The Futures Industry Association (FIA) has issued a letter expressing concern that proposed cross-border clearing house rules do not create a comprehensive framework to facilitate access to foreign cleared markets by US customers.
FIA’s comments were in response to two separate, but similar, rule proposals by the Commodity Futures Trading Commission (CFTC). The first, Exemption from Derivatives Clearing Organisation Registration, is a supplemental notice of proposed rulemaking published on July 23, and the second, Registration with Alternative Compliance for Non-US Derivatives Clearing Organisations, was a notice of proposed rulemaking published on July 19.
In its letter, the FIA says that it broadly supports the Commission’s efforts to combat market fragmentation by facilitating US customer access to global derivatives markets and clearinghouses, noting that the proposals attempt to provide new avenues for US customers to access foreign cleared swaps, a product set that is of increasing importance to market participants.
However, the association also states its belief that US customers should be able to clear through FCMs regardless of the regulatory status of a given clearinghouse with the CFTC. The current proposals, by contrast, would prohibit US customers from accessing exempt Derivatives Clearing Organisations (DCOs) through a Futures Commission Merchant (FCM), whether directly or indirectly. This, claims the FIA, would limit the choice of US customers and deprive them of the numerous benefits that flow from FCM relationships, including business efficiencies and regulatory protections.
The association further adds: “Any limitations on a new customer access model for swaps cleared on non-US DCOs (foreign swaps), which as proposed relies heavily and correctly on disclosure, should rest, first and foremost, on the principle that sophisticated US swaps customers are best situated to evaluate whether and how to access Foreign Swaps markets. Indeed, we respectfully submit that market fragmentation will be meaningfully addressed only insofar as the regulations allow firms to access non-US markets in a manner that is most efficient and free from unnecessary regulatory impediments and costs.”
FIA argues in the letter that the Commission should instead model the clearing of swaps on non-US DCOs on existing regulations. CFTC regulations are found in Title 17 Chapter I of the Code of Federal Regulations (CFR), and Part 30 of this covers the treatment of foreign futures. Using these rules as a template, says the association, would respect customer choice and encourage open, transparent and competitive markets, whilst also preserving customer protections.