CFTC Staff Letter 18-04: Extension of No-Action Relief for Shanghai Clearing House Regarding Section 5b(a) of the Commodity Exchange Act

U.S. COMMODITY FUTURES TRADING COMMISSION
Three Lafayette Centre
1155 21st Street, NW, Washington, DC 20581
Telephone: (202) 418-5430
Facsimile: (202) 418-5547
Division of Clearing and Risk
CFTC Letter No. 18-04
No-Action
February 22, 2018
Division of Clearing and Risk
Mr. Karl Chen
Chief Financial Officer
Shanghai Clearing House
No. 2 East Beijing Road
Huangpu District
Shanghai, People’s Republic of China
Re: Extension of No-Action Relief with Regard to Section 5b(a) of the Commodity Exchange Act and Commission Regulations Thereunder Dear Mr. Chen:
By letter dated May 31, 2016 (CFTC Letter No. 16-56),1 the Division of Clearing and Risk (“Division”) of the Commodity Futures Trading Commission (“Commission”) stated that it will not recommend that the Commission take enforcement action against Shanghai Clearing House (“SHCH”) for failure to register as a derivatives clearing organization (“DCO”) pursuant to the requirements of Section 5b(a) of the Commodity Exchange Act (the “CEA”) and Commission regulations thereunder, subject to certain conditions described in the letter. Under the terms of the letter, SHCH is permitted to clear certain swaps subject to mandatory clearing in the People’s Republic of China for the proprietary trades of SHCH clearing members that are U.S. persons or affiliates of U.S. persons. The letter was intended to provide relief to SHCH while the Division reviews SHCH’s petition2 to the Commission for an exemption from registration as a DCO pursuant to Section 5b(h) of the CEA. Before the Commission grants an exemption from DCO registration, it must first execute a Memorandum of Understanding (“MOU”) with the clearing organization’s home country regulator. Discussions with SHCH’s regulator, the People’s Bank of China, regarding a potential MOU are ongoing. To permit time for the Commission to make a decision regarding the petition, as well as