[Federal Register Volume 63, Number 129 (Tuesday, July 7, 1998)]
[Notices]
[Page 36657]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17922]


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COMMODITY FUTURES TRADING COMMISSION


Petition of the London Clearing House Limited for Exemption 
Pursuant to Section 4(c) of the Commodity Exchange Act

AGENCY: Commidity Futures Trading Commission.

ACTION: Notice of petition for exemption and request for comment.

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SUMMARY: The London Clearing House Limited (``LCH'') has submitted a 
petition dated June 15, 1998 (``Petition'') to the Commodity Futures 
Trading Commission (``Commission'') requesting an exemption, pursuant 
to Section 4(c) of the Commodity Exchange Act (``Act'' or ``CEA''), in 
connection with LCH's proposed provision of clearing services for 
certain swap agreements. The Commission believes that publication of 
the Petition for comment is in the public interest, will assist the 
Commission in considering the views of interested persons, and is 
consistent with the purposes of the Commission Exchange Act. The 
Petition also may be accessed on the Commission's Internet web site 
(http://www.cftc.gov) and may be obtained through the Commission's 
Office of the Secretariat.

DATES: Comments must be received on or before September 8, 1998.

ADDRESSES: Comments should be submitted to Jean A. Webb, Secretary, 
Commodity Futures Trading Commission, 1155 21st Street, NW, Washington, 
DC 20581. Comments also may be sent by facsimile to (202) 418-5521 or 
by electronic mail to secretary @cftc.gov. Reference should be made to 
the Petition of LCH.

FOR FURTHER INFORMATION CONTACT:
Thomas E. Joseph, Division of Trading and Markets, Commodity Futures 
Trading Commission, 1155 21st Street NW Washington, DC 20581. Telephone 
number (202) 418-5430.

SUPPLEMENTARY INFORMATION: 

I. Background

    By petition dated June 15, 1998, the LCH applied pursuant to 
Section 4(c) of the Act \1\ for an exemption from

    \1\ 7 U.S.C. 6(c).
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all provisions of the Act (except for Sections 2(a)(1)(B), 4b and 4o 
of the Act, and the provisions of Sections 6(c) and 9(a)(2) of the 
Act to the extent these provisions prohibit manipulation of the 
market price of any commodity in interstate commerce or for future 
delivery on or subject to the rules of any contract market and 
Section 32.9 of the CFTC's Rules) to qualified U.S. entities that 
utilize [the LCH facility] to clear transactions in ``swap 
agreements'' (as such term is defined in CFTC Rule 35.1(b)).\2\

    \2\ Petition at 2.
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    LCH has developed a clearing facility for swap agreements 
(``SwapClear'') which is scheduled to commence operations in mid-
1999.\3\ The facility will be used to clear interest rate swaps and 
forward rate agreements in the following currencies: U.S. dollars, 
Japanese yen, Euros (and the eleven underlying currencies), British 
pounds, and possibly Canadian dollars.\4\ Participation will be limited 
to large institutions that participate as dealers in the swap market 
and that meet specified financial and operational standards.\5\
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    \3\ Id.
    \4\ Id at 14.
    \5\ Id. at 12-13.
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    LCH states that it will not provide any facility for arranging or 
executing transactions and will have no impact on the way 
counterparties negotiate or effect swap transactions.\6\ It will 
perform credit enhancement, risk management, and position 
administration functions for those swaps that qualified participants 
choose to submit for clearing.\7\ LCH will net payment amounts due to 
or from a clearing member related to swaps with other obligations due 
to or from the clearing member where possible, including amounts 
related to exchange-traded business.\8\
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    \6\ Id. at 9.
    \7\ Id.
    \8\ Id. at 10.
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    In the Petition, LCH summarizes the principal features of its risk 
management procedures.\9\ It also describes the regulatory regime to 
which it is subject in the United Kingdom \10\ and its internal 
governance procedures.\11\
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    \9\ Id. at 15-17.
    \10\ Id. at 17-18.
    \11\ Id. at 19.
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    LCH asserts that the Petition satisfies the statutory standards for 
relief. In particular, LCH argues that:
    (1) The exchange trading requirements should not apply to swap 
agreements cleared through SwapClear because SwapClear will not impact 
current OTC trading arrangements;\12\
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    \12\ Id. at 21-22.
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    Swap agreements cleared through SwapClear will be entered into 
solely by wholesale market participants whose qualifications exceed 
Congressional standards regarding appropriate persons and Commission 
standards for ``eligible swap participants''; \13\
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    \13\ Id. at 23.
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    (3) The proposed relief is consistent with the public interest and 
the purpose of the Act; \14\
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    \14\ Id. at 23-33.
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    (4) The proposed relief will have no material adverse effect on 
Commission or contract market regulatory or self-regulatory 
responsibilities; \15\ and
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    \15\ Id. at 34-39.
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    (5) The proposed Exemption is pro-competitive.\16\
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    \16\ Id. at 39-42.
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II. Request for Comment

    The Commission requests comment on all the aspect of the LCH 
Petition. In this regard, the Commission directs the attention of 
commenters to the issues raised in the discussion of swaps clearing in 
the OTC derivatives concept release.\17\ In addition, the Commission 
requests comment on any specific features of the LCH proposal that may 
raise issues particular to that proposal. Such features might include 
the location of LCH outside the United States, the status of LCH as a 
regulated entity in the United Kingdom, and LCH's plans to integrate 
its proposed new clearing operations in some respects with its 
established exchange clearing operations.
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    \17\ See 63 FR 26114, 26122-26123 (May 12, 1988).
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    Copies of the Petition are available for inspection at the Office 
of the Secretariat at the above address. Copies also may be obtained 
through the Office of the Secretariat at the above address or by 
telephone at 202-418-5100 or on the Commission's Internet web site 
(http://www.cftc.gov).

    Issued in Washington, DC, on June 30, 1998 by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 98-17922 Filed 7-6-98; 8:45 am]
BILLING CODE 6351-01-M