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CFTC Final Rules on End-User Exception and Proposed Rules on Cooperative Exception from Swap Clearing
19 July 2012
The Commodity Futures Trading Commission has adopted final rules implementing an exception to the requirement under the Dodd-Frank Act that swaps must be submitted for clearing to a derivatives clearing organization.
The “end-user exception” applies if one of the parties to a swap (a) is not a "financial entity," (b) is using swaps to hedge or mitigate commercial risk and (c) notifies the CFTC how it generally meets its financial obligations associated with non-cleared swaps. Certain "small financial institutions" will not be deemed to be "financial entities" and may therefore elect not to clear swaps under certain circumstances.
Under the final rules, the end-user exception applies only if one of the parties notifies a registered swap data repository (or the CFTC if no SDR is available) of the election of the exception and the identity of the electing party, and provides certain additional information, whether on an individual swap basis or in an annual filing.
The CFTC also proposed new rules which would permit a cooperative that is a "financial entity" to elect, under certain circumstances, not to clear certain swaps otherwise required to be cleared.
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