CFTC to Phase in Expansionary Interest Rate Swap Clearing Requirements

The US Commodity Futures Trading Commission (CFTC) has announced the expansion of its existing clearing requirements for interest rate Swaps Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Read this Term, following a unanimous vote by the body. The newly augmented rules shore up some existing regulations, building on Dodd-Frank requirements.

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Presently, interest rate swaps are strictly governed under the Dodd-Frank Act and the Commodity Exchange Act (CEA) in a bid to help prevent market participants from entering into a swap that the Commission has required to be cleared unless that market participant submits the swap for clearing to a DCO.

Moreover, Dodd-Frank legislation also requires the CFTC to determine whether a swap is required to be cleared by either a Commission-initiated review or a submission from a DCO for the review of a swap, or group, category, type, or class of swap. However, select clearing requirement determinations do not apply to the CEA and CFTC regulations and are eligible to certain exceptions and exemptions from clearing, such as non-financial entities and small banks hedging commercial risk, certain affiliated counterparties, and certain cooperatives.

In particular, the new clearing requirement determination will now require market participants to submit a swap that is identified in expanded Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term 50.4(a) for clearing by a derivatives clearing organization (DCO). This will also take shape in an expanded class of interest rate swaps that are required to be cleared, across specific currencies.

As such, the CFTC’s expanded requirements detail swaps that are denominated in currencies in each of the four interest rate swap classes, including fixed-to-floating interest rate swaps denominated in Australian dollar (AUD), Canadian dollar (CAD), Hong Kong dollar (HKD), Mexican peso (MXN), Norwegian krone (NOK), Polish zloty (PLN), Singapore dollar (SGD), Swedish krona (SEK), and Swiss franc (CHF).

Timeline for New Requirements

Additionally, other swaps included under the mantle of these requirements include basis swaps denominated in AUD, forward rate agreements (FRAs) denominated in NOK, PLN, and SEK and overnight index swaps (OIS) denominated in AUD and CAD, as well as USD, EUR, and GBP-denominated OIS with termination dates of up to three years.

The timeline for these new rules and compliance measures in regard to interest rate swap requirements will ultimately be phased-in within a period of two-years to help provide a level of certainty for market participants in the US.

The existing clearing requirement determination also applies to swaps currently cleared by four registered DCOs, including the Chicago Mercantile Exchange Inc (CME), Eurex Clearing, LCH.Clearnet Ltd; and Singapore Exchange Derivatives Clearing Ltd.