CFTC Final Rule: Customer Clearing Documentation, Timing of Acceptance for Clearing, and Clearing Member Risk Management

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Gavel.png FINAL RULE: Approved at CFTC Open Meeting, March 20, 2012
Dodd-Frank Timeline, Customer Clearing Documentation and Timing of Acceptance for Clearing
Final Rule Issue Effective Date Compliance Date, FCMs, DCMs, DCOs Compliance Date, SEFs
April 9, 2012 October 1, 2012 October 1, 2012 TBA
Dodd-Frank Timeline, Clearing Member Risk Management
Final Rule Issue Effective Date Compliance Date, Rule 1.73 Compliance Extension, Bunched Orders
April 9, 2012 October 1, 2012 June 1, 2013 September 1, 2013
Dodd-Frank Timeline, Amendments to Adapt Certain CFTC Regulations to the Dodd-Frank Act
Final Rule Issue, Bunched Orders Final Rule Issue, Adaptations Final Rule Issue, Recording of Transactions
April 9, 2012 October 16, 2012 January 2, 2013

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.

Note: On September 26, 2012, the CFTC Division of Clearing and Risk extended the compliance date for the Clearing Member Risk Management section of the rule, as it pertains to part 1.73 of CFTC Regulations. The new compliance date is June 1, 2013. <ref>CFTC division extends deadline on some pre-trade screening requirements. Futures Magazine. Retrieved on September 27, 2012.</ref> Additionally, on May 31, 2013, the CFTC's Division of Clearing and Risk issued a letter that extended the compliance deadline for Rule 1.73 (a)(2)(v)(B) - the allocation of bunched orders and post-trade allocation. Under the requirement, FCMs must establish risk-based limits for each customer and enter into an agreement with the account manager requiring the account manager to screen orders for compliance with those limits. The new compliance date for this requirement is September 1, 2013.


Subsequent to the first round of Dodd-Frank related rulemakings, some market participants expressed concerns about certain issues regarding "industry best practices" in execution, clearing and data transmission. The commission decided that a separate rulemaking was necessary to promote such best practices as industry standards.

One major issue requiring the rulemaking was the use of tri-party, or "give-up" agreements for swaps that were executed but subsequently not made available for clearing. There was concern among industry participants that such agreements could lead to anti-competitive behavior.<ref>CFTC rule sounds death knell for FIA-Isda trilateral give-ups. Retrieved on March 21, 2012.</ref>

Rule Summary[edit]

Among the provisions of the final rules:
Customer Clearing Documentation (Reg. 1.72): The rules prohibit tri-party agreements that would:

  • disclose to an FCM, swap dealer or major swap participant the identity of a customer’s original executing counterparty;
  • limit the number of counterparties with whom a customer may enter into a trade;
  • restrict the size of the position a customer may take with any individual counterparty, apart from an overall credit limit for all positions held by the customer at the FCM;
  • impair a customer’s access to execution of a trade on terms that have a reasonable relationship to the best terms available; or
  • prevent compliance with specified time frames for acceptance of trades into clearing.

Time Frames for Submission (Reg. 1.74):

  • Regulations require a clearing member, or derivatives clearing organization acting on its behalf, to accept or reject each trade submitted for clearing "as quickly as would be technologically practicable" if fully automated systems were used. While the rules anticipate a move to "straight-through processing" in terms of milliseconds, the commission will allow for the accommodation of certain manual steps.
  • For swaps required to be cleared, submission to the DCO should be no later than the close of the business day. For swaps not required to be cleared, submission must be no later than the close of the following business day.

Clearing Member Risk Management (Reg, 1.73): SD/MSPs and FCMs that are clearing members will be required to:

  • establish credit and market risk-based limits based on position size, order size, margin requirements, or similar factors;
  • use automated means to screen orders for compliance with the risk-based limits;
  • monitor for adherence to the risk-based limits intra-day and overnight;
  • conduct stress tests of all positions in the proprietary account and all positions in any customer account that could pose material risk to the FCM at least once per week;
  • evaluate its ability to meet initial margin requirements at least once per week;
  • evaluate its ability to meet variation margin requirements in cash at least once per week;
  • evaluate its ability to liquidate positions it clears in an orderly manner, and estimate the cost of the liquidation at least once per month; and
  • test all lines of credit at least once per year.<ref>Customer Clearing Documentation, Timing of Acceptance for Clearing, and Clearing Member Risk Management. CFTC. Retrieved on March 21, 2012.</ref>

Related Documents: Fact Sheet, Q&A, Federal Registry Entry[edit]



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