Under Dodd-Frank, the Commodity Exchange Act was amended to require the clearing of certain swap transactions. The CFTC adopted its first clearing requirement last year, which mandated swaps meeting specifications established in four classes of interest rate swaps and two classes of credit default swaps be cleared.
The rule approved on Monday by the CFTC allows affiliated counterparties to choose not to clear a swap subject to the clearing requirement if the counterparties are majority-owned affiliates whose financials are not included on the same consolidated financial statements.
Both affiliated counterparties must choose not to clear the swap, the terms of the swap must be documented, the swap must be subject to a centralized risk management program and each swap entered into with unaffiliated counterparties must be cleared.
The final rule also requires the reporting counterparty to report to a swap data repository information pertaining to the swap, including confirmation that both affiliated counterparties have elected to not clear the swap and how each satisfies the rule’s requirements, information pertaining to how counterparties meet their financial obligations associated with entering into non-cleared swaps and other information if the affiliated counterparties are issuers of securities or are required to file reports under the Securities Exchange Act.
Additionally, the CFTC clarified the status of inter-affiliate swaps between Monday and when the rule takes effect, which is 60 days after publication of the rule in the Federal Register. The clearing requirement will not, until the effective date of the rules, apply to swaps executed between majority-owned affiliated counterparties that choose not to clear such swaps and those that report their financial statements on a consolidated basis.