CFTC No-Action Relief for EU-Based DCOs from Certain Part 22 and Part 39 Requirements

U.S. COMMODITY FUTURES TRADING COMMISSION
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Division of Clearing and Risk Jeffrey M. Bandman Acting Director CFTC Letter No. 16-26 No-Action March 16, 2016 Division of Clearing and Risk Re: No-Action Relief for EU-Based Registered Derivatives Clearing Organizations that are Authorized to Operate in the European Union, from Certain Requirements under Part 22 and Part 39 of Commission Regulations Ladies and Gentlemen:
The Division of Clearing and Risk (“Division”) of the Commodity Futures Trading Commission (the “Commission” or “CFTC”) is issuing this letter to provide limited no-action relief from the following Commission requirements, on the terms and subject to the conditions below, for EU-based central counterparties (“CCPs”) that are registered with the Commission as derivatives clearing organizations (“DCOs”) (such EU-based CCPs referred to hereinafter as “DCO/CCPs”) and are authorized to operate in the European Union (“EU”):
(1) CFTC Regulation 39.12(b)(6)’s requirement that, upon a DCO’s acceptance of a swap for clearing, the original swap is extinguished and it is replaced by an equal and opposite swap between the DCO and each clearing member (acting as a principal for a house trade or an agent for a customer trade) will not apply in the context of a DCO/CCP where neither party is a U.S. clearing member or a futures commission merchant (“FCM”) clearing member; (2) Part 22 of CFTC Regulations and its “legally segregated but operationally commingled” (“LSOC”) account model for cleared swaps customer accounts will not apply in the context of a DCO/CCP to clearing members that are not FCMs; (3) CFTC Regulation 39.13(g)(8)(i)’s requirement that a DCO calculate and collect initial margin for customer accounts cleared by an FCM on a gross basis will not apply in the context of a DCO/CCP to non-FCM clearing member intermediaries; (4) CFTC Regulation 39.13(g)(8)(ii)’s requirement that a DCO collect initial margin at a level that is greater than 100% of the DCO’s initial margin requirements for the non￾hedge positions of FCM customers will not apply in the context of a DCO/CCP to such positions of the customers of non-FCM clearing member intermediaries; (5) CFTC Regulation 39.12(a)(2)(iii)’s prohibition that a DCO not set a minimum capital requirement of more than $50 million for any person that seeks to become a clearing member to clear swaps will not apply in the context of a DCO/CCP to non-U.S. clearing members or non-FCM clearing members;