August 8, 2018
This proposal is part of Project KISS’s simple and straightforward efforts to make what has been an internal process public and transparent. Under the Commodity Exchange Act (CEA), the Commission may conditionally or unconditionally exempt a derivatives clearing organization (DCO) from registration for the clearing of swaps if the Commission determines that the clearing organization is subject to “comparable, comprehensive supervision and regulation” by appropriate government authorities in the clearing organization’s home country. Pursuant to this authority, the Commission has exempted four non-U.S. clearing organizations from DCO registration.
The Commission is proposing to adopt regulations that would codify the policies and procedures that the Commission is currently following with respect to granting exemptions from DCO registration. The proposed regulations are consistent with the policies and procedures that the Commission is currently following, and with the terms and conditions that the Commission has imposed on each of the clearing organizations to which it has previously issued orders of exemption.
The exempt DCO process applies a comparable, outcomes-based approach to reflect the Commission’s recognition that a foreign jurisdiction may have different regulations for its central counterparties (CCP) but share the same regulatory goals. Under the proposal, for CCPs in foreign jurisdictions, a framework that conforms to the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) Principles for Financial Market Infrastructures (PFMI) would be deemed comparable to the CFTC’s requirements for domestic CCPs.
The proposal is part of the Commission’s continued efforts to foster cross-border cooperation and show deference to home country regulation that is deemed comparable to the Commission’s regulations. As our regulatory counterparts continue to implement swaps reforms in their markets, it is critical that the Commission endeavor to ensure that its rules do not unnecessarily conflict and fragment the global marketplace. For this reason, the Commission should operate on the basis of comity, not uniformity, with non-U.S. regulators. This avoids the untenable state of overlapping and duplicative regulations. The current proposal reflects this vision.
I support this proposed rule from the Division of Clearing and Risk (DCR). I look forward to hearing comments on the proposal.