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Thursday, March 28, 2024 | Back issues
Courthouse News Service Courthouse News Service

CFTC Tries to Regulate Some Derivatives

(CN) - The Commodity Futures Trading Commission adopted final rules requiring that certain types of swaps be cleared through certified organizations under the Dodd-Frank Wall Street Reform Act.

In response to the role that financial derivatives played in the 2008 financial crisis, the CFTC proposed clearing requirements to reduce credit risks and provide an organized method for clearing transactions.

G20 leaders agreed in September 2009 that over-the-counter derivatives contracts should be reported to trade repositories and cleared through central counterparties.

The CFTC proposed clearing requirements for two classes of credit default swaps and four classes of interest rate swaps.

Only certain types of swaps will subject to the clearing requirements. Those swaps must be submitted for clearing to a derivatives clearing organization that is registered with the CFTC.

If a swap does not clear because of a credit problem, it must be cleared as soon as "technologically practicable" after counterparties are informed about the issue, the CFTC said.

For interest rate swaps, the rules deal with fixed-to floating swaps, basis swaps, overnight indexed swaps, and forward rate agreements involving the U.S. dollar, British pound, Euro or Japanese yen. Those swaps must be based on specified rate indexes.

For credit default swaps, the CFTC will include a table listing the types of swaps that require clearance.

The CFTC adopted a phased compliance schedule for mandatory swaps.

Category 1 entities, including swap dealers, security-based swap dealers, major swap participants and active funds, must comply with the clearing requirements within 90 days of a CFTC determination that a swap must be cleared.

Category 2 entities, including commodity pools and private funds, will have 180 days to comply with the clearing requirement. Compliance for all other swap transactions must meet clearing requirements within 270 days after the CFTC issues a clearing requirement.

Swaps between two Category 1 entities have a compliance date of March 11, 2013 and those involving Category 2 entities must comply by June 10, 2013.

All other swaps have a compliance date of Sept. 9, 2013.

The rule is to take effect on Feb. 11, 2013.

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