CFTC Final Rule: Removing Reliance on Credit Ratings

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Gavel.png FINAL RULE: CFTC Final Rule: Removing Reliance on Credit Ratings at CFTC Open Meeting, July 19, 2011
Dodd-Frank Timeline-Removing References to Credit from Commission Regulations
Proposal Date Final Rule Issue Effective/Compliance Date
November 2, 2010 July 25, 2011 September 23, 2011

At its July 19, 2011 open meeting, the CFTC approved its final rules regarding the removal of any reference to or reliance on credit ratings in Commission regulations. As instructed by Dodd-Frank, federal agencies are now required to review credit-worthiness assessment procedures with regards to security or money market instrument regulation, find a substitute for credit ratings references as a standard of credit-worthiness, eventually create uniform credit-worthiness standards, and report to Congress when the aforementioned changes are made.

The rule became effective on September 23, 2011.

  • Final Rule 1.49, General Regulations Under the Commodity Exchange Act – Denomination of Customer Funds and Location of Depositories, Qualifications for Depositories

"The Commission has removed the clause in this regulation that previously allowed the placement of customer funds in a foreign depository based on the depository’s issuance of highly-rated commercial paper or long term debt instruments. As an alternative, the Commission will rely solely on the standard that customer funds be placed only in a foreign depository that has in excess of $1 billion of regulatory capital."

  • Final Rule 4.24, Commodity Pool Operators and Commodity Trading Advisors – General Disclosures Required; Investment Program and Use of Proceeds

"The Commission has removed the reference to 'investment rating' in this regulation and has substituted it with phrase 'credit-worthiness.'"

The final rules also remove references to credit ratings in Rule 1.25 (Investment of Customer Funds), Rule 30.7 (Treatment of Foreign Futures or Foreign Options Secured Amount), and Appendix A to Part 40 (Application for Designation of Physical Delivery Futures Contracts and Application for Cash Settled Futures Contracts).[1]

Related Documents: Fact Sheet, Q&A, and Federal Register Entry

Background on CFTC Proposed Rule

At its October 26, 2010 open meeting, the CFTC approved a notice of proposed rulemaking (NOPR) on the reference, reliance and use of credit agencies.

The proposal appeared in the Federal Register on January 7, 2011.

Read proposed rule.png

References

  1. Open Meeting on Three Final Rule Proposals and Two Proposed Rules under the Dodd-Frank Act. CFTC. Retrieved on July 19, 2011.

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