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On July 11, 2019, the Commodity Futures Trading Commission (CFTC) approved two proposed rules addressing the treatment of foreign (non-U.S.) clearing organizations that seek to register with the CFTC as derivatives clearing organizations (DCOs). The two proposed rules would significantly liberalize the clearing regime applicable to non-U.S. DCOs that seek to offer clearing services from overseas into the United States and to U.S. customers if they become law. The CFTC, however, also proposed amendments to its Part 30 regime to demonstrate to foreign regulators that liberalization of the U.S. regulatory regime is contingent on reciprocal actions of foreign regulators.

作者: Peter Y. Malyshev Christine Parker Joseph M. Motto Justin J. Mirabal

DCOs subject to Alternative Compliance Regime Proposed Rule

The first proposed rule (the Alternative Compliance Regime Proposed Rule) proposes to create an optional alternative compliance regime for foreign clearing organizations.1 Under this alternative compliance regime, the CFTC would permit certain non-U.S. DCOs that do not pose a substantial risk to the U.S. financial system to register with the CFTC and comply with the legal requirements of their home jurisdictions instead of the corresponding DCO core principles (DCO Core Principles)2 set forth in the Commodity Exchange Act of 1936 (“CEA”).3

In order to use the alternative regime under the Alternative Compliance Regime Proposed Rule, the CFTC would have to determine that compliance with the foreign clearing organization’s home country regulatory regime constitutes compliance with the DCO Core Principles and enter into a memorandum of understanding (“MOU”) with the home country regulator, if it has not already done so. To the extent that the foreign clearing organization’s home country regulatory regime lacks legal requirements that are not primarily related to risk as required by certain DCO Core Principles, the CFTC would have the discretion to grant registration subject to any additional conditions imposed by the CFTC. Non-U.S. DCOs that utilize the alternative compliance regime would still be required to comply with CFTC’s requirements regarding the protection of customer funds and swaps data reporting.

This alternative compliance regime will be similar to CFTC’s foreign board of trade (FBOT) regime that allows direct trading access by U.S. persons on non-U.S. platforms located outside of the United States that have been deemed by the CFTC to be regulated by their local regulators in a manner substantially comparable to CFTC regulations. Notably, the CFTC’s Form FBOT already includes Supplement S-1, which certifies that the foreign DCO that clears for the FBOT is regulated in a comparable manner to U.S.-regulated DCOs.

Similarly, the second proposed rule approved by the CFTC in July (the Exempt DCOs Supplemental Rule) exempts from futures commission merchant (FCM) registration foreign brokers that the CFTC deems are regulated in a comparable manner to U.S. FCMs. If the relief with respect to DCOs set forth in the Exempt DCOs Supplemental Rule becomes law, it will be easier for many non-U.S. DCOs to offer their services to U.S. customers and market their clearing services in the United States. Further, the CFTC believes that adopting this rule will be a gesture of goodwill on the part of the CFTC and might encourage EU regulators to extend similar relief to U.S. DCOs.