The CFTC issued three related no-action letters that, taken together, permit Eurex Clearing AG ("Eurex"), a registered derivatives clearing organization ("DCO") located in Europe, to clear swap transactions on behalf of U.S. customers of futures commission merchants ("FCMs").
In CFTC Letter 18-30, the CFTC Division of Clearing and Risk ("DCR") confirmed that Eurex demonstrated its ability to comply with the straight-through processing requirements of CFTC Rule 39.12(b)(7). As a result, Eurex can begin "clearing and settling transactions on behalf of U.S. persons that are clearing members, U.S. persons that are affiliates of a clearing member, and customers of an FCM . . . ." Previously, Eurex could clear for proprietary accounts for U.S. persons, but it could not clear swap transactions on behalf of the customers of FCMs.
In CFTC Letter 18-31, the DCR and CFTC Division of Swap Dealer and Intermediary Oversight granted conditional no-action relief to Eurex from CFTC requirements pertaining to qualifications for depositories. The relief permits Eurex's FCM clearing members to deposit customer-owned securities as margin collateral for swap transactions with Clearstream Banking AG, a central securities depository in Germany, that does not maintain regulatory capital in excess of $1 billion as required by CFTC Rules 1.49(d)(3) and 22.9.
In CFTC Letter 18-32, the DCR provided relief allowing changes to the acknowledgment letter that Eurex is mandated to get from the Deutsche Bundesbank to deposit customer margin at the Deutsche Bundesbank.
In connection with the issuance of these three no-action letters, CFTC Chair J. Christopher Giancarlo stated that "[t]he Commission is committed to . . . tak[ing] a considered, yet flexible approach to applying CFTC rules in the cross-border context, which includes providing relief to market participants from Europe and elsewhere in the world where the CFTC knows that there are strong regulatory and supervisory frameworks in places." He added that the CFTC expects regulators in other jurisdictions "to take similar steps to provide U.S. market participants with the necessary legal and regulatory relief and certainty to conduct their business on a cross-border basis." In a separate statement, CFTC Commissioner Brian Quintenz objected to the set of staff no-action letters for Eurex Clearing AG, citing his disappointment with the European Commission's failure to provide assurances on the status of the Central Counterparty Clearinghouse ("CCP") Agreement entered into with the CFTC, and stating that the treatment of U.S. CCPs will not materially change under EMIR 2.2.
Commentary / Nihal Patel
The relief in Letter 18-31 is significant, but does not (yet) go as far as Mr. Giancarlo indicated he would like to see the CFTC go in granting deference in this space. The relief permits Eurex members that are CFTC-registered FCMs to offer clearing at Eurex to their customers, and such customers would remain within the realm of the U.S. FCM insolvency regime. Mr. Giancarlo previously indicated he would like to see exemptions granted to permit non-US (i.e., non-FCM) clearing members of non-US CCPs to be able to clear transactions for customers. Mr. Giancarlo reasoned that the "professional nature" of derivatives market participants suggests that customers could make their own determination as to whether to opt out of the insolvency protections afforded under U.S. law and in to those provided under the laws governing the foreign clearing member.
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