The CFTC requested comment on 34 submissions regarding mandatory clearing received over several years from seven registered derivatives clearing organizations ("DCOs"). The submissions concern: (i) certain interest rate swaps, (ii) credit default swaps, (iii) foreign exchange non-deliverable forwards, (iv) energy swaps, (v) agricultural swaps, and (vi) inflation swaps.

The CFTC expressed particular interest on whether to propose a swap clearing requirement for certain swaps included in submissions pursuant to CEA Section 2(h)(2)(B) and CFTC Rule 39.5(b) requirements. The submissions do not include swaps that (i) are subject to a June 9, 2016 proposal regarding certain interest rate swaps, or (ii) are required to be cleared under the CFTC's existing clearing requirement. The CFTC asserted that if it decides to propose a clearing requirement determination for any of the swaps covered by the 34 submissions, it will invite further public comment in response to a notice of proposed rulemaking.

The submissions were filed by CME Inc., Eurex Clearing AG, ICE Clear Credit LLC, ICE Clear Europe Ltd., LCH. Clearnet Ltd., LCH. Clearnet SA, and Singapore Exchange Derivatives Clearing Ltd.

Comments on the DCO Swaps Submissions must be submitted by July 25, 2016.

Commentary

The CFTC's review of these submissions will now force the Commission and possibly the prudential regulators to confront the reality that central clearing, which is often touted as the solution to risk, is itself quite risky. The question, then, becomes this: do the regulators (i) reject some or all of these submissions and admit that central clearing was oversold as a regulatory tool or (ii) accept all of the submissions and open the door to even more submissions on less liquid products?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.