July 22, 2014

CFTC Issues Required Clearing Determination for Certain Credit Default and Interest Rate Swaps

In its first mandatory clearing determination, as required by the Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), the Commodity Futures Trading Commission has determined that certain types of credit default swaps (CDS) and interest rate swaps must be cleared through a registered derivatives clearing organization (DCO). Compliance deadlines vary based on the type of entity entering into the swap. Swap dealers, major swap participants and certain active funds must comply with the clearing requirement for any swap entered into on or after March 11, 2013. Commodity pools, private funds and persons predominantly engaged in activities that are in the business of banking must comply by June 10, 2013. Investment managers and ERISA pension plans will have until September 9, 2013, to comply with the clearing requirement for such swaps. The CFTC also clarified that any swap entered into before an entity’s respective compliance date is exempt from this clearing mandate.

The CFTC’s determination specifies four classes of interest rate swaps (fixed-to-floating swaps, basis swaps, forward rate agreements and overnight index swaps) on four currencies (US dollars, Euros, British pounds and Japanese yen) and two classes of credit default swaps on five North American and European CDS indices. These specific classes of swaps are currently cleared by four DCOs (Chicago Mercantile Exchange, ICE Clear Credit, ICE Clear Europe and LCH.Clearnet Ltd.).

More information on the determination and the specific classes of swaps to be cleared is available here.

©2014 Katten Muchin Rosenman LLP

About the Author

Kevin M. Foley, Finance Attorney, Katten Muchin law Firm

Kevin M. Foley has extensive experience in commodities law and advises a wide range of clients, both in the United States and abroad, on compliance with the Commodity Exchange Act and the rules of the Commodity Futures Trading Commission (CFTC) affecting traditional exchange-traded products, as well as the over-the-counter markets involving swaps and other derivative instruments. His clients include futures commission merchants, derivatives clearing organizations, designated contract markets, foreign boards of trade and an industry trade association.


About the Author

Adam J. Spector, Katten Muchin Law firm, Financial Institutions Attorney

Adam J. Spector concentrates his practice in the financial services sector, representing hedge funds, commodity pools, proprietary trading firms, private equity funds and investment advisers with respect to their corporate, transactional and regulatory matters.


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