The Commodity Futures Trading Commission (CFTC), the U.S. derivatives regulator, has proposed a rule to exempt swaps between certain affiliated entities within a corporate group from the central clearing requirement in Dodd-Frank.
The proposed rule will be open for public comment to determine whether swaps transactions between counterparties within the same corporate group pose less counterparty risk than transactions with third parties. The CFTC also seeks to determine whether alternative counterparty risk mitigation methods should be considered for so-called inter-affiliate transactions.
The proposal will be open for public comment for 30 days from the date of publication in the Federal Register, which is expected soon.
The CFTCs proposal would exempt swaps from the clearing requirement for transactions between majority-owned affiliates whose financial statements are included in the same consolidated financial statements. Centralized risk management, swap trading relationship documentation, variation margin payments and satisfaction of reporting requirements would still be required.
Institutions must meet one of four requirements to qualify for the affiliate exemption: the affiliate must be located in the United States; the affiliate is located in a jurisdiction with a comparable and comprehensive clearing requirement; the affiliate is required to clear all swaps it enters into with non-affiliate counterparties; or the affiliate does not enter into swaps with non-affiliate counterparties.
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