[29986]
June 16, 2016
TO:
CLOSED-END INVESTMENT COMPANY MEMBERS No. 8-16
DERIVATIVES MARKETS ADVISORY COMMITTEE No. 31-16
INVESTMENT ADVISER MEMBERS No. 11-16
SEC RULES MEMBERS No. 26-16
RE:
CFTC PROPOSES ADDITIONAL INTEREST RATE SWAPS FOR CLEARING REQUIREMENT
The Commodity Futures Trading Commission (“CFTC”) recently proposed to expand the scope of interest rate swaps subject to the clearing mandate. [1] CFTC rules currently require clearing of certain interest rates swaps denominated in U.S. dollars, Japanese yen, British pounds, and euro. [2] The proposed rule would extend the clearing mandate to include interest rate swaps denominated in additional currencies. The Appendix to this memorandum provides the specifications for the interest rate swaps that would be subject to a CFTC clearing mandate if the CFTC adopts this proposal. The CFTC believes its proposed rule would harmonize the U.S. clearing requirement with clearing requirements—both finalized and proposed—for interest rate swaps in other jurisdictions. [3]
Recognizing that multiple non-U.S. jurisdictions have taken steps to promulgate analogous clearing requirements for the interest rate swaps covered by the rule, the CFTC proposes two alternate implementation schedules to create a workable implementation timeframe for the proposed requirements:
- Option 1: A final rule implementing the new clearing requirements for all products at the same time. Compliance with the rule would be required 60 days after the CFTC’s final rule is published in the Federal Register.
- Option 2: The compliance date for the new clearing requirements would be the earlier of (1) the date 60 days after the effective date of an analogous clearing requirement that has been adopted by a regulator in a non-U.S. jurisdiction, provided that any such date for any swap covered by the final rule shall not be earlier than the date which is 60 days after the CFTC’s final rule is published in the Federal Register, or (2) the date two years after the CFTC’s final rule is published in the Federal Register.
The comment period for this proposal closes July 18, 2016. ICI does not expect to comment on the proposal. If you have any concerns with the proposal, please contact Jennifer Choi at jennifer.choi@ici.org or (202) 326-5876 or George Gilbert at george.gilbert@ici.org or (202) 326-5810 no later than June 24.
Jennifer S. Choi
Associate General Counsel
George M. Gilbert
Counsel
Appendix [4]
Table 1: Fixed-to-Floating Swap Class
Currency
Floating Rate Indexes
Stated Termination Date Range
Optionality
Dual Currencies
Conditional Notional Amounts
AUD
BBSW
28 days to 30 years
No
No
No
CAD
CDOR
28 days to 30 years
No
No
No
HKD
HIBOR
28 days to 10 years
No
No
No
MXN
TIIE
28 days to 21 years
No
No
No
NOK
NIBOR
28 days to 10 years
No
No
No
PLN
WIBOR
28 days to 10 years
No
No
No
SGD
SOR-VWAP
28 days to 10 years
No
No
No
SEK
STIBOR
28 days to 15 years
No
No
No
CHF
LIBOR
28 days to 30 years
No
No
No
GBP
LIBOR
28 days to 50 years
No
No
No
USD
LIBOR
28 days to 50 years
No
No
No
JPY
LIBOR
28 days to 30 years
No
No
No
EUR
EURIBOR
28 days to 50 years
No
No
No
Table 2: Basis Swap Class
Currency
Floating Rate Indexes
Stated Termination Date Range
Optionality
Dual Currencies
Conditional Notional Amounts
AUD
BBSW
28 days to 30 years
No
No
No
EUR
EURIBOR
28 days to 50 years
No
No
No
GBP
LIBOR
28 days to 50 years
No
No
No
USD
LIBOR
28 days to 50 years
No
No
No
JPY
LIBOR
28 days to 30 years
No
No
No
Table 3: Forward Rate Agreement Class
Currency
Floating Rate Indexes
Stated Termination Date Range
Optionality
Dual Currencies
Conditional Notional Amounts
AUD
BBSW
3 days to 3 years
No
No
No
PLN
WIBOR
3 days to 2 years
No
No
No
NOK
NIBOR
3 days to 2 years
No
No
No
SEK
STIBOR
3 days to 3 years
No
No
No
GBP
LIBOR
3 days to 3 years
No
No
No
USD
LIBOR
3 days to 3 years
No
No
No
JPY
LIBOR
3 days to 3 years
No
No
No
EUR
EURIBOR
3 days to 3 years
No
No
No
Table 4: Overnight Index Swap Class
Currency
Floating Rate Indexes
Stated Termination Date Range
Optionality
Dual Currencies
Conditional Notional Amounts
AUD
AONIA-OIS
7 days to 2 years
No
No
No
CAD
CORRA-OIS
7 days to 2 years
No
No
No
EUR
EONIA
7 days to 3 years [5]
No
No
No
GBP
SONIA
7 days to 3 years [6]
No
No
No
USD
FedFunds
7 days to 3 years [7]
No
No
No
endnotes
[1] Clearing Requirement Determination under Section 2(h) of the CEA for Interest Rate Swaps, 81 Fed. Reg. 39,506 (Jun. 16, 2016), available at https://www.gpo.gov/fdsys/pkg/FR-2016-06-16/pdf/2016-14035.pdf.
[2] The requirement applies to interest rate swaps of various tenors belonging to the following classes: (1) fixed-to-floating swaps; (2) basis swaps; (3) overnight index swaps; and (4) forward rate agreements. For more detail about that requirement, please see Investment Company Institute Memorandum No. 26741 (Dec. 6, 2012), available at https://www.ici.org/ my_ici/memorandum/memo26741. CFTC rules also require clearing of certain credit default swaps. See id.
[3] Those jurisdictions are: (1) Australia; (2) Canada; (3) European Union; (4) Hong Kong; (5) Mexico; (6) Singapore; and (7) Switzerland
[4] Items underlined indicate changes or additions under the proposal.
[5] The CFTC’s current mandate applies to transactions with tenor from 7 days to 2 years.
[6] The CFTC’s current mandate applies to transactions with tenor from 7 days to 2 years.
[7] The CFTC’s current mandate applies to transactions with tenor from 7 days to 2 years.