[Federal Register Volume 85, Number 92 (Tuesday, May 12, 2020)]
[Proposed Rules]
[Pages 27955-27976]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08603]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 50

RIN 3038-AE33


Swap Clearing Requirement Exemptions

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking; supplemental notice of proposed 
rulemaking.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is proposing amendments to the regulations governing which swaps are 
exempt from the clearing requirement set forth in the Commodity 
Exchange Act (CEA). The proposed amendments would address the treatment 
of swaps entered into by certain central banks, sovereign entities, and 
international financial institutions. The Commission also is issuing a 
supplemental notice of proposed rulemaking to further propose 
amendments to exempt from required clearing swaps entered into by 
certain bank holding companies, savings and loan holding companies, and 
community development financial institutions. Lastly, the Commission is 
proposing to publish a compliance schedule setting forth all the past 
compliance dates for the 2012 and 2016 swap clearing requirement 
regulations and to make certain other, non-substantive technical 
amendments to the relevant part of its regulations.

DATES: Comments must be received on or before July 13, 2020.

ADDRESSES: You may submit comments, identified by RIN 3038-AE33, by any 
of the following methods:
     CFTC Comments Portal: https://comments.cftc.gov. Select 
the ``Submit Comments'' link for this rulemaking and follow the 
instructions on the Public Comment Form.
     Mail: Send to Christopher Kirkpatrick, Secretary of the 
Commission, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street NW, Washington, DC 20581.
     Hand Delivery/Courier: Follow the same instructions as for 
Mail, above.
    Please submit your comments using only one of these methods. 
Submissions through the CFTC Comments Portal are encouraged.
    All comments must be submitted in English, or if not, accompanied 
by an English translation. Comments will be posted as received to 
https://comments.cftc.gov. You should submit only information that you 
wish to make available publicly. If you wish the Commission to consider 
information that you believe is exempt from disclosure under the 
Freedom of Information Act (FOIA), a petition for confidential 
treatment of the exempt information may be submitted according to the 
procedures established in Sec.  145.9 of the Commission's 
regulations.\1\
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    \1\ Commission regulation 145.9. Commission regulations referred 
to herein are found on the Commission's website at: https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm.
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    The Commission reserves the right, but shall have no obligation, to 
review, pre-screen, filter, redact, refuse or remove any or all of your 
submission from https://www.cftc.gov that it may deem to be 
inappropriate for publication, such as obscene language. All 
submissions that have been redacted or removed that contain comments on 
the merits of the rulemaking will be retained in the public comment 
file and will be considered as required under the Administrative 
Procedure Act and other applicable laws, and may be accessible under 
the FOIA.

FOR FURTHER INFORMATION CONTACT: Sarah E. Josephson, Deputy Director, 
at 202-418-5684 or [email protected]; Megan A. Wallace, Senior 
Special Counsel, at 202-418-5150 or [email protected]; Melissa D'Arcy, 
Special Counsel, at 202-418-5086 or [email protected]; Division of 
Clearing and Risk; or Ayla Kayhan, Office of the Chief Economist, at 
202-418-5947 or [email protected], in each case at the Commodity Futures 
Trading Commission, Three Lafayette Centre, 1155 21st Street NW, 
Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

A. Ongoing Review of Part 50 Regulations
B. Swap Clearing Requirement

[[Page 27956]]

C. Swaps With Foreign Governments, Foreign Central Banks, and 
International Financial Institutions Not Subject to the Clearing 
Requirement
    1. Foreign Governments and Foreign Central Banks
    2. International Financial Institutions
D. DCR No-Action Letters for Relief From the Clearing Requirement 
for International Financial Institutions

II. Newly Proposed Amendments to Part 50

A. New Subpart D for Swaps Not Subject to the Clearing Requirement
    1. Proposed Definition of Central Bank
    2. Proposed Definition of Sovereign Entity
    3. Proposed Definition of International Financial Institution
    4. Proposed Exemption From the Clearing Requirement for Swap 
Transactions With Central Banks, Sovereign Entities, and 
International Financial Institutions
B. Data Related to Swaps Entered Into by Central Banks, Sovereign 
Entities, and International Financial Institutions
C. New Compliance Schedule for Subpart B
    1. 2012 Clearing Requirement Determination
    2. 2016 Clearing Requirement Determination
    3. New Proposed Regulation 50.26
D. Technical Amendment to Subpart C for Banks, Savings Associations, 
Farm Credit System Institutions, and Credit Unions

III. Supplemental Proposal of Proposed Rulemaking for Bank Holding 
Companies, Savings and Loan Holdings Companies, and Community 
Development Financial Institutions

A. Background on Prior Proposal and Supplemental Proposal
B. Changes to the Proposed Rule Text for CDFIs and Technical 
Revisions to Proposed Rule Text for Bank Holding Companies and 
Savings and Loan Holding Companies
    1. CDFIs
    2. Bank Holding Companies and Savings and Loan Holding Companies
C. Updated Data regarding the Use of Swaps by CDFIs, Bank Holding 
Companies, and Savings and Loan Holding Companies

IV. Commission's Section 4(c) Authority

V. Proposed Rules Do Not Effect Margin Requirements for Uncleared Swaps

VI. Related Matters

A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Cost-Benefit Considerations
    1. Statutory and Regulatory Background
    2. Consideration of the Costs and Benefits of the Commission's 
Action
    a. Costs
    b. Benefits
    3. Section 15(a) Factors
    a. Protection of Market Participants and the Public
    b. Efficiency, Competitiveness, and Financial Integrity of Swap 
Markets
    c. Price Discovery
    d. Sound Risk Management Practices
    e. Other Public Interest Considerations
D. General Request for Comment
E. Antitrust Considerations

I. Background

A. Ongoing Review of Part 50 Regulations

    On May 9, 2017, the Commission published in the Federal Register a 
request for information \2\ seeking suggestions from the public for 
simplifying the Commission's regulations and practices, removing 
unnecessary burdens, and reducing costs. In response, a number of 
commenters asked the Commission to codify certain staff no-action 
letters and Commission guidance through rulemakings.\3\ The Commission 
also engaged in an agency-wide review of its rules, regulations, and 
practices to make them simpler, less burdensome, and less costly.\4\
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    \2\ See 82 FR 21494 (May 9, 2017) and 82 FR 23765 (May 24, 
2017).
    \3\ See, e.g., Comment Letter from the Institute of 
International Banking, International Swaps and Derivatives 
Association, Inc., and Securities Industry and Financial Markets 
Association dated July 24, 2017, at 2.
    \4\ 82 FR at 21494; 82 FR at 23765.
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    In its review, the Commission identified the treatment of swaps 
entered into with central banks, foreign governments, and international 
financial institutions, as set forth in the preamble to the 2012 End-
User Exception final rule as a provision that should be codified.\5\ In 
the 2012 preamble, the Commission determined, for reasons discussed 
below, that central banks, foreign governments, and international 
financial institutions should not be subject to the clearing 
requirement set forth in section 2(h)(1) of the CEA (Clearing 
Requirement).\6\ The Commission is proposing regulatory revisions to 
codify the treatment of swaps entered into with certain central banks, 
foreign governments,\7\ and international financial institutions.\8\ 
The proposed rulemaking also addresses four no-action letters that the 
Commission's Division of Clearing and Risk (DCR) issued in 2013 and 
2017 \9\ in response to requests from four international financial 
institutions for assurance that DCR would not recommend the Commission 
take enforcement action for not clearing swaps covered by the Clearing 
Requirement, if the international financial institution satisfies the 
provisions in the letter. The proposed revisions to part 50 of the 
Commission's regulations would exempt swaps entered into with certain 
central banks, sovereign entities, and international financial 
institutions from the Clearing Requirement.\10\ The Commission believes 
that this rule proposal is consistent with the Commission's approach 
set out in the preamble to the 2012 End-User Exception final rule.\11\
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    \5\ End-User Exception to the Clearing Requirement for Swaps, 77 
FR 42560 (Jul. 19, 2012) (hereinafter, the 2012 End-User Exception 
final rule).
    \6\ Id. at 42562.
    \7\ For purposes of this proposal, foreign governments will be 
referred to as ``sovereign entities'' for the reasons discussed 
below.
    \8\ The Commission is proposing the following definitions for 
these three terms: (1) The Commission is proposing to define a 
``central bank'' in a new regulation 50.75(a) as meaning a reserve 
bank or monetary authority of a central government (including the 
Board of Governors of the Federal Reserve System or any of the 
Federal Reserve Banks) or the Bank for International Settlements; 
(2) the Commission is proposing to define a ``sovereign entity'' in 
new regulation 50.75(b) as meaning a central government (including 
the U.S. government), or an agency, department, or ministry of a 
central government; and (3) the Commission is proposing to define an 
``international financial institution'' in new regulation 50.76(b) 
as one of 22 named entities, or any other entity that provides 
financing for national or regional development in which the U.S. 
government is a shareholder or contributing member.
    \9\ See CFTC Letter No. 13-25 (June 10, 2013) (providing no-
action relief to the Corporaci[oacute]n Andina de Fomento); CFTC 
Letter No. 17-57 (Nov. 7, 2017) (providing no-action relief to Banco 
Centroamericano de Integraci[oacute]n Econ[oacute]mica), CFTC Letter 
No. 17-58 (Nov. 7, 2017) (providing no-action relief to the European 
Stability Mechanism); and CFTC Letter No. 17-59 (Nov. 7, 2017) 
(providing no-action relief to the North American Development Bank).
    \10\ The swap clearing requirement of section 2(h)(1)(A) of the 
CEA is codified in part 50 of the Commission's regulations.
    \11\ See 77 FR at 42561-62.
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    This proposal includes additional revisions to part 50 of the 
Commission's regulations that are intended to simplify the text of the 
requirements and to minimize the compliance obligations for market 
participants. The Commission is proposing to include a chart of 
compliance dates for all swaps that the Commission has determined are 
required to be cleared under Commission regulation 50.4. In addition, 
the Commission took this opportunity to consider the structure and 
organization of part 50 of the Commission's regulations and is 
proposing minor heading changes and restructuring amendments. The 
Commission is proposing to re-codify the regulatory provisions 
exempting eligible banks, savings associations, farm credit 
institutions, and credit unions from the definition of ``financial 
entity'' for purposes of section 2(h)(7)(A) of the CEA by moving the 
current requirements to a separate rule so that the exemption is easier 
to locate in the Commission's regulations and the conditions to claim 
the exemption are set forth more clearly. The Commission is not 
proposing to alter the substance of this exemption.

[[Page 27957]]

    Finally, on August 29, 2018, the Commission issued a notice of 
proposed rulemaking that would codify existing relief and exempt swaps 
entered into by certain bank holding companies, savings and loan 
holding companies, and community development financial institutions 
(CDFIs) from the swap clearing requirement in section 2(h)(1)(A) of the 
CEA.\12\ The Commission is supplementing that notice of proposed 
rulemaking with minor amendments to the regulation rule text proposed, 
as well as with technical revisions, and is soliciting additional input 
from the public regarding this proposed exemption.\13\
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    \12\ Amendments to Clearing Exemption for Swaps Entered Into by 
Certain Bank Holding Companies, Savings and Loan Holding Companies, 
and Community Development Financial Institutions, 83 FR 44001 (Aug. 
29, 2018) (hereinafter, the 2018 Proposal).
    \13\ The Commission confirms that this supplemental proposal is 
not a replacement or withdrawal of the 2018 Proposal. Unless 
specifically amended in this release, all regulatory provisions 
proposed in the 2018 Proposal remain under active consideration for 
adoption as final rules. As discussed further below, the Commission 
received only one comment letter on its 2018 Proposal.
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    The Commission is requesting comments on all of these proposed 
rules and rule amendments.

B. Swap Clearing Requirement

    The CEA, as amended by Title VII of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (Dodd-Frank Act),\14\ establishes a 
comprehensive regulatory framework for swaps. The CEA requires a swap: 
(1) To be cleared through a derivatives clearing organization (DCO) 
that is registered under the CEA or a DCO that is exempt from 
registration under the CEA if the Commission has determined that the 
swap is required to be cleared, unless an exception to the clearing 
requirement applies; \15\ (2) to be reported to a swap data repository 
(SDR) or the Commission; \16\ and (3) if the swap is subject to the 
Clearing Requirement, to be executed on a designated contract market 
(DCM), or swap execution facility (SEF) that is registered with the 
Commission pursuant to section 5h of the CEA or a SEF that has been 
exempted from registration pursuant to section 5h(g) of the CEA, unless 
no DCM or SEF has made the swap available to trade.\17\
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    \14\ Pub. L. 111-203, 124 Stat. 1376 (2010).
    \15\ Section 2(h)(1) of the CEA.
    \16\ Sections 2(a)(13), 4r, and 21(b) of the CEA.
    \17\ Section 2(h)(8) of the CEA.
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    Pursuant to section 2(h)(1)(A) of the CEA, if a swap is subject to 
the Clearing Requirement, it shall be unlawful for any person to engage 
in a swap unless that person submits such swap for clearing to a DCO 
that is registered under the CEA or a DCO that is exempt from 
registration under the CEA if the swap is required to be cleared.\18\ 
In 2012, the Commission issued its first clearing requirement 
determination pertaining to four classes of interest rate swaps and two 
classes of credit default swaps.\19\ In 2016, the Commission expanded 
the classes of interest rate swaps subject to the clearing requirement 
to cover fixed-floating interest rate swaps denominated in nine 
additional currencies, as well as certain additional basis swaps, 
forward rate agreements, and overnight index swaps.\20\ The regulations 
implementing the Clearing Requirement are in Commission regulation 
50.4.
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    \18\ Section 2(h)(1)(A) of the CEA.
    \19\ Clearing Requirement Determination Under Section 2(h) of 
the CEA, 77 FR 74284 (Dec. 13, 2012) (hereinafter, the 2012 Clearing 
Requirement Determination).
    \20\ Clearing Requirement Determination Under Section 2(h) of 
the CEA for Interest Rate Swaps, 81 FR 71202 (Oct. 14, 2016) 
(hereinafter, the 2016 Clearing Requirement Determination).
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C. Swaps With Foreign Governments, Foreign Central Banks, and 
International Financial Institutions Not Subject to the Clearing 
Requirement

    In the preamble to the 2012 End-User Exception final rule, in 
response to specific requests from commenters that the Commission 
determine certain entities, or types of entities, be permitted to elect 
the End-User Exception, the Commission stated that based on 
considerations of comity and in keeping with the traditions of the 
international system, swaps entered into with certain foreign 
governments, foreign central banks, and international financial 
institutions should not be subject to the clearing requirement under 
section 2(h)(1) of the CEA.\21\ The Commission did not, however, codify 
its determination in rule text.
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    \21\ 77 FR at 42561-62. The Commission noted that uncleared 
swaps with a counterparty that is subject to the CEA and Commission 
regulations with regard to that transaction must still comply with 
the CEA and Commission regulations as they pertain to uncleared 
swaps, e.g., the recordkeeping and reporting requirements under 
parts 23 and 45 of the Commission's regulations. Id.
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    The Commission provided several reasons for its determination that 
foreign governments, foreign central banks, and international financial 
institutions should not be subject to the Clearing Requirement. First, 
the Commission noted that the Federal Reserve Banks and the Federal 
Government are not subject to the Clearing Requirement under the Dodd-
Frank Act.\22\ The Commission stated it would therefore expect that if 
any part of the Federal Government, Federal Reserve Banks, or 
international financial institutions of which the United States is a 
member were to engage in swap transactions in a foreign jurisdiction, 
the actions of those entities with respect to those transactions should 
not be subject to foreign regulation.\23\ Second, the Commission stated 
that ``canons of statutory construction `assume that legislators take 
account of the legitimate sovereign interests of other nations when 
they write American laws.' '' \24\ In addition, the Commission noted 
that international financial institutions operate with the benefit of 
certain privileges and immunities under U.S. law indicating that such 
entities may be treated similarly under certain circumstances.\25\ The 
Commission stated that there is nothing in the text or legislative 
history of the swap-related provisions of the Dodd-Frank Act to 
establish that Congress intended to deviate from the traditions of the 
international system by subjecting foreign governments, foreign central 
banks, or international financial institutions to the Clearing 
Requirement set forth in section 2(h)(1) of the CEA.\26\
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    \22\ Id. Congress specifically excluded any agreement, contract, 
or transaction a counterparty of which is a Federal Reserve bank, 
the Federal Government, or a Federal agency that is expressly backed 
by the full faith and credit of the United States from the 
definition of a swap under section 1a(47)(B)(ix) of the CEA. Only 
swaps are subject to the Clearing Requirement under the Dodd-Frank 
Act. See section 2(h) of the CEA.
    \23\ 77 FR at 42561-62.
    \24\ Id. at 42562 (citing F. Hoffman-LaRoche Ltd. v. Empagran 
S.A., 542 U.S. 155, 164 (2004)).
    \25\ Id. at 42562 (citing various provisions of the U.S. Code, a 
Commission staff interpretative letter (stating ``[b]ased on the 
unique attributes and status of the World Bank Group as a 
multinational member agency, . . . the CFTC believes that the World 
Bank Group need not be treated as a U.S. person for purposes of 
application of the CFTC's Part 30 rules''), and a determination of 
the Board of Governors of the Federal Reserve that the Bank Holding 
Company Act does not apply to foreign governments because they are 
not ``companies'' as such term is defined in the Bank Holding 
Company Act).
    \26\ Id. at 42562. The Commission also noted that if a foreign 
government, foreign central bank, or international financial 
institution enters into a non-cleared swap with a counterparty that 
is subject to the CEA and Commission regulations with regard to that 
transaction, then the counterparty should still comply with the CEA 
and Commission recordkeeping and recording requirements that apply 
to non-cleared swaps.
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1. Foreign Governments and Foreign Central Banks
    As noted in the 2012 End-User Exception final rule preamble, the 
Federal Reserve Banks and the Federal Government are not subject to the 
Clearing Requirement under the Dodd-

[[Page 27958]]

Frank Act, and the Commission would expect that the swaps activities of 
these entities would not be subject to foreign regulation.\27\ In order 
to apply consistent treatment to foreign governments and foreign 
central banks, the Commission stated in the preamble to the 2012 End-
User Exception final rule that transactions with these entities should 
not be subject to the Clearing Requirement.\28\
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    \27\ 77 FR at 42561-62. In 2013, central banks and public bodies 
charged with or intervening in the management of the public debt in 
the United States were excluded from EMIR. See Commission Delegated 
Regulation (EU) No 1002/2013 of 12 July 2013, 2013 O.J. (L 279) 2 
(Oct. 19, 2013), available at http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32013R1002. See also Commission Delegated 
Regulation (EU) 2017/979 of 2 March 2017 (amending Regulation (EU) 
No 648/2012 of the European Parliament and of the Council on OTC 
derivatives, central counterparties and trade repositories to exempt 
central banks and public bodies from Australia, Canada, Hong Kong, 
Mexico, Singapore, and Switzerland).
    \28\ 77 FR at 42562.
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    The Commission also stated that for the purpose of the Clearing 
Requirement, the Commission considers the Bank for International 
Settlements (BIS), of which the Federal Reserve and foreign central 
banks are members, to be a foreign central bank, and, therefore, 
transactions with BIS should not be subject to the Clearing 
Requirement.\29\
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    \29\ Id. at 42561, n.13.
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    The Commission's position with regard to the treatment of swaps 
with foreign governments and foreign central banks for purposes of the 
clearing requirement has not changed since the adoption of the 2012 
End-User Exception final rule. Swaps with foreign governments and 
foreign central banks are not required to be cleared currently and, if 
this proposal is codified, would not be subject to any additional 
requirements.
2. International Financial Institutions
    In the preamble to the 2012 End-User Exception final rule, the 
Commission identified 17 entities whose transactions should not be 
subject to the Clearing Requirement.\30\ The entities include the 
international financial institutions defined as such in section 
262r(c)(2) of Title 22 of the U.S. Code,\31\ and the multilateral 
development banks additionally referenced in a provision of the 
European Market Infrastructure Regulation (EMIR) that exempts such 
entities from all but the reporting obligation under EMIR.\32\ The 
Commission did not extend its determination to sovereign wealth funds 
or similar entities because the Commission believed these entities were 
similar to investment funds. The Commission stated that ``[t]he 
foregoing rationale and considerations do not, however, extend to 
sovereign wealth funds or similar entities due to the predominantly 
commercial nature of their activities.'' \33\ The Commission's position 
with regard to international financial institutions has not changed 
since the adoption of the 2012 End-User Exception final rule. 
Consistent with that position, there have been four supplemental CFTC 
staff no-action letters that expanded the scope of international 
financial institutions afforded relief from the Clearing Requirement.
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    \30\ The 17 international financial institutions identified in 
the preamble to the 2012 End-User Exception final rule are the 
following: (1) African Development Bank; (2) African Development 
Fund; (3) Asian Development Bank; (4) Bank for Economic Cooperation 
and Development in the Middle East and North Africa; (5) Caribbean 
Development Bank; (6) Council of Europe Development Bank; (7) 
European Bank for Reconstruction and Development; (8) European 
Investment Bank; (9) European Investment Fund; (10) Inter-American 
Development Bank; (11) Inter-American Investment Corporation; (12) 
International Bank for Reconstruction and Development (part of the 
World Bank Group); (13) International Development Association (part 
of the World Bank Group); (14) International Finance Corporation 
(part of the World Bank Group); (15) International Monetary Fund; 
(16) Multilateral Investment Guarantee Agency (part of the World 
Bank Group); and (17) Nordic Investment Bank. 77 FR at 42561-62 
n.14.
    \31\ 22 U.S.C. 262r(c)(2).
    \32\ The twelve entities exempt from certain requirements under 
EMIR, which were also named in the 2012 End-User Exception final 
rule, are the following: (1) International Bank for Reconstruction 
and Development; (2) International Finance Corporation; (3) Inter-
American Development Bank; (4) Asian Development Bank; (5) African 
Development Bank; (6) Council of Europe Development Bank; (7) Nordic 
Investment Bank; (8) Caribbean Development Bank; (9) European Bank 
for Reconstruction and Development; (10) European Investment Bank; 
(11) European Investment Fund; and (12) Multilateral Investment 
Guarantee Agency. See EMIR Article 1(5)(a) of Regulation (EU) No. 
648/2012; Section 4.2 of part 1 of Annex VI to Directive 2006/48/EC, 
available at
    http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32012R0648 and http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32006L0048. The Commission noted that the 
exemption for international financial institutions would be 
consistent with EMIR and other foreign laws. 77 FR at 42561 n.14.
    \33\ Id. at 42562, n.18.
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D. DCR No-Action Letters for Relief From the Clearing Requirement for 
International Financial Institutions

    After the publication of the 2012 End-User Exception final rule, in 
2013, DCR issued a no-action letter to Corporaci[oacute]n Andina de 
Fomento (CAF), an economic development financing institution 
established pursuant to a treaty among 10 Latin American countries, 
stating DCR would not recommend that the Commission take enforcement 
action against CAF for failure to comply with the Clearing 
Requirement.\34\ DCR was persuaded by CAF's representation that its 
organization and functions were similar to the international financial 
institutions addressed by the preamble to the 2012 End-User Exception 
final rule. DCR accepted CAF's statement that, like a number of the 
multilateral development banks that are named as international 
financial institutions in the adopting release, its purpose is to 
foster and promote sustainable development and economic integration. 
CAF also indicated it pursues its mission primarily through project and 
corporate lending and trade finance, generally in circumstances under 
which borrowers would not have access to traditional commercial lending 
sources.\35\ DCR accepted that CAF used derivatives to hedge and reduce 
exposure to interest and exchange rate risks, and that it does not hold 
or issue derivatives for trading or speculative purposes.\36\ 
Furthermore, DCR agreed that CAF was established pursuant to an 
international treaty, with strict limitations on ownership which ensure 
that the sovereign nations are the controlling shareholders. 
Additionally, the Minister of Finance or equivalent officeholder of 
each principal shareholder country usually serves as a board member. 
Due to a combination of shareholdings, share classifications and voting 
rights, limitations on share transfers and other governance mechanisms, 
DCR agreed that the principal shareholder countries are assured control 
over CAF. DCR agreed that CAF has been granted various immunities and 
privileges from the principal shareholder countries, including, among 
other things: Immunity from expropriation; free convertibility and 
transferability of its assets; exemption from all taxes and tariffs on 
income, properties, or assets; and exemption from any restrictions, 
regulations, controls, or moratoria with respect to its property or 
assets.
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    \34\ CFTC Letter No. 13-25 (June 10, 2013). The letter required 
CAF to comply with other provisions of the CEA and Commission 
regulations, such as the recordkeeping and reporting requirements 
under parts 23 and 45 of the Commission's regulations, which would 
apply to a non-cleared swaps entered into by CAF opposite a 
counterparty who is subject to the CEA and Commission regulations 
with regard to that transaction.
    \35\ Id. at 3.
    \36\ Id.
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    In 2017, DCR received three more requests for no-action relief from 
the Clearing Requirement from three other international financial 
institutions: (1) Banco Centroamericano de Integraci[oacute]n 
Econ[oacute]mica (CABEI) (an economic development financing institution 
established pursuant to a treaty among

[[Page 27959]]

11 Latin American countries, Spain, and Taiwan), (2) European Stability 
Mechanism (ESM) (a lending institution established by European Union 
member states to provide emergency financial assistance to member 
states located in the Eurozone), and (3) North American Development 
Bank (NADB) (a financing institution established by the United States 
and Mexico under the auspices of the North American Free Trade 
Agreement to finance environmentally sustainable infrastructure 
projects in the region along the U.S.-Mexican border).\37\
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    \37\ CFTC Letter No. 17-57, at 3 n.10; CFTC Letter No. 17-58, at 
3 n.11, and CFTC Letter No. 17-59 at 3.
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    CABEI, ESM, and NADB each requested to have their transactions 
treated like CAF and the transactions with the international financial 
institutions addressed by the preamble to the 2012 End-User Exception 
final rule. In their request letters, CABEI, ESM, and NADB argued that 
their functions, missions, and ownership structures are analogous to 
the functions, missions, and ownership structures of CAF and the 
international financial institutions referenced in the End-User 
Exception final rule.\38\ Based on their representations, DCR issued no 
action letters to each of the requesting institutions.\39\
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    \38\ NADB is listed as a ``multilateral development bank'' by 
the four most recent Reports to Congress from the Chairman of the 
National Advisory Council on International Monetary and Financial 
Policies, dated March 2016, July 2017, June 2018, and April 2019, 
available at
    https://www.treasury.gov/resource-center/international/development-banks/Pages/congress-index.aspx.
    \39\ CFTC Letter Nos. 17-57, 17-58, and 17-59, respectively. 
Consistent with the CAF letter, DCR required each international 
financial institution to comply with other provisions of the CEA and 
the Commission's regulations, such as the recordkeeping and 
reporting requirements under parts 23 and 45 of the Commission's 
regulations, which would apply to an uncleared swap entered into by 
an international financial institution opposite a counterparty that 
is subject to the CEA and Commission regulations with regard to that 
transaction.
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II. Newly Proposed Amendments to Part 50

A. New Subpart D for Swaps Not Subject to the Clearing Requirement

    The Commission proposes to exempt swaps entered into with a central 
bank, sovereign entity, or international financial institution from the 
Clearing Requirement. In proposing to adopt an exemption for swaps 
entered into with central banks and sovereign entities in new 
regulation 50.75, and an exemption for swaps entered into with 
international financial institutions in new regulation 50.76, the 
Commission would be providing legal certainty to a narrowly defined 
group of entities that the swaps into which they enter are not subject 
to the Clearing Requirement, provided such swaps are reported to a swap 
data repository. The Commission is proposing to create a new subpart D 
in part 50 of the Commission's regulations for proposed regulations 
50.75 and 50.76, as well as three other regulations discussed below. 
The creation of this new subpart is an effort to distinguish exemptions 
that apply to specific swaps from the exceptions and exemptions for 
market participants eligible to elect an exception or exemption under 
subpart C of part 50. This distinction is important because the 
proposed exemptions for swaps under subpart D would not be eligible for 
an analogous exemption from margin for uncleared swaps, as discussed 
below. Also, some of the proposed subpart D exemptions for swaps are 
more limited and, in some cases, have additional conditions.\40\
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    \40\ For example, the proposed exemption for swaps entered into 
by CDFIs in proposed regulation 50.77 of subpart D would be 
available only for certain types of interest rate swaps. The 
exceptions and exemptions under subpart C of part 50 of the 
Commission's regulations apply generally to an entity that satisfies 
certain conditions.
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    The Commission notes that the proposed exemptions are intended to 
be consistent with the Commission's determination set forth in the 2012 
End-User Exception final rule and would not limit the applicability of 
any CEA provision or Commission regulation to any person or transaction 
except as provided in the proposed rulemaking.\41\ This proposal 
modifies some of the terms that will be used to refer to the entities 
that are exempt from the Clearing Requirement, but this modification is 
not intended to change the scope or substance of the exemption. For 
example, in the 2012 End-User Exception final rule the Commission 
referred to ``foreign central banks.'' Under this proposal, the 
Commission is proposing to use the term ``central bank'' and to include 
U.S. central bank entities such as the Board of Governors of the 
Federal Reserve System and other Federal Reserve Banks in the 
definition of ``central banks'' proposed to be exempted from the 
Clearing Requirement. This approach is similar to the one taken by the 
Commission and the prudential regulators in promulgating the margin 
requirements for uncleared swaps.\42\
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    \41\ The Commission notes that uncleared swaps with a 
counterparty that is subject to the CEA and Commission regulations 
with regard to such swaps must still comply with the CEA and 
Commission regulations as they pertain to uncleared swaps.
    \42\ See definition of ``sovereign entity'' in Commission 
regulation 23.151.
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    In addition, in the 2012 End-User Exception final rule, the 
Commission referred to certain exempt swap counterparties as ``foreign 
governments.'' The term ``foreign government'' was intended to refer to 
sovereigns, similar to the U.S. Federal Government, that were located 
outside of the U.S. Because the Commission distinguished the Federal 
Government from state and local government entities, the term ``foreign 
government'' was intended to apply only to the federal level of 
governmental organizations.\43\ In an effort to make that distinction 
clear and to emphasize the fact that state level governmental bodies 
would not be eligible for this exemption, the Commission is proposing 
to use the term ``sovereign entities'' in this rule proposal rather 
than ``foreign government,'' which was the term used in the 2012 End-
User Exception final rule.
---------------------------------------------------------------------------

    \43\ 77 FR at 42562. The Commission stated that, ``Congress did 
not expressly exclude state and local government entities form the 
`financial entity' definition. On the contrary, in Section 
2(h)(7)(C)(i)(VII), Congress expressly included employee benefit 
plans of state and local governments in the `financial entity' 
definition, thereby prohibiting them from using the end-user 
exception.'' Id.
---------------------------------------------------------------------------

    The Commission seeks comment regarding the terms and definitions 
proposed below.
1. Proposed Definition of Central Bank
    Proposed regulation 50.75(a) would set forth a definition of 
``central bank.'' The proposed definition would define central bank to 
mean a reserve bank or monetary authority of a central government 
(including the Board of Governors of the Federal Reserve System or any 
of the Federal Reserve Banks) or the Bank for International 
Settlements.\44\ The Commission believes an exemption from the Clearing 
Requirement for central banks is appropriate because these entities are 
created by statute, are authorized to work to promote the public 
interest, and are part of, or aligned with, a central government. The 
authorizing statutes generally provide that the government owns all or 
part of the capital stock or equity interest of the central bank.\45\ 
The

[[Page 27960]]

proposed definition also includes the Bank for International 
Settlements (BIS) for clarity. BIS is made up of only central banks and 
monetary authorities. The Commission therefore believes it is 
appropriate to include BIS in the definition of central bank for 
purposes of this proposal.
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    \44\ Congress specifically excluded ``any agreement, contract, 
or transaction a counterparty of which is a Federal Reserve bank, 
the Federal Government, or a Federal agency that is expressly backed 
by the full faith and credit of the United States'' from the 
definition of a swap. The proposed definition includes ``any of the 
Federal Reserve Banks'' for clarity.
    \45\ E.g., Article 28.2, Capital of the ECB Protocol on the 
Statute of the European System of Central Banks and of the European 
Central Bank, available at https://www.ecb.europa.eu/ecb/legal/pdf/en_statute_2.pdf.
---------------------------------------------------------------------------

    In Commission regulation 23.151, the definition of ``financial end 
user'' for purposes of the Commission's uncleared swap margin 
requirements excludes the Bank for International Settlements from the 
uncleared margin requirements.\46\ Part 23 of the Commission's 
regulations include a separate definition for the term ``sovereign 
entity.'' Under Commission regulation 23.151, sovereign entity means a 
central government (including the U.S. government) or an agency, 
department, ministry, or central bank of a central government.\47\ The 
Commission is not proposing to use identical definitions in new subpart 
D of part 50 as it adopted in part 23 of the Commission's 
regulations.\48\ Certain types of entities may be defined differently 
for purposes of either rule set, but as an overall matter, the 
Commission believes this proposal to define ``sovereign entity'' and 
``central bank'' is broadly consistent with part 23 of the Commission's 
regulations.
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    \46\ Commission regulation 23.151 states, in part, that the term 
financial end user does not include any counterparty that is (i) a 
sovereign entity; (ii) a multilateral development bank; (iii) The 
Bank for International Settlements; (iv) an entity that is exempt 
from the definition of financial entity pursuant to section 
2(h)(7)(C)(iii) of the CEA and implementing regulations; (v) an 
affiliate that qualifies for the exemption from clearing pursuant to 
section 2(h)(7)(D) of the CEA; or (vi) an eligible treasury 
affiliate that the Commission exempts from the requirements of 
Sec. Sec.  23.150 through 23.161 by rule.
    \47\ Id.
    \48\ Under part 23 of the Commission's regulations, the Bank for 
International Settlements is excluded from the term ``financial end 
user'' for purposes of the uncleared margin rules. Commission 
regulations 23.154 and 23.155 require calculations of initial and 
variation margin for counterparties that are either swap entities or 
financial end users. As such, the Bank for International Settlements 
is not subject to the uncleared initial or variation margin 
requirements under part 23. Under proposed regulation 50.75(a), the 
Bank for International Settlements would be a ``central bank'' and 
swaps entered into with a central bank would not be subject to the 
Clearing Requirement. Although the Commission is using different 
terminology, the Bank for International Settlements would be exempt 
from requirements under both parts of the Commission's regulations.
---------------------------------------------------------------------------

    Request for Comment. The Commission requests comment on the scope 
of its proposed definition of central bank. Are there any central banks 
that are not established and operating pursuant to a statute? If so, 
should such a central bank be treated differently? Should the 
Commission distinguish between national central banks and regional 
central banks? Should the Commission consider adopting an alternative 
definition for ``central bank,'' such as the definition included in 
section 25B of the Federal Reserve Act? \49\
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    \49\ Section 25B of the Federal Reserve Act states that the term 
``central bank'' includes any foreign bank or banker authorized to 
perform any one or more of the functions of a central bank. 12 
U.S.C. 632.
---------------------------------------------------------------------------

2. Proposed Definition of Sovereign Entity
    Proposed regulation 50.75(b) would set forth a definition of 
``sovereign entity'' for purposes of the Clearing Requirement. Under 
the proposed definition, sovereign entity would mean a central 
government (including the U.S. government) or an agency, department, or 
ministry of a central government.\50\ The Commission believes this 
definition limits the exemption to national governments and provides 
clarity regarding the scope of the counterparties whose transactions 
would be excluded from the Clearing Requirement, as discussed in the 
2012 End-User Exception preamble,\51\ as well as the counterparties 
whose transactions are excluded by statute from the definition of a 
swap.\52\ Under this definition, ``sovereign entity'' would not include 
state, regional, provincial, or municipal governments.\53\ The 
Commission continues to believe, as it did in 2012, that most of these 
entities are predominantly engaged in non-banking and non-financial 
activities related to their core public purposes and functions and 
therefore are not likely to be ``financial entities'' ineligible to 
elect an exception from the Clearing Requirement under section 
2(h)(7)(C) of the CEA.\54\
---------------------------------------------------------------------------

    \50\ As with the proposed definition of ``central bank,'' the 
regulation would clarify that the definition of ``central 
government'' would include the U.S. government.
    \51\ 77 FR at 42562.
    \52\ See section 1a(47)(B)(ix) of the CEA.
    \53\ Accord 77 FR at 42562-63 (``A per se exclusion for state 
and local government entities from the `financial entity' definition 
is inappropriate.'').
    \54\ Id. at 42562-63 (explaining that the activities of state 
and local government entities that might be considered to be in the 
business of banking or financial in nature under section 
2(h)(7)(C)(i)(VIII) ``are likely to be incidental, not primary, 
activities of those entities.'').
---------------------------------------------------------------------------

    Request for Comment. The Commission requests comment on the scope 
of its proposed definition of sovereign entity. Should the Commission 
consider adopting an alternate definition for ``sovereign entity?'' If 
so, what definition should the Commission consider? Should there be 
criteria for determining if transactions with a sovereign entity should 
be exempt from the Clearing Requirement and, if so, what criteria would 
be appropriate?
3. Proposed Definition of International Financial Institution
    Proposed regulation 50.76 would define ``international financial 
institution'' to mean the entities the Commission identified as 
international financial institutions in the 2012 End-User Exception 
final rule, the entities to whom DCR issued no-action letters in 2013 
and 2017,\55\ the Islamic Development Bank,\56\ and any other entity 
that provides financing for national or regional development in which 
the U.S. government is a shareholder or contributing member.
---------------------------------------------------------------------------

    \55\ The proposed list of named entities that would be defined 
as ``international financial institutions'' includes: (1) African 
Development Bank; (2) African Development Fund; (3) Asian 
Development Bank; (4) Banco Centroamericano de Integraci[oacute]n 
Econ[oacute]mica; (5) Bank for Economic Cooperation and Development 
in the Middle East and North Africa; (6) Caribbean Development Bank; 
(7) Corporaci[oacute]n Andina de Fomento; (8) Council of Europe 
Development Bank; (9) European Bank for Reconstruction and 
Development; (10) European Investment Bank; (11) European Investment 
Fund; (12) European Stability Mechanism; (13) Inter-American 
Development Bank; (14) Inter-American Investment Corporation; (15) 
International Bank for Reconstruction and Development; (16) 
International Development Association; (17) International Finance 
Corporation; (18) International Monetary Fund; (19) Islamic 
Development Bank; (20) Multilateral Investment Guarantee Agency; 
(21) Nordic Investment Bank; and (22) North American Development 
Bank.
    \56\ The Commission is proposing to add the Islamic Development 
Bank to the current list of international financial institutions in 
an effort to harmonize the exemptions from required clearing with 
the exemptions from margin for uncleared swaps requirements. The 
Islamic Development Bank is included as a multilateral development 
bank under Commission regulation 23.151, and thus is exempt from 
margin requirements. In addition, this development bank is similarly 
situated to those entities the Commission identified in the 2012 
End-User Exception final rule and in DCR no-action letters.
---------------------------------------------------------------------------

    The Commission believes that an entity may be an international 
financial institution for purposes of an exemption from the Clearing 
Requirement if it has the following common qualities: A significant 
proportion of the entity's shareholders are limited to sovereign 
governments or other international financial institutions/multilateral 
development banks; the entity has been granted legal privileges and 
immunities that are typical of those enjoyed by other international 
financial institutions/multilateral development banks; the entity is 
governed by representatives from the public sector; the entity is a 
not-for-profit entity whose mission is to foster and promote economic 
development in developing areas; the entity's financing is used to

[[Page 27961]]

support activities that are in the public interest, i.e., socioeconomic 
development projects; the entity uses swaps only to hedge credit, 
interest rate, or currency risk incurred during financing activities in 
support of their public interest missions; swaps are not used for 
speculative purposes; and the entity satisfies other considerations 
deemed important by the Commission, including the public interest. The 
Commission believes these qualities appropriately describe 
international financial institutions for purposes of an exemption from 
the Clearing Requirement.
    The proposed definition of international financial institution 
includes a provision ``23'' encompassing ``any other entity that 
provides financing for national or regional development in which the 
U.S. government is a shareholder or contributing member.'' The 
Commission believes that if the U.S. government is a shareholder or 
member of an international financial institution that provides 
financing for national or regional development activities that are in 
the public interest, then that entity is an international financial 
institution that should be exempt from the Clearing Requirement. The 
Commission preliminarily believes that this definition is appropriate 
because it would allow newly established entities meeting this 
criterion to be included as international financial institutions 
enumerated in proposed regulation 50.76.
    In addition, the Commission believes that this proposed rule will 
encourage international comity and continued cross-border cooperation 
with authorities abroad, particularly with EU authorities in light of 
the several EU institutions that would be exempted under the proposed 
rule. An important example of the Commission's cooperation with EU 
authorities is the 2016 announcement by the CFTC and the European 
Commission regarding requirements for cross-border central 
counterparties.\57\ The principles of international comity counsel 
mutual respect for the important interests of foreign sovereigns.\58\
---------------------------------------------------------------------------

    \57\ On February 10, 2016, the CFTC and the European Commission 
announced ``A Common Approach for Transatlantic CCPs.'' See Press 
Release and Related Statements, available at https://www.cftc.gov/PressRoom/PressReleases/cftc_euapproach021016.
    \58\ See Restatement (Third) of Foreign Relations Law of the 
United States sec. 403 (Am. Law Inst. 2018) (the Restatement). The 
Restatement provides that even where a country has a basis for 
jurisdiction, it should not prescribe law with respect to a person 
or activity in another country when the exercise of such 
jurisdiction is unreasonable. See Restatement section 403(1). 
Notably, the Restatement recognizes that, in the exercise of 
international comity, reciprocity is an appropriate consideration in 
determining whether to exercise jurisdiction extraterritorially.
---------------------------------------------------------------------------

    Request for Comment. Are there additional public interest 
considerations the Commission should consider? Should the factors 
listed be important in determining eligibility for a clearing 
exemption? Are there additional international financial institutions 
that should be added to the list? The Commission seeks comment 
regarding this definition.
4. Proposed Exemption from the Clearing Requirement for Swap 
Transactions With Central Banks, Sovereign Entities, and International 
Financial Institutions
    Proposed regulation 50.75 would exempt from the Clearing 
Requirement swaps entered into with central banks and sovereign 
entities. Similarly, proposed regulation 50.76 would exempt from the 
Clearing Requirement swaps entered into with international financial 
institutions. Under new proposed regulations 50.75 and 50.76 the swap 
must be reported to an SDR to qualify for the exemption.
    The new proposed regulations 50.75 and 50.76 would codify the 
Commission's determination that based on considerations of comity and 
in keeping with the traditions of the international system, swaps 
entered into with central banks (including BIS), sovereign entities, 
and international financial institutions should be treated like swaps 
entered into with the Federal Reserve Banks, the Federal Government, or 
a Federal agency and should not be subject to the Clearing Requirement. 
The Commission preliminarily believes these entities only use swaps to 
mitigate credit, interest rate, or currency risk incurred during 
financing activities in support of the public interest and the public 
good. As such, the Commission believes that it is appropriate to 
exclude swaps entered into with these entities from the Clearing 
Requirement. This exemption therefore would allow swaps entered into by 
these entities to be treated in the same manner as the statutory 
exclusion for a Federal Reserve Bank, the Federal Government, or a 
Federal agency that is backed by the full faith and credit of the 
United States.\59\
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    \59\ The Commission is not proposing to exempt these 
transactions from the definition of a swap.
---------------------------------------------------------------------------

    Consistent with the other exemptions in effect under current 
Commission regulation 50.5,\60\ new proposed regulations 50.75 and 
50.76 would exempt swaps entered into by a central bank, a sovereign 
entity, or an international financial institution from the Clearing 
Requirement, provided that the swap is reported to a swap data 
repository pursuant to part 45 of the Commission's regulations.\61\
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    \60\ Under existing Commission regulation 50.5(a), swaps entered 
into before July 10, 2010, are exempt from the clearing requirement 
under Commission regulation 50.2 if reported to a swap data 
repository pursuant to section 2(h)(5)(A) of the CEA and Commission 
regulation 46.3(a). Existing Commission regulation 50.5(b) exempts 
swaps entered into after July 10, 2010, but before the application 
of the clearing requirement under Commission regulations 50.2 and 
50.4 for a particular class of swaps if reported to a swap data 
repository pursuant to 46.3(a), 45.3 and 45.4 of the Commission's 
regulations.
    \61\ In most instances, the central bank, sovereign entity, or 
international financial institution would not be the reporting 
counterparty, rather the swap dealer would report the transaction to 
the SDR.
---------------------------------------------------------------------------

    Request for Comment. The Commission requests comment on the 
proposed exemption from the Clearing Requirement for swaps entered into 
with central banks, sovereign entities, and international financial 
institutions. The Commission requests comment on the use of swaps by 
central banks, sovereign entities, and international financial 
institutions, including quantitative data where available.

B. Data Related to Swaps Entered Into by Central Banks, Sovereign 
Entities, and International Financial Institutions

    The Commission has gathered preliminary data regarding the use of 
swaps by international financial institutions from the Depository Trust 
& Clearing Corporation's (DTCC's) swap data repository, DTCC Data 
Repository (DDR). From January 1, 2018 to December 31, 2018, 16 
international financial institutions named in proposed regulation 50.76 
were counterparties to a swap that was entered into and reported to DDR 
during that time period. Overall, the 16 international financial 
institutions entered into approximately 2,500 uncleared interest rate 
swaps with an estimated total notional value of $220 billion. Of the 16 
international financial institutions, four entered into more than one 
hundred swaps during calendar year 2018. Compared to data that the 
Commission gathered from DDR during calendar year 2017, the number of 
international financial institutions entering into interest rate swaps 
increased from nine to 16, and the total number and total notional 
value of all uncleared interest rate swaps entered into by the 
international financial institutions increased from 381 swaps totaling 
$59.8 billion to approximately 2,500 swaps totaling $220 billion.

[[Page 27962]]

    The Commission is not providing data estimates for swaps entered 
into by central banks and sovereign entities because it believes that 
the number of such swaps is likely to be small and could reveal 
confidential swaps trading and position information. In addition, it is 
difficult to define a representative set of central banks and sovereign 
entities for purposes of collecting such data. The Commission invites 
public comment from affected central banks, sovereign entities, and 
their counterparties, including the submission of any data or other 
relevant information.

C. New Compliance Schedule for Subpart B

    The Commission implemented the Clearing Requirement through two 
separate rulemakings: (i) The 2012 Clearing Requirement Determination; 
and (ii) the 2016 Clearing Requirement Determination. Under each of 
these final rules, the Commission made the decision to phase-in the 
compliance requirement. Neither clearing requirement determination 
required compliance by all market participants for all swaps included 
in Commission regulation 50.4 on a single date.
1. 2012 Clearing Requirement Determination
    In order to facilitate an orderly transition to the new swap 
clearing regime established by the Dodd-Frank Act, the Commission 
decided to phase-in the 2012 Clearing Requirement Determination by type 
of market participant. The Commission adopted a swap clearing 
requirement compliance schedule in Commission regulation 50.25.\62\ 
Commission regulation 50.25 contains definitions for Category 1 
Entities and Category 2 Entities,\63\ as well as other terms that are 
referenced in the implementation section of the 2012 Clearing 
Requirement Determination.\64\ For all interest rate swaps and CDX 
credit default swaps that were required to be cleared pursuant to the 
2012 Clearing Requirement Determination, the applicable implementation 
schedule was published by the Commission in the final rulemaking 
preamble. However, the compliance dates were delayed for iTraxx credit 
default swaps until February 25, 2013, because no DCO offered client 
clearing.\65\ Once client clearing was offered for iTraxx credit 
default swaps, specified credit default swaps subject to the Clearing 
Requirement in Commission regulation 50.4(b) were required to be 
cleared after sixty days. This information was publicized through 
Commission press releases, but is not reflected in part 50 of the 
Commission's regulations.
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    \62\ Swap Transaction Compliance and Implementation Schedule: 
Clearing Requirement Under Section 2(h) of the CEA, 77 FR 44441 
(Jul. 30, 2012).
    \63\ Commission regulation 50.25(a).
    \64\ 2012 Clearing Requirement Determination at 74319-21.
    \65\ CFTC Press Release No. 6521-13 (Feb. 25, 2013), available 
at https://www.cftc.gov/PressRoom/PressReleases/pr6521-13.
---------------------------------------------------------------------------

2. 2016 Clearing Requirement Determination
    In 2016, the Commission expanded the set of interest rate swaps 
subject to the Clearing Requirement under Commission regulation 50.4(a) 
in order to harmonize the CFTC's swap clearing requirement with those 
in non-U.S. jurisdictions. When the Commission adopted the 
implementation schedule for the 2016 Clearing Requirement 
Determination, it elected not to phase-in compliance by the type of 
market participant and instead phased-in compliance based on when the 
corresponding non-U.S. jurisdiction's interest rate swap clearing 
mandate had gone into effect. Under the Commission's 2016 Clearing 
Requirement Determination, certain categories of interest rate swaps 
were required to be cleared on the earlier of: (i) 60 calendar days 
after any person was first required to comply with an analogous 
clearing requirement that has been adopted by a regulator in a non-U.S. 
jurisdiction, or (ii) two years after the final rule was published in 
the Federal Register.\66\ All swaps that were subject to the 
Commission's 2016 Clearing Requirement Determination are now required 
to be cleared and the last compliance date for a category of interest 
rate swaps under Commission regulation 50.4(a) was October 15, 2018. As 
in 2012, the compliance schedule was outlined in the preamble 
discussion, but the compliance dates were not published in the final 
rule.
---------------------------------------------------------------------------

    \66\ Id. at 71227-28.
---------------------------------------------------------------------------

    In addition, the compliance dates for each category of interest 
rate swap subject to the expansion under the 2016 Clearing Requirement 
Determination were based on the product type, and in some cases, the 
tenor of the swap. For this reason, the Commission believes that 
publishing the compliance dates in a detailed format will be useful for 
market participants.
3. New Proposed Regulation 50.26
    The Commission seeks to improve transparency and to provide the 
information about the compliance dates for both of the Commission's 
Clearing Requirements in one location that will be convenient for 
market participants to reference. In the new proposed regulation 50.26, 
the Commission has taken information that was available in different 
formats and repackaged it in a single table. Earlier press releases 
provided small pieces of information but did not provide a 
comprehensive statement of all Clearing Requirement compliance dates. 
In addition, as detailed above, the Commission's 2016 Clearing 
Requirement Determination compliance dates were not all published in 
the final rule. Now that all of the swaps covered in Commission 
regulation 50.4 have a compliance date, that information can be 
collected and published in one location in part 50 of the Commission's 
regulations instead of located in various places throughout the Federal 
Register and on the Commission's website.
    The Commission believes that these compliance dates are static and 
not subject to change. Including a table of compliance dates in the 
Commission's regulations will be useful for market participants trying 
to confirm whether their swaps are required to be cleared under the 
Clearing Requirement or would be considered to be legacy swaps not 
required to be cleared under regulation 50.5. This codification may be 
particularly useful for groups, such as the International Organization 
of Securities Commissions and others, that collect and disseminate such 
information.\67\
---------------------------------------------------------------------------

    \67\ E.g., the International Organization of Securities 
Commissions' Information Repository for Central Clearing 
Requirements for OTC Derivatives, available at https://www.iosco.org/publications/?subsection=information_repositories.
---------------------------------------------------------------------------

    Request for Comment. The Commission requests comment on the 
proposed table headings and structure included in Table 1 and Table 2 
of new proposed regulation 50.26. Are the tables sufficiently clear to 
communicate the specific dates on which compliance with the Clearing 
Requirement is required? If not, why not? Do market participants think 
that any additional compliance date information should be included in 
the tables or in this new section?

D. Technical Amendment to Subpart C for Banks, Savings Associations, 
Farm Credit System Institutions, and Credit Unions

    In addition to proposing to codify exemptions from the Clearing 
Requirement, the Commission is proposing technical amendments to 
subpart C of part 50 to reorganize the

[[Page 27963]]

subpart so that market participants find it easier to read and identify 
applicable regulations. The Commission preliminarily believes that re-
codifying the existing regulatory provision for certain banks, savings 
associations, farm credit system institutions, and credit unions 
(together, small financial institutions) with a new numbered section 
and heading specifically will facilitate swap counterparties' use and 
understanding of part 50 of the Commission's regulations.
    The current exemption for small financial institutions is located 
in paragraph (d) of Commission regulation 50.50 without any heading or 
other demarcation. Commission regulation 50.50 generally excepts non-
financial entities from the Clearing Requirement if they satisfy 
certain conditions. In the final paragraph of Commission regulation 
50.50, there is a separate category of relief for small financial 
institutions that are exempt from the definition of ``financial 
entity'' if the financial institution satisfies certain requirements. 
In order to promote transparency about the operation of exceptions and 
exemptions to the Clearing Requirement, the Commission is proposing to 
separate the small financial institutions exemption from the non-
financial entities exception. The Commission views this as a non-
substantive change, and the minor changes to the text of the 
regulations would serve only to clarify and update the requirements in 
light of current swap reporting conventions, specifically related to 
SDR reporting by entities eligible for an exception or exemption from 
the Clearing Requirement.
    Current Commission regulation 50.50(d) limits the exemption to 
certain small financial institutions with two key definitional 
requirements. First, the small financial institution must be an entity 
that satisfies the statutory requirements under Commission regulation 
50.50(d)(1). Second, the small financial institution must have total 
assets of $10 billion or less on the last day of such entity's most 
recent fiscal year. The Commission is leaving these requirements 
unchanged and has moved these requirements to new proposed regulation 
50.53(a) and 50.53(b), respectively.
    New proposed regulation 50.53 will require small financial 
institutions to satisfy the same reporting requirements in Commission 
regulation 50.50(b) that apply to entities qualifying for the exemption 
under Commission regulation 50.50(d) currently. The Commission believes 
that the language proposed in new regulation 50.53(c) incorporates the 
requirements under Commission regulation 50.50(b) by reference and 
matches the current structure of a similar provision requiring exempt 
cooperatives to report specific information by reference to Commission 
regulation 50.50(b).\68\ The Commission is proposing a small difference 
in new regulation 50.53(c) that does not match the language in 50.50(b) 
exactly. Proposed regulation 50.53(c) would make it clear that rather 
than ``provide'' the information to a SDR, the entity electing the 
exception will be expected to ``report'' the information to a SDR. In a 
few places in the new regulatory text of proposed regulation 50.53(c), 
the Commission is using the word ``report'' or ``cause to be reported'' 
instead of ``provide'' or ``cause to be provided.'' The Commission 
believes the words ``provide'' and ``report'' have similar meaning, but 
the word ``report'' is more precise in this instance. The word 
``report'' is the predominant term used under Commission regulations in 
part 45 and this term aligns with the obligations that parties are 
required to comply with under Commission regulations 45.3 and 45.4. 
Under this proposal, the Commission does not intend to alter how swap 
counterparties currently subject to Commission regulation 50.50(d) 
comply with the reporting provisions under existing Commission 
regulation 50.50(b). The Commission believes the obligations of banks 
and other entities eligible for relief from the Clearing Requirement 
under Commission regulation 50.50(d) would not change under new 
proposed regulation 50.53.
---------------------------------------------------------------------------

    \68\ Commission regulation 50.51(c) states that an exempt 
cooperative that elects the exemption provided in that section shall 
comply with the requirements of Commission regulation 50.50(b).
---------------------------------------------------------------------------

    Under Commission regulation 50.50(b) electing entities are given 
the option to provide information to a registered SDR or to provide the 
information directly to the Commission. The Commission believed such 
flexibility was necessary during the initial implementation phase of 
the Dodd-Frank Act. Now that SDRs have been established and are a 
reliable infrastructure resource, the Commission is proposing to 
eliminate the option for small financial institutions to submit 
information directly to the Commission. The Commission processes data 
from the SDRs and uses this data to monitor and track compliance with 
the Clearing Requirement. This change to require reporting of 
information through an SDR would further the Commission's goals of 
improving the quality and comprehensiveness of SDR data as well. The 
Commission notes that it is taking this approach to require reporting 
directly to SDRs (and not to permit reporting directly to the 
Commission) for all of the other exemptions for swaps with certain 
entities under proposed regulations 50.75 through 50.79. The Commission 
believes that the reporting methods employed by small financial 
institutions currently would satisfy the requirements in proposed 
regulation 50.53(c).
    Finally, proposed regulation 50.53 includes a paragraph (d) that 
would require small financial entities to use the swap to hedge or 
mitigate commercial risk. This requirement is the same as current 
requirements under Commission regulation 50.50(d) and should not create 
new or different obligations on small financial institutions electing 
the exemption from the Clearing Requirement. The Commission reiterates 
its view that proposed regulation 50.53 would not substantively change 
the exemption for small financial institutions and is intended to be a 
clarifying amendment to part 50 of the Commission's regulations.
    Request for Comment. The Commission requests comment on whether the 
proposed changes could materially alter the compliance requirements 
that exist currently for eligible banks, savings associations, farm 
credit system institutions, and credit unions.

III. Supplemental Proposal of Proposed Rulemaking for Bank Holding 
Companies, Savings and Loan Holding Companies, and Community 
Development Financial Institutions

A. Background on Prior Proposal and Supplemental Proposal

    In August 2018, the Commission proposed regulations that would 
exempt from the Clearing Requirement, set forth in section 2(h)(1) of 
the CEA, certain swaps entered into by certain bank holding companies, 
savings and loan holding companies, and CDFIs.\69\ Under the CEA, these 
entities are not eligible for an exemption from the definition of 
``financial entity'' for purposes of an exemption from the Clearing 
Requirement that is afforded banks, savings associations, farm credit 
systems, and credit unions with total assets of $10 billion or 
less.\70\
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    \69\ See 2018 Proposal.
    \70\ See sections 2(h)(1)(A) and 2(h)(7)(A) of the CEA.
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    The proposed amendments to the Commission's regulations under part 
50 would exempt from the Clearing Requirement a swap entered into to

[[Page 27964]]

hedge or mitigate commercial risk if one of the counterparties to the 
swap is either (a) a bank holding company or savings and loan holding 
company, each having no more than $10 billion in consolidated assets, 
or (b) a CDFI transacting in certain types and quantities of interest 
rate swaps. The proposed amendments would codify two no-action letters 
issued by DCR in 2016.\71\ As the Commission noted in the 2018 
Proposal, it believes that codifying both of these staff no-action 
letters would be consistent with the policy rationale behind the 
exemption from the Clearing Requirement that the Commission granted for 
swaps entered into by banks, savings associations, farm credit 
institutions, and credit unions in the 2012 End-User Exception final 
rule.\72\
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    \71\ CFTC Letter No. 16-01 (request from the American Bankers 
Association) and CFTC Letter No. 16-02 (request from a coalition of 
CDFIs).
    \72\ See 2018 Proposal at 44004. See also End-User Exception 
Final Rule, 77 FR at 42590-91.
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    The 2018 Proposal received only one comment on the proposal.\73\ In 
light of the proposed restructuring of part 50 of the Commission's 
regulations, the Commission is requesting additional comments on the 
2018 Proposal, is proposing minor revisions to the rule text for CDFIs, 
and is proposing technical revisions as described below.\74\
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    \73\ American Bankers Association (Oct. 22, 2018). The American 
Bankers Association supported the 2018 Proposal to codify CFTC 
Letters No. 16-01 and 16-02, and also recommended that the 
Commission treat all non-swap dealer or non-major swap participant 
banks, bank holding companies, savings associations, and savings and 
loan holding companies as end-users and exempt all of these entities 
from the Clearing Requirement.
    \74\ Procedurally, this supplemental proposal is not a 
replacement or withdrawal of the 2018 Proposal. Unless specifically 
amended in this release, all regulatory provisions proposed in the 
2018 Proposal remain under active consideration for adoption as 
final rules. The Commission welcomes comment on both the 2018 
Proposal and this supplemental proposal.
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B. Changes to the Proposed Rule Text for CDFIs and Technical Revisions 
to Proposed Rule Text for Bank Holding Companies and Savings and Loan 
Holding Companies

    As proposed in August 2018, swaps entered into with certain bank 
holding companies, savings and loan holding companies, and CDFIs would 
be exempt from the Clearing Requirement. The 2018 Proposal would have 
amended Commission regulation 50.5 by adding definitions for CDFI, bank 
holding company, and savings and loan holding company to Commission 
regulation 50.5(a), and by adding the conditions of the exemption in 
new subparts (e) and (f). In this supplemental proposal, the Commission 
is proposing to include the definitions and exemptions in a new subpart 
D of part 50 as Commission regulations 50.77, 50.78, and 50.79 as 
described further below.
1. CDFIs
    In this supplemental proposal, the Commission is proposing to make 
the following clarifying revisions to the regulations that would exempt 
certain interest rate swaps and forward rate agreements entered into by 
CDFIs from the Clearing Requirement. First, these regulations, if 
adopted, would be set forth in regulation 50.77 rather than in 
Commission regulation 50.5. Second, the 2018 Proposal's definition of 
the term ``community development financial institution'' in proposed 
regulation 50.5(a) remains unchanged, but would be codified as 
regulation 50.77(a).\75\ Third, proposed regulation 50.5(f) would 
become new regulation 50.77(b). The supplemental proposal would clarify 
the rule by adding the statutory authority for the exemption to the 
rule text and referencing the subpart. New proposed regulation 50.77(b) 
would state in relevant part that ``a swap entered into by a community 
development financial institution shall not be subject to the clearing 
requirement of section 2(h)(1)(A) of the [CEA] and this part if. . . 
.''
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    \75\ New proposed regulation 50.77(a) would state that, for the 
purposes of that section, the term community development financial 
institution means an entity that satisfies the definition in section 
103(5) of the Community Development Banking and Financial 
Institutions Act of 1994, and is certified by the U.S. Department of 
Treasury's Community Development Financial Institution Fund as 
meeting the requirements set forth in 12 CFR 1805.201(b).
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    The supplemental proposal includes a technical change to the 2018 
Proposal's reference to Commission regulation 50.2 that was included in 
previously proposed regulation 50.5(f)(2). Under the supplemental 
proposal, newly proposed regulation 50.77(b)(1) would reference 
Commission regulation 50.4(a) and state that the swap is a U.S. dollar 
denominated interest rate swap in the fixed-to-floating class or the 
forward rate agreement class of swaps that would otherwise be subject 
to the clearing requirement under Sec.  50.4(a).
    In the 2018 Proposal, under previously proposed regulation 
50.5(f)(3), swaps entered into by a CDFI would not be subject to the 
Clearing Requirement of section 2(h)(1)(A) of the CEA, and Commission 
regulation 50.2, if the total aggregate notional value of all swaps 
entered into by the community development financial institution during 
the twelve-month calendar is less than or equal to $200,000,000. To 
clarify the exemption, the Commission proposes to revise the language 
in proposed regulation 50.77(b)(2) to state the total aggregate 
notional value of all swaps entered into by the community development 
financial institution during the 365 calendar days prior to the day of 
execution of the swap is less than or equal to $200,000,000. Likewise, 
previously proposed regulation 50.5(f)(4) would be codified as proposed 
regulation 50.77(b)(3), and the Commission is proposing to include a 
technical revision that changes the time frame from ``within a twelve-
month calendar year'' to ``within a period of 365 calendar days.'' The 
Commission believes both revisions from measuring in months to calendar 
days are more accurate descriptions of the scope of the requirement and 
is consistent with the current requirement in Commission regulation 
50.50(b)(2). Commission regulation 50.50(b)(2) states that reporting 
for certain entities that are eligible for an exception to the Clearing 
Requirement will remain effective for ``365 days following the date of 
such reporting.'' The Commission believes this minor technical change 
will improve internal consistency within part 50 of the Commission's 
regulations by measuring time periods in days in all relevant places 
rather than using days in some regulations and months in other 
regulations.
    Previously proposed regulation 50.5(f)(1) would remain the same 
except it would be presented in this supplemental proposal as proposed 
regulation 50.77(b)(4). Previously proposed regulation 50.5(f)(5) would 
be presented by this proposal as proposed regulation 50.77(b)(5) with a 
technical change to the text such that the regulation would change from 
``the swap is used to hedge or mitigate commercial risk, as defined 
under Sec.  50.50(c) of this part'' and would instead state that the 
swap is used to hedge or mitigate commercial risk as provided in 
paragraph (c) of Sec.  50.50.
2. Bank Holding Companies and Savings and Loan Holding Companies
    In this supplemental proposal, the Commission is proposing to have 
separate regulations for exemptions for swaps with bank holding 
companies and savings and loan holding companies. Under the 2018 
Proposal, the proposed definitions for a bank holding company and a 
savings and loan holding company were included in existing regulation 
50.5(a). This supplemental proposal would move the definition for bank 
holding company to

[[Page 27965]]

proposed regulation 50.78(a) and savings and loan holding company to 
proposed regulation 50.79(b).
    Previously proposed regulation 50.5(e) would become proposed 
regulations 50.78(b) for bank holding companies and 50.79(b) for 
savings and loan holding companies. The supplemental proposal would 
clarify the text for each exemption by adding the statutory authority 
for the exemption to the text of the regulation and referencing the 
subpart.
    This supplemental proposal would renumber previously proposed 
regulation section and paragraphs 50.5(e)(1), (2), and (3) as new 
proposed regulation section and paragraphs 50.78(b)(1), (2), and (3) 
for bank holding companies, and new proposed regulation section and 
paragraphs 50.79(b)(1), (2), and (3) for savings and loan holding 
companies. The regulations remain unchanged from the text of the 2018 
Proposal with the exception of the technical change to paragraph (b)(3) 
of each proposed regulation. Those paragraphs would now state that the 
swap is used to hedge or mitigate commercial risk as provided in 
paragraph (c) of Sec.  50.50.

C. Updated Data Regarding the Use of Swaps by CDFIs, Bank Holding 
Companies, and Savings and Loan Holding Companies

    When the Commission considered its 2018 Proposal, it included data 
about the number of swaps entered into by entities that would be 
eligible to elect the proposed exemption from the Clearing Requirement. 
The Commission is updating some of the data from DDR that it considered 
in the 2018 Proposal. All interest rate swaps data included in this 
section was reported to DDR as events-based data and was analyzed by 
Commission staff.\76\ This information about past swaps activity is not 
used as a predictive measure of future swaps activity, but rather, it 
is included here to provide context about the current use of uncleared 
swaps by the entities discussed in this proposal.
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    \76\ This section does not include credit default swaps data 
because the relief provided to CDFIs does not extend to credit 
default swaps and there was no credit default swaps activity 
reported by eligible bank holding companies or savings and loan 
holding companies in the time periods analyzed.
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    In the most recent calendar year--between January 1, 2018 and 
December 31, 2018--eight different CDFIs entered into interest rate 
swaps and four of those entities entered into more than one swap. 
During this one year period, CDFIs entered into thirteen uncleared 
interest rate swaps with an aggregate notional value of almost $84 
million. According to this data, more CDFIs entered into uncleared 
interest rate swaps during the calendar year 2018 than during the 
previous 18-month time period between January 2017 and June 2018.\77\ 
At the same time, the aggregate notional value of all uncleared 
interest rate swaps entered into during calendar year 2018 ($83.9 
million) was less than the aggregate notional value of swaps entered 
into by CDFIs during the 18-month time period between January 2017 and 
June 2018 ($251.6 million).
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    \77\ During an earlier 18-month time period, between January 1, 
2017 and June 29, 2018, three CDFIs executed interest rate swaps: 
One executed two swaps with an aggregate notional value of $5.6 
million; another executed three swaps with an aggregate notional 
value of $116 million; and another executed three swaps with an 
aggregate notional value of $130 million.
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    The Commission is also updating the data regarding the number of 
swaps entered into by eligible bank holding companies and savings and 
loan holding companies. Between January 1, 2018 and December 31, 2018, 
eleven bank holding companies executed 18 interest rate swaps with an 
aggregate notional value of $152.5 million.\78\ Seven of these bank 
holding companies entered into more than one swap during the calendar 
year 2018. In calendar year 2018 the aggregate notional value of all 
swaps entered into by eligible bank holding companies increased 
substantially ($152.5 million in 2018 compared to $68.6 million in 
2017), but this increase was also the result of more eligible bank 
holding companies entering into uncleared interest rate swaps.
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    \78\ During the previous year, between January 1, 2017 and 
December 31, 2017, one bank holding company executed ten interest 
rate swaps with an aggregate notional value of $43.6 million, and a 
second bank holding company executed one interest rate swap with a 
notional value of $25 million.
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    The increase in the number of uncleared swaps entered into by these 
entities may be the result of better information and more awareness by 
eligible entities about the relief provided under CFTC Letter Nos. 16-
01 and 16-02, or it may be the result of different economic or market 
conditions. The data demonstrates that these entities have an ongoing 
interest in entering into uncleared swaps and likely would benefit from 
the Commission's proposal to codify the relief currently afforded under 
CFTC staff letters.
    Request for Comment. The Commission requests comment on all aspects 
of the new proposed regulations, including the specific revisions to 
the proposed rule text as well as the technical amendments to the 
proposed regulations. In addition, the Commission requests additional 
comment on the use of swaps by CDFIs, bank holding companies, and 
savings and loan holding companies, including quantitative data where 
available.

IV. Commission's Section 4(c) Authority

    Section 4(c)(1) of the CEA authorizes the Commission to promote 
responsible economic or financial innovation and fair competition by 
exempting any transaction or class of transactions, including swaps, 
from any of the provisions of the CEA (subject to exceptions not 
relevant here).\79\ In enacting CEA section 4(c)(1), Congress noted 
that the goal of the provision is to give the Commission a means of 
providing certainty and stability to existing and emerging markets so 
that financial innovation and market development can proceed in an 
effective and competitive manner.\80\ Section 4(c)(2) of the CEA 
further provides that the Commission may not grant exemptive relief 
unless it determines that: (A) The exemption is consistent with the 
public interest and the purposes of the CEA; and (B) the transaction 
will be entered into solely between ``appropriate persons'' and the 
exemption will not have a material adverse effect on the ability of the 
Commission or any contract market to discharge its regulatory or self-
regulatory responsibilities under the CEA.
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    \79\ Pursuant to section 4(c)(1) of the CEA, in order to promote 
responsible economic or financial innovation and fair competition, 
the Commission by rule, regulation, or order, after notice and 
opportunity for hearing, may (on its own initiative or on 
application of any person) exempt any agreement, contract, or 
transaction (or class thereof) that is otherwise subject to 
subsection (a) of CEA section 4(c), either unconditionally or on 
stated terms or conditions or for stated periods and either 
retroactively or prospectively, or both, from any of the 
requirements of subsection (a) of CEA section 4(c), or from any 
other provision of the CEA. The Commission is proposing to 
promulgate this exemptive rule pursuant to sections 4(c)(1) and 
8a(5) of the CEA.
    \80\ H. R. Rep. No. 102-978, 102d Cong. 2d Sess. at 81 (Oct. 2, 
1992), reprinted in 1992 U.S.C.C.A.N. 3179, 3213.
---------------------------------------------------------------------------

    The Commission believes that it is consistent with the public 
interest and the purposes of the CEA to exempt from the Clearing 
Requirement swaps entered into with central banks, sovereign entities, 
and international financial institutions, as discussed above. In 2012, 
the Commission stated its view that transactions with central banks, 
sovereign entities, and certain international financial institutions 
should be exempted from clearing on the basis of comity and in keeping 
with

[[Page 27966]]

the traditions of the international system. The Commission continues to 
believe, as it did in 2012, that based on canons of statutory 
construction and considerations of comity, and in keeping with the 
traditions of the international system, foreign governments and central 
banks should not be subject to section 2(h)(1) of the CEA.\81\ With 
respect to international financial institutions, the member governments 
generally have majority control and governance over the entities. The 
Commission therefore continues to believe that an exemption is 
appropriate because in a real sense, an international financial 
institution is not separable from its government owners. Codifying the 
Commission's 2012 determination through a section 4(c) exemption will 
provide further clarity to market participants. As with the other 
exemptions from the Clearing Requirement, the Commission reminds the 
counterparties that these swaps exempted from the Clearing Requirement 
by this proposal and the existing 2012 determination must be reported 
to an SDR. The Commission also believes it is appropriate to exempt 
swaps entered into with international financial institutions because 
these entities serve an important public policy purpose.
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    \81\ The Commission continues to believe that transactions with 
sovereign wealth funds or similar entities should not be exempt from 
the Clearing Requirement because these entities generally act as 
investment funds. See 77 FR at 42562, n.18 (``The foregoing 
rationale and considerations do not apply to sovereign wealth funds 
or similar entities due to the predominantly commercial nature of 
their activities.'').
---------------------------------------------------------------------------

    The Commission believes that the specific amendments to exempt 
swaps entered into by central banks, sovereign entities, and certain 
international financial institutions, as well as the previously 
approved proposal to exempt certain swaps entered into by bank holding 
companies, savings and loan holding companies, and CDFIs from the 
Clearing Requirement would be available to only ``appropriate 
persons.'' Section 4(c)(3) of the CEA includes within the term 
``appropriate person'' a number of specified categories of persons, 
including any governmental entity (including the United States, any 
state, or any foreign government) or political subdivision thereof, or 
any multinational or supranational entity or any instrumentality, 
agency, or department of any of the foregoing.\82\
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    \82\ Section 4(c)(3)(H) of the CEA.
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    The Commission preliminarily believes that central banks, sovereign 
entities, and international financial institutions are appropriate 
persons within the scope of section 4(c)(3)(H) of the CEA. The 
Commission notes that these entities would also be considered eligible 
contract participants (ECPs) as set forth in section 1a(18)(A)(vii) of 
the CEA. The Commission continues to believe that eligible bank holding 
companies, savings and loan holding companies, and CDFIs are ECPs 
pursuant to section 1a(18)(A)(i) of the CEA.\83\
---------------------------------------------------------------------------

    \83\ 2018 Proposal, at 44008.
---------------------------------------------------------------------------

    Given that only ECPs are permitted to enter into uncleared swaps, 
and that the ECP definition is generally more restrictive than the 
comparable elements of the enumerated ``appropriate person'' 
definition, there is no risk that a non-ECP or a person who does not 
satisfy the requirements for an ``appropriate person'' could enter into 
an uncleared swap using the proposed exemptions from the Clearing 
Requirement. For purposes of this proposal, the Commission believes 
that the class of persons eligible to rely on the proposed exemptions 
that would be codified in new proposed regulations 50.75 through 50.79 
will be limited to ``appropriate persons'' within the scope of section 
4(c) of the CEA.
    The Commission believes that the applicable central banks, 
sovereign entities, and international financial institutions have been 
relying on the language in the preamble exempting their swap 
transactions from the Clearing Requirement since issuance of the 2012 
End-User Exception final rule. The Commission is not aware of any 
increase in counterparty risk attributable to affected entities' 
reliance on the 2012 Commission determination and the subsequent staff 
no-action letters. The proposed exemptions from the Clearing 
Requirement are limited in scope and, as described further below, the 
Commission will continue to have access to information regarding the 
swaps subject to this exemption because they will be reported to an 
SDR.\84\ The Commission notes that the proposed exemptions are intended 
to be consistent with the Commission's determination set forth in the 
2012 End-User Exception final rule and would not limit the 
applicability of any CEA provision or Commission regulation to any 
person or transaction except as provided in the proposed rulemaking. In 
addition, the Commission retains its special call, anti-fraud, and 
anti-evasion authorities, which will enable it to adequately discharge 
its regulatory responsibilities under the CEA. The Commission therefore 
preliminarily believes the exemption would not have a material adverse 
effect on the ability of the Commission to discharge its regulatory 
responsibilities under the CEA.
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    \84\ The Commission notes that uncleared swaps with a 
counterparty that is subject to the CEA and Commission regulations 
with regard to such swaps would still be required to comply with the 
CEA and Commission regulations as they pertain to uncleared swaps.
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    For the reasons described in this proposal, the Commission believes 
it would be appropriate and consistent with the public interest to 
adopt new proposed regulations 50.75, 50.76, 50.77, 50.78, and 50.79.
    Request for Comment. The Commission requests general comments 
regarding the proposal and on whether it should exercise its authority 
under section 4(c) of the CEA, including whether the proposed 
exemptions promote the public interest. Additionally, the Commission 
requests comment on whether the proposed exemptions provide certainty 
and stability to existing and emerging markets so that financial 
innovation and market development can proceed in an effective and 
competitive manner.

V. Proposed Rules Do Not Effect Margin Requirements for Uncleared Swaps

    Under Commission regulation 23.150(b)(1), the margin requirements 
for uncleared swaps under part 23 of the Commission's regulations do 
not apply to a swap if the counterparty qualifies for an exception from 
clearing under section 2(h)(7)(A) and implementing regulations.\85\ 
Commission regulation 23.150(b) was added to the final margin rules 
after the Terrorism Risk Insurance Program Reauthorization Act of 2015 
(TRIPRA) \86\ amended section 731 of the Dodd-Frank Act by adding 
section 4s(e)(4) to the CEA to provide that the initial and variation 
margin requirements will not apply to an uncleared swap in which a non-
financial entity (including a small financial institution and a captive 
finance company) qualifies for an exception under section 2(h)(7)(A) of 
the CEA, as well as two exemptions from the clearing requirement that 
are not relevant in this context.\87\
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    \85\ Commission regulation 23.150(b)(1).
    \86\ Public Law 114-1, 129 Stat. 3.
    \87\ Commission regulation 23.150(b)(2) provides that certain 
cooperative entities that are exempt from the Commission's clearing 
requirement pursuant to section 4(c)(1) authority also are exempt 
from the initial and variation margin requirements. None of the 
entities included in this proposal is a cooperative that would meet 
the conditions in Commission regulation 23.150(b)(2). In addition, 
Commission regulation 23.150(b)(3), which pertains to affiliated 
entities, does not apply in this context.
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    The proposed rules are not implementing section 2(h)(7)(A) of the 
CEA. The Commission, pursuant to its

[[Page 27967]]

4(c) authority (as discussed above), is proposing to exempt swaps 
entered into by central banks, sovereign entities, and international 
financial institutions, as well as eligible bank holding companies, 
savings and loan holding companies, and CDFIs from the Clearing 
Requirement. The Commission is not proposing to exclude these entities 
from the ``financial entity'' definition of section 2(h)(7)(C) of the 
CEA.
    For the reasons stated above, the new proposed rules 50.75 through 
50.79 do not implicate any of the provisions of section 4s(e)(4) of the 
CEA or Commission regulation 23.150.\88\
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    \88\ The Commission believes that the proposed rules do not 
affect the margin rules for entities that are supervised by the 
prudential regulators. The prudential regulators' rules contain 
provisions that are identical to Commission regulation 23.150. See 
Margin and Capital Requirements for Covered Swap Entities, 80 FR 
74916, 74923 (Nov. 20, 2015).
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VI. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires federal agencies to 
consider whether the regulations they propose will have a significant 
economic impact on a substantial number of small entities and, if so, 
provide a regulatory flexibility analysis on the impact.\89\ The 
Commission previously has established certain definitions of small 
entities to be used in evaluating the impact of its regulations on 
small entities in accordance with the RFA.\90\ The proposed regulations 
would not affect any small entities as that term is used in the RFA. 
The proposed rule would affect specific counterparties to an uncleared 
swap: Central banks, sovereign entities, and international financial 
institutions. Sections 2(e) and 5(d)(11)(A) of the CEA provide that 
only ECPs may enter into uncleared swaps.\91\ The Commission has 
previously stated that ECPs, by the nature of the definition, should 
not be considered small entities for RFA purposes.\92\ Because ECPs are 
not small entities, and persons not meeting the definition of ECP may 
not conduct transactions in uncleared swaps, the Commission need not 
conduct a regulatory flexibility analysis respecting the effect of 
these proposed rules on ECPs.
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    \89\ 5 U.S.C. 601 et seq.
    \90\ 47 FR 18618 (Apr. 30, 1982).
    \91\ Section 2(e) of the CEA limits non-ECPs to executing swap 
transactions on DCMs and section 5(d)(11)(A) of the CEA requires all 
DCM transactions to be cleared. Accordingly, the two provisions read 
together only permit ECPs to execute uncleared swap transactions.
    \92\ See 66 FR 20740, 20743 (Apr. 25, 2001).
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    Accordingly, the Chairman, on behalf of the Commission, hereby 
certifies pursuant to 5 U.S.C. 605(b) that the proposed regulations 
will not have a significant economic impact on a substantial number of 
small entities.

B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) \93\ imposes certain 
requirements on Federal agencies, including the Commission, in 
connection with their conducting or sponsoring any collection of 
information, as defined by the PRA. This proposed rulemaking would not 
impose a new collection of any information or any new recordkeeping 
requirements from any persons or entities and would not require 
approval of the Office of Management and Budget (OMB) under the 
PRA.\94\ The Commission invites public comment on its determination 
that no additional recordkeeping or information collection 
requirements, or changes to existing collection requirements, would 
result from the proposed rulemaking.
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    \93\ 44 U.S.C. 3501 et seq.
    \94\ The applicable collection of information is ``Swap Data 
Recordkeeping and Reporting Requirements,'' OMB control number 3038-
0096. Parties wishing to review the CFTC's information collections 
may do so at www.reginfo.gov, at which OMB maintains an inventory 
aggregating each of the CFTC's currently approved information 
collections, as well as the information collections that presently 
are under review.
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C. Cost-Benefit Considerations

1. Statutory and Regulatory Background
    Section 15(a) of the CEA requires the Commission to consider the 
costs and benefits of its actions before promulgating a regulation 
under the CEA or issuing certain orders.\95\ Section 15(a) further 
specifies that the costs and benefits shall be evaluated in light of 
the following five broad areas of market and public concern: (1) 
Protection of market participants and the public; (2) efficiency, 
competitiveness, and financial integrity; (3) price discovery; (4) 
sound risk management practices; and (5) other public interest 
considerations (collectively referred to herein as the Section 15(a) 
Factors).
---------------------------------------------------------------------------

    \95\ Section 15(a) of the CEA.
---------------------------------------------------------------------------

    The baseline for the Commission's consideration of the costs and 
benefits of this proposed rulemaking is the existing statutory and 
regulatory framework under which any swap subject to the Clearing 
Requirement would be required to be cleared by central banks, sovereign 
entities, and international financial institutions. As a practical 
matter, however, the regulatory baseline has been affected by 
Commission action and staff no-action relief such that central banks, 
sovereign entities, international financial institutions, and their 
counterparties have relied on Commission statements in the 2012 End-
User Exception final rule and staff no-action relief when entering into 
swaps that otherwise would be subject to the Clearing Requirement.
    This proposal would codify current practice by exempting certain 
swaps with central banks (including BIS), sovereign entities, and 
international financial institutions from the Clearing Requirement. The 
Commission believes that the entities whose swaps would be exempted by 
this proposing release are the same entities governed by the 
determination set forth in the 2012 End-User Exception final rule and 
the entities that received staff no-action relief.\96\ Consequently, 
the Commission expects that the actual costs and benefits of the 
proposed rule, as realized in the market, may not be as significant as 
compared to the baseline.
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    \96\ The one modification to the proposed list is to include the 
Islamic Development Bank as an additional entity that would be 
eligible for the exemption under proposed regulation 50.76(b). The 
Islamic Development Bank is not subject to the Commission's margin 
requirements for uncleared swaps.
---------------------------------------------------------------------------

    The Commission notes that this proposal would not change the 
eligibility to enter into uncleared swaps for any entity that has been 
relying on the 2012 End-User Exception final rule determination and has 
not been clearing swaps subject to the Clearing Requirement. Entities 
named in the 2012 End-User Exception final rule \97\ may continue to 
rely on the Commission's statement that they are not subject to section 
2(h)(1) of the CEA and may choose not to clear a swap subject to the 
Clearing Requirement. The Commission has endeavored to assess the 
expected costs and benefits of the proposed rule in quantitative terms 
where possible. Where estimation or quantification is not feasible, the 
Commission has provided its discussion in qualitative terms.
---------------------------------------------------------------------------

    \97\ 77 FR at 42561-62 n.14.
---------------------------------------------------------------------------

    The Commission notes that the consideration of costs and benefits 
below is based on the understanding that the markets function 
internationally, with many transactions involving U.S. firms taking 
place across international boundaries; with some Commission registrants 
being organized outside of the United States; with leading industry 
members typically conducting operations both within and outside the 
United States; and with industry members commonly following 
substantially similar business practices wherever located. Where the 
Commission does not specifically refer to matters of location, the 
below

[[Page 27968]]

discussion of costs and benefits refers to the effects of the proposed 
rule on all activity subject to the proposed and amended regulations, 
whether by virtue of the activity's physical location in the United 
States or by virtue of the activity's connection with or effect on U.S. 
commerce under section 2(i) of the CEA.\98\ In particular, the 
Commission notes that some entities affected by this proposed 
rulemaking are located outside of the United States.
---------------------------------------------------------------------------

    \98\ Section 2(i) of the CEA.
---------------------------------------------------------------------------

    In the sections that follow, the Commission considers: (1) The 
costs and benefits of the exemption to the Clearing Requirement for 
entities that meet the definitions of central bank, sovereign entity, 
and international financial institution, as identified in this proposed 
rule; and (2) the impact of the exemption for central banks, sovereign 
entities, and international financial institutions on the Section 15(a) 
Factors.
    The Commission is including by reference the costs and benefits of 
the supplemental proposal to exempt swaps entered into by certain bank 
holding companies, savings and loan holding companies, and CDFIs.\99\
---------------------------------------------------------------------------

    \99\ The Commission notes that the costs and benefits of the 
proposed changes in the 2018 Proposal were discussed in that release 
and remain under active consideration by the Commission. As the 
Commission noted in the 2018 Proposal, bank holding companies, 
savings and loan holding companies, and CDFIs are likely to have 
limited swap exposure, in terms of value and number of swaps. These 
entities would have relatively modest contributions to systemic risk 
and are expected to have some degree of protection against default 
because they would be required to indicate how they will meet 
financial obligations associated with uncleared swaps. Bank holding 
companies and savings and loan holding companies will benefit from 
an exemption from the Clearing Requirement through internal 
accounting efficiencies and all of the entities would benefit from 
the cost savings of not having to clear a swap. See 2018 Proposal at 
44009-11.
---------------------------------------------------------------------------

2. Consideration of the Costs and Benefits of the Commission's Action
a. Costs
    New proposed regulations 50.75 and 50.76 would exempt swaps entered 
into with central banks, sovereign entities, and certain international 
financial institutions from the Clearing Requirement. By exempting 
transactions with central banks, sovereign entities, and international 
financial institutions from the Clearing Requirement, the Commission 
recognizes that the benefits of central clearing will not accrue to 
swaps entered into by these entities. However, as discussed above, 
Congress exempted swaps with the Federal Reserve Banks, the Federal 
Government, and Federal agencies expressly backed by the full faith and 
credit of the United States by excluding any agreement, contract, or 
transaction entered into by these entities from the definition of a 
swap and consequently from the Clearing Requirement.\100\ The proposed 
amendments to part 50 of the Commission's regulations would codify the 
Commission's 2012 End-User Exception final rule determination that 
based on considerations of comity, and in keeping with the traditions 
of the international system, swaps entered into with certain central 
banks (including BIS), sovereign entities, and international financial 
institutions should be treated like swaps entered into with the Federal 
Reserve Banks, the Federal Government, or a Federal agency and should 
not be subject to the Clearing Requirement.
---------------------------------------------------------------------------

    \100\ Section 1a(47)(B)(ix) of the CEA.
---------------------------------------------------------------------------

    The primary cost of the proposed amendments is, therefore, that 
swaps entered into with central banks, sovereign entities, and 
international financial institutions would not be subject to the 
Clearing Requirement.
    In general, the principal risk to the financial system that central 
clearing seeks to address is counterparty credit risk. A DCO manages 
this risk by collecting initial and variation margin from its clearing 
members. The collection of margin allows a DCO to mitigate the 
possibility of a default, and to cover the losses due to default of a 
clearing member in many cases. By exempting transactions with these 
entities from the Clearing Requirement, the Commission recognizes that 
the risk-mitigating benefits of clearing will not attach to those 
transactions. In addition, the Commission is also aware that some of 
these entities may be covered under the Commission's uncleared margin 
requirements. In that case, the cost that may result from not requiring 
clearing these transactions may be mitigated. To the extent that these 
entities do not pay margin, there is a possibility of increased 
counterparty risk.
    Request for Comment. The Commission requests comment, including any 
available quantitative data and analysis, on the risks resulting from 
the proposed amendment to the Clearing Requirement.
b. Benefits
    Set against these costs are the benefits of allowing these entities 
to enter into swaps at a potentially lower cost. Specifically, the 
Commission believes that central banks (including BIS), sovereign 
entities, and international financial institutions would benefit from 
an exemption because project financing and risk management transactions 
with these entities would not be subject to required clearing or have 
the added expense of required clearing. The Commission believes that 
the cost savings achieved through an exemption from the Clearing 
Requirement would allow these entities to enter into more public 
service projects in furtherance of their missions.
    The Commission believes there is an important benefit associated 
with the proposed amendments. If foreign governments (sovereign 
entities), central banks, or international financial institutions of 
which foreign governments are a member were subjected to regulation by 
the Commission in connection with their swaps, foreign regulators could 
treat the Federal Government, Federal Reserve Banks, or international 
financial institutions of which the United States is a member in a 
similar manner. The Commission expects that the proposed exemption from 
the Clearing Requirement will mean that if any of the Federal 
Government, Federal Reserve Banks, or international financial 
institutions of which the United States is a member were to engage in 
swaps in foreign jurisdictions, the actions of those entities with 
respect to those transactions would not be subject to foreign 
regulation. By allowing swaps entered into with central banks 
(including BIS), sovereign entities, and international financial 
institutions to be treated like swaps entered into with the Federal 
Reserve Banks, the Federal Government, and Federal agencies, the 
Commission is facilitating similar treatment for transactions by 
foreign regulators.\101\
---------------------------------------------------------------------------

    \101\ See 77 FR at 42562.
---------------------------------------------------------------------------

    The Commission believes that most of the central banks, sovereign 
entities, and international financial institutions that would benefit 
from the proposed regulations would benefit from relief from the 
uncleared margin requirements under part 23 of the Commission's 
regulations, as well. For entities that would be required to comply 
with the Commission's uncleared margin requirements, their benefit from 
an exemption would be mitigated. Actual benefits may be less than 
expected if counterparties to eligible swaps by central banks, 
sovereign entities, and international financial institutions choose to 
voluntarily clear the swaps instead of electing an exemption from the 
Clearing Requirement.
    As a practical matter, we believe that the entities for which the 
proposed rule would apply currently are not clearing all of their swaps 
subject to the Clearing

[[Page 27969]]

Requirement.\102\ In that regard, the practical effect of the proposed 
exception is to provide regulatory certainty. The Commission believes 
that regulatory certainty would reduce the legal costs faced by these 
entities.
---------------------------------------------------------------------------

    \102\ The Commission reviewed data from January 1, 2018 to 
December 31, 2018 that was reported to DDR and found that 16 
international financial institutions entered into approximately 
2,500 uncleared interest rate swaps with an estimated total notional 
value of $220 billion. Three international financial institutions 
elected to clear a portion of their interest rate swaps.
---------------------------------------------------------------------------

    Request for Comment. The Commission requests comment on the 
benefits, such as the expected cost savings to these entities, of 
codifying the Commission's determination and staff no-action relief 
that swaps entered into with central banks, sovereign entities, or 
international financial institutions should be exempt from the Clearing 
Requirement.
3. Section 15(a) Factors
    The discussion that follows supplements the related cost and 
benefit considerations addressed in the preceding section and addresses 
the overall effect of the proposed rule in terms of the factors set 
forth in section 15(a) of the CEA.
a. Protection of Market Participants and the Public
    Section 15(a)(2)(A) of the CEA requires the Commission to evaluate 
the costs and benefits of a proposed regulation in light of 
considerations of protection of market participants and the public. The 
Commission considers the costs and benefits of the proposed exemption 
from the Clearing Requirement in light of its responsibility for 
determining which swaps should be required to be cleared. In 
recognition of the significant risk-mitigating benefits of central 
clearing, Congress amended the CEA to direct the Commission review all 
swaps that are offered for clearing by DCOs to determine whether such 
swaps should be required to be cleared. In developing the proposed 
rule, the Commission was cognizant that in enacting the Dodd-Frank Act, 
Congress excluded from the definition of a swap any agreement, 
contract, or transaction wherein the counterparty is a Federal Reserve 
Bank, the Federal Government, or a Federal agency that is expressly 
backed by the full faith and credit of the United States. In so doing, 
Congress determined that swaps with the Federal Reserve Banks, the 
Federal Government, and Federal agencies are not subject to the 
Clearing Requirement. Under this proposal, the Commission would be 
extending similar treatment for swap transactions with central banks 
and sovereign entities, as discussed above.
    The Commission notes that the proposed exemption from the Clearing 
Requirement means that counterparties entering into swaps with certain 
entities would not have the protection afforded by central clearing 
through posting initial margin, daily variation margin payments, and 
other types of collateralization and risk mitigation associated with 
central clearing. The Commission, however, believes Congress would not 
have excluded the swaps entered into by the Federal Reserve Bank, the 
Federal Government, and Federal agencies from the definition of a swap 
if such transactions would pose a significant risk to market 
participants and the public. In proposing a similar exemption from the 
Clearing Requirement for swaps with central banks and sovereign 
entities, as discussed above, the Commission is applying a similar 
rationale.
    As discussed above, the Commission believes that international 
comity would support similar regulatory treatment for swap transactions 
with central banks, sovereign entities, and international financial 
institutions. The Commission preliminarily believes these entities 
generally enter into limited swap transactions in support of their 
public interest missions. As such, while an exemption from the Clearing 
Requirement does result in reduced protection for counterparties, the 
Commission believes that the exemption for transactions with these 
entities would not pose a significant risk to market participants and 
the public.
b. Efficiency, Competitiveness, and Financial Integrity of Swap Markets
    Section 15(a)(2)(B) of the CEA requires the Commission to evaluate 
the costs and benefits of a proposed regulation in light of efficiency, 
competitiveness, and financial integrity considerations. The Commission 
believes that proposed regulations 50.75 and 50.76 would lower the cost 
of using swaps for central banks, sovereign entities, and international 
financial institutions, and in that sense, make trading more efficient. 
A potential effect of the proposal would be to increase liquidity in 
swap markets, as entering into swaps would be less costly and these 
entities may engage in increased trading, which may in turn potentially 
improve the competitiveness of swaps markets for all participants. The 
Commission notes that to the extent that transactions with these 
counterparties are currently not cleared because of reliance on the 
Commission statements made in the 2012 End-User Exception final rule 
and DCR no-action letters, the impact of the proposed exemption on the 
efficiency, competitiveness, and financial integrity of the swap 
markets may be mitigated.
c. Price Discovery
    Section 15(a)(2)(C) of the CEA requires the Commission to evaluate 
the costs and benefits of a proposed regulation in light of price 
discovery considerations. The Commission preliminarily believes that 
the proposed rule would not have a significant impact on price 
discovery. Typically more liquidity supports greater price discovery as 
more participants enter the market and/or more trading occurs. To the 
extent that markets become more liquid, price discovery could improve. 
In regard to transparency of prices, swap transactions, whether cleared 
or uncleared and regardless of the counterparty, are required by 
section 2(a)(13)(G) of the CEA to be reported to a swap data 
repository.
d. Sound Risk Management Practices
    Section 15(a)(2)(D) of the CEA requires the Commission to evaluate 
the costs and benefits of a proposed regulation in light of sound risk 
management practices. The Commission believes that by eliminating the 
costs associated with clearing for central banks, sovereign entities, 
and international financial institutions, the Commission is 
facilitating the use of swaps by these entities. To the extent that 
these entities use swaps to hedge existing risk, then the Commission 
preliminarily believes the proposed exemption from the clearing 
requirement will enable better risk management.
e. Other Public Interest Considerations
    Section 15(a)(2)(E) of the CEA requires the Commission to evaluate 
the costs and benefits of a proposed regulation in light of other 
public interest considerations. As discussed above, the Commission 
believes that public interest and international comity support the 
exemption from the Clearing Requirement for swaps with central banks, 
sovereign entities, and international financial institutions. The 
Commission believes that the public interest mission of these entities 
will be served by lowering the cost of financing in support of their 
public interest missions. The Commission requests comment on other 
public interest considerations raised by the proposed exemption from 
the Clearing Requirement for swaps with central banks, sovereign 
entities, and international financial institutions.

[[Page 27970]]

D. General Request for Comment

    The Commission requests comment on all aspects of the costs and 
benefits relating to the proposed exemption of these transactions from 
the Clearing Requirement. The Commission requests that commenters 
provide any data or other information that would be useful in 
estimating the quantifiable costs and benefits of this rulemaking.

E. Antitrust Considerations

    Section 15(b) of the Act requires the Commission to take into 
consideration the public interest to be protected by the antitrust laws 
and endeavor to take the least anticompetitive means of achieving the 
objectives of the Act, as well as the policies and purposes of the Act, 
in issuing any order or adopting any Commission rule or regulation 
(including any exemption under section 4(c) or 4c(b)), or in requiring 
or approving any bylaw, rule, or regulation of a contract market or 
registered futures association established pursuant to section 17 of 
the Act.\103\ The Commission believes that the public interest to be 
protected by the antitrust laws is generally to protect competition. 
The Commission requests comment on whether the proposal implicates any 
other specific public interest to be protected by the antitrust laws.
---------------------------------------------------------------------------

    \103\ Section 15(b) of the CEA.
---------------------------------------------------------------------------

    The Commission has considered the proposal to determine whether it 
is anticompetitive and has preliminarily identified no anticompetitive 
effects. The Commission requests comment on whether the proposal is 
anticompetitive and, if it is, what the anticompetitive effects are.
    Because the Commission has preliminarily determined that the 
proposal is not anticompetitive and has no anticompetitive effects, the 
Commission has not identified any less anticompetitive means of 
achieving the purposes of the Act. The Commission requests comment on 
whether there are less anticompetitive means of achieving the relevant 
purposes of the Act that would otherwise be served by adopting the 
proposal.

List of Subjects in 17 CFR Part 50

    Business and industry, Clearing, Cooperatives, Reporting 
requirements, Swaps.

    For the reasons discussed in the preamble, the Commodity Futures 
Trading Commission proposes to amend 17 CFR chapter I as set forth 
below:

PART 50--CLEARING REQUIREMENT AND RELATED RULES

0
1. The authority citation for part 50 is revised to read as follows:

    Authority:  7 U.S.C. 2(h), 6(c), and 7a-1 as amended by Pub. L. 
111-203, 124 Stat. 1376.

0
2. Revise the subpart B heading to read as follows:

Subpart B--Clearing Requirement Compliance Schedule and Compliance 
Dates

0
3. Add Sec.  50.26 to read as follows:


Sec.  50.26   Swap clearing requirement compliance dates.

    (a) Compliance dates for interest rate swap classes. The compliance 
dates for swaps that are required to be cleared under Sec.  50.4(a) are 
specified in the table below.

                                                                         Table 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Currency and floating rate     Stated termination  date       Clearing requirement
         Swap asset class                 Swap class subtype                  index                        range                    compliance date
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest Rate Swap................  Fixed-to-Floating............  Euro (EUR) EURIBOR........  28 days to 50 years..........  Category 1 entities March
                                                                                                                               11, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities June 10, 2013.
                                                                                                                              Category 2 entities
                                                                                                                               September 9, 2013.
Interest Rate Swap................  Fixed-to-Floating............  Sterling (GBP) LIBOR......  28 days to 50 years..........  Category 1 entities March
                                                                                                                               11, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities June 10, 2013.
                                                                                                                              Category 2 entities
                                                                                                                               September 9, 2013.
Interest Rate Swap................  Fixed-to-Floating............  U.S. Dollar (USD) LIBOR...  28 days to 50 years..........  Category 1 entities March
                                                                                                                               11, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities June 10, 2013.
                                                                                                                              Category 2 entities
                                                                                                                               September 9, 2013.
Interest Rate Swap................  Fixed-to-Floating............  Yen (JPY) LIBOR...........  28 days to 50 years..........  Category 1 entities March
                                                                                                                               11, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities June 10, 2013.
                                                                                                                              Category 2 entities
                                                                                                                               September 9, 2013.
Interest Rate Swap................  Fixed-to-Floating............  Australian Dollar (AUD)     28 days to 30 years..........  All entities December 13,
                                                                    BBSW.                                                      2016.
Interest Rate Swap................  Fixed-to-Floating............  Canadian Dollar (CAD) CDOR  28 days to 30 years..........  All entities July 10,
                                                                                                                               2017.
Interest Rate Swap................  Fixed-to-Floating............  Hong Kong Dollar (HKD)      28 days to 10 years..........  All entities August 30,
                                                                    HIBOR.                                                     2017.
Interest Rate Swap................  Fixed-to-Floating............  Mexican Peso (MXN) TIIE-    28 days to 21 years..........  All entities December 13,
                                                                    BANXICO.                                                   2016.
Interest Rate Swap................  Fixed-to-Floating............  Norwegian Krone (NOK)       28 days to 10 years..........  All entities April 10,
                                                                    NIBOR.                                                     2017.

[[Page 27971]]

 
Interest Rate Swap................  Fixed-to-Floating............  Polish Zloty (PLN) WIBOR..  28 days to 10 years..........  All entities April 10,
                                                                                                                               2017.
Interest Rate Swap................  Fixed-to-Floating............  Singapore Dollar (SGD) SOR- 28 days to 10 years..........  All entities October 15,
                                                                    VWAP.                                                      2018.
Interest Rate Swap................  Fixed-to-Floating............  Swedish Krona (SEK) STIBOR  28 days to 15 years..........  All entities April 10,
                                                                                                                               2017.
Interest Rate Swap................  Fixed-to-Floating............  Swiss Franc (CHF) LIBOR...  28 days to 30 years..........  All entities October 15,
                                                                                                                               2018.
Interest Rate Swap................  Basis........................  Euro (EUR) EURIBOR........  28 days to 50 years..........  Category 1 entities March
                                                                                                                               11, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities June 10, 2013.
                                                                                                                              Category 2 entities
                                                                                                                               September 9, 2013.
Interest Rate Swap................  Basis........................  Sterling (GBP) LIBOR......  28 days to 50 years..........  Category 1 entities March
                                                                                                                               11, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities June 10, 2013.
                                                                                                                              Category 2 entities
                                                                                                                               September 9, 2013.
Interest Rate Swap................  Basis........................  U.S. Dollar (USD) LIBOR...  28 days to 50 years..........  Category 1 entities March
                                                                                                                               11, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities June 10, 2013.
                                                                                                                              Category 2 entities
                                                                                                                               September 9, 2013.
Interest Rate Swap................  Basis........................  Yen (JPY) LIBOR...........  28 days to 30 years..........  Category 1 entities March
                                                                                                                               11, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities June 10, 2013.
                                                                                                                              Category 2 entities
                                                                                                                               September 9, 2013.
Interest Rate Swap................  Basis........................  Australian Dollar (AUD)     28 days to 30 years..........  All entities December 13,
                                                                    BBSW.                                                      2016.
Interest Rate Swap................  Forward Rate Agreement.......  Euro (EUR) EURIBOR........  3 days to 3 years............  Category 1 entities March
                                                                                                                               11, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities June 10, 2013.
                                                                                                                              Category 2 entities
                                                                                                                               September 9, 2013.
Interest Rate Swap................  Forward Rate Agreement.......  Sterling (GBP) LIBOR......  3 days to 3 years............  Category 1 entities March
                                                                                                                               11, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities June 10, 2013.
                                                                                                                              Category 2 entities
                                                                                                                               September 9, 2013.
Interest Rate Swap................  Forward Rate Agreement.......  U.S. Dollar (USD) LIBOR...  3 days to 3 years............  Category 1 entities March
                                                                                                                               11, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities June 10, 2013.
                                                                                                                              Category 2 entities
                                                                                                                               September 9, 2013.
Interest Rate Swap................  Forward Rate Agreement.......  Yen (JPY) LIBOR...........  3 days to 3 years............  Category 1 entities March
                                                                                                                               11, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities June 10, 2013.
                                                                                                                              Category 2 entities
                                                                                                                               September 9, 2013.
Interest Rate Swap................  Forward Rate Agreement.......  Polish Zloty (PLN) WIBOR..  3 days to 2 years............  All entities April 10,
                                                                                                                               2017.
Interest Rate Swap................  Forward Rate Agreement.......  Norwegian Krone (NOK)       3 days to 2 years............  All entities April 10,
                                                                    NIBOR.                                                     2017.
Interest Rate Swap................  Forward Rate Agreement.......  Swedish Krona (SEK) STIBOR  3 days to 3 years............  All entities April 10,
                                                                                                                               2017.
Interest Rate Swap................  Overnight Index Swap.........  Euro (EUR) EONIA..........  7 days to 2 years............  Category 1 entities March
                                                                                                                               11, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities June 10, 2013.
                                                                                                                              Category 2 entities
                                                                                                                               September 9, 2013.

[[Page 27972]]

 
                                                                                               2 years + 1 day to 3 years...  All entities December 13,
                                                                                                                               2016.
Interest Rate Swap................  Overnight Index Swap.........  Sterling (GBP) SONIA......  7 days to 2 years............  Category 1 entities March
                                                                                                                               11, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities June 10, 2013.
                                                                                                                              Category 2 entities
                                                                                                                               September 9, 2013.
                                                                                               2 years + 1 day to 3 years...  All entities December 13,
                                                                                                                               2016.
Interest Rate Swap................  Overnight Index Swap.........  U.S. Dollar (USD) FedFunds  7 days to 2 years............  Category 1 entities March
                                                                                                                               11, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities June 10, 2013.
                                                                                                                              Category 2 entities
                                                                                                                               September 9, 2013.
                                                                                               2 years + 1 day to 3 years...  All entities December 13,
                                                                                                                               2016.
Interest Rate Swap................  Overnight Index Swap.........  Australian Dollar (AUD)     7 days to 2 years............  All entities December 13,
                                                                    AONIA-OIS.                                                 2016.
Interest Rate Swap................  Overnight Index Swap.........  Canadian Dollar (CAD)       7 days to 2 years............  All entities July 10,
                                                                    CORRA-OIS.                                                 2017.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    (b) Compliance dates for credit default swap classes. The 
compliance dates for swaps that are required to be cleared under Sec.  
50.4(b) are specified in the table below.

                                                                         Table 2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                 Clearing requirement
          Swap asset class                Swap class subtype                 Indices                        Tenor                   compliance date
--------------------------------------------------------------------------------------------------------------------------------------------------------
Credit Default Swap................  North American untranched    CDX.NA.IG...................  3Y, 5Y, 7Y, 10Y.............  Category 1 entities March
                                      CDS indices.                                                                             11, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities June 10, 2013.
                                                                                                                              Category 2 entities
                                                                                                                               September 9, 2013.
Credit Default Swap................  North American untranched    CDX.NA.HY...................  5Y..........................  Category 1 entities March
                                      CDS indices.                                                                             11, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities June 10, 2013.
                                                                                                                              Category 2 entities
                                                                                                                               September 9, 2013.
Credit Default Swap................  European untranched CSD      iTraxx Europe...............  5Y, 10Y.....................  Category 1 entities April
                                      indices.                                                                                 26, 2013.
                                                                                                                              Category 2 entities July
                                                                                                                               25, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities October 23,
                                                                                                                               2013.
Credit Default Swap................  European untranched CSD      iTraxx Europe Crossover.....  5Y..........................  Category 1 entities April
                                      indices.                                                                                 26, 2013.
                                                                                                                              Category 2 entities July
                                                                                                                               25, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities October 23,
                                                                                                                               2013.
Credit Default Swap................  European untranched CSD      iTraxx Europe HiVol.........  5Y..........................  Category 1 entities April
                                      indices.                                                                                 26, 2013.
                                                                                                                              Category 2 entities July
                                                                                                                               25, 2013.
                                                                                                                              All non-Category 2
                                                                                                                               entities October 23,
                                                                                                                               2013.
--------------------------------------------------------------------------------------------------------------------------------------------------------

0
4. Revise the subpart C heading to read as follows:

Subpart C--Exceptions and Exemptions from the Clearing Requirement


Sec.  50.50   [Amended]

0
5. Amend Sec.  50.50 as follows:
0
a. Revise the section heading; and
0
b. Remove and reserve paragraph (d).
    The revision reads as follows:


Sec.  50.50   Non-financial end-user exception to the clearing 
requirement.


Sec.  50.51   [Amended]

0
6. Revise the Sec.  50.51 heading to read as follows:

[[Page 27973]]

Sec.  50.51   Cooperatives exempt from the clearing requirement.


Sec.  50.52   [Amended]

0
7. Revise the Sec.  50.52 heading to read as follows:


Sec.  50.52  Affiliated entities exempt from the clearing requirement.

0
8. Add Sec.  50.53 to read as follows:


Sec.  50.53   Banks, savings associations, farm credit system 
institutions, and credit unions exempt from the clearing requirement.

    For purposes of section 2(h)(7)(A) of the Act, a person that is a 
``financial entity'' solely because of section 2(h)(7)(C)(i)(VIII) 
shall be exempt from the definition of ``financial entity'' and is 
eligible to elect the exception to the clearing requirement under Sec.  
50.50, if such person:
    (a) Is organized as a bank, as defined in section 3(a) of the 
Federal Deposit Insurance Act, the deposits of which are insured by the 
Federal Deposit Insurance Corporation; a savings association, as 
defined in section 3(b) of the Federal Deposit Insurance Act, the 
deposits of which are insured by the Federal Deposit Insurance 
Corporation; a farm credit system institution chartered under the Farm 
Credit Act of 1971; or an insured Federal credit union or State-
chartered credit union under the Federal Credit Union Act; and
    (b) Has total assets of $10,000,000,000 or less on the last day of 
such person's most recent fiscal year;
    (c) Reports, or causes to be reported, the swap to a swap data 
repository pursuant to Sec. Sec.  45.3 and 45.4 of this chapter, and 
reports, or causes to be reported, all information as provided in 
paragraph (b) of Sec.  50.50 to a swap data repository; and
    (d) Is using the swap to hedge or mitigate commercial risk as 
provided in paragraph (c) of Sec.  50.50.
0
9. Add subpart D to read as follows:

Subpart D--Swaps Not Subject to the Clearing Requirement

Sec.
50.75 Swaps entered into by central banks or sovereign entities.
50.76 Swaps entered into by international financial institutions.
50.77 Interest rate swaps entered into by community development 
financial institutions.
50.78 Swaps entered into by bank holding companies.
50.79 Swaps entered into by savings and loan holding companies.


Sec.  50.75   Swaps entered into by central banks or sovereign 
entities.

    Swaps entered into by a central bank or sovereign entity shall be 
exempt from the clearing requirement of section 2(h)(1)(A) of the Act 
and this part if reported to a swap data repository pursuant to 
Sec. Sec.  45.3 and 45.4 of this chapter.
    (a) For the purposes of this section, the term central bank means a 
reserve bank or monetary authority of a central government (including 
the Board of Governors of the Federal Reserve System or any of the 
Federal Reserve Banks) or the Bank for International Settlements.
    (b) For the purposes of this section, the term sovereign entity 
means a central government (including the U.S. government), or an 
agency, department, or ministry of a central government.


Sec.  50.76   Swaps entered into by international financial 
institutions.

    (a) Swaps entered into by an international financial institution 
shall be exempt from the clearing requirement of section 2(h)(1)(A) of 
the Act and this part if reported to a swap data repository pursuant to 
Sec. Sec.  45.3 and 45.4 of this chapter.
    (b) For purposes of this section, the term international financial 
institution means:
    (1) African Development Bank;
    (2) African Development Fund;
    (3) Asian Development Bank;
    (4) Banco Centroamericano de Integraci[oacute]n Econ[oacute]mica;
    (5) Bank for Economic Cooperation and Development in the Middle 
East and North Africa;
    (6) Caribbean Development Bank;
    (7) Corporaci[oacute]n Andina de Fomento;
    (8) Council of Europe Development Bank;
    (9) European Bank for Reconstruction and Development;
    (10) European Investment Bank;
    (11) European Investment Fund;
    (12) European Stability Mechanism;
    (13) Inter-American Development Bank;
    (14) Inter-American Investment Corporation;
    (15) International Bank for Reconstruction and Development;
    (16) International Development Association;
    (17) International Finance Corporation;
    (18) International Monetary Fund;
    (19) Islamic Development Bank;
    (20) Multilateral Investment Guarantee Agency;
    (21) Nordic Investment Bank;
    (22) North American Development Bank; and
    (23) Any other entity that provides financing for national or 
regional development in which the U.S. government is a shareholder or 
contributing member.


Sec.  50.77   Interest rate swaps entered into by community development 
financial institutions.

    (a) For the purposes of this section, the term community 
development financial institution means an entity that satisfies the 
definition in section 103(5) of the Community Development Banking and 
Financial Institutions Act of 1994, and is certified by the U.S. 
Department of the Treasury's Community Development Financial 
Institution Fund as meeting the requirements set forth in 12 CFR 
1805.201(b).
    (b) A swap entered into by a community development financial 
institution shall not be subject to the clearing requirement of section 
2(h)(1)(A) of the Act and this part if:
    (1) The swap is a U.S. dollar denominated interest rate swap in the 
fixed-to-floating class or the forward rate agreement class of swaps 
that would otherwise be subject to the clearing requirement under Sec.  
50.4(a);
    (2) The total aggregate notional value of all swaps entered into by 
the community development financial institution during the 365 calendar 
days prior to the day of execution of the swap is less than or equal to 
$200,000,000;
    (3) The swap is one of ten or fewer swap transactions that the 
community development financial institution enters into within a period 
of 365 calendar days;
    (4) One of the counterparties to the swap reports the swap to a 
swap data repository pursuant to Sec. Sec.  45.3 and 45.4 of this 
chapter, and reports all information as provided in paragraph (b) of 
Sec.  50.50 to a swap data repository; and
    (5) The swap is used to hedge or mitigate commercial risk as 
provided in paragraph (c) of Sec.  50.50.


Sec.  50.78   Swaps entered into by bank holding companies.

    (a) For purposes of this section, the term bank holding company 
means an entity that is organized as a bank holding company, as defined 
in section 2 of the Bank Holding Company Act of 1956.
    (b) A swap entered into by a bank holding company shall not be 
subject to the clearing requirement of section 2(h)(1)(A) of the Act 
and this part if:
    (1) The bank holding company has aggregated assets, including the 
assets of all of its subsidiaries, that do not exceed $10,000,000,000 
according to the value of assets of each subsidiary on the last day of 
each subsidiary's most recent fiscal year;
    (2) One of the counterparties to the swap reports the swap to a 
swap data

[[Page 27974]]

repository pursuant to Sec. Sec.  45.3 and 45.4 of this chapter, and 
reports all information as provided in paragraph (b) of Sec.  50.50 to 
a swap data repository; and
    (3) The swap is used to hedge or mitigate commercial risk as 
provided in paragraph (c) of Sec.  50.50.


Sec.  50.79   Swaps entered into by savings and loan holding companies.

    (a) For purposes of this section, the term savings and loan holding 
company means an entity that is organized as a savings and loan holding 
company, as defined in section 10 of the Home Owners' Loan Act of 1933.
    (b) A swap entered into by a savings and loan holding company shall 
not be subject to the clearing requirement of section 2(h)(1)(A) of the 
Act and this part if:
    (1) The savings and loan holding company has aggregated assets, 
including the assets of all of its subsidiaries, that do not exceed 
$10,000,000,000 according to the value of assets of each subsidiary on 
the last day of each subsidiary's most recent fiscal year;
    (2) One of the counterparties to the swap reports the swap to a 
swap data repository pursuant to Sec. Sec.  45.3 and 45.4 of this 
chapter, and reports all information as provided in paragraph (b) of 
Sec.  50.50 to a swap data repository; and
    (3) The swap is used to hedge or mitigate commercial risk as 
provided in paragraph (c) of Sec.  50.50.

    Issued in Washington, DC, on April 17, 2020, by the Commission.
Christopher Kirkpatrick,
Secretary of the Commission.

    Note:  The following appendices will not appear in the Code of 
Federal Regulations.

Appendices to Swap Clearing Requirement Exemptions--Commission Voting 
Summary, Chairman's Statement, and Commissioners' Statements

Appendix 1--Commission Voting Summary

    On this matter, Chairman Tarbert and Commissioners Quintenz, 
Behnam, Stump, and Berkovitz voted in the affirmative. No Commissioner 
voted in the negative.

Appendix 2--Statement of Support of Chairman Heath P. Tarbert

    I am pleased to support today's proposal to amend the CFTC's Part 
50 rules, which implement the swap clearing requirement of section 
2(h)(1) of the Commodity Exchange Act (the ``Clearing Requirement''). 
The proposed Part 50 amendments would create new regulations 50.75 and 
50.76, which would codify existing exemptions from the Clearing 
Requirement for swaps entered into with certain central banks, 
sovereign entities, and international financial institutions.\1\
---------------------------------------------------------------------------

    \1\ The majority of the entities covered by the proposed rule 
were previously identified in the preamble to the 2012 End-User 
Exception final rule as entities that should not be subject to the 
Clearing Requirement. See End-User Exception to the Clearing 
Requirement for Swaps, 77 FR 42560 (Jul. 19, 2012). Four 
international financial institutions covered by the proposed 
amendment separately obtained staff no-action letters concerning the 
clearing requirement. See CFTC Letter No. 13-25 (June 10, 2013) 
(providing no-action relief to the Corporaci[oacute]n Andina de 
Fomento); CFTC Letter No. 17-57 (Nov. 7, 2017) (providing no-action 
relief to Banco Centroamericano de Integraci[oacute]n 
Econ[oacute]mica); CFTC Letter No. 17-59 (Nov. 7, 2017) (providing 
no-action relief to the North American Development Bank); and CFTC 
Letter No. 17-58 (Nov. 7, 2017) and CFTC Letter No. 19-23 (Oct. 16, 
2019) (providing no-action relief to the European Stability 
Mechanism).
---------------------------------------------------------------------------

    Separately, today's proposal would create new regulations 50.77, 
50.78, and 50.79, which would exempt from the Clearing Requirement 
certain swaps entered into by small bank holding companies, savings and 
loan holding companies, and community development financial 
institutions.\2\ The proposal also provides a compliance schedule 
setting forth all the past compliance dates for the 2012 and 2016 swap 
clearing requirement rules and contemplates certain technical 
amendments to various other provisions within Part 50.
---------------------------------------------------------------------------

    \2\ In 2018, the Commission proposed to exempt these entities 
from the Clearing Requirement, but today we are supplementing that 
earlier proposal with technical amendments to the rule text, and we 
are soliciting additional public comment. See Amendments to Clearing 
Exemption for Swaps Entered Into by Certain Bank Holding Companies, 
Savings and Loan Holding Companies, and Community Development 
Financial Institutions, 83 FR 44001 (Aug. 29, 2018).
---------------------------------------------------------------------------

    Together, these amendments to the Clearing Requirement would 
clarify existing exemptions for banks, savings associations, farm 
credit systems, and credit units with total assets under $10 
billion.\3\ While these entities are small, they play outsized roles in 
supporting the U.S. economy. These are not Wall Street banks, but 
primarily local institutions that support American communities, 
businesses, and families. Clarifying their relief from the Clearing 
Requirement advances the CFTC's strategic goal of regulating the 
derivatives markets to promote the interests of all Americans.\4\
---------------------------------------------------------------------------

    \3\ See proposed new regulations 50.77, 50.78, and 50.79.
    \4\ See Remarks of CFTC Chairman Heath P. Tarbert to the 35th 
Annual FIA Expo 2019 (Oct. 30, 2019), available at https://www.cftc.gov/PressRoom/SpeechesTestimony/opatarbert2 (outlining the 
CFTC's strategic goals).
---------------------------------------------------------------------------

    In addition, today's proposed amendments to the Clearing 
Requirement will significantly reduce costs and regulatory burdens for 
entities that pose little or no systemic risk to the United States--
i.e., foreign governmental institutions on the one hand, and small 
domestic lenders on the other. By codifying existing exemptions, the 
Commission will give certainty to market participants by etching their 
clearing exemptions--now fragmented among various no-action letters--
into the text of our Part 50 rules. Doing so is especially important in 
these challenging times: More than ever, certainty will help our market 
participants continue to perform their important functions. Today's 
proposed amendments to the Clearing Requirement take an important step 
in that direction.

Appendix 3--Statement of Support of Commissioner Brian D. Quintenz

    In March 2018, I articulated my approach to our current regulatory 
relationship with our European counterparts in light of their refusal 
to stand by or re-affirm their 2016 commitments in the CFTC's and 
European Commission's common approach to the regulation of cross-border 
central counterparties (CCPs) (CFTC-EC CCP Agreement).\1\ Specifically, 
I believe that the absence of the agreement's re-affirmation in the 
European Market Infrastructure Regulation 2.2 (EMIR 2.2) directly 
implied the agreement's abrogation.\2\ I therefore vowed that I would 
either object to or vote against any relief provided to, or requested 
by, European Union authorities until the agreement's clarity was 
restored. Since that time, I have consistently voted against, or 
objected to, any regulation or relief that provides special 
accommodations to European entities, including the proposed exemption 
from margin requirements for the European Stability Mechanism (ESM) 
that the Commission seeks to finalize today.\3\
---------------------------------------------------------------------------

    \1\ Keynote Address of Commissioner Brian Quintenz before FIA 
Annual Meeting, Boca Raton, Florida (March 14, 2018), https://www.cftc.gov/PressRoom/SpeechesTestimony/opaquintenz9; and Joint 
Statement from CFTC Chairman Timothy Massad and European 
Commissioner Jonathan Hill, CFTC and the European Commission: Common 
approach for transatlantic CCPs (Feb. 10, 2016), https://www.cftc.gov/PressRoom/PressReleases/pr7342-16.
    \2\ The proposed implementation of EMIR 2.2 by ESMA is available 
at, https://www.esma.europa.eu/press-news/esma-news/esma-consults-tiering-comparable-compliance-and-fees-under-emir-22.
    \3\ Dissenting Statement by Commissioner Brian Quintenz before 
the Open Commission Meeting: FBOT Registration (Nov. 5, 2019), 
https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatement110519; Dissenting Statement by Commissioner 
Quintenz to the Proposed Exclusion for the European Stability 
Mechanism from the Commission's Margin Requirements for Uncleared 
Swaps (Oct. 16, 2019), https://www.cftc.gov/PressRoom/SpeechesTestimony/quintentzstatement101619; Statement of 
Commissioner Brian Quintenz on Staff No-Action Relief for Eurex 
Clearing AG (December 20, 2018), https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatement122018.

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[[Page 27975]]

    However, the unprecedented devastating economic and social impacts 
of COVID-19 across the globe warrant a reprieve from that position. In 
the United States, financial regulators have acted swiftly, decisively, 
and boldly to mitigate economic disruptions and support market 
liquidity, including providing regulatory relief where necessary. I am 
very proud of the CFTC's decisive response to the COVID-19 pandemic, 
which promoted the full functioning of derivatives markets despite the 
extraordinary challenges facing exchanges, clearinghouses, and market 
intermediaries as a result of social distancing.\4\ I know the 
Commission, under the strong leadership of Chairman Heath P. Tarbert, 
is committed to providing any additional relief necessary to ensure 
that U.S. markets remain accessible.
---------------------------------------------------------------------------

    \4\ Statement of CFTC Commissioner Brian Quintenz on Current 
Market Dynamics and Commission Actions Related to COVID-19 (March 
18, 2020), https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatment031820.
---------------------------------------------------------------------------

    Our European counterparts are engaged in the same epic struggle as 
we are to lessen the extraordinary economic and social harms of this 
pandemic. Although I remain committed to ensuring the terms of the 
CFTC-EC CCP Agreement are ultimately upheld, I also recognize that 
issue is one facet of a much broader, deeper bond we share with the 
European Union--a relationship that has been grounded in goodwill, 
trust, and partnership. Many of the European institutions affected by 
the rules and no-action relief before the Commission today are likely 
to be central to the European Union's COVID-19 economic recovery 
efforts. As a result, I believe it is appropriate to support the items 
before the Commission today, which, by providing relief from CFTC 
clearing and margin requirements, may bolster the ability of EU 
institutions to provide critical financial assistance to their 
economies, businesses, and citizens.
    For example, the European Commission, ESM, and European Investment 
Bank (EIB) are working in concert to take unprecedented actions at the 
European level to complement national measures to mitigate the impacts 
of COVID-19.\5\ The ESM has many economic tools at its disposal, 
including making loans to Eurozone member states, purchasing the bonds 
of Eurozone members, providing precautionary credit lines that can be 
drawn upon if needed, and directly recapitalizing financial 
institutions.\6\
---------------------------------------------------------------------------

    \5\ The time for solidarity in Europe is now--a concerted 
European financial response to the corona-crisis, https://www.esm.europa.eu/blog/time-solidarity-europe-concerted-european-financial-response-corona-crisis (April 2, 2020).
    \6\ European Stability Mechanism, Lending Toolkit, https://www.esm.europa.eu/assistance/lending-toolkit.
---------------------------------------------------------------------------

    Similarly, the EIB, the lending arm of the European Union, and the 
European Investment Fund (EIF), which specializes in finance for small 
and medium sized businesses, are also working together to respond to 
COVID-19. Together, the EIB and the EIF have proposed a plan to provide 
immediate financing to combat the health and economic effects of the 
pandemic.\7\ Each of these EU institutions may seek to enter into swaps 
subject to the CFTC's clearing or uncleared margin requirements in 
order to hedge the risks associated with these lending and investment 
activities. Accordingly, I support today's measures that provide relief 
from those requirements, thereby freeing up additional capital that can 
be immediately deployed in the European economy.
---------------------------------------------------------------------------

    \7\ Coronavirus outbreak: EIB Group's response to the pandemic, 
https://www.eib.org/en/about/initiatives/covid-19-response/index.htm 
(April 9, 2020).
---------------------------------------------------------------------------

    When the present hardship caused by COVID-19 abates, I look forward 
to re-engaging with our European counterparts on the critical issue of 
the oversight of U.S. CCPs. I believe the possibility still exists for 
a successful implementation of EMIR 2.2 that fully respects the CFTC's 
ultimate authority over U.S. CCPs, and I am committed to doing 
everything in my power to achieve this outcome.

Amendments to Swap Clearing Requirement Exemptions Under Part 50

    I am pleased to support this proposal, which codifies existing 
relief, from the Commission's requirement that certain commonly traded 
interest rate swaps and credit default swaps be cleared following their 
execution.\8\ The new exemptions could be elected by several classes of 
counterparties that may enter into these swaps, namely: Sovereign 
nations; central banks; ``international financial institutions'' of 
which sovereign nations are members; bank holding companies, and 
savings and loan holding companies, whose assets total no more than $10 
billion; and community development financial institutions recognized by 
the U.S. Treasury Department. Today's proposal notes that many of these 
entities have actually relied on existing relief, electing not to clear 
swaps that are generally subject to the clearing requirement.
---------------------------------------------------------------------------

    \8\ The swap clearing requirement is codified in part 50 of the 
Commission's regulations (17 CFR part 50).
---------------------------------------------------------------------------

    I strongly support the policy of international ``comity'' described 
in the proposal, recognizing that sovereign nations and their 
instrumentalities should generally not be subject to the Commission's 
regulations. I trust that by proposing this relief, the United States, 
the Federal Reserve, and other U.S. government instrumentalities will 
receive the same treatment in foreign jurisdictions. As noted above, 
this policy is timely in light of the current projects the ESM, the 
EIB, and the EIF are currently undertaking in response to the pandemic. 
I am pleased that the Commission can provide flexibility to these 
entities at this time when entering into swaps with U.S. swap dealers. 
To this end, I also support the decision of the Division of Clearing 
and Risk to extend the current, time-limited no-action relief provided 
to the ESM \9\ pending the finalization of the amendments to part 50. I 
note that the EIB, EIF, other international financial institutions, 
central banks, and sovereign entities currently have relief that is not 
time-limited.\10\
---------------------------------------------------------------------------

    \9\ CFTC Letter 19-23 (Oct. 16, 2019).
    \10\ End-User Exception to the Clearing Requirement for Swaps, 
77 FR 42560, 42561-62 (Jul. 19, 2012).
---------------------------------------------------------------------------

    As for the bank holding companies, savings and loan holding 
companies, and community development financial institutions that would 
be provided relief pursuant to this proposal, I am hopeful that the 
Commission will ultimately finalize this relief, which it first 
proposed for these entities in 2018.\11\ However, I note that these 
entities currently have relief pursuant to no-action letters issued in 
2016 that have no expiration dates.\12\
---------------------------------------------------------------------------

    \11\ Amendments to Clearing Exemption for Swaps Entered Into by 
Certain Bank Holding Companies, Savings and Loan Holding Companies, 
and Community Development Financial Institutions, 83 FR 44001 (Aug. 
29, 2018).
    \12\ CFTC Letters 16-01 and -02 (both Jan. 8, 2016).
---------------------------------------------------------------------------

Final Rule Excluding the European Stability Mechanism From CFTC Margin 
Requirements for Uncleared Swaps

    I support today's final rule that would exempt a swap between the 
European Stability Mechanism and a swap dealer

[[Page 27976]]

from the Commission's margin requirements applicable to uncleared 
swaps. This rule is premised on the same policy of international comity 
referenced in today's proposed exemption from the swap clearing 
requirement. I would like to highlight that the EIB, EIF, and the other 
international financial institutions referenced by the proposed 
exemption from the swap clearing requirement, as well as sovereign 
entities and central banks, are already exempted from the Commission's 
margin requirements for uncleared swaps pursuant to Commission 
regulations.\13\ Finally, I am pleased that the Division of Swap Dealer 
and Intermediary Oversight is today extending previously granted, time-
limited no-action relief to the ESM,\14\ pending the effective date of 
today's final rule.
---------------------------------------------------------------------------

    \13\ CFTC regulation 23.151.
    \14\ CFTC Letter 19-22 (Oct. 16, 2019).
---------------------------------------------------------------------------

Appendix 4--Statement of Commissioner Dan M. Berkovitz

    I support issuing the notice of proposed rulemaking (``Proposal'') 
to codify certain exemptions from the swap clearing requirement that 
currently exist through Commission guidance or staff no action relief. 
Each of the proposed exemptions is consistent with longstanding 
Commission policy and the Commission's experience in implementing the 
swap clearing requirement over the past eight years. Codifying these 
exemptions will provide certainty and transparency for market 
participants.
    First, the Proposal would codify in rule text a list of foreign 
central banks, sovereign entities at the national level, and 
international institutions that are currently excepted from the 
clearing requirement through no action relief or guidance. This 
codification would provide regulatory certainty that executing the 
swaps on an uncleared basis will not run afoul of our rules. This 
certainty benefits not only to the named entities, but also to their 
counterparties, most of which are swap dealers registered with the 
Commission. As described in the preamble to the Proposal, it has been 
the Commission's policy since the adoption of the clearing requirement 
to exempt these institutions due to considerations of international 
comity, the reduced risks arising from swaps entered into by these 
institutions, and the public purposes for which these institutions 
enter into such swaps.
    Second, the Proposal includes a supplemental proposal making 
technical changes to a 2018 Commission proposal. This proposal would 
provide clearing exemptions for (i) certain interest rate swaps entered 
into by community development financial institutions to hedge or 
mitigate commercial risks, and (ii) for swaps entered into by bank or 
savings and loan holding companies that each have no more than $10 
billion in consolidated assets if they enter into the swaps to hedge or 
mitigate commercial risks. This supplemental proposal also would codify 
relief from the clearing requirement currently provided by two no-
action letters. Commodity Exchange Act section 2(h)(7)(A) in essence 
excludes from the clearing requirement banks and savings associations 
with less than $10 billion in assets to the extent determined by the 
Commission. Since the Commission has already provided the exemption to 
individual banks and savings associations,\1\ it makes sense to codify 
this exemption for holding companies for those entities that also have 
no more than $10 billion in consolidated assets. As described in the 
preamble, swap data repository data indicates that over the past 
several years the number and scope of such swaps entered into by these 
institutions that would be included within these exemptions has been 
relatively limited.
---------------------------------------------------------------------------

    \1\ See Regulation 50.50(d).
---------------------------------------------------------------------------

    I commend the staff of the Division of Clearing and Risk for this 
well developed and drafted Proposal. Providing certainty to market 
participants is important and the Proposal would do so for the entities 
involved in the exempted swaps.

[FR Doc. 2020-08603 Filed 5-11-20; 8:45 am]
BILLING CODE 6351-01-P