The CFTC proposed to exempt from mandatory clearing certain swaps entered into by bank holding companies, savings and loan holding companies, and community development financial institutions, subject to certain conditions specified in the proposed rules. The conditions address the size of the relevant institutions and the size and type of swaps entered into by such institutions.
The CFTC noted that the proposed changes to CFTC Rule 50.5 would not provide an exemption from regulatory margin requirements applicable to uncleared swaps under CFTC Regulation 23.150, et seq.
The changes were proposed as part of the CFTC Project KISS initiative. Comments on the proposal must be submitted within 60 days of publication in the Federal Register.
Commentary / Nihal Patel
The proposal essentially codifies CFTC Letters 16-01 and 16-02, with conditions substantially similar to those outlined by the Division of Clearing and Risk in issuing those letters.
It is notable that the CFTC chose to limit the proposed relief to the clearing requirement, rather than also granting relief as to the posting of margin. The discussion in the proposing release (at pp. 29-30) does not explain the policy rationale for this limitation. The limitation is somewhat surprising because a significant part of the policy argument for the proposed exemption is to put the institutions in scope for the exemption on parity with small banks that have an existing exception from the definition of "financial entity" and are, thus, not required to clear or be subject to uncleared swap margin requirements. Banking institutions that will rely on the proposed exemption (and currently rely on the no-action relief) should consider suggesting that the CFTC broaden the exemption to include relief from uncleared swap margin requirements.
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