Derivatives Clearing Organizations Regulation

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Gavel.png FINAL RULE: Derivatives Clearing Organization General Provisions and Core Principles
Gavel.png FINAL RULE: CFTC Final Rule: Process for Review of Swaps for Mandatory Clearing Approved at CFTC Open Meeting, July 19, 2011
Gavel.png FINAL RULE: CFTC Final Rule: Enhanced Risk Management Standards for Systemically Important Derivatives Clearing Organizations Approved August 12, 2013
Dodd-Frank Timeline, Financial Resources Requirements for Derivatives Clearing Organizations
Proposal Date Final Rule Issue Effective Date
December 13, 2010 October 18, 2011 January 9, 2012
Dodd-Frank Timeline, Derivative Clearing Organization Definitions, Procedures and Core Principles
Final Rule Issue Effective Date Compliance Date* Compliance Date, Gross Margining
October 18, 2011 January 9, 2012 May 7, 2012 January 14, 2013
Dodd-Frank Timeline, Process for Review of Swaps for Mandatory Clearing
Final Rule Issue Effective Date Compliance Date
November 2, 2010 September 26, 2011 September 26, 2011
Dodd-Frank Timeline, Reporting, Recordkeeping, Public Information and Information Sharing Requirements for DCOs
Proposal Date Final Rule Issue Effective Date
December 13, 2010 October 18, 2011 January 9, 2012
Dodd-Frank Timeline, DCO,DCM, SEF Governance Standards, Additional Requirements
Proposal Date Comment Deadline Final Rule Issue
January 6, 2011 June 3, 2011 TBA; 2013
Dodd-Frank Timeline, Risk Management Requirements for DCOs
Final Rule Issue Effective Date Effective Date, SIDCOs Compliance Date, SIDCOs
October 18, 2011 January 9, 2012 October 15, 2013 December 31, 2013

The CFTC approved the bulk of its final DCO rules related to the Dodd-Frank Act at its October 18, 2011 open meeting:


On March 20, 2012, the commission approved a final rule that combined three additional DCO proposals:


Finally, on August 13, 2013, the CFTC proposed rules to establish additional standards for systemically important derivatives clearing organizations (SIDCOs) that are consistent with the Principles for Financial Market Infrastructures (PFMIs) and address all of the remaining gaps between part 39 of the Commission’s regulations and the PFMIs. At this meeting the commission also finalized its rule on systemically important DCOs (SIDCOs)

Derivatives Clearing Organization General Provisions and Core Principles, October 2011

The final rules cover these five proposed rules:

The final rules follow the proposed rules, with a few revisions. Among the provisions:

  • The regulation requires a DCO to maintain sufficient financial resources to "meet its financial obligations to its clearing members notwithstanding a default by the clearing member creating the largest financial exposure for the DCO in extreme but plausible market conditions," and to cover its operating costs for at least one year. The regulation addresses permitted types of financial resources, computation, valuation, liquidity, and reporting requirements. Of note, letters of credit are not listed among acceptable resources for swaps, even though they are currently allowed in futures markets.
  • A DCO’s risk management framework must include margin methodology and coverage, price data, daily review, periodic back tests, and other risk control mechanisms (including risk limits, review of large trader reports, stress tests, and reviews of clearing members’ risk management policies and procedures). Additionally, margin will be required to be collected on a 'gross basis rather than on a net basis.
  • DCOs will be required to submit certain periodic and event-specific reports, as highlighted in a chart that accompanied the rule proposal.
  • All registrants will be required to file new Form DCO with the commission.
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Additional Final Rules for DCOs, March 2012

At its March 20, 2012 open meeting, the CFTC approved a final rulemaking covering previously proposed rules:

The risk management, clearing documentation and timing of acceptance proposals were approved at the July 19, 2011 open meeting and the bunched order allocation proposal was approved as part of a package of changes to CFTC regulations in order to incorporate swaps, as required by the Dodd-Frank Act.

Read final rule.png

At its March 20, 2012 open meeting, the CFTC approved a final rulemaking covering previously proposed rules:

The risk management, clearing documentation and timing of acceptance proposals were approved at the July 19, 2011 open meeting and the bunched order allocation proposal was approved as part of a package of changes to CFTC regulations in order to incorporate swaps, as required by the Dodd-Frank Act.

Read final rule.png

Enhanced Risk Management Standards for Systemically Important Derivatives Clearing Organizations, August 2013

On August 12, 2013 the CFTC approved a final rule to implement enhanced risk management standards for systemically important derivatives clearing organizations (SIDCOs). The rule requires SIDCOs to maintain adequate resources to cover the simultaneous default of two clearing members, explains the calculation methodology for financial resources, requires certain business continuity and disaster recovery plans, and gives special enforcement authority to the CFTC.

Read final rule.png


References

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