Protection of Cleared Swaps Customer Contracts and Collateral; Conforming Amendments to the Commodity Broker Bankruptcy Provisions
|FINAL RULE: This page refers to the proposed rulemaking on cleared swaps customer protection. The CFTC final rule was issued at its January 11, 2012 open meeting.|
|Final Rule Issue||Effective Date||Compliance Date|
|February 7, 2012||April 9, 2012||November 13, 2012|
At its April 27, 2011 open meeting, the Commodity Futures Trading Commission (CFTC) approved a rule proposal regarding the protection of cleared swaps customer contracts and collateral and conforming amendments to the commodity broker bankruptcy provisions.
At its November 19, 2010 open meeting, the CFTC approved an advance notice of proposed rulemaking (ANPR) regarding protecting collateral of counterparties to cleared swaps in the case of a commodity broker bankruptcy. The proposal sought public comments regarding four separate models of protection for cleared swaps and associated collateral of futures commission merchant (FCM) customers:
- an "individual segregation" model regarding each customer’s collateral at all levels;
- a model that commingles the collateral of multiple customers, but treats customer positions on an individual level ("Legal Segregation with Commingling");
- a model that uses the collateral of non-defaulting customers in the case of a default, but only after the exhaustion of other clearinghouse resources (“Moving Customers to the Back of the Waterfall”); and
- the current "futures model", which treats an FCM’s customers on an omnibus basis ("Baseline Model").
After considering the comments received from the ANPR, the commission is strongly considering adopting a model similar to the "Legal Segregation with Commingling" from the ANPR. In the final rulemaking, this model is referred to as "Complete Legal Segregation." In this setup, an FCM will be allowed to keep the cleared swaps collateral of all cleared swaps customers together pre-bankruptcy. In the event of a default of both an FCM member and one or more of its cleared swaps customers, a DCO would have recourse against the collateral of defaulting customers, but not against the collateral of non-defaulting customers.
The commission recognizes the need for both flexibility and balance of costs versus benefits. The current proposal includes the commission's cost-benefit analysis, and requests additional information from financial industry participants regarding costs and benefits. Depending upon the comments it receives, the commission may opt for a final rule that more closely mirrors the futures model, or possibly an "optional approach," which would permit clearing organizations to choose between models.
The proposal also identifies the approved types and concentration limits on customer collateral, as per Regulation 1.25.
Related Documents: Fact Sheet, Q&A, and Rule Proposal as it Appeared in the Federal Register
- Open Meeting on Fourteenth Series of Proposed Rules under the Dodd-Frank Act. CFTC. Retrieved on April 28, 2011.