CFTC Final Rule: Clearing Exemption for Certain Swaps Entered Into by Cooperatives
|FINAL RULE: Issued August 13, 2013. Effective date: September 23, 2013|
|Proposal Date||Final Rule Issue||Effective Date|
|July 17, 2012||August 13, 2013||September 23, 2013|
On August 13, 2013, the CFTC issued a final rule exempting swaps entered into by certain cooperatives from mandatory clearing requirements under the Dodd-Frank Act. The rule entered the Federal Register on August 22, 2013. Its effective date is September 23, 2013.
Since a time-limited no-action relief letter was set to expire prior to the effective date, the commission issued an additional letter that will allow an orderly transition to the new rule.
- is not a financial entity;
- uses swaps to hedge or mitigate commercial risk; and
- notifies the commission as to how it generally meets its financial obligations when entering into uncleared swaps.
These criteria are referred to as the "end-user exception."
On July 17, 2012, a proposed rule entered the Federal Register that would allow cooperatives that would not otherwise qualify for the end-user exception, but whose members individually would qualify, to claim the exception. This would allow such cooperatives the ability to enter into swap transactions but retain the option of clearing through a derivatives clearing organization.
Key Points of the Rule
Members of a qualified cooperative that enter into swap agreements may elect to not clear such a swap, provided that the cooperative’s members are either non-financial entities or other cooperatives whose members are non-financial entities. In addition, the swap must be entered into in connection with originating loans to cooperative members or hedge or mitigate commercial risk related to loans to, or swaps with, members.
Also the rule requires the reporting counterparty to report the election of the cooperative exemption, as well as certain other information, similar to the information required by the election of the end-user exception or the inter-affiliate exemption, to a swap data repository (SDR) (or, if no SDR is available, to the commission).
Related Documents: Federal Register Entry and No-action Letter