and 

cooperation and stated that it believes that the alternative compliance framework will 

continue to drive progress towards a more harmonized regulatory approach that supports 

the global nature of the cleared swaps markets. CCIL stated that the alternative 

compliance framework provides a better alternative to the existing structure. CCP12 

stated that it welcomes the Commission’s alternative compliance approach because it 

recognizes the importance of regulatory deference and increased cross-border 

cooperation. CCP12 added that the alternative compliance framework will allow local 
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policymakers to adopt legal and regulatory requirements that are appropriate for the 

markets they oversee, while increasing cross-border cooperation.

c. Costs

One effect of adopting the amendments is that it may increase competition among 

US and non-US DCOs. Some academic research indicates that competition among 

DCOs may result in negative effects, such as lower margin or increased counterparty 

risk.92

However, the Commission expects that these potential ill effects will be mitigated 

because DCOs subject to alternative compliance would still need to comply with the 

DCO core principles through their home regulators and that these DCOs would be subject 

to rules that would, for example, prevent them from competing on margin.

The Commission recognizes that DCOs registered under the existing procedures, 

including non-U.S. DCOs that are ineligible for alternative compliance, may face a 

competitive disadvantage as a result of this proposal. A DCO subject to full Commission 

regulation and oversight may have higher ongoing compliance costs than a DCO subject 

to alternative compliance.93 However, this competitive disadvantage, based on reduced 

costs, may be mitigated by the fact that DCOs subject to alternative compliance would, as 

a precondition of such registration, be subject to a home country regulator that is likely to 

impose costs similar to those associated with Commission regulation, as the home 

country regulation would have to meet the same standards as set out in the Commission’s 

 92 See, e.g., Duffie, D., and Zhu, H. (2011). Does a Central Clearing Counterparty Reduce Counterparty 

Risk. The Review of Asset Pricing Studies, 1, 74-95.

93 The Commission notes that these costs would include complying with at least two sets of regulations for 

the non-U.S. DCO and may include additional costs to the U.S. DCO to the extent that they are subject to 

another jurisdiction’s requirements.
98

DCO Core Principles. This competitive disadvantage also would only arise where DCOs 

are competing to clear the same or similar products.94

The Commission also recognizes that currently unregistered non-U.S. clearing 

organizations applying for registration under the alternative compliance application 

procedures would incur costs in preparing the application. This would include preparing 

and submitting certain parts of Form DCO, including the requirement to provide in 

Exhibit A-1 the citation and full text of each applicable legal requirement in its home 

country that corresponds with each core principle and an explanation of how the 

applicant satisfies those requirements. If a clearing organization were required instead to 

apply under the existing application process, however, it would need to prepare and 

submit a complete Form DCO, which is a significantly more costly and burdensome 

process. Thus, although an applicant will incur costs in preparing the application under § 

39.3(a)(3), the alternative compliance application procedures represent a substantial cost 

savings relative to the existing procedures. As discussed in connection with the PRA 

above, the Commission estimates that an application for registration with alternative 

compliance pursuant to § 39.3(a)(3) will take approximately 100 hours to complete, as 

opposed to an estimated 421 hours for an application pursuant to § 39.3(a)(2).

A currently registered DCO that wishes to be subject to alternative compliance 

would not need to file a new application but would need to submit a request to amend its 

order of registration. The initial request would need to include only Exhibits A-1 and A-

 94 It is possible that a DCO subject to alternative compliance could begin clearing the same products as a 

DCO that is not eligible for alternative compliance and attempt to take advantage of the lower costs 

associated with alternative compliance by offering a lower clearing fee for these products. It is not certain 

that the cost savings associated with alternative compliance would be sufficient to cover the cost of 

lowering fees enough to induce clearing members to change DCOs.
99

8 as described in § 39.3(a)(3). The currently registered DCO would typically not need to 

file the other exhibits required in a new application for registration with alternative 

compliance, thus reducing costs further.

Furthermore, because a DCO subject to alternative compliance will not be held to 

many of the Commission’s requirements, there may be an increase in the potential for 

systemic risk. However, the Commission does not believe that the alternative compliance 

framework will materially increase the risk to the U.S. financial system because DCOs 

that pose substantial risk to the U.S. financial system as defined in § 39.2 would not be 

eligible for alternative compliance. Furthermore, a DCO cannot avail itself of this 

process unless the Commission determines that a DCO’s compliance with its home 

country regulatory regime would satisfy the DCO Core Principles, meaning that the DCO 

would be subject to regulation comparable to that imposed on DCOs registered under the 

existing procedure. An MOU or similar arrangement must be in effect between the 

Commission and the DCO’s home country regulator, allowing the Commission to receive 

information from the home country regulator to help monitor the DCO’s continuing 

compliance with its legal and regulatory obligations. In addition, DCOs subject to 

alternative compliance remain subject to the Commission’s customer protection 

requirements set forth in section 4d(f) of the CEA, parts 1 and 22 of the Commission’s 

regulations, and § 39.15. The Commission also notes that home country regulators have 

a strong incentive to ensure the safety and soundness of the clearing organizations that 

they regulate, and their oversight, combined with the alternative compliance regime, will 

enable the Commission to more efficiently allocate its own resources in the oversight of 

traditionally registered DCOs. Finally, the substantial risk test is designed to identify 
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those DCOs that pose substantial risk to the U.S. financial system and will be 

administered frequently, so in the event that one of these non-U.S. DCOs meets the test, 

it will be required to comply with all of the Commission’s DCO requirements.

The amendments will have no effect on the risks posed by exempt DCOs or by 

clearing organizations that are neither registered nor exempt from registration.

The Commission believes that determining eligibility for alternative compliance 

should generally be a simple, low-cost process given that it is in large part based on 

objective initial margin figures and, as discussed in the benefits section above, eligibility 

is expected to be stable with changes in eligibility for alternative compliance for 

particular DCOs likely to be very rare in the foreseeable future.

The Commission notes that non-U.S. DCOs that are eligible for alternative 

compliance because they satisfy the first prong, but not the second prong, of the 

substantial risk test could potentially impose costs associated with an increase in systemic 

risk. It is very unlikely, however, that a non-U.S. DCO will meet this profile in the 

foreseeable future given current initial margin shares. To do so, a non-U.S. DCO would 

have to hold over 20% of the total initial margin for U.S. clearing members while also 

having less than 20% of its initial margin provided by those clearing members, a situation 

that is unlikely to occur unless non-U.S. DCOs were to experience explosive growth in 

initial margin provided by non-U.S. clearing members. Moreover, there are significant 

mitigating factors even in the unlikely event that a non-U.S. DCO eventually meets that 

profile. The DCO would, even when registered with alternative compliance, be required 

to meet the DCO Core Principles and critical customer protection provisions and would 

be subject to supervision from its home country regulator. The home country regulator’s 
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incentive to provide intensive oversight is likely to be particularly high in this scenario 

given that the largest share of the DCO’s clearing activity would likely have been 

generated from within the home country jurisdiction. Thus, the Commission believes that 

the risk associated with this unlikely scenario is low.

Lastly, the Commission does not anticipate any costs to DCOs associated with the 

exemption in § 39.4(c), as amended.

d. Consideration of Alternatives

The Commission received several comments suggesting alternatives that the 

commenters believe would further reduce costs of the alternative compliance framework. 

ICE argued that the Commission should identify the specific factors that it will consider 

when exercising its discretion to deem a DCO to pose substantial risk to the U.S. 

financial system. ICE stated that without a list of relevant factors, the Commission could 

unnecessarily delay its assessment, which would increase compliance costs for the DCO. 

As discussed above, the Commission reserves the right to consider all factors it believes 

are relevant, and does not believe that it is helpful to attempt to list every possible factor 

given that it is impossible to anticipate all possible facts and circumstances. However, 

the Commission did provide in the discussion above a non-exclusive list of examples to 

illustrate the factors that it could consider in exercising discretion under the substantial 

risk test.

Three commenters argued that the Commission could reduce the costs to DCOs 

by not requiring DCOs to follow certain reporting requirements. CCP12 stated generally 

that in some cases the alternative compliance reporting requirements would be costly, and 

believes that oversight of U.S. customers’ swaps clearing activity could be fulfilled with 
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less frequent and more relevant data reporting. ICE stated that if an applicant’s home 

country reporting rules correspond with part 45 swap data reporting rules, the 

Commission should consider obtaining swap data from the applicant’s home country 

regulator through an MOU. ICE claimed that compliance with the Commission’s rules in 

addition to home country rules would be very costly for DCOs, and provide little 

additional benefit. Eurex similarly stated that the general reporting requirements and part 

45 swap data reporting requirements are substantial and costly, and overlap to a large 

degree with existing requirements from home country regulators.

The Commission notes that the reporting required by the alternative compliance 

framework is considerably less than that required by the baseline. In particular, as noted 

in the PRA section, each DCO with alternative compliance is expected to spend about 31 

hours per year preparing various reports to the Commission as compared to 2,892 hours 

for each DCO registered under current procedures. Thus, DCOs will face significantly 

reduced legal and compliance costs associated with reporting as a result of the 

amendments.

3. Section 15(a) Factors

a. Protection of Market Participants and the Public

The amendments will not materially reduce the protections available to market 

participants and the public because they would require, among other things, that a DCO 

subject to alternative compliance: (i) must demonstrate to the Commission that 

compliance with the applicable legal requirements in its home country would constitute 

compliance with the DCO Core Principles; (ii) must be licensed, registered, or otherwise 

authorized to act as a clearing organization in its home country and be in good regulatory 
103

standing; and (iii) must not pose substantial risk to the U.S. financial system. The 

regulations also protect market participants and the public by ensuring that FCM 

customers clearing through a DCO subject to alternative compliance would continue to 

receive the full benefits of the customer protection regime established in the CEA and 

Commission regulations.

b. Efficiency, Competitiveness, and Financial Integrity

The amendments promote efficiency in the operations of DCOs subject to 

alternative compliance by reducing duplicative regulatory requirements. This reduction 

in duplicative requirements will reduce compliance costs for DCOs, which may promote 

competitiveness. Furthermore, adopting the amendments might prompt other regulators 

to adopt similar deference frameworks, which could further reduce compliance costs and 

increase competitiveness among DCOs.

The Commission expects the amendments to maintain the financial integrity of 

swap transactions cleared by DCOs because DCOs subject to alternative compliance

would be required to comply with a home country regulatory regime that satisfies the 

DCO Core Principles, and because they would be required to satisfy the Commission’s 

regulations regarding customer protection. In addition, the amendments may contribute 

to the financial integrity of the broader financial system if they encourage additional nonU.S. clearing organizations to register as DCOs, which could spread the risk of clearing 

swaps among a greater number of DCOs, thus reducing concentration risk.

c. Price Discovery

Price discovery is the process of determining the price level for an asset through 

the interaction of buyers and sellers and based on supply and demand conditions. The 
104

Commission has not identified any impact that the amendments will have on price 

discovery. This is because price discovery occurs before a transaction is submitted for 

clearing through the interaction of bids and offers on a trading system or platform, or in 

the over-the-counter market. The amendments would not impact requirements under the 

CEA or Commission regulations regarding price discovery.

d. Sound Risk Management Practices

The amendments continue to encourage sound risk management practices because 

a DCO would be eligible for alternative compliance only if it is held to risk management 

requirements in its home country that satisfy the DCO Core Principles, which include that 

a DCO: (1) ensure that it possesses the ability to manage the risks associated with 

discharging its responsibilities through the use of appropriate tools and procedures; (2) 

measure and monitor its credit exposures to each clearing member daily; (3) through 

margin requirements and other risk control mechanisms, limit its exposure to potential 

losses from a clearing member default; (4) require sufficient margin from its clearing 

members to cover potential exposures in normal market conditions; and (5) use riskbased models and parameters in setting margin requirements and review them on a 

regular basis.

e. Other Public Interest Considerations

The Commission notes the public interest in access to clearing organizations 

outside of the United States in light of the international nature of many swap transactions. 

The amendments might encourage international comity by deferring, under certain 

conditions, to the regulators of other countries in the oversight of home country clearing 

organizations. The Commission expects that such regulators will defer to the 
105

Commission in the supervision and regulation of DCOs domiciled in the United States, 

thereby reducing the regulatory and compliance burdens to which such DCOs are subject.

D. Antitrust Considerations

Section 15(b) of the CEA requires the Commission to take into consideration the 

public interest to be protected by the antitrust laws and endeavor to take the least 

anticompetitive means of achieving the purposes of the CEA, in issuing any order or 

adopting any Commission rule or regulation.95

The Commission believes that the public interest to be protected by the antitrust 

laws is the promotion of competition. The Commission requested, but did not receive, 

any comments on whether the proposed rulemaking implicated any other specific public 

interest to be protected by the antitrust laws.

The Commission has considered the amendments to determine whether they are 

anticompetitive. The Commission believes that the amendments may promote greater 

competition in swap clearing because they would reduce the regulatory burden for nonU.S. clearing organizations, which might encourage them to register to clear the same 

types of swaps for U.S. persons that are currently cleared by registered DCOs. Unlike 

non-U.S. DCOs subject to this alternative compliance, U.S. DCOs and non-U.S. DCOs 

that pose substantial risk to the U.S. financial system would be held to the requirements 

of the CEA and Commission regulations and subject to the direct oversight of the 

Commission. While this may appear to create a competitive disadvantage for these 

DCOs, non-U.S. DCOs subject to alternative compliance would be meeting similar 

requirements through compliance with their home country regulatory regimes and would 

 95 7 U.S.C. 19(b).
106

be subject to the direct oversight of their home country regulators. Further, to the extent 

that the U.S. clearing activity of a non-U.S. DCO subject to alternative compliance grows 

to the point that the DCO poses substantial risk to the U.S. financial system, it would be 

required to comply with all requirements applicable to DCOs and be subject to the 

Commission’s direct oversight.

The Commission has not identified any less anticompetitive means of achieving 

the purposes of the CEA. The Commission requested but did not receive any comments 

on whether there are less anticompetitive means of achieving the purposes of the CEA 

that would be served by adopting the amendments.

List of Subjects

17 CFR Part 39

Clearing, Customer protection, Derivatives clearing organization, Procedures, 

Registration, Swaps.

17 CFR Part 140

Authority delegations (Government agencies), Organization and functions 

(Government agencies).

For the reasons stated in the preamble, the Commodity Futures Trading 

Commission amends 17 CFR chapter I as follows:

PART 39—DERIVATIVES CLEARING ORGANIZATIONS

1. The authority citation for part 39 is revised to read as follows:

Authority: 7 U.S.C. 2, 6(c), 7a–1, and 12a(5); 12 U.S.C. 5464; 15 U.S.C. 8325; 

Section 752 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. 

L. 111–203, title VII, sec. 752, July 21, 2010, 124 Stat. 1749.
107

2. In § 39.2, add definitions of “Good regulatory standing” and “Substantial risk 

to the U.S. financial system” in alphabetical order to read as follows:

§ 39.2 Definitions.

* * * * *

Good regulatory standing means, with respect to a derivatives clearing 

organization that is organized outside of the United States, and is licensed, registered, or 

otherwise authorized to act as a clearing organization in its home country, that either 

there has been no finding by the home country regulator of material non-observance of 

the relevant home country legal requirements, or there has been a finding by the home 

country regulator of material non-observance of the relevant home country legal 

requirements but any such finding has been or is being resolved to the satisfaction of the 

home country regulator by means of corrective action taken by the derivatives clearing 

organization.

* * * * *

Substantial risk to the U.S. financial system means, with respect to a derivatives

clearing organization organized outside of the United States, that—

(1) The derivatives clearing organization holds 20% or more of the required initial 

margin of U.S. clearing members for swaps across all registered and exempt derivatives 

clearing organizations; and

(2) 20% or more of the initial margin requirements for swaps at that derivatives 

clearing organization is attributable to U.S. clearing members; provided, however, where 

one or both of these thresholds are identified as being close to 20%, the Commission may 

exercise discretion in determining whether an identified threshold is satisfied for the 
108

purpose of determining whether the derivatives clearing organization poses substantial 

risk to the U.S. financial system. For purposes of this definition and § 39.51, U.S. 

clearing member means a clearing member organized in the United States, a clearing 

member whose ultimate parent company is organized in the United States, or a futures 

commission merchant.

* * * * *

3. Amend § 39.3 by:

a. Redesignating paragraphs (a)(3) through (a)(6) as paragraphs (a)(4) through 

(a)(7);

b. Adding new paragraph (a)(3); and

c. Revising newly redesignated paragraphs (a)(5) and (6).

The addition and revisions read as follows:

§ 39.3 Procedures for registration.

(a) * * *

(3) Alternative application procedures. An entity that is organized outside of the 

United States, is seeking to register as a derivatives clearing organization for the clearing 

of swaps, and does not pose substantial risk to the U.S. financial system may apply for 

registration in accordance with the terms of this paragraph in lieu of filing the application 

described in paragraph (a)(2) of this section. If the application is approved by the 

Commission, the derivatives clearing organization’s compliance with its home country 

regulatory regime would satisfy the core principles set forth in section 5b(c)(2) of the 

Act, subject to the requirements of subpart D of this part. The applicant shall submit to 

the Commission the following sections of Form DCO, as provided in appendix A to this 
109

part: cover sheet, Exhibit A-1 (regulatory compliance chart), Exhibit A-2 (proposed 

rulebook), Exhibit A-3 (narrative summary of proposed clearing activities), Exhibit A-4 

(detailed business plan), Exhibit A-7 (documents setting forth the applicant’s corporate 

organizational structure), Exhibit A-8 (documents establishing the applicant’s legal status 

and certificate(s) of good standing or its equivalent), Exhibit A-9 (description of pending 

legal proceedings or governmental investigations), Exhibit A-10 (agreements with 

outside service providers with respect to the treatment of customer funds), Exhibits F-1 

through F-3 (documents that demonstrate compliance with the treatment of funds 

requirements with respect to customers of futures commission merchants), and Exhibit R 

(ring-fencing memorandum). For purposes of this paragraph, the applicant must 

demonstrate to the Commission, in Exhibit A-1, the extent to which compliance with the 

applicable legal requirements in its home country would constitute compliance with the 

core principles set forth in section 5b(c)(2) of the Act. To satisfy this requirement, the 

applicant shall provide in Exhibit A-1 the citation and full text of each applicable legal 

requirement in its home country that corresponds with each core principle and an 

explanation of how the applicant satisfies those requirements. If there is no applicable 

legal requirement for a particular core principle, the applicant shall provide an 

explanation of how it would satisfy the core principle.

* * * * *

(5) Application amendments. An applicant shall promptly amend its application if 

it discovers a material omission or error, or if there is a material change in the 

information provided to the Commission in the application or other information provided 
110

in connection with the application. An applicant is only required to submit exhibits and 

other information that are relevant to the application amendment.

(6) Public information. The following sections of an application for registration 

as a derivatives clearing organization will be public: first page of the Form DCO cover 

sheet (up to and including the General Information section), Exhibit A-1 (regulatory 

compliance chart), Exhibit A-2 (proposed rulebook), Exhibit A-3 (narrative summary of 

proposed clearing activities), Exhibit A-7 (documents setting forth the applicant’s 

corporate organizational structure), Exhibit A-8 (documents establishing the applicant’s 

legal status and certificate(s) of good standing or its equivalent), and any other part of the 

application not covered by a request for confidential treatment, subject to § 145.9 of this 

chapter.

* * * * *

4. In § 39.4, redesignate paragraphs (c) through (e) as paragraphs (d) through (f) 

and add new paragraph (c) to read as follows:

§ 39.4 Procedures for implementing derivatives clearing organization rules and 

clearing new products.

* * * * *

(c) Exemption from self-certification of rules. Notwithstanding the rule 

certification requirements of section 5c(c)(1) of the Act and § 40.6 of this chapter, a 

derivatives clearing organization that is subject to subpart D of this part is not required to 

certify a rule unless the rule relates to the requirements under section 4d(f) of the Act, 

parts 1, 22, or 45 of this chapter, or § 39.15.

* * * * *
111

5. Revise § 39.9 to read as follows:

§ 39.9 Scope.

Except as otherwise provided by Commission order, the provisions of this subpart 

B apply to any derivatives clearing organization, as defined under section 1a(15) of the 

Act and § 1.3 of this chapter, that is registered with the Commission as a derivatives 

clearing organization pursuant to section 5b of the Act.

6. Add and reserve §§ 39.43 through 39.49.

7. Add subpart D, consisting of §§ 39.50 and 39.51, to read as follows:

Subpart D—Provisions Applicable to Derivatives Clearing Organizations Subject to 

Compliance with Core Principles Through Compliance with Home Country 

Regulatory Regime

Sec.

39.50 Scope.

39.51 Compliance with the core principles through compliance with home country 

regulatory regime.

§ 39.50 Scope.

The provisions of this subpart D apply to any derivatives clearing organization 

that is registered through the process described in § 39.3(a)(3) of this part or as otherwise 

provided by order of the Commission.

§ 39.51 Compliance with the core principles through compliance with home country 

regulatory regime.

(a) Eligibility. (1) A derivatives clearing organization shall be eligible for 

registration for the clearing of swaps subject to compliance with this subpart if:
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(i) The Commission determines that compliance by the derivatives clearing 

organization with its home country regulatory regime constitutes compliance with the 

core principles set forth in section 5b(c)(2) of the Act;

(ii) The derivatives clearing organization is in good regulatory standing in its 

home country;

(iii) The Commission determines the derivatives clearing organization does not 

pose substantial risk to the U.S. financial system; and

(iv) A memorandum of understanding or similar arrangement satisfactory to the 

Commission is in effect between the Commission and the derivatives clearing 

organization’s home country regulator, pursuant to which, among other things, the home 

country regulator agrees to provide to the Commission any information that the 

Commission deems appropriate to evaluate the initial and continued eligibility of the 

derivatives clearing organization for registration or to review its compliance with any 

conditions of such registration.

(2) To the extent that the derivatives clearing organization’s home country 

regulatory regime lacks legal requirements that correspond to those core principles less 

related to risk, the Commission may, in its discretion, grant registration subject to 

conditions that would address the relevant core principles.

(b) Conditions. A derivatives clearing organization subject to compliance with 

this subpart shall be subject to any conditions the Commission may prescribe including, 

but not limited to:

(1) Applicable requirements under the Act and Commission regulations. The 

derivatives clearing organization shall comply with: the core principles set forth in 
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section 5b(c)(2) of the Act through its compliance with applicable legal requirements in 

its home country; and other requirements applicable to derivatives clearing organizations 

as specified in the derivatives clearing organization’s registration order including, but not

limited to, section 4d(f) of the Act, parts 1, 22, and 45 of this chapter, subpart A of this 

part and § 39.15.

(2) Open access. The derivatives clearing organization shall have rules with 

respect to swaps to which one or more of the counterparties is a U.S. person that:

(i) Provide that all swaps with the same terms and conditions, as defined by 

product specifications established under the derivatives clearing organization’s rules, 

submitted to the derivatives clearing organization for clearing are economically 

equivalent within the derivatives clearing organization and may be offset with each other 

within the derivatives clearing organization, to the extent offsetting is permitted by the 

derivatives clearing organization’s rules; and

(ii) Provide that there shall be non-discriminatory clearing of a swap executed 

bilaterally or on or subject to the rules of an unaffiliated electronic matching platform or 

trade execution facility.

(3) Consent to jurisdiction; designation of agent for service of process. The 

derivatives clearing organization shall:

(i) Consent to jurisdiction in the United States;

(ii) Designate, authorize, and identify to the Commission, an agent in the United 

States who shall accept any notice or service of process, pleadings, or other documents, 

including any summons, complaint, order, subpoena, request for information, or any 

other written or electronic documentation or correspondence issued by or on behalf of the 
114

Commission or the United States Department of Justice to the derivatives clearing 

organization, in connection with any actions or proceedings brought against, or 

investigations relating to, the derivatives clearing organization or any of its U.S. clearing 

members; and

(iii) Promptly inform the Commission of any change in its designated and 

authorized agent.

(4) Compliance. The derivatives clearing organization shall comply, and shall 

demonstrate compliance as requested by the Commission, with any condition of its 

registration.

(5) Inspection of books and records. The derivatives clearing organization shall 

make all documents, books, records, reports, and other information related to its 

operation as a derivatives clearing organization open to inspection and copying by any 

representative of the Commission; and in response to a request by any representative of 

the Commission, the derivatives clearing organization shall, promptly and in the form 

specified, make the requested books and records available and provide them directly to 

Commission representatives.

(6) Representation of good regulatory standing. On an annual basis, within 60 

days following the end of its fiscal year, a derivatives clearing organization shall request 

and the Commission must receive from a home country regulator a written representation 

that the derivatives clearing organization is in good regulatory standing.

(7) Other conditions. The Commission may condition compliance with this 

subpart on any other facts and circumstances it deems relevant.
115

(c) General reporting requirements. (1) A derivatives clearing organization shall 

provide to the Commission the information specified in this paragraph and any other 

information that the Commission deems necessary, including, but not limited to, 

information for the purpose of the Commission evaluating the continued eligibility of the 

derivatives clearing organization for compliance with this subpart, reviewing compliance 

by the derivatives clearing organization with any conditions of its registration, or 

conducting oversight of U.S. clearing members, and the swaps that are cleared by such 

persons through the derivatives clearing organization. Information provided to the 

Commission under this paragraph shall be submitted in accordance with § 39.19(b).

(2) Each derivatives clearing organization shall provide to the Commission the 

following information:

(i) A report compiled as of the end of each trading day and submitted to the 

Commission by 10:00 a.m. U.S. Central time on the following business day, containing 

with respect to swaps:

(A) Total initial margin requirements for all clearing members;

(B) Initial margin requirements and initial margin on deposit for each U.S. 

clearing member, by house origin and by each customer origin, and by each individual 

customer account; and

(C) Daily variation margin, 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, and by each individual customer account.

(ii) A report compiled as of the last day of each fiscal quarter of the derivatives 

clearing organization and submitted to the Commission no later than 17 business days 
116

after the end of the derivatives clearing organization’s fiscal quarter, containing a list of 

U.S. clearing members, with respect to the clearing of swaps, as of the last day of the 

fiscal quarter.

(iii) Prompt notice regarding any change in the home country regulatory regime;

(iv) As available to the derivatives clearing organization, any examination report 

or examination findings by a home country regulator, and notify the Commission within 

five business days after it becomes aware of the commencement of any enforcement or 

disciplinary action or investigation by a home country regulator;

(v) Immediate notice of any change with respect to the derivatives clearing 

organization’s licensure, registration, or other authorization to act as a derivatives 

clearing organization in its home country;

(vi) In the event of a default by a clearing member, with such event of default 

determined in accordance with the rules of the derivatives clearing organization, 

immediate notice of the default including the amount of the clearing member’s financial 

obligation; provided, however, if the defaulting clearing member is a U.S. clearing 

member, the notice shall also include the name of the U.S. clearing member and a list of 

the positions held by the U.S. clearing member; and

(vii) Notice of action taken against a U.S. clearing member by a derivatives 

clearing organization, no later than two business days after the derivatives clearing 

organization takes such action against a U.S. clearing member.

(d) Modification of registration upon Commission initiative. (1) The Commission 

may, in its discretion and upon its own initiative, modify the terms and conditions of an 

order of registration subject to compliance with this subpart if the Commission 
117

determines that there are changes to or omissions in facts or circumstances pursuant to 

which the order was issued, or that any of the terms and conditions of its order have not 

been met, including, but not limited to, the requirement that:

(i) Compliance with the derivatives clearing organization’s home country 

regulatory regime satisfies the core principles set forth in section 5b(c)(2) of the Act;

(ii) The derivatives clearing organization is in good regulatory standing in its 

home country; or

(iii) The derivatives clearing organization does not pose substantial risk to the 

U.S. financial system.

(2) The Commission shall provide written notification to a derivatives clearing 

organization that it is considering whether to modify an order of registration pursuant to 

this paragraph and the basis for that consideration.

(3) The derivatives clearing organization may respond to the notification in 

writing no later than 30 business days following receipt of the notification, or at such 

later time as the Commission permits in writing.

(4) Following receipt of a response from the derivatives clearing organization, or 

after expiration of the time permitted for a response, the Commission may:

(i) Issue an order requiring the derivatives clearing organization to comply with 

all requirements applicable to derivatives clearing organizations in the Act and this 

chapter, effective as of a date to be specified therein. The specified date shall be intended 

to provide the derivatives clearing organization with a reasonable amount of time to come 

into compliance with the Act and Commission regulations or request a vacation of 

registration in accordance with § 39.3(f);
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(ii) Issue an amended order of registration that modifies the terms and conditions 

of the order; or

(iii) Provide written notification to the derivatives clearing organization that the 

order of registration will remain in effect without modification to its terms and 

conditions.

PART 140—ORGANIZATION, FUNCTIONS, AND PROCEDURES OF THE 

COMMISSION

8. The authority citation for part 140 continues to read as follows:

Authority: 7 U.S.C. 2(a)(12), 12a, 13(c), 13(d), 13(e), and 16(b).

9. Amend § 140.94 as follows:

a. Revise paragraph (c) introductory text and paragraph (c)(1);

b. Add and reserve paragraph (c)(14); and

c. Add paragraph (c)(15).

The revisions and addition read as follows:

§ 140.94 Delegation of authority to the Director of the Division of Swap Dealer and 

Intermediary Oversight and the Director of the Division of Clearing and Risk.

* * * * *

(c) The Commission hereby delegates, until such time as the Commission orders 

otherwise, the following functions to the Director of the Division of Clearing and Risk 

and to such members of the Commission’s staff acting under his or her direction as he or 

she may designate from time to time:

(1) The authority to review applications for registration as a derivatives clearing 

organization filed with the Commission under § 39.3(a)(1) of this chapter, to determine 
119

that an application is materially complete pursuant to § 39.3(a)(2) of this chapter, to 

request additional information in support of an application pursuant to § 39.3(a)(4) of this 

chapter, to extend the review period for an application pursuant to § 39.3(a)(7) of this 

chapter, to stay the running of the 180-day review period if an application is incomplete 

pursuant to § 39.3(b)(1) of this chapter, to review requests for amendments to orders of 

registration filed with the Commission under § 39.3(d)(1) of this chapter, to request 

additional information in support of a request for an amendment to an order of 

registration pursuant to § 39.3(d)(2) of this chapter, and to request additional information 

in support of a rule submission pursuant to § 39.3(g)(3) of this chapter;

* * * * *

(14) [Reserved]

(15) All functions reserved to the Commission in § 39.51 of this chapter, except 

for the authority to:

(i) Grant registration under § 39.51(a) of this chapter;

(ii) Prescribe conditions to registration under § 39.51(b) of this chapter; and

(iii) Modify registration under § 39.51(d)(4) of this chapter. 

* * * * *

Issued in Washington, DC, on September 22, 2020, by the Commission.

Christopher Kirkpatrick,

Secretary of the Commission.
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Appendices to Registration with Alternative Compliance for Non-U.S. Derivatives 

Clearing Organizations—Commission Voting Summary, Chairman’s Statement, 

Commissioners’ Statements, and Regulatory Compliance Demonstration for an EUBased Applicant for Registration Subject to Compliance with the Core Principles 

Applicable to Derivatives Clearing Organizations in Accordance with Subpart D of 

Part 39

Appendix 1 – Commission Voting Summary

On this matter, Chairman Tarbert and Commissioners Quintenz, Behnam, Stump, 

and Berkovitz voted in the affirmative. No Commissioner voted in the negative.

Appendix 2 – Statement of Support of Chairman Heath P. Tarbert

Nations have borders, but markets rarely do. That is certainly the case with the 

global derivatives markets.

For more than a century, U.S. derivatives markets have provided hedging and 

price discovery opportunities not only for Americans but also to individuals and 

businesses from abroad. In the 21st century, these markets involve participants domiciled 

in the Americas, Europe, Asia and elsewhere each and every day. And the 

clearinghouses that provide the credit risk management services for our exchanges have 

members and ultimate customers from around the world. The same is true for 

clearinghouses based in, for example, Europe. So the question that has naturally arisen is 

how the home regulator of the clearinghouse-which in the United States we refer to as a 

derivatives clearing organization (DCO)-should work with regulators in home 

jurisdictions of the DCO’s members and customers.
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When it comes to international regulatory comity, I find the concept of the 

“categorical imperative” of the great philosopher Immanuel Kant instructive.1

 Basically, 

Kant asks us to consider what would happen if everyone was bound by the same 

regulation-that is, we should take a particular obligation (imperative) and make it 

universal (categorical). If the result is chaos, then it is probably not a good regulation.

Therefore, if every jurisdiction mandated that its own detailed, domestic DCO regulations 

applied to every foreign DCO that accepted its members or customers from that domestic 

jurisdiction, the result would likely be a mishmash of duplicative or contradictory 

regulations at best. At worst, the result would be market fragmentation, because DCOs 

might not accept members or customers from certain jurisdictions.2 Neither result is 

good for the integrity, resilience, and vibrancy of global derivatives markets.

Consequently, such an approach cannot be considered sound regulation.

Today we are finalizing a rule that meets the categorical imperative-a rule for 

non-U.S. DCOs that we would hope foreign jurisdictions would impose on U.S.DCOs in 

return. Specifically, I am pleased to support today’s final rule for Registration with 

Alternative Compliance for Non-U.S. DCOs under Parts 39 and 140 of our regulations.

This rule is a significant step in building an effective, efficient and cooperative 

international regulatory framework for the oversight of DCOs operating in the 

international derivatives markets. The alternative compliance rule takes a principles-

 1 “Act only according to that maxim whereby you can, at the same time, will that it should become a 

universal law.” Immanuel Kant, Grounding for the Metaphysics of Morals (1785) [1993], translated by 

James W. Ellington (3rd ed.).

2 See CFTC Chairman J. Christopher Giancarlo, Cross-Border Swaps Regulation Version 2.0: A RiskBased Approach with Deference to Comparable Non-U.S. Regulation (Oct. 1, 2018), at 34 (noting that 

“overlapping regulation and supervision create inefficiencies that limit the ability and increase the costs of 

U.S. persons accessing non-U.S. CCPs and hamper the growth of the global economy”), available at 

https://www.cftc.gov/sites/default/files/2018-10/Whitepaper_CBSR100118_0.pdf.
122

based approach, and also reflects deference in the form of international regulatory 

cooperation. The rule recognizes that certain foreign regulatory systems can mirror the 

requirements of the CFTC’s Core Principles for DCOs, but not necessarily all our 

detailed rules implementing those Core Principles. Provided that a foreign regulatory 

system produces similar outcomes to the CFTC’s Core Principles, it makes sense to 

afford it flexibility in how to do it. The rule acknowledges that, while a foreign 

jurisdiction may take a different route, it can still reach the same endpoint.

In terms of the particulars, the final rule allows a DCO organized outside the 

United States to comply with our Core Principles through compliance with its home

country's regulatory regime, provided:

1. The CFTC determines that compliance by the DCO with its home country 

regulatory regime constitutes compliance with the Core Principles set forth in section 

5b(c)(2) of the Act;

2. The DCO is in good regulatory standing in its home jurisdiction;

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

4. A memorandum of understanding or similar arrangement satisfactory to the 

CFTC is in effect with the DCO’s home country regulator.

As we vote to adopt this rule today, our approach is already bearing fruit. I am 

pleased to note that the European Union has finalized its Delegated Acts addressing EU 

oversight of DCOs domiciled abroad. The Delegated Acts take a similar approach as 

does our final rule,3 insofar as they allow non-EU clearinghouses to meet EU 

 3 European Commission C(2020)4892: Commission delegated regulation supplementing regulation (EU) 

No 648/2012 with regard to the criteria that ESMA should take into account to determine whether a central 
123

requirements by following their home jurisdiction’s rules if the EU determines those rules 

are designed to have equivalent outcomes. In short, both the United States and European 

Union are recognizing our respective national borders without being unduly confined by 

them.

 

counterparty established in a third-country is systemically important or likely to become systemically 

important for the financial stability of the Union or of one or more of its Member States.
124

Appendix 3 – Supporting Statement of Commissioner Brian Quintenz

Today’s final rule providing for registration with alternative compliance for nonU.S. derivatives clearing organizations (DCOs) is a significant milestone in the CFTC’s 

policy of deferring to foreign regulatory counterparts that have taken a serious and 

committed approach, similar to the CFTC’s, to adopting the swaps reforms called for by 

the 2009 G20 Summit in Pittsburgh and championed by important international bodies 

like the International Organization of Securities Commissions (IOSCO) and the Financial 

Stability Board (FSB). Like the CFTC, several foreign regulatory authorities have issued 

numerous regulations over the past decade regulating the swaps markets at 

clearinghouses, exchanges, and dealers.1

 Specific to CCP oversight, numerous 

jurisdictions, including the CFTC, have implemented the CPMI-IOSCO Principles for 

Financial Market Infrastructures (PFMIs).2

 Throughout my tenure at the Commission, I 

have stated that deference to our foreign counterparts is a necessary way to reduce 

compliance burdens for industry and to conserve the Commission’s precious resources.3

 

Previous CFTC Chairman Giancarlo promoted a workable deference policy, as evidenced 

by the publication, during his chairmanship, of the proposed version of the final rule 

before the Commission today.4 I am pleased to see Chairman Tarbert continue this 

 1 See, e.g., FSB OTC Derivatives Market Reforms: 2019 Progress Report on Implementation (Oct. 15, 

2019), https://www.fsb.org/wp-content/uploads/P280519-2.pdf and FSB, Implementation and Effects of the 

G20 Financial Regulatory Reforms: Fifth Annual Report (Oct. 16, 2019),

https://www.fsb.org/2019/10/implementation-and-effects-of-the-g20-financial-regulatory-reforms-fifthannual-report/.

2 PFMI Implementation Database, https://www.bis.org/pfmi/index.htm.

3 See, e.g., Remarks of CFTC Commissioner Brian Quintenz at 2019 ISDA Annual Japan Conference,

“Significant’s Significance” (Oct. 25, 2019),

https://www.cftc.gov/PressRoom/SpeechesTestimony/opaquintenz20.

4 Registration with Alternative Compliance for Non-U.S. DCOs, 84 FR 34819 (July 19, 2019).
125

policy, exemplified not only with this final rule, but also with the final rule published by 

this Commission in July, which sets forth the cross-border application of many of the 

Commission’s regulations for swap dealers (SDs).5

The alternative registration rule for non-U.S. DCOs will prevent non-U.S. DCOs 

registered with the CFTC from being subject to unnecessary duplicative regulation by 

both the CFTC and their home country regulator that has issued comparable rules. The 

rule will permit a non-U.S. DCOs that does not pose “substantial risk to the U.S. financial 

system” to be registered with the CFTC but comply with regulations issued by its home 

country regulator instead of with CFTC regulations, with the limited exception of certain 

CFTC customer protection and swap data reporting requirements. The rule recognizes 

that non-U.S. regulators have a substantial regulatory interest in supervising the DCOs 

located in their home jurisdictions and appropriately defers to their oversight when 

compliance with the home country regulatory regime would constitute compliance with 

DCO core principles. I note that this rule is consistent with, and an expansion of, the 

CFTC’s 2016 Equivalence Agreement with the European Union (E.U.), pursuant to 

which the CFTC granted substituted compliance to dually-registered DCOs based in the 

E.U.6

While the alternative DCO registration rule would provide for a deference-based 

approach for certain clearinghouses organized abroad, it would not be available to a nonU.S. clearinghouse posing “substantial risk to the U.S. financial system.” The final rule, 

 5 Cross-Border Application of the Registration Thresholds and Certain Requirements Applicable to SDs 

and MSPs, 85 FR 56924 (Sept. 14, 2020).

6 Comparability Determination for the European Union: Dually-Registered Derivatives Clearing 

Organizations and Central Counterparties, 81 FR 15260 (March 22, 2016).
126

like the proposal which I supported, defines this term according to two simple criteria: (i) 

the foreign DCO holds 20 percent or more of the required initial margin U.S. clearing 

members for swaps across all registered and exempt DCOs; and (ii) 20 percent or more of 

the initial margin requirements for swaps at that foreign DCO is attributable to U.S. 

clearing members.7 I believe this two-prong test correctly assesses the DCO’s focus on 

U.S. firms and impact on the U.S. marketplace.

In voting to adopt the alternative DCO registration final rule, I recognize that E.U. 

authorities have recently adopted regulations for clearinghouses located outside of the 

E.U. that access the E.U. market, which are in the spirit of the 2016 agreement on CCPs 

between the CFTC and the European Commission.8 These regulations, issued by the 

European Commission in July, will only require a U.S. CCP to be generally subject to 

E.U. regulation and supervision (as a “tier 2 CCP”) if its E.U. presence exceeds certain 

clear thresholds.9 I am pleased that these regulations have now been agreed to by the 

European Council and by the European Parliament. The adoption of these regulations 

represents a marked shift in E.U. policy from the one that existed at the beginning of my 

term as CFTC Commissioner. In March of 2018, I stated that I would neither support the 

CFTC granting additional equivalence determinations within the E.U., nor would I 

support any relief requested by E.U. authorities, until the E.U. recommitted to honoring 

 7 Regulation 39.2.

8 Joint Statement from CFTC Chairman Timothy Massad and European Commissioner Jonathan Hill,

CFTC and the European Commission: Common approach for transatlantic CCPs (Feb. 10, 2016),

https://www.cftc.gov/PressRoom/PressReleases/pr7342-16.

9 European Commission Delegated Regulation (“Delegated Acts”), dated July 14, 2020, supplementing 

Regulation (EU) No. 648/2012 of the European Parliament...with regard to the criteria that ESMA should 

take into account to determine whether a CCP established in a third-country is systemically important...for 

the financial stability of the Union..., https://webgate.ec.europa.eu/regdel/#/delegatedActs/1382.
127

its 2016 agreements with the CFTC on CCP oversight.10 That agreement had been in 

jeopardy since the E.U.’s issuance of a revised European Market Infrastructure 

Regulation (“EMIR 2.2”) in 2017, which raised the possibility of E.U. authorities directly 

supervising US clearinghouses and requiring them to comply with EMIR. I am very 

pleased to see this shift in E.U. policy, which I already recognized in July when voting to 

expand the Commission’s exemption registration for E.U.-recognized swap trading 

platforms for additional platforms in several E.U. member states.11

In conclusion, I look forward to the CFTC continuing to work cooperatively with 

our E.U. counterparts in the crucial area of CCP oversight, in a manner that eliminates 

unnecessary duplicative burdens at both the regulator and registered entity.

Appendix 4 – Statement of Support of Commissioner Rostin Behnam

I support today’s final rule permitting derivatives clearing organizations 

(“DCOs”) organized outside of the United States (“non-U.S. DCOs”) that the CFTC 

determines do not pose substantial risk to the U.S. financial system to register with the 

Commission and comply with the core principles applicable to DCOs (“Core Principles”) 

set forth in the Commodity Exchange Act (“CEA”) through compliance with their home 

country regulatory regime. This registration category establishes a new model for 

regulatory deference aimed at reducing regulatory burdens and ongoing compliance costs 

for non-U.S. clearing organizations.

 10 Keynote Address of Commissioner Brian Quintenz before FIA Annual Meeting, Boca Raton, Florida

(March 14, 2018), https://www.cftc.gov/PressRoom/SpeechesTestimony/opaquintenz9.

11 Supporting Statement of Commissioner Brian Quintenz Regarding the Amendment to the Commission’s 

Order Exempting EU Swap Trading Facilities from SEF Registration (July 23, 2020), 

https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatement072320b.
128

As we move forward in executing this new framework, the Commission’s 

evaluation of the suitability of any particular non-U.S. DCO and the comparability of its 

home country’s regulatory regime to the Core Principles will be closely watched and 

analyzed by regulatory and supervisory bodies as well as market participants around the 

world. To the extent the Commission is codifying a definition for “substantial risk to the 

U.S. financial system” that commingles a bright-line test with autonomous agency 

discretion, its aptitude for exercising a policy rooted in relationships aimed at leveling the 

global playing field for all, with favoritism towards none will be routinely tested. As 

demand for U.S. customer swap clearing evolves and risk neither contemplated nor 

captured by the dual 20 percent criteria of the substantial risk threshold emerges, the 

CFTC’s commitments to transparency, ongoing monitoring and market surveillance, 

preservation of customer protections, and coordination with home country regulators 

must not fall by the wayside.

I am encouraged by the Commission’s efforts to take a leading role in injecting 

greater international coordination and mutual respect and deference into the supervision 

of DCOs, the majority of which operate on a cross-border basis. Inasmuch as the 

CFTC’s registration of non-U.S. DCOs with alternative compliance is an expression of 

the CFTC’s efforts to engage foreign regulators in establishing reciprocity regarding 

DCO supervision and regulatory oversight, delivering on comity should not overtake 

fulfilling the core purposes under the CEA, particularly in regard to the avoidance of 

systemic risk and protection of market participants. The decisions we make as a 

Commission, whether driven by policy, statute, regulatory agenda—or even budget—

impact and alter risk profiles and interdependencies within the markets we oversee 
129

directly and in which U.S. persons participate. Our markets facilitate both the creation 

and management of risks in an interconnected web of systems and operations. It is 

critical that in all of our undertakings, we consider how our actions alter the landscape 

and ensure to the greatest extent possible that we build end-to-end resilience into the 

overall financial system.

Appendix 5 – Statement of Commissioner Dan M. Berkovitz

I support today’s final rule permitting derivative clearing organizations (“DCOs”) 

organized outside of the United States (“non-U.S. DCOs”) to register with the 

Commission and provide clearing to U.S. customers, yet comply with certain DCO Core 

Principles through their home country regulatory regime. This final rule maintains the 

Commission’s authority to protect U.S. customers and markets, while also recognizing 

the interests of foreign regulators in supervising DCOs located in their home 

jurisdictions. It will foster U.S. market participants’ access to foreign clearing 

organizations while maintaining key customer protections.

This rule is being adopted in furtherance of the Commission’s work with our 

international colleagues to, where appropriate, mutually recognize third-country central 

counterparties. International comity was a key pillar of the 2009 G20 Pittsburgh Summit 

and effective cooperation among financial regulators bolsters the safety and utility of our 

global derivatives markets. Central clearing is critical to managing risk throughout our 

financial markets, but can only be fully achieved where international regulators work 

together toward a common goal. This rule is consistent with the spirit of the CFTC-EU 
130

Common Approach1 regarding requirements for central counterparties, and builds upon 

the EU equivalence determination2 and the CFTC comparability determination,3 issued in 

connection with the Common Approach.

For a non-U.S. DCO that would like to clear only swaps for U.S. persons and 

does not pose “substantial risk to the U.S. financial system,” the final rule would provide 

two options for CFTC registration. The non-U.S. DCO may apply for DCO registration 

through the normal course and be subject to all Commission regulations applicable to 

DCOs. In the alternative, if the non-U.S. DCO is in good regulatory standing with its 

home country, it may apply for registration by relying in large part on its home country 

regime, provided it can demonstrate that the regime satisfies certain DCO Core 

Principles. The non-U.S. DCO will still be required to comply with CFTC regulations 

that provide critical protections to U.S. customers and markets. The home country 

regulator must have a memorandum of understanding with the Commission that includes 

provisions for information sharing and cooperation, so that the Commission may evaluate 

initial and continued eligibility for registration. The goal is to encourage registration with 

the Commission, which enhances our oversight and maintains certain important 

safeguards, while providing greater clearing options for U.S. market participants.

Non-U.S. DCOs subject to registration under this alternative path will still need to 

clear swaps for U.S. customers through registered futures commission merchants. 

 1 The U.S. Commodity Futures Trading Commission and the European Commission: Common Approach 

for Transatlantic CCPs (Feb. 10, 2016), at 

https://www.cftc.gov/PressRoom/PressReleases/cftc_euapproach021016.

2 See European Commission adopts equivalence decision for CCPs in USA (Mar. 15, 2016), at 

https://ec.europa.eu/commission/presscorner/detail/en/IP_16_807.

3 Comparability Determination for the European Union: Dually-Registered Derivatives Clearing 

Organizations and Central Counterparties, 81 FR 15260 (Mar. 22, 2016).
131

Accordingly, they will be required to fully comply with the requirements under 

Commission Regulation 39.15 covering treatment of funds, swap data reporting 

requirements in part 45 of the Commission’s regulations, certain ongoing and eventspecific reporting requirements, and the segregation requirements of Commodity 

Exchange Act (“CEA”) section 4d(f)(2) and related regulations. In addition, a non-U.S. 

DCO is required to comply with CEA section 39.51(c)(2), which requires it to provide 

notice to the Commission upon the occurrence of certain important regulatory events. 

These events include any change in its home country regime or registration status, an 

examination report or notice of enforcement action issued by a home country regulator, 

the default of a clearing member, or any action taken by the non-U.S. DCO against any 

U.S. clearing member.

Only non-U.S. DCOs that do not pose substantial risk to the U.S. financial system 

will be eligible for registration with alternative compliance. A non-U.S. DCO that poses 

substantial risk to the U.S. financial system will still be required to comply with the CEA 

and all Commission regulations applicable to DCOs, including all of subparts A and B of 

Part 39, in the same manner as a domestic DCO.

The final rule defines “substantial risk” to mean that (i) the non-U.S. DCO holds 

20 percent or more of the required initial margin of U.S. clearing members for swaps 

across all registered and exempt DCOs; and (ii) 20 percent or more of the initial margin 

requirements for swaps at the non-U.S. DCO is attributable to U.S. clearing members. 

Despite being characterized as a risk-based test, this is in fact more in the nature of an 

activity-based test. I believe an activity-based test is appropriate as a proxy in this 

instance, as it represents a transparent, objective, and relatively easy-to-measure 
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benchmark. The 20/20 test, however, may not always accurately measure when the risk 

to the U.S. financial system presented by the non-U.S. DCO becomes “substantial.” 

Accordingly, the Commission will retain the discretion to evaluate other factors in 

determining whether a non-U.S. DCO poses substantial risk to the U.S. financial system.

I thank the staff of the Division of Clearing and Risk for their work in finalizing 

this rule. I also would like to recognize the staff in the Office of International Affairs, the 

Chairman’s office, and the New York regional office for their hard and productive work 

over the past few years with our international counterparts. These efforts to promote 

harmonization and mutual recognition have provided the foundation for today’s 

rulemaking.

Appendix 6 – Regulatory Compliance Demonstration for an EU-Based Applicant 

for Registration Subject to Compliance with the Core Principles Applicable to 

Derivatives Clearing Organizations in Accordance with Subpart D of Part 39

I. Introduction

Section 5b(a) of the Commodity Exchange Act (CEA) provides that a clearing 

organization may not “perform the functions of a derivatives clearing organization” 

(DCO) with respect to futures or swaps unless the clearing organization is registered with 

the Commission.1

 The CEA further requires that, to register and maintain registration as 

a DCO, a DCO must comply with each of the core principles applicable to DCOs set 

forth in the CEA (DCO Core Principles) and any requirement that the Commission 

imposes by rule or regulation.2

 The Commission adopted the regulations in subpart B of 

 1 7 U.S.C. 7a-1(a).

2 7 U.S.C. 7a-1(c)(2)(A)(i).
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part 39 of the Commission’s regulations (Part 39) to implement the DCO Core 

Principles.3

 Subpart B of Part 39 sets forth most of the requirements applicable to DCOs.

The Commission has adopted amendments to its regulations that will permit 

qualifying DCOs organized outside of the United States to be registered with the 

Commission yet comply with the DCO Core Principles through compliance with their 

home country regulatory regime, subject to certain conditions and limitations. Under this 

regime, an option now available to non-U.S. DCOs that clear only swaps for U.S. persons 

and meet other qualifying criteria, a non-U.S. DCO may demonstrate compliance with 

the DCO Core Principles by complying with the applicable legal requirements in its 

home country in lieu of many of the provisions of Part 39.

To provide a meaningful framework for deference to home country regulators, the 

Commission has determined to limit the universe of applicable regulations that it imposes 

upon non-U.S. DCOs in this context to those that provide critical protections, such as 

those related to customer protection. Registered DCOs subject to compliance with the 

DCO Core Principles in accordance with subpart D of Part 39 (subpart D compliance) are 

required by the CEA to comply with each DCO Core Principle, and other specified 

requirements—but not to all of the provisions set forth in Part 39—in order to be 

registered and to maintain registration. In all cases, these DCOs must still comply with 

home country requirements that constitute compliance with the DCO Core Principles, 

which the Commission’s regulations were intended to implement.

A DCO subject to subpart D compliance remains a registered DCO pursuant to 

section 5b(a) of the CEA. A non-U.S. DCO would be eligible for this subpart D 

 3 Derivatives Clearing Organization General Provisions and Core Principles, 76 FR 69334 (Nov. 8, 2011).
134

compliance regime if, among other things, the Commission determines that the DCO’s 

compliance with its home country regulatory regime would satisfy the DCO Core 

Principles.4 As discussed in the release, an applicant for registration subject to subpart D 

compliance, or a currently registered DCO seeking to avail itself of this regime, would be 

required to file only certain exhibits of Form DCO, including a regulatory compliance 

chart in which the applicant would identify the applicable legal requirements5 in its home 

country that correspond with each DCO Core Principle and explain how the applicant 

satisfies those home country requirements. If the application is approved by the 

Commission, the DCO would be permitted to comply with its home country regulatory 

regime rather than Part 39, with certain exceptions and subject to potential conditions that 

the Commission may determine appropriate.6

Central counterparties (CCPs) authorized in the European Union (EU) are subject 

to the legal requirements set forth in the European Market Infrastructure Regulation 

(EMIR),7 the Regulatory Technical Standards (RTS), and the Settlement Finality 

Directive8 (collectively, the EMIR Framework). The EMIR Framework establishes 

uniform legal requirements for EU CCPs that, as EU-level legislation, have an 

 4 The Commission notes that the home country regulatory regime would not need to satisfy the 

Commission’s regulations under Part 39.

5 Home country “legal requirements” would include those standards or other requirements that are legally 

binding in the applicant’s home country.

6 Because a DCO subject to subpart D compliance would clear swaps for customers through registered 

futures commission merchants, the DCO would be required to fully comply with the Commission’s 

customer protection requirements, including those under § 39.15 covering treatment of funds, as well as the 

swap data reporting requirements in part 45 of the Commission’s regulations.

7 Regulation (EU) No 648/2012 of the European Parliament and the Council on OTC derivatives, central 

counterparties and trade repositories of 4 July 2012.

8 Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality 

in payment and securities settlement systems.
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immediate, binding, and direct effect in all EU member states without the need for 

additional action by national authorities.9

 The European Parliament and the European 

Council passed EMIR on July 4, 2012, and it entered into force on August 16, 2012. The 

relevant technical standards for CCPs referenced herein include the RTS for CCPs (RTSCCP), which generally entered into force on March 15, 2013.10

In 2016, the Commission undertook a review of the legal requirements applicable 

to CCPs authorized in the EU as compared with the Commission’s regulations (EU 

Comparability Determination).11 The EU Comparability Determination compared Part 

39 regulations with EU regulations and identified those instances where the requirements 

are so similar that compliance with the Part 39 regulation(s) would constitute compliance 

with the EU regulation(s) as well. Unless any of the regulations included in the 

determination have been amended or repealed, the Commission’s determination stands. 

Given the Commission’s previous review in the EU Comparability Determination, the 

Commission has further endeavored to identify the legal requirements in the EU that 

appear to correspond to the DCO Core Principles.12

 9 See EMIR (stating that “[t]his Regulation shall be binding in its entirety and directly applicable in all 

Member States.”).

10 Commission Delegated Regulation No. 153/2013 with regard to regulatory technical standards on 

requirements for central counterparties. For purposes of this Appendix, the Commission considered only 

those EMIR Framework provisions published as of the date of this Appendix.

11 Comparability Determination for the European Union: Dually-Registered Derivatives Clearing 

Organizations and Central Counterparties, 81 FR 15260 (Mar. 22, 2016).

12 The Commission offers this as a potential aid to guide applicants in completing the regulatory 

compliance chart as part of an application for registration subject to subpart D compliance. While the 

charts, provided in this Appendix as non-binding guidance that does not create new rights or obligations, 

may be used to assist applicants in identifying and citing to EU legal requirements that correspond to 

specific DCO Core Principles, applicants are nevertheless responsible for completing another compulsory 

element of the regulatory compliance chart, i.e., explaining how they satisfy each requirement. Applicants 

may submit the required regulatory compliance chart using a different format.
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Since the publication of the Commission’s EU Comparability Determination 

covering the EMIR Framework, both the U.S. and EU CCP supervisory frameworks have 

continued to evolve. On October 23, 2019, the European Parliament and the European 

Council adopted a substantial set of amendments to EMIR as to the authorization of 

CCPs in the EU and requirements for the recognition of non-EU (or third country) CCPs 

to operate in the EU (EMIR 2.2).13 EMIR 2.2 entered into force on January 1, 2020. In 

establishing a more deferential framework through the subpart D compliance regime, and 

in recognition of the decades of supervisory experience the Commission has regarding 

non-U.S. DCOs (including with respect to compliance with the Commission’s regulations 

and their applicable home country regulations), the Commission sees merit to this 

demonstration to provide further transparency and clarity to market participants, 

including DCOs that are dually registered with the Commission and authorized by the 

European Securities and Markets Authority.

The analysis set forth below presents the DCO Core Principles and the 

corresponding provisions of the EMIR Framework. The descriptions provided herein of 

the DCO Core Principles and the corresponding provisions of the EMIR Framework are 

summaries of the actual provisions. Statements of regulatory objectives are general in 

nature and provided only for purposes of this Appendix. Likewise, the discussion below 

identifies provisions of the EMIR Framework that correspond to the DCO Core 

Principles. There may be aspects that are not cited, including particular features that may 

not be comparable, but that may not affect the overall determination with respect to that 

 13 Regulation (EU) No 2019/2099, 23 Oct. 2019, of the European Parliament and the Council, amending 

Regulation (EU) No 648/2012 as regards the procedures and authorities involved for the authorisation of 

CCPs and requirements for the recognition of third-country CCPs, 2019 O.J. (L322) 1.
137

provision or set of provisions. Furthermore, the Commission relied on the plain language 

of the EMIR Framework; the Commission recognizes that there may be interpretations of 

the EMIR Framework or other applicable laws that could impact the Commission’s 

determination. To the extent that the EMIR Framework lacks legal requirements that 

correspond to certain DCO Core Principles, as identified herein, the Commission may, in 

its discretion, grant or amend registration subject to conditions that would address those 

DCO Core Principles.

II. Regulatory Compliance Demonstration

A. Compliance (DCO Core Principle A)

DCO Core Principle A requires a DCO to comply with each DCO Core Principle 

and any requirement that the Commission may impose by rule or regulation, provided 

that a DCO shall have reasonable discretion in establishing the manner by which it 

complies with each DCO Core Principle. The Commission adopted the requirements in § 

39.10 to implement DCO Core Principle A.

Relevant EU Laws and Regulations: The following provisions of the EMIR 

Framework appear to correspond to DCO Core Principle A.

EMIR, Art. 26(2): A CCP shall adopt policies and procedures which are 

sufficiently effective so as to ensure compliance with EMIR, including compliance of its 

managers and employees with all the provisions of EMIR.

RTS-CCP, Art. 5: A CCP shall establish, implement, and maintain adequate 

policies and procedures designed to detect any risk of failure by the CCP and its 

employees to comply with its obligations under this RTS and EMIR, as well as the 
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associated risks, and put in place adequate measures and procedures designed to 

minimize such risk.

Conclusion: A DCO’s compliance with the cited provisions of the EMIR 

Framework together would satisfy DCO Core Principle A.

Table A: Compliance

Subject Area DCO Core 

Principle EMIR Framework

Compliance A EMIR, Art. 26(2); RTS-CCP, 

Art. 5

B. Financial Resources (DCO Core Principle B)

DCO Core Principle B requires a DCO to: (1) have adequate financial, 

operational, and managerial resources to discharge each of its responsibilities; and (2) 

possess financial resources that, at a minimum, exceed the total amount that would: (a) 

enable the DCO to meet its financial obligations to its members and participants 

notwithstanding a default by the member or participant creating the largest financial 

exposure for the DCO in extreme but plausible market conditions; and (b) enable the 

DCO to cover its operating costs for a period of one year, as calculated on a rolling basis. 

The Commission adopted the requirements in § 39.11 to implement DCO Core Principle 

B.

Relevant EU Laws and Regulations: The following provisions of the EMIR 

Framework appear to correspond to DCO Core Principle B.

EMIR, Art. 43: At all times, a CCP shall maintain sufficient prefunded available 

financial resources to enable the CCP to withstand the default of at least the two clearing 

members to which it has the largest exposure under extreme but plausible market 

conditions.
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EMIR, Art. 16(2): A CCP’s capital, including retained earnings and reserves, 

shall be proportionate to the risk stemming from the activities of the CCP.

EMIR, Art. 44(1): At all times, a CCP shall have access to adequate liquidity to 

perform its services and activities and, on a daily basis, shall measure its potential

liquidity needs.

Conclusion: A DCO’s compliance with the cited provisions of the EMIR 

Framework together would satisfy DCO Core Principle B, as they set standards to ensure 

that DCOs have adequate financial resources. These standards seek to ensure that DCOs

can meet their financial obligations to market participants, thus contributing to the 

financial integrity of the derivatives market as a whole.

Table B: Financial Resources

Subject Area DCO Core 

Principle EMIR Framework

Default financial resources

General business risks

Liquidity of financial resources

B EMIR, Art. 43

EMIR, Art. 16(2)

EMIR, Art. 44(1)

C. Participant and Product Eligibility (DCO Core Principle C)

DCO Core Principle C requires a DCO to: (1) establish appropriate admission 

and continuing eligibility standards (including sufficient financial resources and 

operational capacity to meet obligations arising from participation in the DCO) for 

members of, and participants in, the DCO; (2) establish appropriate standards for 

determining eligibility of agreements, contracts, or transactions submitted to the DCO for 

clearing; and (3) establish and implement procedures to verify, on an ongoing basis, 

compliance with the DCO’s participation and membership requirements, which must be 
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objective, be publicly disclosed, and permit fair and open access. The Commission 

adopted the requirements in § 39.12 to implement DCO Core Principle C.

Relevant EU Laws and Regulations: The following provisions of the EMIR 

Framework appear to correspond to DCO Core Principle C.

EMIR, Art. 37(1): A CCP shall establish, where relevant per type of product 

cleared, the categories of admissible clearing members and the admission criteria, upon 

the advice of the risk committee. Such criteria shall be non-discriminatory, transparent,

and objective so as to ensure fair and open access to the CCP and shall ensure that 

clearing members have sufficient financial resources and operational capacity to meet the 

obligations arising from participation in a CCP. Criteria that restrict access shall be 

permitted only to the extent that their objective is to control the risk for the CCP.

EMIR, Art. 37(2): A CCP shall ensure that the application of the criteria referred 

to in Article 37(1) of EMIR is met on an ongoing basis and shall have timely access to 

the information relevant for such assessment. A CCP shall conduct, at least once a year, 

a comprehensive review of compliance with this Article by its clearing members.

EMIR, Art. 37(3): Clearing members that clear transactions on behalf of their 

clients shall have the necessary additional financial resources and operational capacity to 

perform this activity. The CCP’s rules for clearing members shall allow it to gather 

relevant basic information to identify, monitor, and manage relevant concentrations of 

risk relating to the provision of services to clients. Clearing members shall, upon request, 

inform the CCP about the criteria and arrangements they adopt to allow their clients to 

access the services of the CCP. Responsibility for ensuring that clients comply with their 

obligations shall remain with clearing members.
141

EMIR, Art. 37(4): A CCP shall have objective and transparent procedures for the 

suspension and orderly exit of clearing members that no longer meet the criteria referred 

to in Article 37(1) of EMIR.

EMIR, Art. 37(5): A CCP may only deny access to clearing members meeting the 

criteria referred to in Article 37(1) of EMIR where duly justified in writing and based on 

a comprehensive risk analysis.

EMIR, Art. 7(1): A CCP that has been authorized to clear over-the-counter

derivatives contracts shall accept clearing such contracts on a non-discriminatory and 

transparent basis, including as it relates to collateral requirements and fees related to 

access, regardless of the trading venue. A CCP may require that a trading venue comply 

with the operational and technical requirements established by the CCP, including the 

risk-management requirements.

Conclusion: A DCO’s compliance with the cited provisions of the EMIR 

Framework together would substantially satisfy DCO Core Principle C. While EMIR 

Art. 7(1) sets forth a standard for eligibility of transactions and permits the CCP to 

require that the trading venue offering the products meet requirements that the CCP has 

established, the EMIR Framework does not specifically require a CCP to establish 

standards for determining eligibility of agreements, contracts, or transactions submitted to 

it for clearing. Therefore, an applicant would be required to explain how it will satisfy 

this aspect of DCO Core Principle C nevertheless.

Table C: Participant and Product Eligibility

Subject Area DCO Core 

Principle EMIR Framework

Eligibility standards and ongoing 

requirements for members and 

participants

C EMIR, Art. 37(1) – (5) 
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Standards for determining 

eligibility of contracts submitted for 

clearing

EMIR, Art. 7(1)

D. Risk Management (DCO Core Principle D)

DCO Core Principle D requires a DCO to: (1) ensure that it possesses the ability 

to manage the risks associated with discharging its responsibilities through the use of 

appropriate tools and procedures; (2) measure and monitor its credit exposures to each 

clearing member daily; (3) through margin requirements and other risk control 

mechanisms, limit its exposure to potential losses from a clearing member default; (4) 

require sufficient margin from its clearing members to cover potential exposures in 

normal market conditions; and (5) use risk-based models and parameters in setting 

margin requirements and review them on a regular basis. The Commission adopted the 

requirements in § 39.13 to implement DCO Core Principle D.

Relevant EU Laws and Regulations: The following provisions of the EMIR 

Framework appear to correspond to DCO Core Principle D.

RTS-CCP, Art. 4(1): A CCP shall have a sound framework for the comprehensive 

management of all material risks to which it is or may be exposed. A CCP shall establish 

documented policies, procedures, and systems that identify, measure, monitor, and 

manage such risks. In establishing risk management policies, procedures, and systems, a 

CCP shall structure them in a way to ensure that clearing members properly manage and 

contain the risks they pose to the CCP.

RTS-CCP, Art. 4(3): A CCP shall develop appropriate risk management tools to 

be in a position to manage and report on all relevant risks.
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EMIR, Art. 40: A CCP shall measure and assess its liquidity and credit exposures 

to each clearing member on a near to real-time basis.

RTS-CCP, Art. 4(5): A CCP shall employ robust information and risk-control 

systems to provide the CCP and, where appropriate, its clearing members and, where 

possible, clients with the capacity to obtain timely information and to apply risk 

management policies and procedures appropriately. These systems shall ensure at least 

that credit and liquidity exposures are monitored continuously at the CCP level as well as 

at the clearing member level and, to the extent practicable, at the client level.

EMIR, Art. 41(1): A CCP shall impose, call, and collect margins to limit its credit 

exposures from its clearing members. Such margins shall be sufficient to cover potential 

exposures that the CCP estimates will occur until the liquidation of the relevant positions. 

A CCP shall regularly monitor and, if necessary, revise the level of its margins to reflect 

current market conditions taking into account any potentially procyclical effects of such 

revisions.

EMIR, Art. 48(2): A CCP shall take prompt action to contain losses and liquidity 

pressures resulting from defaults and shall ensure that the closing out of any clearing 

member’s positions does not disrupt its operations or expose non-defaulting clearing

members to losses that they cannot anticipate or control.

EMIR, Art. 41(4): A CCP shall call and collect margins that are adequate to cover 

the risk stemming from the positions registered in each account kept in accordance with 

Article 39 of EMIR with respect to specific financial instruments.

EMIR, Art. 41(2): A CCP shall adopt models and parameters in setting its margin 

requirements that capture the risk characteristics of the products cleared and take into 
144

account the interval between margin collections, market liquidity, and the possibility of 

changes over the duration of the transaction. The models and parameters shall be 

validated by the competent authority.

EMIR, Art. 49(1): A CCP shall regularly review the models and parameters 

adopted to calculate its margin requirements, default fund contributions, collateral 

requirements, and other risk control mechanisms. It shall subject the models to rigorous 

and frequent stress tests to assess their resilience in extreme but plausible market 

conditions and shall perform back tests to assess the reliability of the methodology 

adopted.

Conclusion: A DCO’s compliance with the cited provisions of the EMIR 

Framework together would satisfy DCO Core Principle D. Both regimes require that a 

DCO have a comprehensive framework for risk management, the ability to measure and 

monitor its credit exposures, mechanisms to limit its potential exposure to clearing 

member default, sufficient margin coverage, and use of risk-based models that are 

regularly reviewed.

Table D: Risk Management

Subject Area DCO Core 

Principle EMIR Framework

Management of risks

Monitoring of credit exposures

Limiting exposure to clearing 

member default

Sufficiency of margin 

requirements

Use of risk-based models

D RTS-CCP, Art. 4(1), 4(3)

EMIR, Art. 40; RTS-CCP, Art. 

4(5)

EMIR, Art. 41(1), 41(4), 48(2)

EMIR, Art. 41(4)

EMIR, Art. 41(2), 49(1)
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E. Settlement Procedures (DCO Core Principle E)

DCO Core Principle E requires a DCO to: (1) complete money settlements on a 

timely basis, but not less frequently than once each business day; (2) employ money 

settlement arrangements to eliminate or strictly limit the DCO’s exposure to settlement 

bank risks; (3) ensure that money settlements are final when effected; (4) maintain an 

accurate record of the flow of funds associated with each money settlement; (5) possess 

the ability to comply with each term and condition of any permitted netting or offset 

arrangement with any other DCO; and (6) regarding physical settlements, establish rules 

that clearly state the obligations of the DCO with respect to physical deliveries, while 

ensuring that each risk arising from any such obligation is identified and managed. The 

Commission adopted the requirements in § 39.14 to implement DCO Core Principle E.

Relevant EU Laws and Regulations: The following provisions of the EMIR 

Framework appear to correspond to DCO Core Principle E.

EMIR, Art. 41(3): A CCP shall call and collect margins on an intraday basis, at 

least when predefined thresholds are exceeded.

Settlement Finality Directive, Art. 3: Transfer orders used to transfer financial

instruments and payments must be finally settled, regardless of whether the sending 

participant has become insolvent or the transfer orders have been revoked in the 

meantime.

EMIR, Art. 50(1): A CCP shall, where practical and available, use central bank 

money to settle its transactions. Where central bank money is not used, steps shall be 

taken to strictly limit cash settlement risks.
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EMIR, Art. 50(3): Where a CCP has an obligation to make or receive deliveries 

of financial instruments, it shall eliminate principal risk through the use of deliveryversus-payment mechanisms to the extent possible.

RTS-CCP, Art. 4(2): A CCP shall take an integrated and comprehensive view of 

all relevant risks. These shall include the risks it bears from and poses to settlement 

banks.

Conclusion: A DCO’s compliance with the cited provisions of the EMIR 

Framework together would satisfy DCO Core Principle E. Both regimes require a DCO 

to have procedures designed to reduce the risk exposure to settlement banks or otherwise 

attributable to settlement, including through the frequent collection of margin, and 

require that money settlements are final when effected.

Table E: Settlement Procedures

Subject Area DCO Core 

Principle EMIR Framework

Settlement procedures

Settlement finality

E EMIR, Art. 41(3), 50(1), 50(3); 

RTS-CCP, Art. 4(2) 

Settlement Finality Directive, 

Art. 3

F. Treatment of Funds (DCO Core Principle F)

DCO Core Principle F requires a DCO to: (1) establish standards and procedures 

that are designed to protect and ensure the safety of member and participant funds and 

assets; (2) hold such funds and assets in a manner that would minimize the risk of loss or 

of delay in the DCO’s access to the funds and assets; and (3) hold such funds and assets 

invested by the DCO in instruments with minimal credit, market, and liquidity risks. The 

Commission adopted the requirements in § 39.15 to implement DCO Core Principle F.
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Unlike other Commission requirements discussed herein, a DCO subject to 

subpart D compliance would be required to comply with the Commission’s customer 

protection requirements, including DCO Core Principle F and the Commission’s 

regulations thereunder. The EMIR Framework seeks to achieve the same outcome of 

protecting customers by requiring, for example: that a CCP keep separate records and 

accounts to enable it to distinguish the assets and positions held for the account of one 

clearing member from the assets and positions held for the account of any other clearing 

member and from its own assets;14 that a clearing member keep separate records and 

accounts that enable it to distinguish its own assets and positions from the assets and 

positions held for the account of its clients at the CCP;15 and that a CCP invest its 

financial resources only in cash or highly liquid financial instruments with minimal 

market and credit risk.16 However, because a DCO subject to subpart D compliance 

would clear swaps for U.S. customers, the DCO would be held to the Commission’s 

customer protection requirements. Therefore, an applicant would not be required to 

identify the applicable legal requirements in its home country that would satisfy DCO 

Core Principle F; however, the applicant would be required to explain how it will satisfy 

DCO Core Principle F and the Commission’s regulations thereunder.

G. Default Rules and Procedures (DCO Core Principle G)

DCO Core Principle G requires a DCO to: (1) have rules and procedures 

designed to allow for the efficient, fair, and safe management of events when members or 

participants become insolvent or otherwise default on their obligations to the DCO; (2) 

 14 EMIR, Art. 39(1).

15 EMIR, Art. 39(4).

16 EMIR, Art. 47(1).
148

clearly state its default procedures; (3) make its default rules publicly available; and (4) 

ensure that it may take timely action to contain losses and liquidity pressures, and to 

continue meeting each of its obligations. The Commission adopted the requirements in § 

39.16 to implement DCO Core Principle G.

Relevant EU Laws and Regulations: The following provisions of the EMIR 

Framework appear to correspond to DCO Core Principle G.

EMIR, Art. 48(1): A CCP shall have detailed procedures in place to be followed 

where a clearing member does not comply with the participation requirements of the CCP 

within the time limit and in accordance with the procedures established by the CCP. The 

CCP shall set out in detail the procedures to be followed in the event the default of a 

clearing member is not declared by the CCP. Those procedures shall be reviewed 

annually.

EMIR, Art. 48(2): A CCP shall take prompt action to contain losses and liquidity 

pressures resulting from defaults and shall ensure that the closing out of any clearing 

member’s positions does not disrupt its operations or expose the non-defaulting clearing 

members to losses that they cannot anticipate or control.

EMIR, Art. 48(4): A CCP shall verify that its default procedures are enforceable. 

It shall take all reasonable steps to ensure that it has the legal powers to liquidate the 

proprietary positions of the defaulting clearing member and to transfer or liquidate the 

clients’ positions of the defaulting clearing member.

RTS-CCP, Art. 61(2): A CCP shall make available to the public key aspects of its 

default procedures, including: (a) the circumstances in which action may be taken; (b) 

who may take those actions; (c) the scope of the actions which may be taken, including 
149

the treatment of both proprietary and client positions, funds and assets; (d) the 

mechanisms to address a CCP’s obligations to non-defaulting clearing members; and (e) 

the mechanisms to help address the defaulting clearing member’s obligations to its 

clients.

RTS-CCP, Art. 10(1)(b)(i): A CCP shall make its default management procedures 

available to the public. 

Conclusion: A DCO’s compliance with the cited provisions of the EMIR 

Framework together would satisfy DCO Core Principle G. Both regimes require a DCO 

to have procedures to follow in the event of a default and public disclosure of such 

procedures. These standards seek to ensure that DCOs may take timely action to contain 

losses and liquidity pressures and to continue meeting their obligations.

Table G: Default Rules and Procedures

Subject Area DCO Core 

Principle EMIR Framework

Default rules and 

procedures

Ability to contain losses

G EMIR, Art. 48(1), 48(4); RTS-CCP, Art. 

61(2), 10(1)(b)(i)

EMIR, Art. 48(2)

H. Rule Enforcement (DCO Core Principle H)

DCO Core Principle H requires a DCO to: (1) maintain adequate arrangements 

and resources for the effective monitoring and enforcement of compliance with its rules 

and for resolution of disputes; (2) have the authority and ability to discipline, limit, 

suspend, or terminate a clearing member’s activities for violations of those rules; and (3) 

report to the Commission regarding rule enforcement activities and sanctions imposed 

against members and participants. The Commission adopted the requirements in § 39.17 

to implement DCO Core Principle H.
150

Relevant EU Laws and Regulations: The following provisions of the EMIR 

Framework appear to correspond to DCO Core Principle H.

EMIR, Art. 36(2): A CCP shall have accessible, transparent, and fair rules for the 

prompt handling of complaints.

EMIR, Art. 37(4): A CCP shall have objective and transparent procedures for the 

suspension and orderly exit of clearing members that no longer meet the CCP’s 

participation requirements.

EMIR, Art. 38(5): A CCP shall publicly disclose any breaches by clearing 

members of the CCP’s participation requirements.

Conclusion: A DCO’s compliance with the cited provisions of the EMIR 

Framework together would satisfy DCO Core Principle H. Because participation 

requirements generally include ongoing compliance with a DCO’s rules, both regimes 

require procedures to discipline clearing members that do not follow the DCO’s rules, 

including through suspension or termination. Both regimes also require a DCO to have 

adequate dispute resolution mechanisms.

A DCO subject to subpart D compliance would be required to comply with § 

39.51(c)(2)(vii), which requires a DCO to provide notice of any action that it has taken 

against a U.S. clearing member. Therefore, an applicant would not be required to 

identify the applicable legal requirements in its home country that would satisfy DCO 

Core Principle H’s requirement that a DCO report to the Commission regarding rule 

enforcement activities and sanctions imposed against members and participants; however, 

the applicant would be required to explain how it will satisfy § 39.51(c)(2)(vii).
151

Table H: Rule Enforcement

Subject Area DCO Core 

Principle EMIR Framework

Rule enforcement H EMIR, Art. 36(2), 37(4), 38(5) 

I. System Safeguards (DCO Core Principle I)

DCO Core Principle I requires a DCO to: (1) establish and maintain a program of 

risk analysis and oversight to identify and minimize sources of operational risk through 

appropriate controls, procedures, and automated systems, that are reliable, secure, and 

have adequate scalable capacity; (2) establish and maintain emergency procedures, 

backup facilities, and a plan for disaster recovery that allows for the timely recovery and 

resumption of the DCO’s operations and the fulfillment of each of its obligations and 

responsibilities; and (3) periodically conduct tests to verify that the DCO’s backup 

resources are sufficient to ensure daily processing, clearing, and settlement. The 

Commission adopted the requirements in § 39.18 to implement DCO Core Principle I.

Relevant EU Laws and Regulations: The following provisions of the EMIR 

Framework appear to correspond to DCO Core Principle I.

EMIR, Art. 26(6): A CCP shall maintain information technology systems 

adequate to deal with the complexity, variety, and type of services and activities 

performed so as to ensure high standards of security and the integrity and confidentiality 

of the information maintained.

RTS-CCP, Art. 9(1): A CCP shall design and ensure that its information 

technology systems are reliable, secure, and capable of processing the information 

necessary for the CCP to perform its activities and operations in a safe and efficient 

manner. The systems shall be designed to deal with the CCP’s operational needs and the 
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risks the CCP faces; resilient, including in stressed market conditions; and scalable, if 

necessary, to process additional information. The CCP shall provide for procedures and 

capacity planning as well as for sufficient redundant capacity to allow the system to 

process all remaining transactions before the end of the day in circumstances where a 

major disruption occurs.

RTS-CCP, Art. 9(2): A CCP must base its information technology systems on 

internationally recognized technical standards and industry best practices.

RTS-CCP, Art. 9(3): A CCP must maintain a robust information security 

framework that appropriately manages its information security risk, including policies to 

protect information from unauthorized disclosure, ensure data accuracy and integrity, and 

guarantee the availability of the CCP’s services.

EMIR, Art. 34(1): A CCP shall establish, implement, and maintain an adequate 

business continuity policy and disaster recovery plan aimed at ensuring the preservation 

of its functions, the timely recovery of operations and the fulfillment of the CCP’s 

obligations. Such a plan shall at least allow for the recovery of all transactions at the time 

of disruption to allow the CCP to continue to operate with certainty and to complete 

settlement on the scheduled date.

RTS-CCP, Art. 19(1): A CCP shall have in place arrangements to ensure 

continuity of its critical functions based on disaster scenarios. These arrangements shall 

at least address the availability of adequate human resources, the maximum downtime of 

critical functions, and fail over and recovery to a secondary site.

RTS-CCP, Art. 20(1): A CCP shall test and monitor its business continuity policy 

and disaster recovery plan at regular intervals and after significant modifications or 
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changes to the systems or related functions to ensure the business continuity policy 

achieves the stated objectives, including the two hour maximum recovery time objective.

Tests shall be planned and documented.

RTS-CCP, Art. 20(2): Testing of the business continuity policy and disaster 

recovery plan shall fulfill the following conditions: (a) involve scenarios of large scale 

disasters and switchovers between primary and secondary sites; and (b) include 

involvement of clearing members, external providers and relevant institutions in the 

financial infrastructure with which interdependencies have been identified in the business 

continuity policy.

RTS-CCP, Art. 21(1), (2): A CCP shall regularly review and update it business 

continuity policy to include all critical functions and the most suitable recovery strategy 

for them, and shall regularly review and update its disaster recovery plan to include the 

most suitable recovery strategy for all critical functions.

Conclusion: A DCO’s compliance with the cited provisions of the EMIR 

Framework together would satisfy DCO Core Principle I. Requirements under both 

regimes are intended to ensure that a DCO has appropriate procedures and controls for 

the reliability, security, and capacity of its automated systems; has a plan for disaster 

recovery and the ability to resume operations and meet all of its obligations; and conducts

tests to verify that the DCO’s backup resources are sufficient.

Table I: System Safeguards

Subject Area DCO Core 

Principle EMIR Framework

Identify and minimize 

operational risks through 

appropriate controls, 

procedures and automated 

systems

I EMIR, Art. 26(6); RTS-CCP, Art. 9(1), 

9(2), 9(3) 
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Emergency procedures, 

backup facilities, and disaster 

recovery plan

Periodic testing of 

sufficiency of backup 

resources 

EMIR, Art. 34(1); RTS-CCP, Art. 

19(1)

RTS-CCP, Art. 20(1), 20(2), 21(1), 

21(2)

J. Reporting (DCO Core Principle J)

DCO Core Principle J requires a DCO to provide to the Commission all 

information necessary for the Commission to conduct oversight of the DCO. The 

Commission adopted the requirements in § 39.19 to implement DCO Core Principle J.

Relevant EU Laws and Regulations: The following provision of the EMIR 

Framework appears to correspond to DCO Core Principle J.

RTS-CCP, Para. 16: To carry out its duties effectively, the relevant competent 

authority should be provided with access to all necessary information to determine 

whether the CCP is in compliance with its conditions of authorization. Such information 

should be made available by the CCP without undue delay.

Conclusion: A DCO’s compliance with the cited provision of the EMIR 

Framework would satisfy DCO Core Principle J. Both regimes require a DCO to provide 

all information necessary to enable the regulator to conduct oversight of the DCO.

Table J: Reporting

Subject Area DCO Core 

Principle EMIR Framework

Reporting J RTS-CCP, Para. 16 

K. Recordkeeping (DCO Core Principle K)

DCO Core Principle K requires a DCO to maintain records of all activities related 

to its business as a DCO in a form and manner acceptable to the Commission for a period 
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of not less than five years. The Commission adopted the requirements in § 39.20 to 

implement DCO Core Principle K.

Relevant EU Laws and Regulations: The following provisions of the EMIR 

Framework appear to correspond to DCO Core Principle K.

EMIR, Art. 29(1): A CCP shall maintain, for a period of at least 10 years, all the 

records on the services and activity provided so as to enable the competent authority to 

monitor the CCP’s compliance with EMIR, and shall make such records available upon 

request.

RTS-CCP, Art. 5(2): The rules, procedures and contractual arrangements of the 

CCP shall be recorded in writing or another durable medium, and shall be accurate, upto-date, and readily available to the competent authority, clearing members and, where 

appropriate, clients.

RTS-CCP, Art. 12-16: These provisions set forth general requirements regarding 

records and specific requirements for transaction records, position records, business 

records, and records related to reporting to a trade repository.

Conclusion: A DCO’s compliance with the cited provisions of the EMIR 

Framework together would satisfy DCO Core Principle K. Both regimes require that the 

DCO maintain records related to its business activities as a DCO, and the EMIR 

Framework requires that these records be kept for at least 10 years, which exceeds the 

minimum period of five years required under DCO Core Principle K.

Table K: Recordkeeping

Subject Area DCO Core 

Principle EMIR Framework

Recordkeeping K EMIR, Art. 29(1); RTS-CCP Art. 

5(2), 12-16
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L. Public Information (DCO Core Principle L)

DCO Core Principle L requires a DCO to: (1) provide market participants with 

sufficient information to enable them to identify and evaluate accurately the risks and 

costs associated with using the DCO’s services; (2) make information concerning the 

rules and operating and default procedures governing its clearing and settlement systems 

available to market participants; and (3) disclose publicly and to the Commission 

information concerning: (a) the terms and conditions of each contract, agreement, and 

transaction cleared and settled by the DCO; (b) the fees that the DCO charges its 

members and participants; (c) the DCO’s margin-setting methodology, and the size and 

composition of its financial resource package; (d) daily settlement prices, volume, and 

open interest for each contract the DCO settles or clears; and (e) any other matter relevant 

to participation in the DCO’s settlement and clearing activities. The Commission 

adopted the requirements in § 39.21 to implement DCO Core Principle L.

Relevant EU Laws and Regulations: The following provisions of the EMIR 

Framework appear to correspond to DCO Core Principle L.

EMIR, Art. 26(7): A CCP shall make its governance arrangements, the rules 

governing the CCP, and its admission criteria for clearing membership, publicly 

available.

EMIR, Art. 38(1): A CCP and its clearing members shall publicly disclose the 

prices and fees associated with the services provided. They shall disclose the prices and 

fees of each service provided separately, including discounts and rebates and the 

conditions to benefit from those reductions.
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EMIR, Art. 38(2): A CCP shall disclose to clearing members and clients the risks 

associated with the services provided.

EMIR, Art. 38(3): A CCP shall disclose to its clearing members and to its 

competent authority the price information used to calculate its end-of-day exposures to its 

clearing members. A CCP shall publicly disclose the volumes of the cleared transactions 

for each class of instruments cleared by the CCP on an aggregated basis.

EMIR, Art. 38(7): A CCP shall provide its clearing members with information on 

the initial margin models it uses, which shall: (a) clearly explain the design of the initial 

margin model and how it operates; (b) clearly describe the key assumptions and 

limitations of the initial margin model and the circumstances under which those 

assumptions are no longer valid; and (c) be documented.

RTS-CCP, Art. 10(1): A CCP must make information relating to the following 

available to the public: (a) its governance arrangements; (b) its rules (including default 

procedures, risk management systems, rights and obligations of clearing members and 

clients, clearing services and rules governing access to the CCP (including admission, 

suspension and exit criteria for clearing membership), contracts with clearing members 

and clients, interoperability arrangements and use of collateral and default fund 

contributions); (c) eligible collateral and applicable haircuts; and (d) a list of all current 

clearing members.

RTS-CCP, Art. 61(1): A CCP shall publicly disclose the general principles 

underlying its models and their methodologies, the nature of tests performed, with a high 

level summary of the test results and any corrective actions undertaken.
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RTS-CCP, Art. 61(2): A CCP shall make available to the public key aspects of its 

default procedures, including: (a) the circumstances in which action may be taken; (b) 

who may take those actions; (c) the scope of the actions which may be taken, including 

the treatment of both proprietary and client positions, funds and assets; (d) the 

mechanisms to address a CCP’s obligations to non-defaulting clearing members; and (e) 

the mechanisms to help address the defaulting clearing member’s obligations to its 

clients.

Conclusion: A DCO’s compliance with the cited provisions of the EMIR 

Framework together would satisfy DCO Core Principle L. Both regimes require 

disclosure to clearing members and the public of key information regarding the clearing 

services provided, the costs and risks of such services, the DCO’s margin methodology, 

its financial resources and default procedures, the volume of contracts cleared, and its 

rules.

Table L: Public Information

Subject Area DCO Core 

Principle EMIR Framework

Disclosure of costs and 

risks of DCO’s services

Disclosure of rules, and 

operating and default 

procedures

Information on cleared 

transactions, margin 

methodology, and financial 

resources 

L EMIR, Art. 38(1), 38(2)

EMIR, Art. 26(7); RTS-CCP, Art. 10(1)

EMIR, Art. 38(3), 38(7); RTS-CCP, Art. 

10(1), 61(1), 61(2)

M. Information Sharing (DCO Core Principle M)

DCO Core Principle M requires a DCO to enter into and abide by the terms of 

each appropriate and applicable domestic and international information-sharing 
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agreement, and use relevant information obtained from each agreement in carrying out 

the DCO’s risk management program. As set out in § 39.22, the Commission has not 

adopted specific requirements to further implement DCO Core Principle M; rather, the 

Commission provides DCOs with discretion in how they meet this DCO Core Principle. 

Therefore, an applicant for DCO registration subject to subpart D compliance would not 

need to demonstrate that compliance with its home country requirements would satisfy 

DCO Core Principle M; however, the applicant would be required to explain how it will 

satisfy DCO Core Principle M nevertheless.

N. Antitrust Considerations (DCO Core Principle N)

DCO Core Principle N requires a DCO to avoid, unless necessary or appropriate 

to achieve the purposes of the CEA, adopting any rule or taking any action that results in 

any unreasonable restraint of trade, or imposing any material anticompetitive burden. As 

set out in § 39.23, the Commission has not adopted specific requirements to further 

implement DCO Core Principle N; rather, the Commission provides DCOs with 

discretion in how they meet this DCO Core Principle. Therefore, an applicant for DCO 

registration subject to subpart D compliance would not need to demonstrate that 

compliance with its home country requirements would satisfy DCO Core Principle N; 

however, the applicant would be required to explain how it will satisfy DCO Core 

Principle N nevertheless.

O. Governance Fitness Standards (DCO Core Principle O)

DCO Core Principle O requires a DCO to establish governance arrangements that 

are transparent to fulfill public interest requirements and to permit the consideration of 

the views of owners and participants. A DCO must also establish and enforce 
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appropriate fitness standards for directors, members of any disciplinary committee, 

members of the DCO, any other individual or entity with direct access to the settlement 

or clearing activities of the DCO, and any party affiliated with any of the foregoing 

individuals or entities. The Commission adopted the requirements in § 39.24 to 

implement DCO Core Principle O.

Relevant EU Laws and Regulations: The following provisions of the EMIR 

Framework appear to correspond to DCO Core Principle O.

EMIR, Art. 26(1): A CCP shall have robust governance arrangements, which 

include a clear organizational structure with well-defined, transparent, and consistent 

lines of responsibility, effective processes to identify, manage, monitor, and report the 

risks to which it is or might be exposed, and adequate internal control mechanisms, 

including sound administrative and accounting procedures.

EMIR, Art. 26(7): A CCP shall make its governance arrangements, the rules 

governing the CCP, and its admission criteria for clearing membership, publicly 

available.

EMIR, Art. 27(1): The senior management of a CCP shall be of sufficiently good 

repute and shall have sufficient experience so as to ensure the sound and prudent 

management of the CCP.

EMIR, Art. 27(2): The members of a CCP’s board, including its independent 

members, shall be of sufficiently good repute and shall have adequate expertise in 

financial services, risk management, and clearing services.
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EMIR, Art. 27(3): A CCP shall clearly determine the roles and responsibilities of 

the board and shall make the minutes of the board meetings available to the competent 

authority and auditors.

EMIR, Art. 36(1): When providing services to its clearing members, and where 

relevant, to their clients, a CCP shall act fairly and professionally in accordance with the 

best interests of such clearing members and clients and sound risk management.

EMIR, Art. 36(2): A CCP shall have accessible, transparent, and fair rules for the 

prompt handling of complaints.

RTS-CCP, Art. 3(1): The key components of a CCP’s governance arrangements 

that define its organizational structure as well as clearly specified and well-documented 

policies, procedures, and processes by which its board and senior management operate 

shall include the roles and responsibilities of the management, the reporting lines between 

the senior management and the board, and the processes for ensuring accountability to 

stakeholders.

RTS-CCP, Art. 3(3): A CCP shall establish lines of responsibility that are clear, 

consistent, and well-documented.

RTS-CCP, Art. 4(4): The governance arrangements shall ensure that the CCP’s 

board assumes final responsibility and accountability for managing the CCP’s risks.

RTS-CCP, Art. 7(1): A CCP shall define the composition, role, and 

responsibilities of the board and senior management and any board committees. These 

arrangements shall be clearly specified and well-documented.
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Conclusion: A DCO’s compliance with the cited provisions of the EMIR 

Framework together would satisfy DCO Core Principle O. Both regimes require fitness 

standards for directors and others, and both require transparent governance arrangements.

Table O: Governance Fitness Standards

Subject Area DCO Core 

Principle EMIR Framework

Governance 

arrangements

Governance fitness 

standards

O EMIR, Art. 26(1), 26(7), 27(3), 36(1), 36(2); 

RTS-CCP, Art. 3(1), 3(3), 4(4), 7(1)

EMIR, Art. 27(1), 27(2) 

P. Conflicts of Interest (DCO Core Principle P)

DCO Core Principle P requires a DCO to establish and enforce rules to minimize 

conflicts of interest in the decision-making process of the DCO, and establish a process 

for resolving such conflicts of interest. The Commission adopted the requirements in § 

39.25 to implement DCO Core Principle P.

Relevant EU Laws and Regulations: The following provisions of the EMIR 

Framework appear to correspond to DCO Core Principle P.

EMIR, Art. 26(5): A CCP shall adopt, implement, and maintain a remuneration 

policy that promotes sound and effective risk management and does not create incentives 

to relax risk standards.

EMIR, Art. 27(2): The compensation of the independent and other non-executive 

members of the board shall not be linked to the business performance of the CCP.

EMIR, Art. 33(1): A CCP shall maintain and operate effective written 

organizational and administrative arrangements to identify and manage any potential 

conflicts of interest between itself, including its managers, employees, or any person with 

direct or indirect control or close links, and its clearing members or their clients known to 
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the CCP. It shall maintain and implement adequate procedures aimed at resolving 

possible conflicts of interest.

RTS-CCP, Art. 7(5): The arrangements by which the board and senior 

management operate shall include processes to identify, address, and manage potential 

conflicts of interest of members of the board and senior management.

Conclusion: A DCO’s compliance with the cited provisions of the EMIR 

Framework together would satisfy DCO Core Principle P. Both regimes require a DCO 

to manage or minimize conflicts of interest and to establish or maintain a process for 

resolving conflicts of interest.

Table P: Conflicts of Interest

Subject Area DCO Core 

Principle EMIR Framework

Conflicts of interest P EMIR, Art. 26(5), 27(2), 33(1); RTSCCP, Art. 7(5)

Q. Composition of Governing Boards (DCO Core Principle Q)

DCO Core Principle Q requires a DCO to ensure that the composition of its 

governing board or committee includes market participants, as set out in § 39.26.

Relevant EU Laws and Regulations: The following provision of the EMIR 

Framework appears to correspond to DCO Core Principle Q.

EMIR, Art. 27(2): A CCP shall have a board. At least one third, but no less than 

two, of the members of that board shall be independent. Representatives of the clients of 

clearing members shall be invited to board meetings for certain matters. The members of 

a CCP’s board, including its independent members, shall be of sufficiently good repute 

and shall have adequate expertise in financial services, risk management, and clearing 

services.
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Conclusion: A DCO’s compliance with the cited provision of the EMIR 

Framework would satisfy DCO Core Principle Q. Both regimes require a DCO to ensure 

that its board of directors includes members that are independent of the DCO and have 

market expertise, and that the board receives input from market participants.

Table Q: Composition of Governing Boards

Subject Area DCO Core 

Principle EMIR Framework

Composition of governing boards Q EMIR, Art. 27(2)

R. Legal Risk (DCO Core Principle R)

DCO Core Principle R requires a DCO to have a well-founded, transparent, and 

enforceable legal framework for each aspect of its activities. The Commission adopted 

the requirements in § 39.27 to implement DCO Core Principle R.

Relevant EU Laws and Regulations: The following provisions of the EMIR 

Framework appear to correspond to DCO Core Principle R.

EMIR, Art. 26(2): A CCP shall adopt policies and procedures which are 

sufficiently effective so as to ensure compliance with EMIR, including compliance of its 

managers and employees with all the provisions of EMIR.

EMIR, Art. 36(1): When providing services to its clearing members, and where 

relevant, to their clients, a CCP shall act fairly and professionally in accordance with the 

best interests of such clearing members and clients and sound risk management.

RTS-CCP, Art. 5(2): A CCP shall ensure that its rules, procedures, and 

contractual arrangements are clear and comprehensive and they ensure compliance with 

relevant EU requirements as well as all other applicable regulatory and supervisory 

requirements. A CCP shall identify and analyze the soundness of the rules, procedures, 

and contractual arrangements of the CCP.
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RTS-CCP, Art. 5(4): A CCP’s rules and procedures shall clearly indicate the law 

that is intended to apply to each aspect of the CCP’s activities and operations.

Conclusion: A DCO’s compliance with the cited provisions of the EMIR 

Framework together would satisfy DCO Core Principle R. Both regimes require a DCO 

to have a clear legal framework grounded in the applicable legal and regulatory regime.

Table R: Legal Risk

Subject Area DCO Core 

Principle EMIR Framework

Legal risk R EMIR, Art. 26(2), 36(1);

RTS-CCP, Art. 5(2), 5(4)