On August 18, 2015 the Commodity Futures Trading Commission (“CFTC’”) issued an order of exemption from registration as a derivatives clearing organization (“DCO”) to ASX Clear (Futures) Pty Limited (“ASX Clear”) of Sydney, Australia. This is the first exemption of this nature. It is based on the CFTC’s authority under section 5b(h) of the Commodity Exchange Act, which permits the CFTC to exempt a foreign clearing organization from DCO registration for the clearing of swaps if the CFTC determines that such clearing organization is subject to comparable, comprehensive supervision by appropriate government authorities in the clearing organization’s home country.
Notable elements of the exemption are:
Limitations on U.S. Clearing Services
ASX Clear must limit its swaps clearing services for U.S. persons (as defined in the CFTC’s cross-border interpretive guidance, as such definition may be amended or superseded by further CFTC action) and CFTC registered futures commission merchants (“FCMs”) as follows:
- A U.S. person that is a clearing member of ASX Clear may clear swaps for itself and those persons identified in the definition of “proprietary account” set forth in CFTC Regulation 1.3(y)
- A non-U.S. person that is a clearing member of ASX Clear may clear swaps for any affiliated U.S. person that is identified in the definition of “proprietary account” set forth in CFTC Regulation 1.3(y)
- A CFTC-registered FCM may become a clearing member of ASX Clear or otherwise maintain an account with an affiliated broker that is a clearing member for the purpose of clearing swaps for itself and for a person that is identified in the definition of “proprietary account” set forth in CFTC Regulation 1.3(y)
The effect of these limitations is that ASX may not provide clearing services for U.S. persons who are customers.
For the purposes of the Order, ASX Clear may clear all swaps including, but not limited to interest rate swaps (“IRS”) denominated in U.S. Dollars (“USD”), Euros (“EUR”), Japanese Yen (“JPY”), British pounds (“GBP”), Australian dollars (“AUD”) and New Zealand dollars (“NZD”).
This means that U.S. persons for whom ASX Clear may provide swaps clearing services may discharge their obligations to clear certain IRS denominated in USD, EUR, JPY & GBP by clearing them through ASX Clear.
Where one or more counterparties to an ASX Clear cleared swap is a U.S. person, the rules of ASX Clear must ensure that:
- All swaps with the same terms and conditions submitted for clearing are economically equivalent within ASX and may be offset within ASX to the extent ASX permits offsetting and
- There must be non-discriminatory clearing of a swap executed bilaterally or on or subject to the rules of an unaffiliated electronic matching platform or trade execution facility
Swaps Data Recordkeeping and Reporting
ASX Clear must report to a CFTC-registered swap data repository (“SDR”) data regarding the two new swaps that result from the novation of the original swap that was submitted for clearing if the original swap has been reported to an SDR. The counterparties to the original swap must be prohibited from reporting the two new swaps that result from novation.
Continued Observance of International Standards
ASX must annually certify to the CFTC that it continues to comply with the Principles for Financial Market Infrastructures (“PFMIs”) issued by the Committee on Payments and Market Infrastructures (“CPMI”) and the International Organization of Securities Commissions (“IOSCO”).
As we mention above, this is the first instance of the CFTC’s use of its authority to exempt foreign clearing organizations from the DCO registration requirements for the purpose of clearing swaps for certain U.S. persons. Two other foreign clearing organizations, OTC Hong Kong Limited and Korea Exchange, Inc. have also petitioned the CFTC for similar exemptions.