CFTC Proposes to Apply Clearing Requirement to Additional Interest Rate Swaps

Skadden, Arps, Slate, Meagher & Flom LLP
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On June 9, 2016, the Commodity Futures Trading Commission (CFTC) proposed to require additional interest rate swaps to be centrally cleared. Since December 2012, the CFTC has required four classes of interest rate swaps (i.e., fixed to-floating swaps, basis swaps, overnight index swaps and forward rate agreements) and two classes of index credit default swaps (i.e., North American and European corporate indices) meeting certain specifications to be cleared through a registered derivatives clearing organization (DCO) or an exempt DCO.

The CFTC’s proposal would expand the number of swaps required to be cleared to include interest rate swaps denominated in nine additional currencies: the Australian dollar (AUD), Canadian dollar (CAD), Hong Kong dollar (HKD),Mexican peso (MXN), Norwegian krone (NOK), Polish zloty (PLN), Singapore dollar (SGD), Swedish krona (SEK) and Swiss franc (CHF). The CFTC stated that the proposed rule is intended to make the CFTC’s clearing requirement consistent with those proposed, or already adopted, by regulators in the European Union, Australia, Canada, Hong Kong, Mexico and Singapore. Consistent with current law, the clearing requirement would apply to all parties seeking to enter into any of the newly proposed covered swaps unless an exception or exemption applies (e.g., the end-user exception or the inter-affiliate exemption). The proposed rule is open for public comment until July 18, 2016.

The following charts identify the universe of swaps that would be required to be cleared if the proposed rule is adopted. The new interest rate swaps proposed to be covered are marked in italics and underlined.

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