Federal Register: Removing Any Reference to or Reliance on Credit Ratings in Commission Regulations; Proposing Alternatives to the Use of Credit Ratings

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Gavel.png FINAL RULE: This page refers to the proposed rulemaking on the removal of references to credit ratings in CFTC regulations. The CFTC final rule was issued at its July 19, 2011 open meeting.
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

The Proposed Rule[edit]

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. Among the items noted in the Federal Register are:

  • As noted above, after completing the required review of Commission regulations for references to or reliance on credit ratings, two instances were identified where credit ratings were used to help limit how registrants might handle customer funds. Commission regulations 1.49 and 30.7, which were written to mirror one another,12 both include a reference to credit ratings. The

Commission is proposing to remove those references to credit ratings from both 30.7 and 1.49.

  • Commission Regulation 1.49 13 places qualifications on the types of depositories where futures commission merchants (FCMs) and designated clearing organizations (DCOs) might place customer funds. Similar to 30.7, 1.49 currently requires that an acceptable foreign depository must either: (1) Have in excess of $1 billion of regulatory capital; or (2) issue commercial paper or a long-term debt instrument that is rated in one of the two highest rating categories by at least one nationally recognized statistical rating organization (NRSRO).
  • In keeping with the Dodd-Frank Act, the Commission proposes to remove all ratings requirements from Regulation 1.49. This proposal is based on the Commission’s views regarding the uncertain reliability of ratings as currently administered.
  • This proposal, removing “the reference to credit ratings in Commission regulation 1.49 is done in concert with proposals found elsewhere in today’s Federal Register regarding Commission regulation 30.7. That proposal considers the reference to credit ratings in Commission regulation 30.7 to be no more useful or necessary to gauge the safety of a depository institution than similar references found in Commission regulation 1.25. To explain its proposal to remove references to credit ratings in Commission regulation 1.25, the Commission notes the poor past performance of credit ratings in gauging the safety of certain types of investments, and its view that credit ratings are not necessary to gauge the future ability of certain types of investments to preserve customer funds. As a result, this proposal serves to align Commission regulation 1.49 with proposed Commission regulations 1.25 and 30.7, and to greater simplify the regulatory treatment of investment of customer funds.

Related Documents: Fact Sheet, Q&A, and Rule Proposal as it Appeared in the Federal Register[edit]


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