CFTC Proposed Rule: Clearing Exemption for Certain Swaps Entered Into by Cooperatives

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Gavel.png FINAL RULE: This page refers to the proposed rule on mandatory clearing exemption for cooperatives. For the final rule, click HERE.
Timeline-Swap Clearing Exemption for Cooperatives, CFTC
Proposal Date Final Rule Issue Effective Date
July 17, 2012 August 13, 2013 September 23, 2013

At the CFTC's July 10, 2012 open meeting, the commission approved a rule proposal regarding an exemption to the mandatory clearing requirement for swaps entered into by cooperatives.

Background and Summary of the Rule

Among the provisions of Title VII of the Dodd-Frank Act is a requirement that swap transactions shall be cleared through a derivatives clearing organization unless the swap:

  1. is not a financial entity;
  2. uses swaps to hedge or mitigate commercial risk; and
  3. 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."

The proposed rule 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. To qualify, a cooperative must be a non-financial entity, must use swaps to hedge or mitigate commercial risk, and, once final rules are adopted, may be required to submit certain reports to the CFTC.

The deadline for public comment was August 16, 2012.

On November 28, 2012, the CFTC issued "No-Action" relief for swaps entered into by qualifying cooperatives until April 1, 2013, or until such rules are finalized. After the April deadline, the no-action relief was extended until June 21, 2013, and then re-extended until August 16, 2013, or until a final rulemaking is issued. The final rule was approved on August 13, 2013.

Related Documents: Fact Sheet, Q&A, Federal Register Entry and No-action Letter

References

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