CFTC Announces Mandatory Clearing of Swaps Underway

The CFTC announced that the mandate within Dodd-Frank requiring swap dealers and market participants to begin clearing certain index CDS and IRS trades went into effect Monday. These requirements will apply to swaps entered into on or after March 11, 2013.

For more information, please visit the CFTC website or you may view a copy of the public statement below:

March 11, 2013 

CFTC Announces that Mandatory Clearing Begins Today 

Washington, DC – Today, swap dealers, major swap participants and private funds active in the swaps market are required to begin clearing certain index credit default swaps (CDS) and interest rate swaps that they entered into on or after March 11, 2013. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended the Commodity Exchange Act (CEA) to require clearing of certain swaps. The Dodd-Frank Act also requires the Commission to determine whether a swap is required to be cleared by either a Commission-initiated review or a submission from a DCO for the review of a swap, or group, category, type, or class of swap. The clearing requirement determination does not apply to those who are eligible to elect an exception from clearing because they are non-financial entities hedging commercial risk. 

“One of the most significant Dodd-Frank reforms begins implementation today,” said CFTC Chairman Gary Gensler. “Central clearing lowers the risk of the highly interconnected financial system. It promotes competition in and broadens access to the market by eliminating the need for market participants to individually determine counterparty credit risk, as now clearinghouses stand between buyers and sellers.” 

As of today, swap dealers and private funds active in the swaps market began clearing certain CDS and interest rate swaps that they entered into on or after March 11. The clearing requirement applies to newly executed swaps, as well as changes in the ownership of a swap. The five swap classes that are required to be cleared include the swaps can be found here: See Related Link. 

Market participants electing an exception from mandatory clearing under section 2(h)(7) of the CEA do not have to comply with the reporting requirements for electing the exception until September 9, 2013. 

“This week’s implementation of mandatory clearing continues the process of implementing key goals of the Dodd-Frank Act,” Chairman Gensler said. “It is an historic change for the markets that will benefit the public and the economy at large. This achievement is a real testament to the dedication and excellence of the CFTC staff working as a team and with other regulators, both domestic and international. I also would like to thank Commissioners Sommers, Chilton, O’Malia and Wetjen for their significant contributions to making the implementation of these reforms now a reality.”