July 01, 2020

CFTC Approves Proposed and Final Rules on Clearing, Margin and Consumer Privacy






The CFTC has recently published the following final and proposed rules codifying previously issued no action relief and restoring consumer information privacy policies and procedures:

  • Amendments to the Part 23 Margin Requirements for Uncleared Swaps codifying no action letter relief which added the European Stability Mechanism (ESM) to the list of entities excluded from the definition of financial end user, and therefore CFTC margin requirements;[1]
  • Amendments to the Part 160 Consumer Financial Information Privacy Regulation, correcting a Commission regulation by restoring text that was unintentionally removed in a 2011 amendment to add SDs and MSPs to the list of entities subject to part 160.30 requiring entities to adopt procedures to safeguard customer records and information;[2] and
  • Proposed amendments to Part 50 Clearing Requirements to codify existing exemptions from the clearing requirement in section 2(h)(1) of the Commodity Exchange Act (CEA) for swaps entered into by certain central banks, sovereign entities and international financial institutions (IFIs).[3]

Final Rule: Amendments to Part 23 Margin Requirements for the European Stability Mechanism


In January 2016, the CFTC adopted the “CFTC Margin Rule”[4] to implement section 4s(e) of the CEA, which requires swap dealers (SDs) and major swap participants (MSPs) that do not have a prudential regulator to meet minimum initial and variation margin requirements. In July 2017, the DSIO issued CFTC Letter No. 17-34[5] excluding the ESM from the definition of “financial end user,” and thus exempting its swaps from the CFTC Margin Rule, based on its similarity to multilateral development banks which are granted such relief under Commission regulation 23.151. This final rule adopts the amendments proposed in October 2019 to codify the relief granted pursuant to CFTC Letter No. 17-34.[6]

Final Rule

The CFTC is amending Commission regulation 23.151 to exclude explicitly the ESM from the definition of “financial end user.” This amendment will have the effect of exempting the ESM’s uncleared swaps transactions with SDs and MSPs for which there is not a prudential regulator from the CFTC Margin Rule. The ESM is a European Union agency that provides loans to eurozone countries and banks. The CFTC provided relief due to the nature of the ESM’s operations as an intergovernmental financial institution providing financial assistance for development to European member states in financial distress, similar to the function of multilateral development banks. The ESM enters into swaps to hedge interest rate and currency risks and the CFTC believes that like multilateral development banks, it has a lower risk profile and poses less systemic risk to the financial system.

The CFTC also stated that it believes that granting the ESM relief in the form of an amendment promotes international comity and cooperation between the CFTC and the European Union. The ESM is similarly exempt from the European Market Infrastructure Regulation (EMIR) margin rules.

The amendments also correct an incorrect cross-reference in CFTC regulation 23.157 to regulation 23.156(a) which erroneously referred to subsections (iv) through (xii) instead of (ii) to (x), and, in so doing, erroneously left out treasury securities and U.S. government agency securities in the list of eligible collateral into which cash collateral can be converted by a custodian.

The amendments became effective on June 10, 2020.

Final Rule: Amendments to Part 160 Consumer Financial Information Privacy Regulation


In the Commodity Futures Modernization Act of 2000, section 124 amended the CEA to add section 5g, which requires that futures commission merchants (FCMs), commodity trading advisors (CTAs), commodity pool operators (CPOs) and introducing brokers (IBs) (collectively, Covered Persons) be subject to the consumer financial privacy requirements of Section 501 of the Gramm-Leach-Bliley Act (Title V).

Title V requires that certain covered agencies establish appropriate standards for the entities subject to their jurisdiction “(1) to insure the security and confidentiality of customer records and information; (2) to protect against any anticipated threats or hazards to the security or integrity of such records; and (3) to protect against unauthorized access to or use of such records or information which could result in substantial harm or inconvenience to any customer”[7] (the Detailed Requirements).

In 2001, the CFTC adopted regulation 160.30 mandating that FCMs, Retail Foreign Exchange Dealers (RFEDs), CTAs, CPOs, IBs, MSPs and SDs under the jurisdiction of the CFTC (collectively, Covered Persons) adopt policies and procedures reasonably designed to meet the Detailed Requirements.[8] In a 2011 amendment meant to add SDs and MSPs to the list of entities subject to this part 160.30 requirement, the Detailed Requirements were unintentionally deleted.[9]

Final Rule

In November 2019, the CFTC proposed amendments to restore the inadvertently deleted Detailed Requirements to part 160.30.[10] In this final rule, the Commission is adopting the amendments to part 160.30 so that Covered Persons will be required to adopt policies and procedures reasonably designed to meet the Detailed Requirements. The amendments became effective on June 17, 2020.

Proposed Rule: Amendments to Swap Clearing Requirement Exemptions Under Part 50


The CEA requires a swap to be cleared through a registered or exempt derivatives clearing organization (DCO) if the Commission has determined that the swap is required to be cleared, unless an exception to the clearing requirement applies[11] (the Clearing Requirement). The CFTC has enacted regulations implementing the Clearing Requirement in Commission regulation 50.4, and also adopted an exception to the Clearing Requirement for certain end users[12] (the End User Exception).

In response to comments received from market participants and its own internal review of rules and regulations, the CFTC is proposing amendments to:

  • codify the exemption of swaps entered into with foreign central banks, foreign governments and IFIs from the Clearing Requirement;
  • publish a chart that outlines compliance dates for swaps that are required to be cleared under the Clearing Requirements;
  • move provisions that exempt eligible banks, savings associations, farm credit institutions and credit unions from the definition of “financial entity” to a separate rule so that they may be more easily located, without altering the substance of the exemption; and
  • make minor amendments to part 50 to 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 requirements.

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, the Commission provided that consistent with principles of comity and international system traditions, swaps entered into with certain foreign governments, foreign central banks and international financial institutions should be excepted from the Clearing Requirement. This determination was not formally codified in the rule. The Commission’s position with respect to treatment of swaps with foreign governments, foreign central banks and IFIs for purposes of the Clearing Requirement has remained unchanged since the adoption of the End-User Exception.[13]

Since publication of the End-User Exception, in response to letters requesting exemption from clearing requirements, the CFTC Division of Clearing and Risk (DCR) issued four no action letters recommending the CFTC not take enforcement action against certain IFIs not listed in the preamble to the 2012 rule, taking into account their functions, missions and ownership structures and the preamble to the End-User Exception.

The Commission is proposing to exempt swaps entered into with a central bank, sovereign entity or IFI from the Clearing Requirement through proposed regulations 50.75 and 50.76 in a new subpart D of part 50 of the Commission’s regulations. The term “central bank” was used instead of “foreign central bank” to include the Federal Reserve and the term “sovereign entity” was used instead of “foreign government” to make clear that only federal level governments were included. The exemptions for swaps under proposed subpart D would not be eligible for an exemption from margin for uncleared swaps. The proposed amendments are intended to be consistent with the preamble to the End-User Exception though there are some minor changes to the specific wording. Under new proposed regulations 50.75 and 50.76, a swap must be reported to a swap data repository (SDR) to qualify for the exemption.

The Commission is seeking comment regarding the following proposed terms and definitions for purposes of the Clearing Requirement:

  • “central bank” 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”;
  • “sovereign entity” meaning a “central government (including the U.S. government) or an agency, department, or ministry of a central government”; and
  • “international financial institution” meaning “the entities the Commission identified as international financial institutions in the [End-User Exception], the entities to whom [Division of Clearing and Risk] issued no-action letters in 2013 and 2017, the Islamic Development Bank, and 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 is also seeking comments on the proposed exemption more broadly and to better understand the use of swaps by central banks, sovereign entities and IFIs, including quantitative data where available.

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

In August 2018, the Commission proposed regulations that would exempt from the Clearing Requirement a swap entered into to hedge or mitigate commercial risk which is reported to an SDR 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 2018 Proposal).[14] The 2018 Proposal would codify two no-action letters issued by DCR in 2016 which the Commission believes would be consistent with the policy reasons for End-User Exception exemption provided to banks, savings associations, farm credit institutions and credit unions. The Commission is supplementing that proposal with minor amendments to the proposed text and technical revisions, including moving the revisions to new subpart D of part 50 as Commission regulations 50.77, 50.78 and 50.79.

The current proposal supplements the 2018 Proposal by making certain technical changes and clarifying that with respect to CDFIs, the exemption would only apply if (i) the swap is a USD 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; and (ii) 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. Further, it would separate the regulations for exemptions for swaps with bank holding companies and savings and loan holding companies.

The Commission is seeking further public comment with respect to all aspects of the proposal and further comment on the use of swaps by CDFIs, bank holding companies and savings and loan holding companies, including quantitative data where available.

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

The Commission is proposing technical, non-substantive amendments to subpart C of part 50 that will reorganize the subpart to make it easier to identify applicable regulations and facilitate counterparty use and understanding. Specifically, the Commission is proposing to separate the small financial institutions exemption from the non-financial entities exception.

Currently, the exemption for small financial institutions in paragraph (d) of Commission regulation 50.50 has no heading or other demarcation. The amendments would leave the exemption requirements generally unchanged but move them to new proposed regulation 50.53. The one notable exception would be that electing entities would need to provide their information to a registered SDR and would not have the option to provide it directly to the Commission, as the Commission believes SDRs are now sufficiently established and reliable that the option to report directly to the Commission is not necessary.

The Commission is requesting comment on whether the proposed changes could materially alter existing compliance requirements for eligible banks, savings associations, farm credit system institutions, and credit unions.

New Compliance Schedule for Subpart B

The Commission implemented the Clearing Requirement through two rulemakings: (i) the 2012 Clearing Requirement Determination regarding four classes of interest rate swaps and two classes of index credit default swaps;[15] and (ii) the 2016 Clearing Requirement Determination to expand the classes of interest rate swaps subject to the Clearing Requirement.[16] Not all market participants were required to comply with these requirements with respect to all swaps as of a single date, although all of the compliance dates for these swaps have now occurred. New proposed regulation 50.26, would take the compliance schedule information, which is currently located in various places throughout the Federal Register and on the Commission’s website, and repackage it into a single table. It would impose no new regulatory requirements. The Commission is seeking comment on the proposed table headings and structure.

Comments on the proposed amendments are due July 13, 2020.


[1] See Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 85 FR 27674 (May 11, 2020).

[2] See Privacy of Consumer Financial Information, 85 FR 29611 (May 18, 2020).

[3] See Swap Clearing Requirement Exemptions, 85 FR 27955 (May 12, 2020).

[4]  See Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 81 FR 636 (Jan. 6, 2016).

[5] See Division of Swap Dealer and Intermediary Oversight CFTC Letter No. 17-34 (July 24, 2017)

[6]  See Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 84 FR 56392 (Oct. 22, 2019), at 56393-4.

[7]  See Gramm-Leach-Bliley Act, section 501.

[8]  See Privacy of Customer Information, 66 FR 21235 (April 27, 2001).

[9]  See Conforming Amendments Under Dodd-Frank Act, 76 FR 43874 (July 22, 2011).

[10]  See Privacy of Consumer Financial Information, 84 FR 60963 (Nov. 12, 2019).

[11]  Section 2(h)(1)(A) of the CEA.

[12]  See End-User Exception to the Clearing Requirement for Swaps, 77 FR 42560 (Jul. 19, 2012).

[13]  CFTC Letter Nos. 13-25, 17-57, 17-58, and 17-59. Entities involved include: The Development Bank of Latin America, The Central American Bank for Economic Integration, The European Stability Mechanism, and The North American Development Bank.

[14]  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).

[15]  Clearing Requirement Determination Under Section 2(h) of the CEA, 77 FR 74284 (Dec. 13, 2012).

[16]  Clearing Requirement Determination Under Section 2(h) of the CEA for Interest Rate Swaps, 81 FR 71202 (Oct. 14, 2016).


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