The Commodity Futures Trading Commission, in the first clearing determination under Dodd-Frank, released new rules last week that would require certain swaps to be cleared by registered derivatives clearing organizations.
Under the rules, market participants are required to submit some interest-rate and credit default swap classes, including currency, floating rate indexes, stated termination date range, optionality, dual currency and conditional notional amounts, to a DCO as soon as technologically possible and no later than the end of the execution day.
The 2010 Dodd-Frank Act amended the Commodity Exchange Act to prevent market participants from entering into a swap for which the CFTC has named a clearing requirement unless the individual submits the swap for clearing by a DCO. The legislation also requires the CFTC to determine whether a swap is to be cleared by a commission review or submission by a DCO for review.
The new rules do not apply to individuals eligible for exemption from clearing requirements, such as non-financial firms engaging in commercial risk-hedging activities.
Additionally, the rules also back statutory provisions indicating that swaps entered into before the enactment of Dodd-Frank or before the effective date of the clearing requirement are not required to be cleared.
The CFTC is also in the process of issuing regulations aimed at preventing individuals from evading the clearing requirements or abusing clearing exemptions.
The rule will take effect after it is published in the Federal Register.