Exemption From Derivatives Clearing Organization Registration

949

Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations

Control(s) Country chart (see

supp. No. 1 to part

738)

CB applies to

1C991.c. CB Column 3.

AT applies to entire

entry. AT Column 1.

List Based License Exceptions (See Part 740

for a Description of All License Exceptions)

LVS: N/A

GBS: N/A

List of Items Controlled

Related Controls: (1) Medical products

containing ricin or saxitoxin, as follows,

are controlled for CW reasons under ECCN

1C351:

(a) Ricinus communis AgglutininII (RCAII),

also known as ricin D, or Ricinus Communis

LectinIII (RCLIII);

(b) Ricinus communis LectinIV (RCLIV),

also known as ricin E; or

(c) Saxitoxin identified by C.A.S. #35523–

89–8.

(2) The export of a ‘‘medical product’’ that

is an ‘‘Investigational New Drug’’ (IND), as

defined in 21 CFR 312.3, is subject to certain

U.S. Food and Drug Administration (FDA)

requirements that are independent of the

export requirements specified in this ECCN

or elsewhere in the EAR. These FDA

requirements are described in 21 CFR

312.110 and must be satisfied in addition to

any requirements specified in the EAR.

(3) Also see 21 CFR 314.410 for FDA

requirements concerning exports of new

drugs and new drug substances.

Related Definitions: For the purpose of this

entry, ‘immunotoxins’ are monoclonal

antibodies linked to a toxin with the

intention of destroying a specific target cell

while leaving adjacent cells intact. For the

purpose of this entry, ‘medical products’

are: (1) Pharmaceutical formulations

designed for testing and human (or

veterinary) administration in the treatment

of medical conditions, (2) prepackaged for

distribution as clinical or medical

products, and (3) approved by the U.S.

Food and Drug Administration either to be

marketed as clinical or medical products or

for use as an ‘‘Investigational New Drug’’

(IND) (see 21 CFR part 312). For the

purpose of this entry, ‘diagnostic and food

testing kits’ are specifically developed,

packaged and marketed for diagnostic or

public health purposes. Biological toxins

in any other configuration, including bulk

shipments, or for any other end-uses are

controlled by ECCN 1C351. For the

purpose of this entry, ‘vaccine’ is defined

as a medicinal (or veterinary) product in a

pharmaceutical formulation, approved by

the U.S. Food and Drug Administration or

the U.S. Department of Agriculture to be

marketed as a medical (or veterinary)

product or for use in clinical trials, that is

intended to stimulate a protective

immunological response in humans or

animals in order to prevent disease in

those to whom or to which it is

administered.

Items:

Technical Note: For purposes of the

controls described in this ECCN, ‘toxins’

refers to those toxins, or their subunits,

controlled under ECCN 1C351.d.

a. Vaccines containing, or designed for use

against, items controlled by ECCN 1C351,

1C353 or 1C354.

b. Immunotoxins containing toxins

controlled by 1C351.d;

c. Medical products that contain any of the

following:

c.1. Toxins controlled by ECCN 1C351.d

(except for botulinum toxins controlled by

ECCN 1C351.d.3, conotoxins controlled by

ECCN 1C351.d.6, or items controlled for CW

reasons under ECCN 1C351.d.11 or .d.12); or

c.2. Genetically modified organisms or

genetic elements controlled by ECCN

1C353.a.3 (except for those that contain, or

code for, botulinum toxins controlled by

ECCN 1C351.d.3 or conotoxins controlled by

ECCN 1C351.d.6);

d. Medical products not controlled by

1C991.c that contain any of the following:

d.1. Botulinum toxins controlled by ECCN

1C351.d.3;

d.2. Conotoxins controlled by ECCN

1C351.d.6; or

d.3. Genetically modified organisms or

genetic elements controlled by ECCN

1C353.a.3 that contain, or code for,

botulinum toxins controlled by ECCN

1C351.d.3 or conotoxins controlled by ECCN

1C351.d.6;

e. Diagnostic and food testing kits

containing toxins controlled by ECCN

1C351.d (except for items controlled for CW

reasons under ECCN 1C351.d.11 or .d.12).

Matthew S. Borman,

Deputy Assistant Secretary for Export

Administration.

[FR Doc. 2020–27754 Filed 1–6–21; 8:45 am]

BILLING CODE 3510–33–P

COMMODITY FUTURES TRADING

COMMISSION

17 CFR Parts 39 and 140

RIN 3038–AE65

Exemption From Derivatives Clearing

Organization Registration

AGENCY

: Commodity Futures Trading

Commission.

ACTION

: Final rule.

SUMMARY

: The Commodity Futures

Trading Commission (Commission) is

adopting policies and procedures that

the Commission will follow with

respect to granting exemptions from

registration as a derivatives clearing

organization (DCO). In addition, the

Commission is amending certain related

delegation provisions in its regulations.

DATES

: Effective February 8, 2021.

FOR FURTHER INFORMATION CONTACT

:

Eileen A. Donovan, Deputy Director,

202–418–5096, edonovan@cftc.gov;

Parisa Nouri, Associate Director, 202–

418–6620, pnouri@cftc.gov; Eileen R.

Chotiner, Senior Compliance Analyst,

202–418–5467, echotiner@cftc.gov;

Brian Baum, Special Counsel, 202–418–

5654, bbaum@cftc.gov; August A.

Imholtz III, Special Counsel, 202–418–

5140, aimholtz@cftc.gov; Abigail S.

Knauff, Special Counsel, 202–418–5123,

aknauff@cftc.gov; Division of Clearing

and Risk, Commodity Futures Trading

Commission, Three Lafayette Centre,

1155 21st Street NW, Washington, DC

20581; Theodore Z. Polley III, Associate

Director, 312–596–0551, tpolley@

cftc.gov; Division of Clearing and Risk,

Commodity Futures Trading

Commission, 525 West Monroe Street,

Chicago, Illinois 60661.

SUPPLEMENTARY INFORMATION

:

Table of Contents

I. Background

A. Introduction

B. Existing Exempt DCO Orders

II. Amendments to Part 39

A. Regulation 39.1—Scope

B. Regulation 39.2—Definitions

C. Regulation 39.6—Exemption From DCO

Registration

D. Regulation 39.9—Scope

III. Amendments to Part 140

IV. Related Matters

A. Regulatory Flexibility Act

B. Paperwork Reduction Act

C. Cost-Benefit Considerations

D. Antitrust Considerations

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1

The term ‘‘derivatives clearing organization’’ is

statutorily defined to mean a clearing organization

in general. However, for purposes of the discussion

in this release, the term ‘‘registered DCO’’ refers to

a Commission-registered DCO, the term ‘‘exempt

DCO’’ refers to a DCO that is exempt from

registration, and the term ‘‘clearing organization’’

refers to a clearing organization that: (a) Is neither

registered nor exempt from registration with the

Commission as a DCO; and (b) falls within the

definition of ‘‘derivatives clearing organization’’

under section 1a(15) of the CEA, 7 U.S.C. 1a(15),

and ‘‘clearing organization or derivatives clearing

organization’’ under §1.3 of the Commission’s

regulations, 17 CFR 1.3.

2

Section 5b(a) also provides that a clearing

organization may not perform the functions of a

clearing organization with respect to futures unless

it is a registered DCO. This, however, is limited to

futures executed on a designated contract market.

Regulation 48.7 provides that a foreign board of

trade registered with the Commission may clear its

contracts through a registered DCO or a clearing

organization that observes the Recommendations

for Central Counterparties (RCCPs) or successor

standards and is in good regulatory standing in its

home country jurisdiction. 17 CFR 48.7. The

Principles for Financial Market Infrastructures

(PFMIs) are the successor standards to the RCCPs.

See Committee on Payment and Settlement Systems

and the Technical Committee of the International

Organization of Securities Commissions, Principles

for financial market infrastructures (Apr. 2012),

available at http://www.iosco.org/library/pubdocs/

pdf/IOSCOPD377-PFMI.pdf. Because an exempt

DCO is required to observe the PFMIs and be in

good regulatory standing it its home country, it is

eligible to clear contracts executed on a foreign

board of trade.

3

7 U.S.C. 7a–1(a). Under section 2(i) of the CEA,

7 U.S.C. 2(i), activities outside of the United States

are not subject to the swap provisions of the CEA,

including any rules prescribed or regulations

promulgated thereunder, unless those activities

either have a direct and significant connection with

activities in, or effect on, commerce of the United

States, or contravene any rule or regulation

established to prevent evasion of a CEA provision

enacted under the Dodd-Frank Wall Street Reform

and Consumer Protection Act, Public Law 111–203,

124 Stat. 1376 (Dodd-Frank Act). Therefore,

pursuant to section 2(i), the DCO registration

requirement extends to any clearing organization

whose clearing activities outside of the United

States have a direct and significant connection with

activities in, or effect on, commerce of the United

States.

4

Section 5b(h) of the CEA, 7 U.S.C. 7a–1(h).

Section 5b(h) also permits the Commission to

exempt from DCO registration a securities clearing

agency registered with the Securities and Exchange

Commission; however, the Commission has not

granted, nor developed a framework for granting,

such exemptions.

5

See ASX Clear (Futures) Pty Amended Order of

Exemption from Registration (Jan. 28, 2016),

available at http://www.cftc.gov/idc/groups/public/

@otherif/documents/ifdocs/

asxclearamdorderdcoexemption.pdf; Korea

Exchange, Inc. Order of Exemption from

Registration (Oct. 26, 2015), available at http://

www.cftc.gov/idc/groups/public/@otherif/

documents/ifdocs/krxdcoexemptorder10-26-15.pdf;

Japan Securities Clearing Corporation Order of

Exemption from Registration (Oct. 26, 2015),

available at http://www.cftc.gov/idc/groups/public/

@otherif/documents/ifdocs/jsccdcoexemptorder10-

26-15.pdf; OTC Clearing Hong Kong Limited Order

of Exemption from Registration (Dec. 21, 2015),

available at http://www.cftc.gov/idc/groups/public/

@otherif/documents/ifdocs/

otccleardcoexemptorder12-21-15.pdf.

6

See Exemption From Derivatives Clearing

Organization Registration, 83 FR 39923 (Aug. 13,

2018).

7

The Commission received comment letters from

the following in 2018: Japan Securities Clearing

Corporation (JSCC); ASX Clear (Futures) Pty (ASX);

Futures Industry Association (FIA) and Securities

and Financial Markets Association (SIFMA); and

International Swaps and Derivatives Association,

Inc. (ISDA).

8

2018 Proposal, 83 FR at 39930.

9

See ASX Clear (Futures) Pty comment letter at

1 (stating that ‘‘ASXCF supports the CFTC

permitting exempt DCOs to clear swaps for U.S.

person customers. ASXCF believes it would be

beneficial to allow U.S. person customers to access

the broadest possible range of central clearing

facilities (‘‘CCPs’’) as this would provide U.S.

person customers with flexibility and choice in

accessing the best commercial solutions for the

products that they use subject to those CCPs

meeting global QCCP standards under the CPMI–

IOSCO Principles for Financial Market

Infrastructures (PFMIs).’’); JSCC comment letter at

5 (stating that ‘‘JSCC would like the CFTC to

consider the potential benefits of allowing U.S.

customers to access exempt DCOs, using a similar

approach to the correspondent clearing structure

adopted for foreign futures markets, by permitting

. . . non-U.S. clearing members in an exempt DCO

to clear for U.S. customers, without the necessity

to register as a FCM, as long as those non-U.S.

clearing members can demonstrate that they are

properly supervised, regulated, and licensed to

provide customer clearing services in their home

countries, where the regulatory authority maintains

appropriate cooperative arrangements with the

CFTC.’’); and ISDA comment letter at 3 (stating

‘‘[i]n response to the Commission’s question about

customer clearing, ISDA strongly believes that the

CFTC should permit exempt DCOs to clear swaps

for customers.’’).

10

See Exemption From Derivatives Clearing

Organization Registration, 84 FR 35456 (Jul. 23,

2019).

11

The Commission received comment letters

from the following in 2019: ASX; Americans for

Financial Reform Education Fund (AFR Ed Fund);

Better Markets, Inc. (Better Markets); CCP12;

Citadel; CME Group, Inc. (CME); FIA; OTC Clearing

Hong Kong Limited (OTC Clear); Intercontinental

Exchange, Inc. (ICE); International Bankers

Association of Japan (IBA Japan) and Japan

Financial Markets Council (JFMC); ISDA; JSCC;

LCH Group (LCH); Milbank LLP (Milbank); SIFMA;

and World Federation of Exchanges (WFE).

12

As discussed further below, the Commission is

adopting §39.6(b)(6), as modified in the 2019

Proposal, to specify the information that an exempt

DCO must provide to the Commission if it is unable

to provide an unconditional certification that it

continues to observe the PFMIs in all material

respects; §39.6(b)(9) (renumbered as § 39.6(b)(8)),

which provides that the Commission may condition

an exemption from DCO registration on any other

facts and circumstances it deems relevant; and

§39.6(f), which establishes a process for

modification or termination of an exemption from

DCO registration upon Commission initiative.

13

The Commission holds systemically important

DCOs and subpart C DCOs to requirements that are

I. Background

A. Introduction

Section 5b(a) of the Commodity

Exchange Act (’’CEA’’) provides that a

clearing organization

1

may not

‘‘perform the functions of’’ a clearing

organization with respect to swaps

2

unless the clearing organization is a

DCO registered with the Commission.

3

However, the CEA also permits the

Commission to conditionally or

unconditionally exempt a clearing

organization from DCO registration for

the clearing of swaps if the Commission

determines that the clearing

organization is subject to ‘‘comparable,

comprehensive supervision and

regulation’’ by its home country

regulator.

4

The Commission issued the

first exemption from DCO registration in

2015 and, to date, has exempted four

clearing organizations organized outside

of the United States (hereinafter referred

to as ‘‘non-U.S. clearing organizations’’)

from DCO registration.

5

In August 2018, the Commission

proposed to codify the policies and

procedures it implemented in 2015 with

respect to granting exemptions from

DCO registration, including permitting

exempt DCOs to clear only proprietary

swap positions of U.S. persons and

futures commission merchants (FCMs),

and not customer positions (2018

Proposal).

6

The Commission received

four substantive comment letters on the

2018 Proposal.

7

In response to a specific request for

comment as to whether the Commission

should consider permitting an exempt

DCO to clear swaps for U.S. customers,

8

three commenters expressed support.

9

In light of these comments, the

Commission further proposed in July

2019 to permit foreign intermediaries to

clear swaps for U.S. customers at

exempt DCOs (2019 Proposal).

10

After considering the comments

received in response to the 2019

Proposal,

11

the Commission is adopting

the 2018 Proposal and, with limited

exceptions,

12

declining to adopt the

2019 Proposal at this time. The

Commission may consider permitting

U.S. customer clearing at exempt DCOs

or establishing a substantial risk test for

exempt DCOs at a later time.

B. Existing Exempt DCO Orders

As previously noted, a clearing

organization must be subject to

comparable, comprehensive supervision

and regulation by appropriate

government authorities in the clearing

organization’s home country to be

eligible for an exemption from

registration as a DCO for the clearing of

swaps. To date, the Commission has

issued four exempt DCO orders, subject

to conditions, consistent with the

statute. In granting these exemptions,

the Commission determined that a

supervisory and regulatory framework

that conforms to the PFMIs is

comparable to, and as comprehensive

as, the supervisory and regulatory

requirements applicable to registered

DCOs.

13

This conclusion is consistent

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fully consistent with the PFMIs. See 17 CFR 39.30,

39.40.

14

See, e.g., §50.52(b)(4)(i)(E), 17 CFR

50.52(b)(4)(i)(E) (permitting eligible affiliate

counterparties that are located in certain

jurisdictions to satisfy a condition to electing the

exemption by clearing the swap through a DCO or

a clearing organization that is subject to supervision

by appropriate government authorities in the

clearing organization’s home country and that has

been assessed to be in compliance with the PFMIs).

15

In the 2018 Proposal, the Commission had

proposed to define ‘‘good regulatory standing’’ in a

way that would apply only to exempt DCOs. See

Exemption From Derivatives Clearing Organization

Registration, 83 FR at 39933. In a separate,

subsequent proposal, the Commission proposed a

definition of ‘‘good regulatory standing’’ that

retained the previously proposed definition for

exempt DCOs but added a separate provision that

would apply only to DCOs subject to alternative

compliance. See Registration With Alternative

Compliance for Non-U.S. Derivatives Clearing

Organizations, 84 FR 34819, 34831 (July 19, 2019);

see also Exemption From Derivatives Clearing

Organization Registration, 84 FR at 35471. The

Commission has adopted the definition as it relates

to DCOs subject to alternative compliance (see

Registration with Alternative Compliance for Non-

U.S. Derivatives Clearing Organizations, 85 FR

67160, 67186 (Oct. 21, 2020)); therefore, the

Commission is adopting here only that portion of

the definition that applies to exempt DCOs.

16

While the Commission expects, in almost all

cases, to defer to the home country regulator’s

determination of whether an instance of non-

compliance is or is not material, it does retain the

discretion, in the context of the application of these

rules of the Commission, to make that

determination itself, and, in order to make such a

determination, to obtain information from the home

country regulator pursuant to the relevant

memorandum of understanding.

with previous Commission

determinations.

14

Under exempt DCO

orders granted to date, an exempt DCO

is required to observe the PFMIs in all

material respects and be in good

regulatory standing in its home country,

as evidenced by an annual written

representation by its home country

regulator. A memorandum of

understanding (MOU) must be in effect

between the Commission and the home

country regulator.

The existing exempt DCO orders also

require the exempt DCO to supply the

Commission with certain reports and

information, some on a periodic basis

and others based on the occurrence of

specified events. For example, exempt

DCOs are required to provide daily and

quarterly reporting of certain

information regarding the clearing

activity of U.S. persons and FCMs. An

exempt DCO also is required to report

to the Commission if there is any change

in its licensure, registration or

authorization to act as a clearing

organization in its home country; if the

exempt DCO takes action against a U.S.

person or FCM; if there is a default by

a U.S. person or FCM; or if there is any

change in the home country regulatory

regime that is material to the exempt

DCO’s continuing observance of the

PFMIs or compliance with the

requirements of the Commission’s order.

In addition, existing exempt DCO orders

require the exempt DCO to make its

books and records available for

inspection by the Commission and,

where a clearing member has reported

information regarding a swap to a swap

data repository (SDR), to also report

information regarding that swap to the

SDR.

Because the regulations being adopted

herein are consistent with existing

exempt DCO orders, the Commission

does not anticipate amending any of the

exempt DCO orders it has issued to date.

II. Amendments to Part 39

A. Regulation 39.1—Scope

The Commission proposed to amend

§ 39.1 to expand the scope of subpart A

of part 39 to include a clearing

organization applying for an exemption

from DCO registration. This change was

meant to address the inclusion in

subpart A of new § 39.6 (discussed

below), which sets forth the

requirements for an exemption from

DCO registration. The Commission did

not receive any comments on this

provision and is adopting it as

proposed.

B. Regulation 39.2—Definitions

In connection with the proposed

regulations, the Commission proposed

to add five definitions to § 39.2, which

apply only for purposes of part 39.

1. Exempt Derivatives Clearing

Organization

The Commission proposed to define

‘‘exempt derivatives clearing

organization’’ to mean a clearing

organization that the Commission has

exempted from registration under

section 5b(a) of the CEA, pursuant to

section 5b(h) of the CEA and § 39.6. The

Commission did not receive any

comments on this proposed definition

and is adopting it as proposed.

2. Good Regulatory Standing

The Commission proposed that, to be

eligible for an exemption from

registration, a clearing organization

would have to be in good regulatory

standing in its home country. The

Commission proposed to define ‘‘good

regulatory standing’’ to mean either

there has been no finding by the home

country regulator of material non-

observance of the PFMIs or other

relevant home country legal

requirements, or there has been such a

finding by the home country regulator,

but it has been or is being resolved to

the satisfaction of the home country

regulator by means of corrective action

taken by the clearing organization.

Although the Commission proposed

to reference ‘‘material’’ non-observance

of the PFMIs or other relevant home

country legal requirements, the

Commission requested comment in the

2018 Proposal as to whether the

definition should instead refer to all

instances of non-observance. In their

responses to the 2019 Proposal, ASX,

JSCC, and CCP12 supported the

proposed definition of ‘‘good regulatory

standing.’’ CCP12 and JSCC commented

that the proposed definition is

appropriate, as individual regulators

have taken differing approaches to how

they apply the PFMIs in the context of

the markets that they regulate and

supervise. CCP12 and JSCC did not

recommend extending the definition to

all instances of non-observance of the

PFMIs. JSCC further stated that

regulatory changes in the home country

of an exempt DCO affecting the exempt

DCO’s continuing observance of the

PFMIs ‘‘occur infrequently and are

easily identifiable,’’ due to the

familiarity of exempt DCOs with the

legal and regulatory framework in their

home countries. ASX added that an

exempt DCO is best placed to determine

whether a change is material and advise

the Commission accordingly.

The Commission is adopting the

definition of ‘‘good regulatory standing’’

largely as proposed.

15

The

Commission’s supervisory experience

with registered and exempt DCOs has

shown that even well-functioning DCOs

will experience instances of non-

observance of applicable requirements—

both material and immaterial. The

Commission therefore seeks to refrain

from adopting a mechanical or hyper-

technical approach whereby isolated

instances of non-observance would be

disqualifying.

16

The Commission

further believes that the definition

provides adequate assurance of

observance of the PFMIs or compliance

with other relevant home country

requirements, because any material non-

observance must be resolved to the

satisfaction of the home country

regulator in order for the exempt DCO

to be deemed to be in good standing.

3. Home Country

The Commission proposed to define

‘‘home country’’ to mean, with respect

to a non-U.S. clearing organization, the

jurisdiction in which the clearing

organization is organized. The

Commission did not receive any

comments on this proposed definition

and is adopting it as proposed.

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17

The name of CPSS was changed to the

Committee on Payment and Market Infrastructures

(CPMI) in 2014.

18

2018 Proposal, 83 FR at 39925 n.14.

19

2019 Proposal, 84 FR at 35459.

20

The Commission proposed to use the

interpretation of ‘‘U.S. person’’ as set forth in the

Cross-Border Guidance, as such definition may be

amended or superseded by a definition of the term

‘‘U.S. person’’ that is adopted by the Commission

and applicable to this final rule. See Cross-Border

Guidance, 78 FR 45292, 45316–45317.

21

The eligibility requirements listed in §39.6(a)

and the conditions set forth in §39.6(b) are pre-

conditions to the Commission’s issuance of any

order exempting a clearing organization from the

DCO registration requirement of the CEA and

Commission regulations. Additional conditions that

are unique to the facts and circumstances specific

to a particular clearing organization could be

imposed upon that clearing organization in the

Commission’s order of exemption, as permitted by

section 5b(h) of the CEA.

22

In addition to the principles applicable to

central counterparties (CCPs) and other financial

market infrastructures, the PFMIs provide that

central banks, market regulators, and other relevant

authorities should observe five responsibilities.

Consistent with this, the Commission expects that,

in order to meet the standard of being subject to

comparable, comprehensive supervision and

regulation, a clearing organization’s home country

regulator will observe these responsibilities. In

particular, Responsibility D, Explanatory Note 4.4.1

provides that the home country regulator should

adopt the PFMIs, and, ‘‘[w]hile the precise means

through which the principles are applied may vary

from jurisdiction to jurisdiction, all CPSS and

IOSCO members are expected to apply the

principles to the relevant [financial market

infrastructures] in their jurisdictions to the fullest

extent allowed by the legal framework in their

jurisdiction.’’ PFMIs, ¶4.4.1. Therefore, the

Commission would not find a home country

regulator’s statement that it requires a clearing

organization to observe the PFMIs to be sufficient

to meet the above standard for exemption, if the

home country regulator has not itself adopted a

regulatory framework that is consistent with the

PFMIs.

23

7 U.S.C. 7a–1(c)(2).

24

See, e.g., Derivatives Clearing Organizations

and International Standards, 78 FR 72476 (Dec. 2,

2013) (adopting final rules).

4. Home Country Regulator

The Commission proposed to define

‘‘home country regulator’’ to mean, with

respect to a non-U.S. clearing

organization, an appropriate

government authority which licenses,

regulates, supervises, or oversees the

clearing organization’s clearing

activities in the home country. The

Commission did not receive any

comments on this proposed definition

and is adopting it as proposed.

5. Principles for Financial Market

Infrastructures

The Commission proposed to define

‘‘Principles for Financial Market

Infrastructures’’ to mean the PFMIs

published by the Committee on

Payment and Settlement Systems

(CPSS) and the Technical Committee of

the International Organization of

Securities Commissions (IOSCO) in

April 2012, as updated, revised, or

otherwise amended. The Commission

proposed the ‘‘as updated, revised, or

otherwise amended’’ language in the

2018 Proposal to recognize that CPMI–

IOSCO

17

could offer further

interpretation of or guidance on the

PFMIs.

18

As proposed in the 2019

Proposal,

19

the Commission is striking

‘‘as updated, revised, or otherwise

amended’’ from the definition to clarify

that while a home country regulator

may voluntarily adopt or amend its

statutes, rules, regulations, policies or

combination thereof to incorporate

subsequent interpretations and

guidance, the home country regulator is

not required to do so to maintain a

regulatory regime that is comparable to

and as comprehensive as the PFMIs.

The Commission believes that striking

that portion of the proposed definition

would provide exempt DCOs with

greater regulatory certainty, as a DCO’s

eligibility to remain exempt from

registration would not be contingent on

whether a home country regulator has

adopted CPMI–IOSCO’s latest

interpretations or guidance. The

Commission also does not believe it is

appropriate to allow any future change

to the PFMIs themselves to be

incorporated into the definition without

the Commission and other regulators

first having the opportunity to consider

the change. However, the Commission

reserves the ability to incorporate future

amendments to the PFMIs within the

definition if the Commission determines

that such amendments are appropriate.

The Commission did not receive any

comments on this proposed definition

and is adopting it as proposed.

C. Regulation 39.6—Exemption From

DCO Registration

The Commission proposed new § 39.6

to establish a regulatory framework for

the granting of exemptions from DCO

registration consistent with the policies

and procedures that the Commission

has been following with respect to

granting exemptions from DCO

registration. The specific provisions of

§ 39.6 are discussed in greater detail

below.

1. Regulation 39.6(a)—Eligibility for

Exemption

The Commission proposed § 39.6(a) to

provide that the Commission may

exempt a non-U.S. clearing organization

from registration as a DCO for the

clearing of swaps for U.S. persons

20

and

thereby exempt such clearing

organization from compliance with the

provisions of the CEA and Commission

regulations applicable to registered

DCOs, if the Commission determines

that all of the eligibility requirements

listed in § 39.6(a) are met, and that the

clearing organization satisfies the

conditions set forth in § 39.6(b).

21

a. Subject to Comparable,

Comprehensive Supervision and

Regulation

The Commission proposed to codify

in § 39.6(a)(1) the statutory authority in

section 5b(h) of the CEA that the

Commission may exempt a clearing

organization from DCO registration for

the clearing of swaps provided that the

Commission determines that the

clearing organization is subject to

comparable, comprehensive supervision

and regulation by a home country

regulator. To satisfy this condition, the

clearing organization would need to

demonstrate that: (i) It is organized in a

jurisdiction in which a home country

regulator applies to the clearing

organization, on an ongoing basis,

statutes, rules, regulations, policies, or a

combination thereof that, taken together,

are consistent with the PFMIs; (ii) it

observes the PFMIs in all material

respects; (iii) and it is in good regulatory

standing in its home country.

In determining that adherence to the

PFMIs

22

satisfies the ‘‘comparable,

comprehensive supervision and

regulation’’ standard set forth in CEA

section 5b(h), the Commission takes a

holistic, outcomes-based approach. That

is, the Commission has assessed

whether, taken together in their entirety,

the PFMIs provide a comprehensive

framework for DCO supervision and

regulation that is comparable to the

statutory and regulatory requirements

that comprise the DCO regulatory

framework—focusing, in particular, on

the core principles applicable to

registered DCOs set forth in CEA section

5b (DCO Core Principles).

23

The use of

the PFMIs as the benchmark in this

context builds upon the global effort to

develop an effective and consistent set

of regulatory and supervisory standards

for CCPs. More specifically, the PFMIs

address major elements critical to the

safe and efficient operation of CCPs,

such as risk management, adequacy of

financial resources, default

management, margin, settlement, and

participation requirements.

24

The Commission recognizes that the

requirements of the PFMI-compliant

jurisdiction will not be identical to the

Commission’s regulations in every

aspect. Nevertheless, a foreign

jurisdiction’s observance of the PFMIs

provides assurance that its supervision

and regulation are sufficiently similar in

purpose and effect while avoiding a

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As stated previously, this conclusion is

consistent with other previous Commission

determinations. See, e.g., Regulation

50.52(b)(4)(i)(E), 17 CFR 50.52(b)(4)(i)(E)

(permitting eligible affiliate counterparties that are

located in certain jurisdictions to satisfy a condition

to electing the exemption by clearing the swap

through a DCO or a clearing organization that is

subject to supervision by appropriate government

authorities in the clearing organization’s home

country and that has been assessed to be in

compliance with the PFMIs).

26

See, e.g., Derivatives Clearing Organizations

and International Standards, 78 FR 72476 (Dec. 2,

2013) (adopting final rules).

demand for strict compliance with U.S.

regulation that would subject CCPs to a

patchwork of U.S. and foreign

regulations. In summary, the PFMI-

focused ‘‘comparability’’ framework

strikes the proper balance by showing

an appropriate level of deference to the

legal and supervisory regime of the

home country jurisdiction, while

fulfilling the Commission’s supervisory

duty to ensure that foreign DCOs

clearing for U.S. market participants are

subject to a sound regulatory

framework.

CME, ISDA, IBA Japan, and JFMC

supported the Commission’s reliance on

the PFMIs as the standard for

determining whether a non-U.S.

clearing organization’s home country

regulatory regime is comparable and

comprehensive. IBA Japan and JFMC

believe this approach strikes the correct

balance between addressing risk to the

United States and promoting cross-

border harmonization. ISDA encouraged

the Commission to continue its dialogue

with foreign regulators in the EU and

other jurisdictions to ensure that

supervision in each jurisdiction is based

on deference to home country

regulations and compliance with the

PFMIs. ISDA argued that applying

inconsistent and duplicative regulatory

frameworks to clearing organizations

will lead to the fragmentation of global

cleared derivatives markets.

AFR Ed Fund, Citadel, and Better

Markets opposed using the PFMIs to

determine whether a clearing

organization is subject to comparable,

comprehensive supervision and

regulation by its home country

regulator. These commenters argued

that section 5b(h) of the CEA requires

that the Commission compare the CEA

with the clearing organization’s home

country regime and that the

Commission cannot use the fact that the

foreign regulatory regime conforms to

the PFMIs as a substitute for

determining whether the regulatory

regimes are comparable, as required by

section 5b(h).

AFR Ed Fund argued that the

Commission’s decision to deem

compliance with any foreign regulatory

regime that conforms to the PFMIs as

fulfilling the statutory requirements for

exempting a clearing organization from

registration under U.S. law means that

a foreign clearing organization can be

exempted from registration without any

determination that it is subject to

supervision and regulation that is ‘‘in

any way’’ comparable to the relevant

U.S. laws or regulations. AFR Ed Fund

further argued that the Commission

‘‘cannot substitute its judgement as to

whether a foreign regime conforms to

the PFMIs, a set of broad principles with

no standing under U.S. law, for the

statutory mandate to ensure that a DCO

is subject to a regime comparable to U.S.

regulation and supervision.’’

Similarly, Better Markets argued that

the proposal unlawfully treats the

PFMIs as being the equivalent of U.S.

law for purposes of making a

comparability determination under

section 5b(h). Better Markets also argued

that the U.S. statutory and regulatory

requirements for DCOs are not the

equivalent of the PFMIs because the

PFMIs do not have the force of law until

they are incorporated into the home

jurisdiction’s laws or regulations, and

because, even when the PFMIs are

implemented, material differences may

exist between the PFMI-compliant

regulatory regime and the PFMI

principles. Better Markets further

argued that because section 5b(h) is only

implicated if the non-U.S. clearing

organization is subject to the DCO

registration requirement of section 5b(a)

in the first instance, Congress limited

the Commission’s comparability inquiry

to determining whether the non-U.S.

regime is comparable to the U.S.

regulatory requirements that would

otherwise apply to the clearing

organization. Better Markets claimed

that the 2018 Proposal and the four

existing exemptive orders suffer from

the same legal deficiencies alleged in its

comment.

Citadel believes the Commission

should directly compare its regulatory

regime with that of the clearing

organization’s home country. Citadel

pointed out that the PFMIs do not

address a number of important elements

of the Commission’s regulatory

framework for DCOs, including non-

discriminatory access, straight-through

processing, gross margining, public

disclosure of rule filings, and public

information. Lastly, Citadel stated that

U.S. customer access should be

considered as a part of the overall

comparability assessment.

The Commission notes that section

5b(h) provides that the Commission may

exempt a clearing organization from

DCO registration ‘‘if the Commission

determines that the [ ] clearing

organization is subject to comparable,

comprehensive supervision and

regulation . . . .’’ Accordingly, the

Commission may, and does, determine

that a foreign regulatory regime that

conforms to the PFMIs constitutes

‘‘comparable, comprehensive

supervision and regulation by . . . the

appropriate government authorities in

the home country of the organization,’’

and therefore that a clearing

organization subject to such a regime

may be exempted from the DCO

registration requirements.

25

As

mentioned previously, the PFMIs are

comparable to the DCO Core Principles

and the implementing Commission

regulations in purpose and scope. Both

address major elements critical to the

safe and efficient operations of clearing

organizations, such as risk management,

adequacy of financial resources, default

management, margin, settlement, and

participation requirements.

26

Regulation

39.40 expressly states that subpart C of

part 39 of the Commission’s regulations

‘‘is intended to establish standards

which, together with subparts A and B

of [part 39], are consistent with’’ section

5b(c) of the CEA and the PFMIs and

should be interpreted in that context.

Regarding Citadel’s comment, the

Commission acknowledges that the

PFMIs are not identical to, nor as

detailed as, part 39. However,

‘‘comparable and comprehensive’’ does

not mean identical. The Commission

adopted the part 39 requirements for

registered DCOs, which may generally

clear futures, swaps, and other

instruments for various U.S. persons to

the extent permissible under the CEA.

Here, in light of the scope of an exempt

DCO’s clearing activities, the PFMIs are

sufficiently comparable and

comprehensive to provide the

appropriate framework for the

supervision and regulation of exempt

DCOs permitted to clear in accordance

with this final rule and other relevant

conditions contained within any

exemptive order granted by the

Commission. Application of the PFMIs

in the context of U.S. customer clearing,

which is not part of the final rule, can

be considered if the Commission takes

up the issue of customer clearing at

exempt DCOs.

The Commission is adopting

§ 39.6(a)(1) as proposed.

b. Memorandum of Understanding

The Commission proposed § 39.6(a)(2)

to require that, in order for a clearing

organization to be eligible for an

exemption from registration, an MOU or

similar arrangement satisfactory to the

Commission must be in effect between

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CFTC Memoranda of Understanding:

Cooperation for Supervisory, Prudential, and Risk

Assessment Purposes, https://www.cftc.gov/

International/MemorandaofUnderstanding/

mouInfo_Sharing_for_Supervisor.html.

28

The reference to ‘‘those persons identified in

the definition of ‘proprietary account’ set forth in

§1.3,’’ refers to those persons associated with the

U.S. person that is a clearing member in the manner

provided in the definition of ‘‘proprietary account’’

as if the U.S. person is the ‘‘individual, a

partnership, corporation or other type of

association’’ that carries the proprietary account on

its books and records, and not simply to such types

of persons identified in the definition generally.

29

This provision is intended to permit what

would be considered clearing of ‘‘proprietary’’

positions under the Commission’s regulations, even

if the positions would qualify as ‘‘customer’’

positions under the laws and regulations of an

exempt DCO’s home country. This provision

clarifies that an exempt DCO may clear positions for

FCMs if the positions are not ‘‘customer’’ positions

under the Commission’s regulations.

30

The reference to ‘‘those persons identified in

the definition of ‘proprietary account’ set forth in

§1.3,’’ is intended to refer to those persons

associated with the FCM in the manner provided

in the definition of ‘‘proprietary account’’ as if the

FCM is the individual, a partnership, corporation or

other type of association that carries the proprietary

account on its books and records, and not simply

to such types of persons identified in the definition

generally.

31

7 U.S.C. 2(h)(1)(B).

the Commission and the clearing

organization’s home country regulator,

pursuant to which, among other things,

the home country regulator agrees to

provide to the Commission any

information that the Commission deems

necessary to evaluate the clearing

organization’s initial and continued

eligibility for exemption or to review

compliance with any conditions of such

exemption.

ISDA commented that the

Commission should identify the types of

information that it expects to require

under the MOU. ISDA argued that it is

important for the Commission to

provide additional clarity regarding the

specific information it will require to

evaluate the exempt DCO’s initial and

continued eligibility for exemption to

ensure that providing such information

would not violate any local laws. ISDA

believes that doing so would allow the

Commission to access necessary

information while, at the same time,

taking into account any prohibitions on

providing certain types of information

under local laws.

In response to ISDA’s comment, the

Commission notes that § 39.6(e)(2) sets

forth the information that an applicant

for exemption from DCO registration

must provide to the Commission. That

information would not be specified in

an MOU because it must be provided by

the applicant, not the applicant’s home

country regulator. However, an MOU

between the Commission and the home

country regulator would allow the

Commission to seek the home country

regulator’s assistance in analyzing and

interpreting the information as

necessary to determine the applicant’s

eligibility for an exemption. If the

applicant is granted an exemption, the

MOU would allow the Commission to

gather additional information from the

home country regulator as necessary to

determine the exempt DCO’s continued

eligibility. For example, if an exempt

DCO provides notice to the Commission

of a change in its home country

regulatory regime pursuant to

§ 39.6(c)(2)(iii), the Commission may

wish to discuss the change with the

home country regulator to understand

what impact, if any, the change may

have on the exempt DCO’s ability to

comply with the conditions of its

exemption.

The Commission notes that it already

has several MOUs with other regulators

in place, and those specific to the

oversight of clearing organizations are

generally similar in content and scope.

27

To the extent that local laws limit a

regulator’s ability to share information

with the Commission, the Commission

works closely with the regulator to

resolve any issues.

The Commission is adopting

§ 39.6(a)(2) as proposed.

2. Regulation 39.6(b)—Conditions of

Exemption

The Commission proposed § 39.6(b) to

set forth the conditions to which an

exempt DCO would be subject. These

are the same conditions the Commission

has imposed on exempt DCOs through

the orders of exemption that it has

issued to date.

a. Clearing by or for U.S. Persons and

Futures Commission Merchants

The Commission proposed

§ 39.6(b)(1) to prohibit the clearing of

U.S. customer positions at an exempt

DCO. An FCM would be permitted to be

a clearing member of an exempt DCO,

or maintain an account with an

affiliated broker that is a clearing

member, for the purpose of clearing

swaps only for the FCM itself and those

persons identified in the definition of

‘‘proprietary account’’ in § 1.3 of the

Commission’s regulations.

The Commission requested comment

in the 2018 Proposal as to whether the

Commission should consider permitting

an exempt DCO to clear swaps for U.S.

customers. The Commission received

four comments in response to that

request. As noted above, the

Commission responded to these

comments by issuing the 2019 Proposal,

which proposed to permit U.S.

customers to clear at an exempt DCO,

but only through foreign intermediaries,

not FCMs. However, at this time, the

Commission is adopting § 39.6(b)(1)

largely as proposed in the 2018

Proposal, to permit an exempt DCO to

clear only proprietary positions of U.S.

persons and FCMs, and not customer

positions. Specifically, § 39.6(b)(1)

provides that an exempt DCO must have

rules that limit swaps clearing services

for U.S. persons and FCMs as follows:

(i) A U.S. person that is a clearing

member of the exempt DCO may clear

swaps for itself and those persons

identified in the definition of

‘‘proprietary account’’ set forth in

§ 1.3;

28

(ii) a non-U.S. person that is a

clearing member of the exempt DCO

may clear swaps for any affiliated U.S.

person identified in the definition of

‘‘proprietary account’’ set forth in § 1.3

of this chapter;

29

and (iii) an FCM may

be a clearing member of the exempt

DCO, or otherwise maintain an account

with an affiliated broker that is a

clearing member, for the purpose of

clearing only proprietary swaps

positions for itself and those persons

identified in the definition of

‘‘proprietary account’’ set forth in

§ 1.3.

30

b. Open Access

The Commission proposed

§ 39.6(b)(2) to codify the ‘‘open access’’

requirements of section 2(h)(1)(B) of the

CEA, which applies to both registered

and exempt DCOs, with respect to

swaps cleared by an exempt DCO to

which one or more of the counterparties

is a U.S. person.

31

Paragraph (b)(2)(i)

would require an exempt DCO to

maintain rules providing that all such

swaps with the same terms and

conditions (as defined by product

specifications established under the

exempt DCO’s rules) submitted to the

exempt DCO for clearing are

economically equivalent and may be

offset with each other, to the extent that

offsetting is permitted by the exempt

DCO’s rules. Paragraph (b)(2)(ii) would

require an exempt DCO to maintain

rules providing for non-discriminatory

clearing of such a swap executed either

bilaterally or on or subject to the rules

of an unaffiliated electronic matching

platform or trade execution facility, e.g.,

a swap execution facility. The

Commission did not receive any

comments on this provision. The

Commission is adopting § 39.6(b)(2) as

proposed.

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See 7 U.S.C. 7a–1(h) (stating, in relevant part,

that the Commission may exempt, conditionally or

unconditionally, a DCO from registration under that

section for the clearing of swaps).

c. Consent to Jurisdiction; Designation

of Service of Process

The Commission proposed

§ 39.6(b)(3) to require that an exempt

DCO consent to jurisdiction in the

United States and designate an agent in

the United States, for notice or service

of process, pleadings, or other

documents issued by or on behalf of the

Commission or the U.S. Department of

Justice in connection with any actions

or proceedings against, or any

investigations relating to, the exempt

DCO or any U.S. person or FCM that is

a clearing member or that clears swaps

through an affiliated clearing member.

The name of the designated agent would

be submitted as part of the clearing

organization’s application for

exemption. If an exempt DCO appoints

another agent to accept such notice or

service of process, the exempt DCO

would be required to promptly inform

the Commission of this change. This is

consistent with requirements currently

imposed in the registration orders of

DCOs that are organized outside of the

United States as well as in each of the

orders of exemption that the

Commission has issued thus far. The

Commission did not receive any

comments on this provision. The

Commission is adopting § 39.6(b)(3) as

proposed.

d. Compliance

The Commission proposed

§ 39.6(b)(4) as a general provision that

would require an exempt DCO to

comply, and demonstrate compliance as

requested by the Commission, with any

condition of the exempt DCO’s order of

exemption. The Commission did not

receive any comments on this provision.

The Commission is adopting § 39.6(b)(4)

as proposed.

e. Inspection of Books and Records

The Commission proposed

§ 39.6(b)(5) to require an exempt DCO to

make all documents, books, records,

reports, and other information related to

its operation as an exempt DCO (books

and records) open to inspection and

copying by any Commission

representative, and to promptly make its

books and records available and provide

them to Commission representatives

upon request. This condition is

consistent with section 5b(h) of the

CEA, which provides that the

Commission may exempt a DCO from

registration with conditions that may

include requiring that the DCO be

available for inspection by the

Commission and make available all

information requested by the

Commission.

ISDA believes that the proposed

condition is too broad and that the

Commission should specify how and

when it would undertake inspections of

exempt DCOs. ISDA also believes, to

foster cross-border regulatory

cooperation, the Commission should

consider obtaining consent for

inspections from an exempt DCO’s

home country regulator prior to

conducting onsite inspections. ISDA

suggested, at a minimum, the

Commission should provide prior notice

to an exempt DCO’s home country

regulator in connection with any

inspection or ask the home country

regulator for the required information.

ISDA argued that, not only would this

promote comity and coordination, but it

would also ensure that such inspections

are not overly burdensome or in

violation of local laws. ISDA further

suggested that the Commission should

consider including an exempt DCO’s

home country regulator during

inspections, which would assist the

Commission in interpreting and

analyzing the exempt DCO’s books and

records in the context of the regulatory

requirements of a particular jurisdiction.

The Commission is adopting

§ 39.6(b)(5) as proposed. The

Commission notes that it does not

anticipate conducting routine site visits

to exempt DCOs. However, the

Commission may request a DCO’s books

and records to ensure that, among other

things, the exempt DCO continues to

meet the eligibility requirements for an

exemption as well as the conditions of

its exemption. The Commission further

notes that it already follows many of

ISDA’s recommendations in the context

of examining non-U.S. DCOs, and it

would expect to do the same in the

context of an exempt DCO; such

interactions with the home country

regulator would be addressed in the

MOU.

f. Observance of the PFMIs

In the 2018 Proposal, the Commission

proposed § 39.6(b)(6) to require that an

exempt DCO provide an annual

certification that it continues to observe

the PFMIs in all material respects,

within 60 days following the end of its

fiscal year. In the 2019 Proposal, the

Commission proposed to modify (and

renumber) this condition to specify the

information that an exempt DCO must

provide to the Commission if it is

unable to provide an unconditional

certification that it continues to observe

the PFMIs in all material respects.

Specifically, the exempt DCO would be

required to identify the underlying

material non-observance of the PFMIs

and explain whether and how such non-

observance has been or is being resolved

by the exempt DCO. The Commission

proposed this modification in

recognition of the fact that at some point

an exempt DCO may not be able to

certify that it observes the PFMIs in all

material respects. The exempt DCO

must disclose that information to the

Commission and allow the Commission

to consider its impact on the exempt

DCO’s standing.

The Commission did not receive

comments on this provision. The

Commission is adopting § 39.6(b)(6) as

proposed.

g. Representation of Good Regulatory

Standing

The Commission proposed

§ 39.6(b)(7) to require that the

Commission receive an annual written

representation from a home country

regulator that an exempt DCO is in good

regulatory standing, within 60 days

following the end of the exempt DCO’s

fiscal year. The Commission received

comments on the definition of ‘‘good

regulatory standing,’’ as discussed

above, but did not receive comments on

this provision. The Commission is

adopting § 39.6(b)(7) as proposed.

h. Other Conditions

Lastly, the Commission proposed

§ 39.6(b)(9) in the 2019 Proposal to

provide that the Commission may

condition an exemption from DCO

registration on any other facts and

circumstances it deems relevant.

32

The

Commission stated that, in doing so, it

would be mindful of principles of

international comity. For example, the

Commission could take into account the

extent to which the relevant foreign

regulatory authorities defer to the

Commission with respect to oversight of

registered DCOs organized in the United

States.

CME strongly supported the

Commission’s retaining discretion to

condition an exemption from DCO

registration on principles of

international comity and the extent to

which the relevant home country

regulator defers to the Commission with

respect to oversight of registered DCOs

organized in the United States that are

accessed by local participants. CME

believes the Commission’s efforts to

support mutual deference among

regulators across the globe will foster

efficient markets and cooperative

behavior to the benefit of all. As a result,

CME suggested that the Commission

codify its ability to condition an

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In order to promote effective and consistent

global regulation of swaps, section 752 of the Dodd-

Frank Act directs the Commission to consult and

coordinate with foreign regulatory authorities on

the establishment of consistent international

standards with respect to the regulation of swaps,

among other things. Section 752 of the Dodd-Frank

Act, Public Law 111–203, 124 Stat. 1376 (2010),

codified at 15 U.S.C. 8325.

34

Such FCMs may or may not be U.S. persons.

The Commission will not require that exempt DCOs

provide daily information regarding initial margin

requirements, initial margin on deposit, and daily

variation margin, or quarterly aggregate clearing

volume or average open interest, with respect to

swaps, for FCMs that are not U.S. persons (unless

reporting would otherwise be required because

such FCMs are affiliates of U.S. persons). However,

the Commission has a supervisory interest in

receiving information regarding which of its

registered FCMs are clearing members or affiliates

of clearing members, with respect to the clearing of

swaps at an exempt DCO.

35

Such an international organization may include

the International Monetary Fund or World Bank.

See PFMIs, ¶1.33.

exemption from DCO registration on

matters of international comity and

reciprocity within the regulatory text.

The Commission is declining to

specifically condition an exemption

from DCO registration on matters of

international comity and reciprocity,

but only because it believes § 39.6(b)(9)

as proposed is sufficient for those

purposes. As noted in the 2019

Proposal, the Commission could use its

discretion under § 39.6(b)(9) to advance

the goal of regulatory harmonization,

consistent with the express directive of

Congress that the Commission

coordinate and cooperate with foreign

regulatory authorities on matters related

to the regulation of swaps.

33

The

recognition that market participants and

market facilities in a global swaps

market are subject to multiple regulators

and potentially duplicative regulations,

and can therefore benefit from

regulatory harmonization and mutual

deference among regulators, underpins

the exempt DCO framework. The

framework is intended to encourage

collaboration and coordination among

U.S. and foreign regulators in

establishing comprehensive regulatory

standards for swaps clearing. In

addition, the framework seeks to

promote fair competition and a level

playing field for all DCOs. As a result,

the Commission will consider the

degree of deference that a home country

regulator extends to the Commission’s

oversight of U.S. DCOs in determining

whether to extend the benefits of

exemption from registration to DCOs in

that jurisdiction, both at the point of

initially exempting a non-U.S. DCO, and

in determining whether compliance

under that framework should continue.

The Commission is adopting § 39.6(b)(9)

as proposed (renumbered as

§ 39.6(b)(8)).

3. Regulation 39.6(c)—General

Reporting Requirements

The Commission proposed § 39.6(c) to

require an exempt DCO to report certain

information that would assist the

Commission in evaluating the continued

eligibility of the exempt DCO for

exemption, reviewing the exempt DCO’s

compliance with any conditions of its

exemption, or monitoring the risk of

U.S. persons and their affiliates clearing

swaps at the exempt DCO.

Specifically, the Commission

proposed § 39.6(c)(2)(i) to require that

an exempt DCO compile a report as of

the end of each trading day, and submit

it to the Commission by 10:00 a.m. U.S.

Central time on the following business

day, containing with respect to swaps:

(A) Initial margin requirements and

initial margin on deposit for each U.S.

person; and (B) daily variation margin,

separately listing the mark-to-market

amount collected from or paid to each

U.S. person. However, if a clearing

member margins on a portfolio basis its

own positions and the positions of its

affiliates, and either the clearing

member or any of its affiliates is a U.S.

person, the exempt DCO would be

required to report initial margin

requirements and initial margin on

deposit for all such positions on a

combined basis for each such clearing

member on a combined basis and

separately list the mark-to-market

amount collected from or paid to each

such clearing member, on a combined

basis. These requirements are similar to

certain reporting requirements

applicable to registered DCOs in

§ 39.19(c)(1). These reports will provide

the Commission with information

regarding the cash flows associated with

U.S. persons clearing swaps through

exempt DCOs in order to analyze the

risks presented by such U.S. persons

and to assess the extent to which U.S.

business is being cleared by each

exempt DCO.

The Commission proposed

§ 39.6(c)(2)(ii)(A) and (B) to require an

exempt DCO to compile a report as of

the last day of each fiscal quarter, and

submit it to the Commission no later

than 17 business days after the end of

the fiscal quarter, containing the

aggregate clearing volume of U.S.

persons during the fiscal quarter, and

the average open interest of U.S. persons

during the fiscal quarter, respectively. If

a clearing member is a U.S. person, this

data would include the transactions and

positions of the clearing member and all

affiliates for which the clearing member

clears; if a clearing member is not a U.S.

person, the data would only have to

include the transactions and positions

of affiliates that are U.S. persons. The

Commission proposed § 39.6(c)(2)(ii)(C)

to require that an exempt DCO’s

quarterly report to the Commission

contain a list of U.S. persons and

FCMs

34

that are either clearing

members or affiliates of any clearing

member, with respect to the clearing of

swaps, as of the last day of the fiscal

quarter. This information would enable

the Commission, in conducting risk

surveillance of U.S. persons and swaps

markets more broadly, to better

understand and evaluate the nature and

extent of the cleared swaps activity of

U.S. persons.

The Commission proposed paragraphs

(c)(2)(iii) through (viii) of § 39.6 to

require an exempt DCO to provide

information to the Commission upon

the occurrence of certain specified

events. The Commission proposed

§ 39.6(c)(2)(iii) to require an exempt

DCO to provide prompt notice to the

Commission regarding any change in its

home country regulatory regime that is

material to the exempt DCO’s

continuing observance of the PFMIs or

with any requirements set forth in

§ 39.6, or the order of exemption issued

by the Commission.

The Commission proposed

§ 39.6(c)(2)(iv) to require an exempt

DCO to provide to the Commission, to

the extent that it is available to the

exempt DCO, any assessment of the

exempt DCO’s or the home country

regulator’s observance of the PFMIs by

a home country regulator or other

national authority, or an international

financial institution or international

organization.

35

The Commission proposed

§ 39.6(c)(2)(v) to require an exempt DCO

to provide to the Commission, to the

extent that it is available to the exempt

DCO, any examination report,

examination findings, or notification of

the commencement of any enforcement

or disciplinary action by a home

country regulator.

The Commission proposed

§ 39.6(c)(2)(vi) to require an exempt

DCO to provide immediate notice to the

Commission of any change with respect

to its licensure, registration, or other

authorization to act as a clearing

organization in its home country.

The Commission proposed

§ 39.6(c)(2)(vii) to require an exempt

DCO to provide immediate notice to the

Commission in the event of a default (as

defined by the exempt DCO in its rules)

by a U.S. person or FCM clearing swaps,

including the name of the U.S. person

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JSCC cited CFTC Letter 18–03: Extension of No-

Action Relief from Certain Reporting Obligations for

Counterparties Clearing Swaps through Derivatives

Clearing Organizations Acting Under Exemptive

Orders or No-Action Relief (Feb. 20, 2018).

37

See Exemption From Derivatives Clearing

Organization Registration, 83 FR at 39928, n.32.

38

See Swap Data Recordkeeping and Reporting

Requirements, 85 FR 75503, 75567 (Nov. 25, 2020)

(appendix 1 to part 45 contains the ‘‘clearing

member’’ field, which contains instructions for

reporting the field under the agency clearing model

or the principal clearing model). See also Technical

Specification Document: Parts 43 and 45 swap

reporting and public dissemination requirements at

1–2, available at https://www.cftc.gov/media/3496/

DMO_Part43_45TechnicalSpecification022020/

download (containing the technical specifications

for the ‘‘clearing member’’ field).

39

See 17 CFR 49.27 (containing the SDR access

and fees requirements).

or FCM, a list of the positions held by

the U.S. person or FCM, and the amount

of the U.S. person’s or FCM’s financial

obligation.

Finally, the Commission proposed

§ 39.6(c)(2)(viii) to require an exempt

DCO to provide notice to the

Commission of any action the exempt

DCO has taken against a U.S. person or

FCM, no later than two business days

after taking such action.

The Commission requested comment

in the 2018 Proposal, with regard to

proposed § 39.6(c)(2)(iii), on whether,

instead of requiring an exempt DCO to

provide prompt notice to the

Commission regarding any change in its

home country regulatory regime that is

material to the exempt DCO’s

continuing observance of the PFMIs,

any requirements set forth in § 39.6, or

the order of exemption issued by the

Commission (thereby requiring the

exempt DCO to determine whether a

change is material), the Commission

should require an exempt DCO to

provide prompt notice of any change in

its home country regulatory regime.

ASX and JSCC supported requiring an

exempt DCO to determine whether a

change to its home country regulatory

regime constitutes a material change.

ASX and JSCC believe an exempt DCO

is best situated to easily identify

changes to its home country regulatory

regime as well as determine whether

such changes are material. JSCC also

commented that having the exempt DCO

make this materiality determination

would avoid redundant reporting and

review for an exempt DCO and the

Commission of any change to the home

country regulatory regime.

The Commission agrees with the

commenters that an exempt DCO should

be required to determine whether a

change to its home country regulatory

regime would constitute a material

change, especially as the Commission

would otherwise need to review

changes to home country regulatory

regimes in multiple jurisdictions.

The Commission is adopting § 39.6(c)

as proposed.

4. Regulation 39.6(d)—Swap Data

Reporting Requirements

The Commission proposed § 39.6(d)

to require an exempt DCO, if it accepts

for clearing a swap that has been

reported to an SDR pursuant to part 45

of the Commission’s regulations, to

report to an SDR data for the two swaps

that result from the novation of the

original swap. The exempt DCO would

also be required to report the

termination of the original swap to the

same SDR that received the original

swap report. To avoid duplicative

reporting for such transactions, the

Commission also proposed to require an

exempt DCO to have rules that prohibit

the reporting of the two new swaps by

the counterparties to the original swap.

Citadel commented that the

Commission should ensure that

reporting requirements pursuant to parts

43 and 45 of the Commission’s

regulations continue to be fulfilled in an

accurate manner for in-scope

transactions, including the ‘‘cleared or

uncleared’’ field in part 43 and the

‘‘clearing indicator’’ and ‘‘clearing

venue’’ fields in part 45. JSCC supported

clearly defining an exempt DCO’s swap

data reporting obligations within part

39. However, JSCC was concerned that

the counterparties to the original swap

would still be required to report the

cleared transaction arising from the

novation of the original swap at an

exempt DCO to an SDR under part 45,

which JSCC viewed as in conflict with

proposed § 39.6(d). JSCC commented

that proposed § 39.6(d) could create

confusion about reporting expectations

for exempt DCOs and their respective

clearing members.

36

JSCC was hopeful

that part 45 would be amended to

address this issue.

CCP12 acknowledged that

transparency in the swaps markets,

which it believes is supported by SDR

reporting, provides a number of

benefits. However, CCP12 argued that

the current SDR reporting requirements

applied to exempt DCOs pose

significant operational challenges, such

as on-boarding with a U.S. SDR that has

a different reporting format than that of

the exempt DCO’s home country. CCP12

also commented that SDR reporting fees

are a burden based on the number of

reported transactions. The Commission

believes that transparency in the swaps

market as provided by the swap data

reporting requirements, which are

applicable to all registered DCOs,

including non-U.S. DCOs and existing

exempt DCOs, strongly warrants

requiring exempt DCOs to report such

information pursuant to § 39.6(d).

In response to JSCC’s concern that

§ 39.6(d) could cause confusion given

the time-limited no-action relief

provided in CFTC Letter 18–03, the

Commission notes that § 39.6(d)

specifically requires an exempt DCO to

have rules that prohibit the

counterparties to the original swap from

reporting to an SDR pursuant to part 45

the two new swaps which result from

novation of the original swap. As

explained in the 2018 Proposal, the

exempt DCO’s rules prohibiting

reporting by the counterparties to the

original swap are intended to avoid

duplicative reporting.

37

In response to CCP12’s concern

related to onboarding with an SDR that

uses a different reporting format than

the exempt DCO’s home country, the

Commission notes that it recently

adopted revisions to part 45 of the

Commission’s regulations that include

standardized data fields that

accommodate reporting for swaps

cleared under either the ‘‘agency’’

clearing model or the ‘‘principal’’

clearing model.

38

In regards to SDR fees,

the Commission notes that SDRs are

required to provide their services on a

fair, open, and equal basis and an SDR’s

fees must be equitable and applied in a

uniform and non-discriminatory

manner.

39

As such, the burdens

associated with SDR fees for exempt

DCOs will be no different than the

burdens for other DCOs that clear swaps

that must be reported to SDRs. The

Commission is adopting § 39.6(d) as

proposed.

5. Regulation 39.6(e)—Application

Procedures

The Commission proposed § 39.6(e) to

codify the procedures a non-U.S.

clearing organization must follow when

applying for an exemption from DCO

registration.

Specifically, the Commission

proposed § 39.6(e)(1) to require a

clearing organization to file an

application for exemption with the

Secretary of the Commission in the

format and manner specified by the

Commission. After reviewing the

application, the Commission may: (1)

Grant an exemption without conditions;

(2) grant an exemption with conditions;

or (3) deny the application.

Proposed § 39.6(e)(2) requires an

applicant to submit a complete

application, including all applicable

information and documentation as

outlined therein, and provide that the

Commission will not commence

processing an application unless the

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See CPSS–IOSCO, Principles for financial

market infrastructures: Disclosure framework and

Assessment methodology (Dec. 2012), at 82 et seq.,

available at http://www.iosco.org/library/pubdocs/

pdf/IOSCOPD396.pdf.

41

The Disclosure Framework contemplates that

CCPs will make public disclosures pursuant to the

Disclosure Framework. See id. at 1.

42

In the 2019 Proposal, proposed §39.6(f)(1)

included a subparagraph (iii) that is not being

adopted at this time.

application is complete. The application

must include: (i) A cover letter

providing general information

identifying the applicant, its regulatory

licenses or registrations, and relevant

contact information; (ii) a description of

the applicant’s business plan, including

swap asset classes that it would clear

and whether the swaps are subject to a

clearing requirement issued by the

Commission or the applicant’s home

country regulator; (iii) documents that

demonstrate that the applicant is held to

requirements consistent with the PFMIs;

(iv) a written representation from the

applicant’s home country regulator that

the applicant is in good regulatory

standing; (v) copies of the applicant’s

most recent disclosures necessary to

observe the PFMIs, including the

financial market infrastructure

disclosure template set forth in Annex

A to the Disclosure Framework and

Assessment Methodology for the

PFMIs;

40

(vi) a representation that the

applicant will comply with each of the

requirements and conditions of its

exemption; (vii) a draft of the

applicant’s rules showing compliance

with various requirements for an

exemption; and (viii) the applicant’s

consent to jurisdiction in the United

States, with contact information for the

applicant’s designated U.S. agent.

Proposed § 39.6(e)(3) provides that, at

any time during the Commission’s

review of an application for exemption,

the Commission may request that the

applicant submit supplemental

information in order for the Commission

to process the application, and require

an applicant to file such supplemental

information in the format and manner

specified by the Commission.

Regulation 39.3(a)(4), which applies to

applications for DCO registration,

contains a similar provision.

Proposed § 39.6(e)(4) requires an

applicant to promptly amend its

application if it discovers a material

omission or error, or if there is a

material change in the information

provided to the Commission in the

application or other information

provided in connection with the

application. This provision is similar to

§ 39.3(a)(5), which addresses

amendments to applications for DCO

registration.

Proposed § 39.6(e)(5) identifies those

sections of an application for exemption

from registration that would be made

public, including the cover letter

required in proposed § 39.6(e)(2)(i);

documents demonstrating that the

applicant is organized in a jurisdiction

in which its home country regulator

applies to the applicant statutes, rules,

regulations, and/or policies that are

consistent with the PFMIs as proposed

in § 39.6(e)(2)(iii); disclosures necessary

to observe the PFMIs as proposed in

§ 39.6(e)(2)(v);

41

draft rules that meet

the requirements of proposed

§ 39.6(b)(1) (U.S. persons clearing

requirements), § 39.6(b)(2) (open access

requirements); and § 39.6(d) (swap data

reporting requirements), as applicable;

and any other part of the application not

covered by a request for confidential

treatment, subject to § 145.9. This

provision is similar to § 39.3(a)(6),

which identifies those portions of an

application for registration as a DCO

that are made public.

The Commission did not receive

comments on this aspect of the

proposal. The Commission is adopting

§ 39.6(e) as proposed.

6. Regulation 39.6(f), (g), and

(h)—Modification or Termination of

Exemption; Notice to Clearing Members

of Termination of Exemption

The Commission initially proposed to

provide in § 39.6(f) that the Commission

may modify the terms and conditions of

an order of exemption, either at the

request of the exempt DCO or on the

Commission’s own initiative, based on

changes to or omissions in material facts

or circumstances pursuant to which the

order of exemption was issued, or for

any reason in the Commission’s

discretion. This is a further expression

of the Commission’s discretionary

authority under section 5b(h) of the CEA

to exempt a clearing organization from

registration ‘‘conditionally or

unconditionally,’’ and it reflects the

Commission’s authority to act with

flexibility in responding to changed

circumstances affecting an exempt DCO.

In the 2019 Proposal, the Commission

proposed to also provide for the

termination of an exemption upon the

Commission’s initiative, and to set forth

the process by which the Commission

would issue a modification or

termination.

Under proposed § 39.6(f)(1), the

Commission may modify or terminate

an exemption from DCO registration, in

its discretion and upon its own

initiative, if the Commission determines

that there are changes to or omissions in

material facts or circumstances pursuant

to which the order of exemption was

issued. The Commission may also

modify or terminate an exemption from

DCO registration if any of the terms and

conditions of the order of exemption are

not met, including: (i) The exempt DCO

observing the PFMIs in all material

respects; and (ii) the exempt DCO being

subject to comparable, comprehensive

supervision and regulation by its home

country regulator.

42

The Commission proposed

§ 39.6(f)(2), (f)(3), and (f)(4) to set forth

the process for modification or

termination of an exemption upon the

Commission’s initiative. Under

proposed § 39.6(f)(2), the Commission

must first provide written notification to

an exempt DCO that the Commission is

considering whether to modify or

terminate the DCO’s exemption and the

basis for that consideration.

Under proposed § 39.6(f)(3), an

exempt DCO may respond to the

notification in writing no later than 30

business days following receipt of the

Commission’s notification, or at such

later time as the Commission may

permit in writing. The Commission

believes that a minimum 30-business

day timeframe would allow the

Commission to take timely action to

protect its regulatory interests while

providing the exempt DCO with

sufficient time to develop its response.

The Commission proposed § 39.6(f)(4)

to provide that, following receipt of a

response from the exempt DCO, or after

expiration of the time permitted for a

response, the Commission may either:

(i) Issue an order terminating the

exemption as of a date specified in the

order; (ii) issue an amended order of

exemption that modifies the terms and

conditions of the exemption; or (iii)

provide written notification to the

exempt DCO that the Commission has

determined to neither modify nor

terminate the exemption.

ASX, JSCC, and ISDA believe that an

automatic termination of exemptions

could result in market disruption and

legal uncertainty, particularly for U.S.

persons clearing through the exempt

DCO. However, the commenters

recognized that the Commission must

ensure that exempt DCOs continue to

operate safe and efficient clearing

operations under a regime that is

consistent with the PFMIs. Therefore,

the commenters suggested that the

Commission should first commit to

working with the exempt DCO and its

home country regulator(s) to resolve any

issues with compliance with the terms

and conditions of the order of

exemption. If these efforts are not

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Subsequent to the 2018 Proposal, the

Commission amended §39.9 in the Alternative

Compliance rulemaking to take into account a DCO

registered subject to alternative compliance. See

Registration with Alternative Compliance for Non-

U.S. Derivatives Clearing Organizations, 85 FR at

67171. The Commission is adding to those

amendments the changes it had originally proposed

in the 2018 Proposal. See Exemption From

Derivatives Clearing Organization Registration, 83

FR at 39929.

44

5 U.S.C. 601 et seq.

45

See 66 FR 45604, 45609 (Aug. 29, 2001).

46

44 U.S.C. 3501 et seq.

47

Due to minor adjustments to the burden

estimate for an exempt DCO application due to

consolidating the burden estimates for components

of the application, the current estimated cost is

$10,000 per application.

successful, the commenters suggested

that the Commission allow for an

appropriate transitional period so that

affected clearing members and

customers may migrate to other clearing

organizations in an orderly manner.

The Commission agrees with the

commenters that sufficient time for

transition will be needed in the event

that it terminates an exemption from

registration. That is why the

Commission proposed in § 39.6(f)(4)(i)

that it would issue an order of

termination with an effective date

intended to provide the exempt DCO

with a reasonable amount of time to

wind down its swap clearing services

for U.S. persons, including the

liquidation or transfer of the positions

and related collateral of U.S. persons, as

necessary. The Commission is adopting

§ 39.6(f) as proposed.

Furthermore, the Commission

proposed § 39.6(g) to set forth the

framework under which an exempt DCO

may petition the Commission to

terminate its exemption and the

applicable procedures. Specifically,

pursuant to proposed § 39.6(g)(1), an

exempt DCO may request that the

Commission terminate its exemption if

the exempt DCO: (i) No longer qualifies

for an exemption as a result of changed

circumstances; (ii) intends to cease

clearing swaps for U.S. persons; or (iii)

submits an application for registration

in accordance with § 39.3(a)(2) or

§ 39.3(a)(3), as applicable. The

Commission further proposed in

§ 39.6(g)(2) that the petition for

termination must include a detailed

explanation for the request and describe

the exempt DCO’s plans for liquidation

or transfer of the positions and related

collateral of U.S. persons, if applicable.

Under proposed § 39.6(g)(3), the

Commission would issue an order of

termination within a reasonable time

appropriate to the circumstances or in

conjunction with the issuance of an

order of registration, if applicable.

The Commission did not receive any

comments on § 39.6(g). The Commission

is adopting this provision as proposed.

Lastly, the Commission proposed

§ 39.6(h) to provide that, following the

Commission’s issuance of an order of

termination (unless issued in

conjunction with the issuance of an

order of registration), the exempt DCO

must provide immediate notice of such

termination to its clearing members. The

notice must include: (1) A Copy of the

Commission’s order of termination; (2) a

description of the procedures for orderly

disposition of any open swaps positions

that were cleared for U.S. persons; and

(3) an instruction to clearing members,

requiring that they provide the exempt

DCO’s notice of such termination to all

U.S. persons clearing swaps through

such clearing members. The

Commission did not receive any

comments on this provision. The

Commission is adopting § 39.6(h) as

proposed.

D. Regulation 39.9—Scope

The Commission proposed to revise

§ 39.9 to make it clear that the

provisions of subpart B apply to any

DCO, as defined under section 1a(15) of

the CEA and § 1.3, that is registered

with the Commission as a DCO pursuant

to section 5b of the CEA, but do not

apply to any exempt DCO. This revision

was intended to clarify that the subpart

B regulations that address compliance

with the DCO Core Principles applicable

to registered DCOs do not impose any

obligations upon exempt DCOs. The

Commission did not receive any

comments on this proposal. The

Commission is adopting § 39.9 largely as

proposed.

43

III. Amendments to Part 140

The Commission initially proposed

amendments to § 140.94(c) to delegate

authority to the Director of the Division

of Clearing and Risk (DCR) for all

functions reserved to the Commission in

proposed § 39.6, subject to certain

exceptions. Specifically, the

Commission did not propose to delegate

its authority to grant, modify, or

terminate an exemption or prescribe

conditions to an exemption order.

Consistent with that proposal, the

Commission further proposed to

supplement its delegation to DCR to

include certain functions related to the

modification or termination of an

exemption order upon the

Commission’s initiative. These

functions would include, but would not

be limited to, sending an exempt DCO

notice of an intention to modify or

terminate its exemption order. However,

the Commission alone would retain the

authority to modify or terminate the

exemption order. The Commission did

not receive any comments on this

proposal. The Commission is adopting

the changes to § 140.94(c) as proposed.

IV. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA)

requires that agencies consider whether

the regulations they propose will have

a significant economic impact on a

substantial number of small entities

and, if so, provide a regulatory

flexibility analysis on the impact.

44

The

regulations being adopted by the

Commission will affect clearing

organizations. The Commission has

previously established certain

definitions of ‘‘small entities’’ to be used

by the Commission in evaluating the

impact of its regulations on small

entities in accordance with the RFA.

The Commission has previous

determined that clearing organizations

are not small entities for the purpose of

the RFA.

45

Accordingly, the Chairman,

on behalf of the Commission, hereby

certifies pursuant to 5 U.S.C. 605(b) that

the regulations adopted herein will not

have a significant economic impact on

a substantial number of small entities.

B. Paperwork Reduction Act

The Paperwork Reduction Act of 1995

(PRA)

46

imposes certain requirements

on Federal agencies (including the

Commission) in connection with their

conducting or sponsoring a collection of

information as defined by the PRA. The

regulations adopted herein would result

in such a collection, as discussed below.

A person is not required to respond to

a collection of information unless it

displays a currently valid control

number issued by the Office of

Management and Budget (OMB). The

Commission requested a new OMB

control number for the collection of

information in connection with the

proposal.

The Commission received one

comment regarding its cost burden

analysis in the preamble to the Proposal.

JSCC stated in its October 2018

comment letter that the Commission’s

cost estimate of $10,500

47

for an

application for exemption from DCO

registration substantially

underestimated an applicant’s costs,

which JSCC stated would require a

significant amount of resources to

understand any legal and/or regulatory

implications arising from the DCO

exemption, as well as to identify any

potential conflicts with the applicant’s

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The Commission has determined that one

termination every three years is a more appropriate

estimate than one per year, which was used in the

information burden estimate for the 2018 Proposal.

49

Although the 2018 Proposal included separate

burden estimates for the application and for

information requested by the Commission during its

review, these estimates were combined in the 2019

Proposal and in this final rule. The estimated

number of applications has been revised to one per

year from two in the 2018 Proposal in response to

the Commission’s adoption of the Alternative

Compliance framework, which had not been

proposed at the time of the 2018 Proposal, and

which provides an alternative that could lead to a

reduced number of exemption applications. See

Registration with Alternative Compliance for Non-

U.S. Derivatives Clearing Organizations, 85 FR

67160 (Oct. 21, 2020). In addition, burden estimates

for reporting by exempt DCOs have been updated

based on recent observations of filing frequency by

existing exempt DCOs.

50

While updating the number of reports based on

recent data, the Commission discovered that the

estimated number in the NPRM—1987—

inadvertently reflected a quarterly, rather than

annual, number of reports. The estimate of 8074

reports per respondent represents the median

number of swaps reported to SDRs by existing

exempt DCOs during calendar year 2019.

51

7 U.S.C. 19(a).

home country regulatory and

supervisory frameworks. However, JSCC

did not provide any estimate of what the

expected cost of an application would

be. As stated in the Proposal, the

Commission based its cost estimate of

$10,500 for the exempt DCO application

on the significantly reduced

requirements as compared to a DCO

registration application, which the

Commission estimated would cost

$100,000. The Commission has not

received any information indicating

what the amount of additional costs

over $10,500 would be, nor has it

revised any of the elements of the

proposal that would affect the cost

estimate. Therefore, the Commission is

retaining the burden estimates it

included in the proposal.

1. Application for Exemption From DCO

Registration Under § 39.6

Based on its experience in addressing

petitions for exemption, the

Commission anticipates receiving one

application for exemption per year, and

one request for termination of an

exemption every three years.

48

Burden

hours and costs were estimated based

on existing information collections for

DCO registration and reporting, adjusted

to reflect the significantly lower burden

of the proposed regulations. The

Commission has estimated the burden

hours for this collection of information

as follows:

•Application for exemption, including

all exhibits, supplements and

amendments

49

Estimated number of respondents: 1

Estimated number of reports per

respondent: 1

Average number of hours per report:

40

Estimated gross annual reporting

burden: 40

•Termination of exemption

Estimated number of respondents: 1

Estimated number of reports per

respondent: 0.33

Average number of hours per report:

2

Estimated gross annual reporting

burden: 0.66

•Notice to clearing members of

termination of exemption

Estimated number of respondents: 1

Estimated number of reports per

respondent: 8

Average number of hours per report:

0.1

Estimated gross annual reporting

burden: 0.8

2. Reporting by Exempt DCOs

The number of respondents for the

daily and quarterly reporting and

annual certification requirements is

conservatively estimated at a maximum

of seven, based on the number of

existing exempt DCOs (4) and one

application for exemption each year.

Reporting of specific events is expected

to occur infrequently, and the estimated

number of respondents reflects that not

all exempt DCOs will experience events

subject to the notification requirement:

•Daily reporting

Estimated number of respondents: 7

Estimated number of reports per

respondent: 250

Average number of hours per report:

0.1

Estimated gross annual reporting

burden: 175

•Quarterly reporting

Estimated number of respondents: 7

Estimated number of reports per

respondent: 4

Average number of hours per report:

1

Estimated gross annual reporting

burden: 28

•Event-specific reporting

Estimated number of respondents: 4

Estimated number of reports per

respondent: 1

Average number of hours per report:

0.5

Estimated gross annual reporting

burden: 2

•Annual certification

Estimated number of respondents: 7

Estimated number of reports per

respondent: 1

Average number of hours per report:

1.5

Estimated gross annual reporting

burden: 10.5

3. Reporting by Exempt DCOs in

Accordance With Part 45

Regulation 39.6(d) requires an exempt

DCO to report data regarding the two

swaps resulting from the novation of an

original swap to an SDR, if the original

swap had been reported to an SDR

pursuant to part 45 of the Commission’s

regulations. The Commission is revising

the information collection for part 45 to

include a separate information

collection under OMB Control No.

3038–0096. The burden for exempt

DCOs reporting in accordance with part

45 is estimated to be approximately one-

fifth of the burden for registered DCOs

because exempt DCOs will not be

required to report all swaps, only those

that result from the novation of original

swaps that have been reported to an

SDR. Consequently, the burden hours

for the collection of information in this

rulemaking have been estimated as

follows:

•Reporting in accordance with part 45

Estimated number of respondents: 7.

Estimated number of reports per

respondent: 8,074

50

Average number of hours per report:

0.1

Estimated gross annual reporting

burden: 5649

C. Cost-Benefit Considerations

1. Introduction

Section 15(a) of the CEA requires the

Commission to consider the costs and

benefits of its actions before

promulgating a regulation under the

CEA or issuing certain orders.

51

Section

15(a) further specifies that the costs and

benefits shall be evaluated in light of

five broad areas of market and public

concern: (1) Protection of market

participants and the public; (2)

efficiency, competitiveness, and

financial integrity of futures markets; (3)

price discovery; (4) sound risk

management practices; and (5) other

public interest considerations. The

Commission considers the costs and

benefits resulting from its discretionary

determinations with respect to the

section 15(a) factors.

The baseline for the Commission’s

consideration of the costs and benefits

of this rulemaking are: (1) The DCO

Core Principles; (3) the general

provisions applicable to registered

DCOs under subparts A and B of part

39; (4) Form DCO in Appendix A to part

39; and (5) part 40 of the Commission’s

regulations.

This rulemaking codifies certain

conditions and procedures that the

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Pursuant to section 2(i) of the CEA, activities

outside of the United States are not subject to the

swap provisions of the CEA, including any rules

prescribed or regulations promulgated thereunder,

unless those activities either have a direct and

significant connection with activities in, or effect

on, commerce of the United States; or contravene

any rule or regulation established to prevent

evasion of a CEA provision enacted under the

Dodd-Frank Act, Public Law 111–203, 124 Stat.

1376. 7 U.S.C. 2(i).

53

Registration with Alternative Compliance for

Non-U.S. Derivatives Clearing Organizations, 85 FR

67160 (Oct. 21, 2020).

54

See Derivatives Clearing Organization General

Provisions and Core Principles, 85 FR 4800, 4829

(Jan. 27, 2020).

55

To the extent that current procedures for

seeking an exemption from DCO registration are

similar to the procedures adopted in this release,

these costs are currently being incurred.

Commission has been using to grant

exemptions from DCO registration, with

some modifications. To the extent that

exemptions from DCO registration were

already available to non-U.S. clearing

organizations pursuant to these

conditions and procedures, the actual

costs and benefits of this rulemaking

will likely be lower than the costs and

benefits relative to the baseline.

The Commission notes that this

consideration is based on its

understanding that the swaps market

functions internationally with (1)

transactions that involve U.S. firms

occurring across different international

jurisdictions; (2) some entities organized

outside of the United States that are

prospective Commission registrants; and

(3) some entities that typically operate

both within and outside the United

States and that follow substantially

similar business practices wherever

located. Where the Commission does

not specifically refer to matters of

location, the discussion of costs and

benefits below refers to the effects of the

final rule on all relevant swaps activity,

whether based on their actual

occurrence in the United States or on

their connection with activities in, or

effect on, U.S. commerce pursuant to

section 2(i) of the CEA.

52

The Commission recognizes that the

final rule may impose costs. The

Commission has endeavored to assess

the expected costs and benefits of the

final rule in quantitative terms,

including PRA-related costs, where

possible. In situations where the

Commission is unable to quantify the

costs and benefits, the Commission

identifies and considers the costs and

benefits of the applicable regulations in

qualitative terms. The lack of data and

information to estimate those costs is

attributable in part to the nature of these

final regulations. Additionally, the

initial and recurring compliance costs

for any particular exempt DCO will

depend on the size, existing

infrastructure, level of clearing activity,

practices, and cost structure of the DCO.

Finally, the costs and benefits of this

final rule may be affected by the

Alternative Compliance framework

53

under which a non-U.S. clearing

organization or an already registered

non-U.S. DCO would have the option of

applying for registration with alternative

compliance, which would allow the

DCO to comply with the DCO Core

Principles through its home country

regulatory regime. The Commission has

compared these costs and benefits

below.

2. Amendments to Part 39

a. Summary

Section 5b(h) of the CEA permits the

Commission to exempt a non-U.S.

clearing organization from DCO

registration for the clearing of swaps to

the extent that the Commission

determines that such clearing

organization is subject to comparable,

comprehensive supervision by

appropriate government authorities in

the clearing organization’s home

country. Pursuant to this authority, the

Commission has exempted four non-

U.S. clearing organizations from DCO

registration. The final rule generally

codifies the policies and procedures that

the Commission has followed with

respect to granting exemptions from

DCO registration. Specifically, these

regulations set forth the process by

which a non-U.S. clearing organization

may obtain an exemption from DCO

registration for the clearing of

proprietary swaps for U.S. persons

provided that it meets the specified

eligibility standards and can meet the

conditions of an exemption.

b. Benefits and Costs

With the Commission’s adoption of

this final rule, non-U.S. clearing

organizations seeking to clear swaps for

U.S. persons on a proprietary basis will

have a choice between seeking an

exemption from DCO registration and

registering as a DCO, either under the

Commission’s original framework or the

recently adopted Alternative

Compliance framework. The

Commission expects exemption from

registration to be the least costly of the

three options. The Commission

estimates that it would take about 421

hours to prepare a traditional

application for DCO registration

54

and

100 hours to prepare an application

under the alternative procedures, as

compared to 40 hours to prepare an

application for an exemption.

55

The

daily, quarterly, and event-specific

reporting requirements are estimated to

impose the same hourly burden for both

registered and exempt DCOs with the

exception of swap data reporting under

part 45. Registered DCOs subject to

Alternative Compliance will be subject

to the same part 45 reporting

requirements as other registered DCOs,

while exempt DCOs will only have to

report data regarding the two swaps

resulting from the novation of an

original swap previously reported to an

SDR. In the PRA section for this release,

the Commission estimates that the part

45 reporting burden for an exempt DCO

would be about one fifth as much as the

burden on a registered DCO. Both

exempt DCOs and registered DCOs

subject to Alternative Compliance are

primarily subject to their home country

regulatory regimes, but registered DCOs

subject to Alternative Compliance will

also be held to certain requirements set

forth in the CEA and Commission

regulations, including, for example,

subpart A of part 39 and § 39.15. The

extent to which these additional

requirements will increase costs on

registered DCOs subject to Alternative

Compliance relative to the costs to

exempt DCOs will depend on the extent

to which these requirements exceed the

legal requirements of their home

countries and whether registered DCOs

subject to Alternative Compliance have

to change their practices more than they

would if they had sought an exemption

instead.

Given the lower costs of an exemption

as compared to registration, and the

greater clarity and regulatory certainty

resulting from codification of the

CFTC’s existing procedures, the final

regulation may promote competition

among registered and exempt DCOs by

encouraging more clearing organizations

to seek an exemption. Lower costs and

competition may, in turn, result in

clearing members incurring lower costs

to clear through exempt DCOs. In

addition, access to more clearing

organizations may also encourage

voluntary clearing of swaps that are not

required to be cleared, as certain swaps

may not be cleared by any registered

DCOs. This may, in turn, serve to

diversify the potential risk of cleared

swaps, because any such risk would

become less concentrated if a larger

number of registered and exempt DCOs

were clearing swaps for U.S. persons,

and the volume of those swaps could

become more evenly distributed among

those registered and exempt DCOs.

While an exemption from DCO

registration would be less costly to

obtain than any form of DCO

registration, registration provides

benefits that are not available to exempt

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PFMIs at Principle 18, Explanatory Note 3.18.5.

57

Id. at Principle 18, Explanatory Note 3.18.8.

58

Id. at Principle 14, Explanatory Note 3.14.1.

59

7 U.S.C. 2(h)(1)(B).

DCOs or persons that clear through an

exempt DCO. For example, a registered

DCO is permitted to clear for U.S.

customers. An eligible clearing

organization may choose to register,

particularly under the Alternative

Compliance framework, over seeking an

exemption if it determines that the

benefits of customer clearing (including

an enhanced ability to attract U.S.

business) would justify the extra costs of

registration relative to an exemption.

Based on data submitted by registered

DCOs to the Commission pursuant to

§ 39.19(c), customer clearing typically

accounts for a majority of the initial

margin at a DCO (about 70 percent on

average), and this is likely true for other

clearing organizations as well. Thus, the

inability of exempt DCOs to clear for

U.S. customers may create a significant

disincentive to seeking exemption in

lieu of registration.

Registered DCOs may face a

competitive disadvantage as a result of

the final rule. A registered DCO may

have to compete with an exempt DCO

for U.S. proprietary swap business, yet

may have higher ongoing compliance

costs than an exempt DCO. This

competitive disadvantage is mitigated

by the fact that exempt DCOs are, as a

precondition of such exemption,

required to be subject to comparable,

comprehensive supervision and

regulation by a home country regulator

that is likely to impose costs similar to

those associated with Commission

regulation.

The Commission is codifying in

§ 39.6(a)(1) the statutory authority in

section 5b(h) of the CEA that the

Commission may exempt a clearing

organization from DCO registration for

the clearing of swaps provided that the

Commission determines that the

clearing organization is subject to

comparable, comprehensive supervision

and regulation by a home country

regulator. To satisfy this standard, the

clearing organization will need to

demonstrate, among other things, that:

(i) It is organized in a jurisdiction in

which a home country regulator applies

to the clearing organization, on an

ongoing basis, statutes, rules,

regulations, and/or policies that, taken

together, are consistent with the PFMIs;

and (ii) it observes the PFMIs in all

material respects. New § 39.6(b)(6)

requires an annual certification that an

exempt DCO continues to observe the

PFMIs in all material respects.

The Commission believes that the

PFMIs provide numerous regulatory

benefits and promote the protection of

market participants and the public, the

financial integrity of derivatives

markets, and sound risk management

practices. In this regard, the PFMIs

include provisions that address DCOs

establishing requirements and/or

procedures designed to ensure that

clearing members meet their obligations

to DCOs and safeguard customer funds.

For example, the PFMIs provide that

DCOs should establish risk-related

participation requirements adequate to

ensure that participants meet

operational, financial, and legal

requirements to allow them to fulfill

their obligations to DCOs. Financial

requirements may include reasonable

risk-related capital requirements for

participants and appropriate indicators

of participant creditworthiness.

56

In

addition, the PFMIs provide that a DCO

should monitor compliance with its

participation requirements on an

ongoing basis through the receipt of

timely and accurate information.

57

The

PFMIs further provide that collateral

belonging to customers of clearing

members should be segregated from the

assets of the clearing member through

which the customers clear.

58

Moreover,

using the PFMIs may promote

regulatory comity, since the PFMIs

represent standards that have been

agreed to by the G20 and are widely

used in the regulation of clearing

organizations. Although the PFMIs are

already used to determine eligibility for

receiving an exemption from DCO

registration, the Commission believes

that codifying the use of the PFMIs is

beneficial from the perspectives of

transparency and consistency.

The Commission acknowledges, as

discussed in the preamble above, that

the PFMIs are not identical to, nor as

detailed as, part 39. Thus, market

participants choosing to clear swaps

through exempt DCOs may incur costs

associated with forgoing certain

regulatory protections that are not

included in the PFMIs. However, these

costs are mitigated by some of the

conditions of exemption set out in

§ 39.6(b), as discussed below, as well as

other Commission regulations

applicable to exempt DCOs. These

conditions (including, for example, the

open access provision of § 39.6(b)(2)),

provide additional regulatory

protections beyond those required by

the PFMIs. Additionally, the costs of

using the PFMIs (as compared to some

other means of determining that a

clearing organization is subject to

comparable, comprehensive supervision

and regulation by a home country

regulator) will vary depending on the

home country regulatory regime.

Finally, since the PFMIs are already

used to determine eligibility for

receiving an exemption from DCO

registration, these costs are currently

being realized by exempt DCOs and U.S.

persons who currently clear proprietary

swaps on exempt DCOs.

New § 39.6(b) contain various

conditions that the Commission is

imposing for the granting of exemptions

from DCO registration. These conditions

are consistent with those that the

Commission has been imposing on

exempt DCOs prior to the adoption of

this rule. Therefore, the costs and

benefits of these conditions are

currently being incurred by exempt

DCOs and U.S. persons who currently

clear proprietary swaps on such DCOs.

New § 39.6(b)(2) codifies the ‘‘open

access’’ requirements of section

2(h)(1)(B) of the CEA with respect to

swaps cleared by an exempt DCO to

which one or more of the counterparties

is a U.S. person.

59

Under § 39.6(b)(2), an

exempt DCO is required to maintain

rules providing that all such swaps with

the same terms and conditions

submitted to the exempt DCO for

clearing are economically equivalent

and may be offset with each other, to the

extent that offsetting is permitted by the

exempt DCO’s rules. An exempt DCO is

also required to maintain rules

providing for non-discriminatory

clearing whether a swap is executed

bilaterally or is executed on or subject

to the rules of an unaffiliated electronic

matching platform or trade execution

facility, e.g., a swap execution facility.

This should benefit market participants

by ensuring that they are able to offset

their positions to the extent that it is

feasible and consistent with DCO rules

and that they are not subject to

discrimination based on whether or not

they execute on a trading platform. The

Commission believes that most or all

non-U.S. clearing organizations have

open access rules that comply with

§ 39.6(b)(2) and has received no

comments suggesting otherwise.

However, to the extent that a clearing

organization seeking an exemption from

DCO registration needs to change its

rules to comply with this requirement,

that clearing organization could incur

costs.

New § 39.6(b)(3) requires an exempt

DCO to consent to jurisdiction in the

United States and designate an agent in

the United States to receive notice or

service of various documents issued by

or on behalf of the Commission or the

U.S. Department of Justice in

connection with investigations or for

certain other purposes. This will assist

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the Commission and the Department of

Justice in protecting market participants

and the public and will impose on

exempt DCOs the minor costs associated

with retaining a U.S. agent.

New §§ 39.6(b)(4) and 39.6(b)(8) are

general provisions that require an

exempt DCO to comply, and

demonstrate compliance as requested by

the Commission, with any condition of

the exempt DCO’s order of exemption

and to provide that the Commission

may condition an exemption from DCO

registration on any other facts and

circumstances it deems relevant. These

provisions do not provide any costs and

benefits in and of themselves. The costs

and benefits of any additional

conditions that may be imposed

pursuant to § 39.6(b)(8) can only be

considered when such additional

conditions are imposed.

New § 39.6(b)(5) requires an exempt

DCO to promptly make all books and

records related to its operation as an

exempt DCO available to any

Commission representative upon

request. This provision will facilitate

the Commission’s mission, including

the protection of market participants

and the public. While the Commission

does not anticipate making routine

requests for books and records,

providing or making available books

and records pursuant to any such

request will impose modest costs on

exempt DCOs.

New § 39.6(b)(7) requires an exempt

DCO’s home country regulator to

provide an annual certification that the

exempt DCO is in good regulatory

standing. That rule, along with

§ 39.6(a)(2) which requires an MOU or

similar arrangement to be in effect

between the Commission and the home

country regulator, will assist the

Commission in protecting market

participants and the public, but will not

impose any direct costs on exempt

DCOs or market participants. Where no

MOU between the Commission and a

home country regulator is in effect, a

clearing organization in that country

wanting an exemption may incur costs

associated with facilitating such an

MOU, or it could incur the costs of

either registering with the Commission

or forgoing U.S. participation. The

requirements regarding an MOU also

exist in current procedures, so the costs

and benefits of those requirements are

currently being realized by exempt

DCOs and U.S. persons who currently

clear proprietary swaps on exempt

DCOs.

Finally, new § 39.6(d) requires an

exempt DCO to report swap data for the

two cleared swaps that result from the

novation of an original swap cleared

through the exempt DCO. An exempt

DCO would also need to report the

termination of the original swap to the

SDR that received the swap data for the

original swap. To avoid duplicative

reporting, the exempt DCO is also

required to have rules that prohibit the

part 45 reporting of the two new swaps

by the counterparties to the original

swap. CCP12 commented that

transparency in the swaps markets,

which is supported by SDR reporting,

provides a number of benefits. However,

CCP12 argued that the SDR reporting

requirements would post significant

operational challenges, such as

onboarding with an SDR that has a

different reporting format than that of

the exempt DCO’s home country. CCP12

also commented that SDR reporting fees

would be a burden based on the number

of reported transactions. The

Commission agrees that SDR reporting

enhances market transparency and thus

provides benefits to the market. The

Commission notes that SDR reporting

costs would otherwise be borne by the

counterparties to the swap, and because

there are far more swap counterparties

than exempt DCOs, it would be more

efficient to require the relatively few

exempt DCOs to bear the operational

burdens of setting up and following

reporting processes and procedures with

the various SDRs. The costs and benefits

of the reporting requirements are

currently being realized to the extent

that similar requirements are contained

in existing orders of exemption for

DCOs.

3. Section 15(a) Factors

a. Protection of Market Participants and

the Public

For the most part, the final rule does

not materially reduce the protections

available to market participants and the

public because, among other things, it:

(i) Only permits exempt DCOs to clear

swaps for U.S. persons for their

proprietary accounts, and not for

customers; (ii) requires that an exempt

DCO be subject to comparable,

comprehensive supervision and

regulation by a home country regulator

as provided by the PFMIs; (iii) requires

an MOU or similar arrangement with

the home country regulator that would

enable the Commission to obtain any

information that the Commission deems

necessary to evaluate the initial and

continued eligibility of the DCO for

exemption from registration or to review

its compliance with any conditions of

such exemption; (iv) provides

additional protections with the

conditions of exemption set out in

§ 39.6(b), including open access and

data reporting requirements; and (v)

explicitly authorizes the Commission to

modify or terminate an order of

exemption on its own initiative if it

determines that there are changes to or

omissions in material facts or

circumstances pursuant to which the

order of exemption was issued, or that

any of the terms and conditions of the

order of exemption have not been met.

Collectively, these provisions protect

market participants and the public by

ensuring that exempt DCOs are subject

to the internationally recognized PFMIs.

Although the Commission

acknowledges the possibility that some

foreign regulatory regimes may

ultimately prove to be less effective than

that of the United States, the

Commission believes that this risk is

mitigated for the reasons discussed

above.

b. Efficiency, Competitiveness, and

Financial Integrity

The final rule promotes operational

efficiency by permitting exempt DCOs

to clear swaps for U.S. persons without

having to apply for DCO registration,

which involves the submission of

extensive documentation to the

Commission. The final rule also

mitigates duplicative compliance

requirements by not requiring exempt

DCOs to comply with the Commission’s

part 39 regulations (with the exception

of § 39.6) in addition to the

requirements of their home country

regulator. In addition, adopting these

regulations might prompt other

regulators to adopt similar rules that

would defer to the Commission in the

regulation of U.S. registered DCOs

operating outside the United States,

which could increase competitiveness

by reducing the regulatory burdens on

such DCOs.

The exempt DCO framework may also

promote competition for U.S.

proprietary business among non-U.S.

clearing organizations because it holds

exempt DCOs to the internationally

recognized standards set forth in the

PFMIs. This will allow such clearing

organizations to compete with each

other for the proprietary business of

U.S. clearing members under their own

comparable regulatory regimes, which

may potentially increase the number of

DCOs available to clear for U.S. persons.

The final rule is expected to maintain

the financial integrity of swap

transactions cleared by exempt DCOs

because such DCOs are subject to

supervision and regulation by their

home country regulator within a legal

framework that is comparable to that

applicable to registered DCOs under the

CEA and Commission regulations and as

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2018 Proposal, 83 FR at 39926.

61

2018 Proposal, 83 FR at 39930.

62

Clearing organizations could be incentivized to

seek DCO registration instead, either under the

Commission’s original framework or the recently

adopted Alternative Compliance framework.

63

7 U.S.C. 19(b).

comprehensive. In addition, the final

rule may contribute to the financial

integrity of the broader financial system

by spreading the potential risk of

particular swaps among a greater

number of registered and exempt DCOs,

thus reducing concentration risk.

c. Price Discovery

Price discovery is the process of

determining the price level for an asset

through the interaction of buyers and

sellers and based on supply and

demand conditions. The Commission

has not identified any impact of the

final rule on price discovery. This is

because price discovery occurs before a

transaction is submitted for clearing

through the interaction of bids and

offers on a trading system or platform,

or in the over-the-counter market. The

final rule does not impact requirements

under the CEA or Commission

regulations regarding price discovery.

d. Sound Risk Management Practices

The exempt DCO framework

encourages sound risk management

practices because exempt DCOs are

subject to the risk management

standards set forth in the PFMIs, which

are comparable to standards imposed on

registered DCOs.

e. Other Public Interest Considerations

The Commission notes the public

interest in access to clearing

organizations outside of the United

States in light of the international nature

of many swap transactions. The final

rule codifies the exemption process for

non-U.S. clearing organizations that will

permit them to clear swap transactions

for U.S. persons on a proprietary basis

when such clearing organizations meet

the eligibility requirements and

conditions included therein, thus

promoting transparency and

consistency. Furthermore, the final rule

might encourage international comity by

deferring, under certain conditions, to

regulators in other jurisdictions in the

oversight of non-U.S. clearing

organizations. The Commission expects

that such regulators will defer to the

Commission in the supervision and

regulation of registered DCOs organized

in the United States, thereby reducing

the regulatory and compliance burdens

to which such DCOs are subject.

4. Consideration of Alternatives

The final rule does not permit U.S.

customers to clear through exempt

DCOs. As the Commission noted in the

2018 Proposal, there is uncertainty as to

how swaps customer funds would be

treated under the U.S. Bankruptcy Code

if the customer’s swaps are cleared at an

exempt DCO.

60

However, the

Commission did request comment as to

whether the Commission should

consider permitting an exempt DCO to

clear swaps for U.S. customers.

61

In response, three commenters

expressed support. ISDA stated that it

‘‘strongly believes’’ that the Commission

should permit exempt DCOs to clear

swaps for customers. ASX argued that it

would be beneficial to allow U.S.

customers to access the broadest

possible range of clearing organizations,

which would provide them with

flexibility and choice in accessing the

best commercial solutions for the

products that they use. JSCC

recommended that the Commission

consider allowing U.S. customers to

access exempt DCOs through non-U.S.

clearing members that are not required

to register as an FCM, as long as those

non-U.S. clearing members can

demonstrate that they are properly

supervised, regulated, and licensed to

provide customer clearing services in

their home countries, and if the home

regulatory authority maintains

appropriate cooperative arrangements

with the Commission.

Similarly, in response to the 2019

Proposal, several commenters, including

ASX, FIA, SIFMA, JSCC, and CCP12,

proposed a regime for swaps similar to

that for futures, including a clearing

structure in which a U.S. customer

clears through an FCM that maintains

the U.S. customer’s positions and

margin in a customer omnibus account

held by a non-U.S. clearing member that

is not registered as an FCM. The

commenters argued that such a regime

could potentially provide new business

opportunities to FCMs while allowing

customers to save money and improve

efficiency by using the same FCMs to

clear at both registered and exempt

DCOs. This would permit customers to

avoid the time and expense of executing

documentation with multiple

intermediaries, for example, and to

realize operational efficiencies such as

netting and offsetting within a single

intermediary, receiving fewer position

statements, and managing fewer cash

transfers. The commenters noted that

customers would also benefit from the

various customer protections required of

FCMs, such as those pertaining to

disclosure, net capital, and reporting.

The Commission notes that, based on

data submitted pursuant to § 39.19(c), as

of October 2020, approximately 70

percent of initial margin at registered

DCOs was in customer accounts, with

the remainder in house (proprietary)

accounts. It is likely that the majority of

initial margin at exempt DCOs or

clearing organizations that may seek an

exemption is also in customer accounts.

Thus, limiting clearing by U.S. persons

at exempt DCOs to proprietary swaps

will likely significantly reduce the

number of U.S. persons who can benefit

from clearing at exempt DCOs and may

reduce the incentive for eligible clearing

organizations to seek exemption.

62

However, there is uncertainty as to the

extent to which U.S. customers would

be protected under the Bankruptcy Code

in the event of an FCM bankruptcy

proceeding. The Commission is not

adopting these alternatives at this time,

but continues to weigh these risks

against the potential benefits to U.S.

customers and FCMs.

D. Antitrust Considerations

Section 15(b) of the CEA requires the

Commission to take into consideration

the public interest to be protected by the

antitrust laws and endeavor to take the

least anticompetitive means of

achieving the purposes of the CEA, in

issuing any order or adopting any

Commission rule or regulation.

63

The Commission believes that the

public interest to be protected by the

antitrust laws is the promotion of

competition. The Commission

requested, but did not receive, any

comments on whether the proposed

rulemaking implicated any other

specific public interest to be protected

by the antitrust laws. The Commission

has considered the proposed rulemaking

to determine whether it is

anticompetitive. The Commission

believes that the final rule may promote

greater competition in swap clearing

because it might encourage more non-

U.S. clearing organizations to seek an

exemption from registration to clear the

same types of swaps for U.S. persons

that are currently cleared by registered

DCOs.

The Commission has not identified

any less anticompetitive means of

achieving the purposes of the CEA. The

Commission requested, but did not

receive, any comments on whether there

are less anticompetitive means of

achieving the relevant purposes of the

CEA that would otherwise be served by

adopting the final rule.

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List of Subjects

17 CFR Part 39

Clearing, Derivatives clearing

organization, Exemption, Procedures,

Registration, Swaps.

17 CFR Part 140

Authority delegations (Government

agencies), Organization and functions

(Government agencies).

For the reasons stated in the

preamble, the Commodity Futures

Trading Commission amends 17 CFR

chapter I as follows:

PART 39—DERIVATIVES CLEARING

ORGANIZATIONS

■1. The authority citation for part 39

continues to read as follows:

Authority: 7 U.S.C. 2, 6(c), 7a–1, and

12a(5); 12 U.S.C. 5464; 15 U.S.C. 8325;

Section 752 of the Dodd-Frank Wall Street

Reform and Consumer Protection Act, Pub. L.

111–203, title VII, sec. 752, July 21, 2010, 124

Stat. 1749.

■2. Revise § 39.1 to read as follows:

§ 39.1 Scope.

The provisions of this subpart A

apply to any derivatives clearing

organization, as defined under section

1a(15) of the Act and § 1.3 of this

chapter, that is registered or is required

to register with the Commission as a

derivatives clearing organization

pursuant to section 5b(a) of the Act, or

that is applying for an exemption from

registration pursuant to section 5b(h) of

the Act.

■3. In § 39.2, add definitions of the

terms ‘‘Exempt derivatives clearing

organization,’’ ‘‘Home country,’’ ‘‘Home

country regulator,’’ and ‘‘Principles for

Financial Market Infrastructures,’’ in

alphabetical order, and amend the

definition of ‘‘Good regulatory

standing,’’ to read as follows:

§ 39.2 Definitions.

* * * * *

Exempt derivatives clearing

organization means a derivatives

clearing organization that the

Commission has exempted from

registration under section 5b(a) of the

Act, pursuant to section 5b(h) of the Act

and § 39.6.

* * * * *

Good regulatory standing means, with

respect to a derivatives clearing

organization that is organized outside of

the United States, and is licensed,

registered, or otherwise authorized to

act as a clearing organization in its

home country, that:

(1) In the case of an exempt

derivatives clearing organization, either

there has been no finding by the home

country regulator of material non-

observance of the Principles for

Financial Market Infrastructures or

other relevant home country legal

requirements, or there has been a

finding by the home country regulator of

material non-observance of the

Principles for Financial Market

Infrastructures or other relevant home

country legal requirements but any such

finding has been or is being resolved to

the satisfaction of the home country

regulator by means of corrective action

taken by the derivatives clearing

organization; or

(2) In the case of a derivatives clearing

organization registered subject to

compliance with subpart D of this part,

either there has been no finding by the

home country regulator of material non-

observance of the relevant home country

legal requirements, or there has been a

finding by the home country regulator of

material non-observance of the relevant

home country legal requirements but

any such finding has been or is being

resolved to the satisfaction of the home

country regulator by means of corrective

action taken by the derivatives clearing

organization.

Home country means, with respect to

a derivatives clearing organization that

is organized outside of the United

States, the jurisdiction in which the

derivatives clearing organization is

organized.

Home country regulator means, with

respect to a derivatives clearing

organization that is organized outside of

the United States, an appropriate

government authority which licenses,

regulates, supervises, or oversees the

derivatives clearing organization’s

clearing activities in the home country.

* * * * *

Principles for Financial Market

Infrastructures means the Principles for

Financial Market Infrastructures jointly

published by the Committee on

Payment and Settlement Systems and

the Technical Committee of the

International Organization of Securities

Commissions in April 2012.

* * * * *

■4. Add § 39.6 to read as follows:

§ 39.6 Exemption from derivatives clearing

organization registration.

(a) Eligibility for exemption. A

derivatives clearing organization that is

organized outside of the United States

shall be eligible for an exemption from

registration as a derivatives clearing

organization for the clearing of swaps

for U.S. persons, and thereby exempt

from compliance with provisions of the

Act and Commission regulations

applicable to derivatives clearing

organizations, if:

(1) The derivatives clearing

organization is subject to comparable,

comprehensive supervision and

regulation by a home country regulator

as demonstrated by the following:

(i) The derivatives clearing

organization is organized in a

jurisdiction in which a home country

regulator applies to the derivatives

clearing organization, on an ongoing

basis, statutes, rules, regulations,

policies, or a combination thereof that,

taken together, are consistent with the

Principles for Financial Market

Infrastructures;

(ii) The derivatives clearing

organization observes the Principles for

Financial Market Infrastructures in all

material respects; and

(iii) The derivatives clearing

organization is in good regulatory

standing in its home country; and

(2) A memorandum of understanding

or similar arrangement satisfactory to

the Commission is in effect between the

Commission and the derivatives

clearing organization’s home country

regulator, pursuant to which, among

other things, the home country regulator

agrees to provide to the Commission any

information that the Commission deems

necessary to evaluate the initial and

continued eligibility of the derivatives

clearing organization for exemption

from registration or to review its

compliance with any conditions of such

exemption.

(b) Conditions of exemption. An

exemption from registration as a

derivatives clearing organization shall

be subject to any conditions the

Commission may prescribe including,

but not limited to:

(1) Clearing by or for U.S. persons and

futures commission merchants. The

exempt derivatives clearing organization

shall have rules that limit swaps

clearing services for U.S. persons and

futures commission merchants to the

following circumstances:

(i) A U.S. person that is a clearing

member of the exempt derivatives

clearing organization may clear swaps

for itself and those persons identified in

the definition of ‘‘proprietary account’’

set forth in § 1.3 of this chapter;

(ii) A non-U.S. person that is a

clearing member of the exempt

derivatives clearing organization may

clear swaps for any affiliated U.S.

person identified in the definition of

‘‘proprietary’’ account set forth in § 1.3

of this chapter; and

(iii) An entity that is registered with

the Commission as a futures

commission merchant may be a clearing

member of the exempt derivatives

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clearing organization, or otherwise

maintain an account with an affiliated

broker that is a clearing member, for the

purpose of clearing swaps only for itself

and those persons identified in the

definition of ‘‘proprietary account’’ set

forth in § 1.3 of this chapter; and

(2) Open access. The exempt

derivatives clearing organization shall

have rules with respect to swaps to

which one or more of the counterparties

is a U.S. person that shall:

(i) Provide that all swaps with the

same terms and conditions, as defined

by product specifications established

under the exempt derivatives clearing

organization’s rules, submitted to the

exempt derivatives clearing organization

for clearing are economically equivalent

within the exempt derivatives clearing

organization and may be offset with

each other within the exempt

derivatives clearing organization, to the

extent offsetting is permitted by the

exempt derivatives clearing

organization’s rules; and

(ii) Provide that there shall be non-

discriminatory clearing of a swap

executed bilaterally or on or subject to

the rules of an unaffiliated electronic

matching platform or trade execution

facility.

(3) Consent to jurisdiction;

designation of agent for service of

process. The exempt derivatives

clearing organization shall:

(i) Consent to jurisdiction in the

United States;

(ii) Designate, authorize, and identify

to the Commission, an agent in the

United States who shall accept any

notice or service of process, pleadings,

or other documents, including any

summons, complaint, order, subpoena,

request for information, or any other

written or electronic documentation or

correspondence issued by or on behalf

of the Commission or the United States

Department of Justice to the exempt

derivatives clearing organization, in

connection with any actions or

proceedings brought against, or

investigations relating to, the exempt

derivatives clearing organization or any

U.S. person or futures commission

merchant that is a clearing member, or

that clears swaps through a clearing

member, of the exempt derivatives

clearing organization; and

(iii) Promptly inform the Commission

of any change in its designated and

authorized agent.

(4) Compliance. The exempt

derivatives clearing organization shall

comply, and shall demonstrate

compliance as requested by the

Commission, with any condition of its

exemption.

(5) Inspection of books and records.

The exempt derivatives clearing

organization shall make all documents,

books, records, reports, and other

information related to its operation as

an exempt derivatives clearing

organization open to inspection and

copying by any representative of the

Commission; and in response to a

request by any representative of the

Commission, the exempt derivatives

clearing organization shall, promptly

and in the form specified, make the

requested books and records available

and provide them directly to

Commission representatives.

(6) Observance of the Principles for

Financial Market Infrastructures. On an

annual basis, within 60 days following

the end of its fiscal year, the exempt

derivatives clearing organization shall

provide to the Commission a

certification that it continues to observe

the Principles for Financial Market

Infrastructures in all material respects.

To the extent the exempt derivatives

clearing organization is unable to

provide to the Commission an

unconditional certification, it must

identify the underlying material non-

observance of the Principles for

Financial Market Infrastructures and

identify whether and how such non-

observance has been or is being resolved

by means of corrective action taken by

the exempt derivatives clearing

organization.

(7) Representation of good regulatory

standing. On an annual basis, within 60

days following the end of its fiscal year,

an exempt derivatives clearing

organization shall request and the

Commission must receive from a home

country regulator a written

representation that the exempt

derivatives clearing organization is in

good regulatory standing.

(8) Other conditions. The Commission

may condition an exemption on any

other facts and circumstances it deems

relevant.

(c) General reporting requirements. (1)

An exempt derivatives clearing

organization shall provide to the

Commission the information specified

in this paragraph and any other

information that the Commission deems

necessary, including, but not limited to,

information for the purpose of the

Commission evaluating the continued

eligibility of the exempt derivatives

clearing organization for exemption

from registration, reviewing compliance

by the exempt derivatives clearing

organization with any conditions of the

exemption, or conducting oversight of

U.S. persons and their affiliates, and the

swaps that are cleared by such persons

through the exempt derivatives clearing

organization. Information provided to

the Commission under this paragraph

shall be submitted in accordance with

§ 39.19(b).

(2) Each exempt derivatives clearing

organization shall provide to the

Commission the following information:

(i) A report compiled as of the end of

each trading day and submitted to the

Commission by 10:00 a.m. U.S. Central

time on the following business day,

containing:

(A) Initial margin requirements and

initial margin on deposit for each U.S.

person, with respect to swaps, provided

however if a clearing member margins

on a portfolio basis its own positions

and the positions of its affiliates, and

either the clearing member or any of its

affiliates is a U.S. person, the exempt

derivatives clearing organization shall

report initial margin on deposit for all

such positions on a combined basis for

each such clearing member; and

(B) Daily variation margin, separately

listing the mark-to-market amount

collected from or paid to each U.S.

person, with respect to swaps; provided,

however, if a clearing member margins

on a portfolio basis its own positions

and the positions of its affiliates, and

either the clearing member or any of its

affiliates is a U.S. person, the exempt

derivatives clearing organization shall

separately list the mark-to-market

amount collected from or paid to each

such clearing member, on a combined

basis.

(ii) A report compiled as of the last

day of each fiscal quarter of the exempt

derivatives clearing organization and

submitted to the Commission no later

than 17 business days after the end of

the exempt derivatives clearing

organization’s fiscal quarter, containing:

(A) The aggregate clearing volume of

U.S. persons during the fiscal quarter,

with respect to swaps. If a clearing

member is a U.S. person, the volume

figure shall include the transactions of

the clearing member and all affiliates. If

a clearing member is not a U.S. person,

the volume figure shall include only

transactions of affiliates that are U.S.

persons.

(B) The average open interest of U.S.

persons during the fiscal quarter, with

respect to swaps. If a clearing member

is a U.S. person, the open interest figure

shall include the positions of the

clearing member and all affiliates. If a

clearing member is not a U.S. person,

the open interest figure shall include

only positions of affiliates that are U.S.

persons.

(C) A list of U.S. persons and futures

commission merchants that are either

clearing members or affiliates of any

clearing member, with respect to the

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clearing of swaps, as of the last day of

the fiscal quarter.

(iii) Prompt notice regarding any

change in the home country regulatory

regime that is material to the exempt

derivatives clearing organization’s

continuing observance of the Principles

for Financial Market Infrastructures or

compliance with any of the

requirements set forth in this section or

in the order of exemption issued by the

Commission;

(iv) As available to the exempt

derivatives clearing organization, any

assessment of the exempt derivatives

clearing organization’s or the home

country regulator’s observance of the

Principles for Financial Market

Infrastructures, or any portion thereof,

by a home country regulator or other

national authority, or an international

financial institution or international

organization;

(v) As available to the exempt

derivatives clearing organization, any

examination report, examination

findings, or notification of the

commencement of any enforcement or

disciplinary action by a home country

regulator;

(vi) Immediate notice of any change

with respect to the exempt derivatives

clearing organization’s licensure,

registration, or other authorization to act

as a derivatives clearing organization in

its home country;

(vii) In the event of a default by a U.S.

person or futures commission merchant

clearing swaps, with such event of

default determined in accordance with

the rules of the exempt derivatives

clearing organization, immediate notice

of the default including the name of the

U.S. person or futures commission

merchant clearing swaps, a list of the

positions held by the U.S. person or

futures commission merchant, and the

amount of the U.S. person’s or futures

commission merchant’s financial

obligation; and

(viii) Notice of action taken against a

U.S. person or futures commission

merchant clearing swaps by an exempt

derivatives clearing organization, no

later than two business days after the

exempt derivatives clearing organization

takes such action against a U.S. person

or futures commission merchant.

(d) Swap data reporting requirements.

If an exempt derivatives clearing

organization accepts for clearing a swap

that has been reported to a swap data

repository pursuant to part 45 of this

chapter, the exempt derivatives clearing

organization shall report to a swap data

repository data regarding the two swaps

resulting from the novation of the

original swap. The exempt derivatives

clearing organization shall also report

the termination of the original swap to

the swap data repository to which the

original swap was reported. In order to

avoid duplicative reporting for such

transactions, the exempt derivatives

clearing organization shall have rules

that prohibit the reporting, pursuant to

part 45 of this chapter, of the two new

swaps by the counterparties to the

original swap.

(e) Application procedures. (1) An

entity seeking to be exempt from

registration as a derivatives clearing

organization shall file an application for

exemption with the Secretary of the

Commission in the format and manner

specified by the Commission. The

Commission will review the application

for exemption and may approve or deny

the application or, if deemed

appropriate, exempt the applicant from

registration as a derivatives clearing

organization subject to conditions in

addition to those set forth in paragraph

(b) of this section.

(2) Application. An applicant for

exemption from registration as a

derivatives clearing organization shall

submit to the Commission the

information and documentation

described in this section. Such

information and documentation shall be

clearly labeled as outlined in this

section. The Commission will not

commence processing an application

unless the applicant has filed a

complete application. Upon its own

initiative, an applicant may file with its

completed application for exemption

additional information that may be

necessary or helpful to the Commission

in processing the application. The

application shall include:

(i) A cover letter containing the

following information:

(A) Exact name of applicant as

specified in its charter, and the name

under which business will be conducted

(including acronyms);

(B) Address of applicant’s principal

office;

(C) List of principal office(s) and

address(es) where clearing activities are/

will be conducted;

(D) A list of all regulatory licenses or

registrations of the applicant (or

exemptions from any licensing

requirement) and the regulator granting

such license or registration;

(E) Date of the applicant’s fiscal year

end;

(F) Contact information for the person

or persons to whom the Commission

should address questions and

correspondence regarding the

application; and

(G) A signature and date by a duly

authorized representative of the

applicant.

(ii) A description of the applicant’s

business plan for providing clearing

services as an exempt derivatives

clearing organization, including

information as to the classes of swaps

that will be cleared and whether the

swaps are subject to a clearing

requirement issued by the Commission

or the applicant’s home country

regulator;

(iii) Documents that demonstrate that

the applicant is organized in a

jurisdiction in which its home country

regulator applies to the applicant, on an

ongoing basis, statutes, rules,

regulations, policies, or a combination

thereof that, taken together, are

consistent with the Principles for

Financial Market Infrastructures;

(iv) A written representation from the

applicant’s home country regulator that

the applicant is in good regulatory

standing;

(v) Copies of the applicant’s most

recent disclosures that are necessary to

observe the Principles for Financial

Market Infrastructures, including the

financial market infrastructure

disclosure template set forth in Annex

A to the Disclosure Framework and

Assessment Methodology for the

Principles for Financial Market

Infrastructures, any other such

disclosure framework issued under the

authority of the International

Organization of Securities Commissions

that is required for observance of the

Principles for Financial Market

Infrastructures, and the URL to the

specific page(s) on the applicant’s

website where such disclosures may be

found;

(vi) A representation that the

applicant will comply with each of the

requirements and conditions of

exemption set forth in paragraphs (b),

(c), and (d) of this section, and the terms

and conditions of its order of exemption

as issued by the Commission;

(vii) A copy of the applicant’s rules

that meet the requirements of

paragraphs (b)(2) and (d) of this section,

as applicable; and

(viii) The applicant’s consent to

jurisdiction in the United States, and

the name and address of the applicant’s

designated agent in the United States,

pursuant to paragraph (b)(3) of this

section.

(3) Submission of supplemental

information. At any time during its

review of the application for exemption

from registration as a derivatives

clearing organization, the Commission

may request that the applicant submit

supplemental information in order for

the Commission to process the

application, and the applicant shall file

such supplemental information in the

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format and manner specified by the

Commission.

(4) Amendments to pending

application. An applicant for exemption

from registration as a derivatives

clearing organization shall promptly

amend its application if it discovers a

material omission or error, or if there is

a material change in the information

provided to the Commission in the

application or other information

provided in connection with the

application.

(5) Public information. The following

sections of an application for exemption

from registration as a derivatives

clearing organization will be public: The

cover letter set forth in paragraph

(e)(2)(i) of this section; the

documentation required in paragraphs

(e)(2)(iii) and (e)(2)(v) of this section;

rules that meet the requirements of

paragraphs (b)(2) and (d) of this section,

as applicable; and any other part of the

application not covered by a request for

confidential treatment, subject to § 145.9

of this chapter.

(f) Modification or termination of

exemption upon Commission initiative.

(1) The Commission may, in its

discretion and upon its own initiative,

terminate or modify the terms and

conditions of an order of exemption

from derivatives clearing organization

registration if the Commission

determines that there are changes to or

omissions in material facts or

circumstances pursuant to which the

order of exemption was issued, or that

any of the terms and conditions of its

order of exemption have not been met,

including, but not limited to, the

requirement that:

(i) The exempt derivatives clearing

organization observes the Principles for

Financial Market Infrastructures in all

material respects; or

(ii) The exempt derivatives clearing

organization is subject to comparable,

comprehensive supervision and

regulation by its home country

regulator.

(2) The Commission shall provide

written notification to an exempt

derivatives clearing organization that it

is considering whether to terminate or

modify an exemption pursuant to this

paragraph and the basis for that

consideration.

(3) The exempt derivatives clearing

organization may respond to the

notification in writing no later than 30

business days following receipt of the

notification, or at such later time as the

Commission permits in writing.

(4) Following receipt of a response

from the exempt derivatives clearing

organization, or after expiration of the

time permitted for a response, the

Commission may:

(i) Issue an order of termination,

effective as of a date to be specified

therein. Such specified date shall be

intended to provide the exempt

derivatives clearing organization with a

reasonable amount of time to wind

down its swap clearing services for U.S.

persons;

(ii) Issue an amended order of

exemption that modifies the terms and

conditions of the exemption; or

(iii) Provide written notification to the

exempt derivatives clearing organization

that the exemption will remain in effect

without modification to the terms and

conditions of the exemption.

(g) Termination of exemption upon

request by an exempt derivatives

clearing organization. (1) An exempt

derivatives clearing organization may

petition the Commission to terminate its

exemption if:

(i) Changed circumstances result in

the exempt derivatives clearing

organization no longer qualifying for an

exemption;

(ii) The exempt derivatives clearing

organization intends to cease clearing

swaps for U.S. persons; or

(iii) In conjunction with the petition,

the exempt derivatives clearing

organization submits an application for

registration in accordance with

§ 39.3(a)(2) or §39.3(a)(3), as applicable,

to become a registered derivatives

clearing organization pursuant to

section 5b(a) of the Act.

(2) The petition for termination of

exemption shall include a detailed

explanation of the facts and

circumstances supporting the request

and the exempt derivatives clearing

organization’s plans for, as may be

applicable, the liquidation or transfer of

the swaps positions and related

collateral of U.S. persons.

(3) The Commission shall issue an

order of termination within a reasonable

time appropriate to the circumstances

or, as applicable, in conjunction with

the issuance of an order of registration.

(h) Notice to clearing members of

termination of exemption. Following the

Commission’s issuance of an order of

termination (unless issued in

conjunction with the issuance of an

order of registration), the exempt

derivatives clearing organization shall

provide immediate notice of such

termination to its clearing members.

Such notice shall include:

(1) A copy of the Commission’s order

of termination;

(2) A description of the procedures for

orderly disposition of any open swaps

positions that were cleared for U.S.

persons; and

(3) An instruction to clearing

members, requiring that they provide

the exempt derivatives clearing

organization’s notice of such

termination to all U.S. persons clearing

swaps through such clearing members.

■5. Revise § 39.9 to read as follows:

§ 39.9 Scope.

Except as otherwise provided by

Commission order, the provisions of

this subpart B apply to any derivatives

clearing organization, as defined under

section 1a(15) of the Act and § 1.3 of

this chapter, that is registered with the

Commission as a derivatives clearing

organization pursuant to section 5b of

the Act. The provisions of this subpart

B do not apply to any exempt

derivatives clearing organization, as

defined under § 39.2.

PART 140—ORGANIZATION,

FUNCTIONS, AND PROCEDURES OF

THE COMMISSION

■6. The authority citation for part 140

continues to read as follows:

Authority: 7 U.S.C. 2(a)(12), 12a, 13(c),

13(d), 13(e), and 16(b).

■7. Amend § 140.94 by:

■a. Redesignating paragraphs (c)(4)

through (13) as paragraphs (c)(5)

through (14); and

■b. Adding new paragraph (c)(4).

The addition reads as follows:

§ 140.94 Delegation of authority to the

Director of the Division of Swap Dealer and

Intermediary Oversight and the Director of

the Division of Clearing and Risk.

* * * * *

(c) * * *

(4) All functions reserved to the

Commission in § 39.6 of this chapter,

except for the authority to:

(i) Grant an exemption under § 39.6(a)

of this chapter;

(ii) Prescribe conditions to an

exemption under § 39.6(b) of this

chapter;

(iii) Modify or terminate an

exemption under § 39.6(f)(4) of this

chapter; and

(iv) Terminate an exemption under

§ 39.6(g)(3) of this chapter.

* * * * *

Issued in Washington, DC, on November

25, 2020, by the Commission.

Christopher Kirkpatrick,

Secretary of the Commission.

Note: The following appendices will not

appear in the Code of Federal Regulations.

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See Exemption From Derivatives Clearing

Organization Registration, 83 FR 39923 (Aug. 13,

2018). The Dodd-Frank Wall Street Reform and

Consumer Protection Act, Public Law 111–203, 124

Stat. 1376, amended the Commodity Exchange Act

(‘‘CEA’’) to permit the Commission to exempt

conditionally or unconditionally a DCO from

registration for the clearing of swaps if the

Commission determines that the clearing

organization is subject to ‘‘comparable,

comprehensive supervision and regulation’’ by

appropriate government authorities in the clearing

organization’s home country. See Section 5b(a) of

the CEA, 7 U.S.C. 7a–1(a).

2

See Amended Order of Exemption from

Registration (Jan. 28, 2016) (ASX Clear (Futures) Pty

Limited), available at: https://www.cftc.gov/sites/

default/files/idc/groups/public/@otherif/

documents/ifdocs/

asxclearamdorderdcoexemption.pdf; Amended

Order of Exemption from DCO Registration (May

15, 2017) (Japan Securities Clearing Corporation),

available at: https://www.cftc.gov/sites/default/files/

idc/groups/public/@otherif/documents/ifdocs/

jsccdcoexemptamdorder5-15-17.pdf; Order of

Exemption from DCO Registration (Oct. 26, 2015)

(Korea Exchange, Inc.), available at: https://

www.cftc.gov/sites/default/files/idc/groups/public/

@otherif/documents/ifdocs/krxdcoexemptorder10-

26-15.pdf; and Order of Exemption from DCO

Registration (Dec. 21, 2015) (OTC Clearing Hong

Kong Limited), available at: https://www.cftc.gov/

sites/default/files/idc/groups/public/@otherif/

documents/ifdocs/otccleardcoexemptorder12-21-

15.pdf.

3

See Directive of Chairman Heath P. Tarbert on

the Use of Staff Letters and Guidance (Oct. 27,

2020), available at: https://www.cftc.gov/

PressRoom/SpeechesTestimony/

tarbetstatement102720.

4

See Exemption From Derivatives Clearing

Organization Registration, 84 FR 35456 (July 23,

2019).

5

See Registration With Alternative Compliance

for Non-U.S. Derivatives Clearing Organizations, 85

FR 67160 (Oct. 21, 2020).

1

Sec. 5b(h) of the Commodity Exchange Act.

2

Cross-Border Application of the Registration

Thresholds and Certain Requirements Applicable to

SDs and Major Swap Participants (MSPs), 85 FR

56924 (Sept. 14, 2020).

3

Comparability Determination for Australia:

Margin Requirements for Uncleared Swaps for SDs

and MSPs, 84 FR 12908 (Apr. 3, 2019); Amendment

to Comparability Determination for Japan: Margin

Requirements for Uncleared Swaps for SDs and

MSPs, 84 FR 12074 (Apr. 1, 2019).

4

Amendment to Order of Exemption from SEF

registration for Recognized Market Operators

authorized in Singapore, Nov. 2, 2020, available at:

https://www.cftc.gov/PressRoom/PressReleases/

8301-20; Amendment to Order of Exemption from

SEF registration for E.U. multilateral trading

facilities and organized trading facilities, July 23,

2020, available at: https://www.cftc.gov/PressRoom/

PressReleases/8211-20; Order of Exemption from

SEF registration for Japanese derivatives trading

facilities, July 11, 2019, available at: https://

www.cftc.gov/PressRoom/PressReleases/7968-19.

5

Registration with Alternative Compliance for

Non-U.S. DCOs, 85 FR 67160 (Oct. 21, 2020).

6

Regulation 30.10 orders issued to the Bombay

Stock Exchange, National Stock Exchange Int’l

Financial Service Centre Ltd. [India], Montreal

Exchange, NZX Ltd. [New Zealand], and UBS AG

[Switzerland], Nov. 2, 2020, available at: https://

www.cftc.gov/PressRoom/PressReleases/8300-20.

7

Reg. 39.6(a)(1)(i).

8

Reg. 39.6(c).

9

Exemption from DCO Registration, 84 FR 35456

(July 23, 2019); Opening Statement of

Commissioner Brian Quintenz before the Open

Commission Meeting on July 11, 2019, available at:

https://www.cftc.gov/PressRoom/

SpeechesTestimony/quintenzstatement071119.

10

Sec. 1a(18) of the Commodity Exchange Act.

Appendices to Exemption From

Derivatives Clearing Organization

Registration—Commission Voting

Summary, Chairman’s Statement, and

Commissioners’ Statements

Appendix 1—Commission Voting

Summary

On this matter, Chairman Tarbert and

Commissioners Quintenz, Behnam, Stump,

and Berkovitz voted in the affirmative. No

Commissioner voted in the negative.

Appendix 2—Statement of Support of

Chairman Heath P. Tarbert

We are voting to approve a rule proposed

in 2018 that codifies existing staff guidance

by which the CFTC exempts derivatives

clearing organizations (DCOs) from

registration for the clearing of swaps.

1

Pursuant to that guidance, we have exempted

four clearinghouses that we determined are

subject to ‘‘comparable, comprehensive

supervision and regulation’’ by the clearing

organization’s home country regulator.

2

Codifying this framework through a notice-

and-comment rulemaking is, frankly, good

government. And doing so is in keeping with

my recent directive on the use of staff letters

and guidance, in which I noted that staff

guidance and letters should supplement

rulemakings, rather than themselves function

as rules.

3

This approach has many benefits,

including providing increased transparency.

It also furthers our strategic objective of

enhancing the regulatory experience for

market participants at home and abroad.

This rulemaking is a modest first step. As

is the case in the existing staff guidance, the

rule does not permit exempt DCOs to clear

for U.S. customers, but rather only for

proprietary swap transactions for U.S.

clearing members and futures commission

merchants (FCMs). It reflects the CFTC’s

continued efforts to foster cross-border

cooperation and show deference to home

country regulation that is deemed

comparable to our own regulations.

In 2019, the Commission issued a

supplemental proposal that would have gone

further and permitted exempt DCOs to clear

swaps for U.S. eligible contract participants

(ECPs) through foreign intermediaries.

4

I

would have supported finalizing that

proposal for two reasons. First, the proposal

would have provided greater flexibility and

choice to our most sophisticated U.S.

customers—ECPs—to access swaps cleared at

non-U.S. clearinghouses. This would have

given these sophisticated counterparties

access to foreign-currency denominated

instruments traded overseas that would

enable them to hedge their various risks on

a global basis. Second, exempting

clearinghouses that do not pose a substantial

risk to the U.S. financial system is consistent

with principles of international comity.

Because we have not worked through all

the issues raised by the 2019 supplemental

proposal to the satisfaction of our

Commission, today we are adopting only the

2018 proposal. Nonetheless, I support

continued discussion on whether to permit

Exempt DCOs additionally to clear certain

non-U.S.-dollar denominated swaps for U.S.

customers who are ECPs, either directly

through foreign intermediaries or through

U.S. FCMs. Although registration as a DCO—

under either our traditional or recently-

established alternative framework

5

—should

be the preferred route for most non-U.S.

clearinghouses, there are likely

circumstances where U.S. customers would

benefit from access to additional risk-

mitigating instruments offered overseas.

Appendix 3—Supporting Statement of

Commissioner Brian D. Quintenz

I support today’s final rule to codify the

CFTC’s existing practice of exempting non-

U.S. derivatives clearing organizations

(DCOs) from registration, pursuant to a

provision of the Commodity Exchange Act

that allows for U.S. swap market participants

to access comparably regulated foreign

DCOs.

1

That provision authorizes the

Commission to defer to its counterparts

abroad, which I believe properly conserves

the Commission’s resources and enables

firms to avoid duplicative regulation, while

providing U.S. market participants with

greater choice. I am proud that today’s final

rule provides yet another example of the

CFTC deferring to foreign regulators that

provide comparable regulation and

supervision. During my tenure as a

Commissioner, the CFTC has properly

provided such deference in many areas,

including swap dealer (SD) registration,

2

uncleared swap margin requirements,

3

swap

execution facilities (SEFs),

4

registered

DCOs,

5

and foreign futures.

6

Like these other

actions, today’s final rule holds exempt DCO

to a high regulatory standard. Under the final

rule, a DCO is only eligible for an exemption

if its home country regulator ensures the

clearinghouse complies with rules consistent

with the internationally accepted ‘‘Principles

for Financial Market Infrastructures’’ (PFMIs)

issued by CPMI–IOSCO.

7

Moreover, the

exempt DCO must regularly provide the

CFTC with margin information concerning

U.S. clearing members, among other key

information.

8

I note that under the final rule, an exempt

DCO will only be authorized to clear the

proprietary positions of its U.S. clearing

members. I had supported and still support

the Commission’s 2019 proposal that would

have expanded the exempt DCO framework

to allow for U.S. customers, like asset

managers and insurance companies, to clear

at exempt DCOs directly to better manage

and hedge their risk.

9

I continue to believe

that all participants meeting the Commodity

Exchange Act’s definition of ‘‘eligible

contract participant’’

10

have the resources,

sophistication, and incentives to adequately

assess how customer protections provided by

an exempt DCO may differ from protections

established by CFTC regulations for

registered DCOs. The CFTC should provide

these market participants with the choice

befitting their status, not only as

sophisticated market participants, but as

complex international organizations who

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1

7 U.S.C. 7a–1(a).

2

See Final Rule at II.B.2.a. and §39.6(b)(1).

3

Exemption from Derivatives Clearing

Organization Registration, 83 FR 39923 (proposed

Aug. 13, 2018) (the ‘‘2018 Proposal’’).

4

Exemption from Derivatives Clearing

Organization Registration, 84 FR 35456 (proposed

July 23, 2019) (the ‘‘2019 Supplemental Proposal’’).

5

See Appendix 4—Dissenting Statement of

Commissioner Rostin Behnam, Supplemental

Proposal, 84 FR at 35476–35478.

6

Id. at 35476.

7

See CEA section 5b(c)(2), 7 U.S.C. 7a–1(c)(2).

1

Commodity Exchange Act section 5b(h).

2

See Dissenting Statement of Commissioner

Berkovitz, 84 FR 35456 at 35479 (July 23, 2019). As

discussed in my prior statement, in addition to my

substantive concerns, the proposed rule would have

relied on CEA Section 4(c) exemptive authority to

exempt non-U.S. intermediaries that provide

customer clearing at Exempt DCOs from the FCM

registration requirement and the regulations

applicable to registered FCMs. This reliance would

have exceeded the clearly limited authority granted

under Section 4(c). With the elimination of

customer clearing in the Final Rule, the

Commission no longer needs to resort to an overly

expansive reading of Section 4(c) authority to adopt

the Final Rule.

need access to foreign markets, products, and

a choice of liquidity pools. I hope the

Commission will continue to consider the

best way to expand the exempt DCO

framework to allow for U.S. customer

clearing.

Appendix 4—Concurring Statement of

Commissioner Rostin Behnam

I respectfully concur with the Commodity

Futures Trading Commission’s final rule

regarding policies and procedures that it will

follow with respect to granting exemptions

from derivatives clearing organization (DCO)

registration pursuant to authority under

section 5b(h) of the Commodity Exchange

Act (CEA)

1

(the ‘‘Final Rule’’). The Final

Rule, with limited exceptions, codifies the

policies and procedures followed by the

Commission in issuing the four exempt DCO

orders which currently limit clearing

organizations organized outside of the United

States to clearing only proprietary swap

positions of U.S. persons and futures

commission merchants, and not customer

positions (‘‘exempt DCOs’’). Critical to my

vote today, the Final Rule prohibits the

clearing of U.S. customer positions at an

exempt DCO.

2

I supported the Commission’s 2018 notice

of proposed rulemaking

3

as a means to

promote transparency and accountability as

well as a positive step towards increased

cross-border cooperation and deference to

our foreign regulatory counterparts. However,

I was unable to support the Commission’s

2019 supplement to the 2018 Proposal,

4

which proposed permitting exempt DCOs to

clear swaps for U.S. customers through

foreign intermediaries that would be wholly

outside the Commission’s direct regulation

and oversight. As articulated more fully in

my dissent,

5

the 2019 Supplemental Proposal

was not the product of internal consensus

and its brief history and questionable

timeline signaled a lack of appropriate

scrutiny and evaluation of the critical

financial, market, consumer protection, and

systemic risk issues raised by diverging from

the customer protection model provided by

the CEA and U.S. Bankruptcy Code. It was

and remains my view that if the Commission

believes it is appropriate to provide U.S.

customers with greater access to non-U.S.

swap markets, then we can and should

engage in a more careful analysis of options,

assessment of alternatives, and evaluation of

consequences consistent with the

Administrative Procedure Act.

6

As the

Commission is declining to adopt the 2019

Supplemental Proposal at this time, I am

comfortable with supporting the Final Rule.

One area in which I will remain vigilant is

with regard to the Commission’s reliance on

the Principles for Financial Market

Infrastructures (PFMI) framework as the

benchmark for making the comparability

determination with respect to a foreign

jurisdiction’s supervisory and regulatory

scheme required by CEA section 5b(h). I

believe that the Commission’s reliance on the

PFMIs as providing a comprehensive

framework for DCO supervision that is

comparable to the statutory and regulatory

requirements applicable to registered DCOs,

with a particular focus on the DCO Core

Principles,

7

is within its discretion under

CEA section 5b(h). However, I am concerned

that the Commission’s decision to limit its

reference to the PFMIs as they existed in

2012 may lead to untenable divergence in the

future should the Commission determine to

incorporate subsequent amendments or

revisions to the PFMIs or related

interpretations and guidance into its own

regulatory and supervisory DCO oversight.

Alternatively, I am concerned that

maintaining a static definition of the PFMIs

to provide exempt DCOs with greater

regulatory certainty with regard to their

ongoing eligibility for the exemption could

negatively impact the Commission’s

consideration regarding whether to adopt or

incorporate future changes to the PFMIs or

related interpretations and guidance into its

regulatory regime. However, I am reassured

that the Commission explicitly reserves the

ability to incorporate future amendments to

the PFMIs into the Final Rule’s PFMI

definition in § 39.2. As well, because the

Commission also maintains broad discretion

to condition an exemption on any facts and

circumstances it deems relevant under new

§ 39.6(b)(8), I believe the Commission has

clear discretion and authority to make

appropriate changes with regard to its

consideration of exempt DCO eligibility

criteria and ongoing compliance to maintain

comprehensive application of and adherence

to comparable regulatory and supervisory

standards.

My decision to support the Final Rule is

largely based on the Commission’s

determination to move forward with the 2018

Proposal without adopting the 2019

Supplemental Proposal. However, I remain

supportive of the Commission’s endeavor to

explore ways to adapt and—if appropriate—

seek to adjust the current intermediary

structure established under the CEA and

Commission regulations to better

accommodate both U.S. customer demand for

increased access to clearing in foreign

jurisdictions and evolving global swaps

market structures. I remain open and look

forward to the possibility of further

discussing the regulatory and policy issues

raised during this rulemaking.

Appendix 5—Statement of

Commissioner Dan M. Berkovitz

I am voting for the final rule establishing

procedures for granting registration

exemptions to foreign derivatives clearing

organizations (‘‘Exempt DCOs’’) to clear

swaps for certain U.S. persons (‘‘Final Rule’’).

The Final Rule exercises the exemptive

authority provided by Congress in the

Commodity Exchange Act (‘‘CEA’’)

1

in a

limited, pragmatic manner that will provide

U.S. financial services firms that operate

globally with access to foreign clearinghouses

and cleared swaps in order to more

effectively manage the risks arising from their

global operations.

In July of last year, I dissented from the

proposed exempt DCO rule, because it also

would have permitted Exempt DCOs to clear

for U.S. customers, but only through foreign

intermediaries. In doing so, the proposed rule

would have subjected U.S. customer

accounts to foreign bankruptcy and other

regulations, promoted the use of foreign

intermediaries at the expense of U.S. firms,

and exceeded this agency’s limited

exemptive authority.

2

Enabling U.S.

customers to clear swaps and amass large

positions in non-U.S. markets in this manner

would not only pose risks to those customers,

but also could have presented systemic risks

to the U.S. financial system.

In response to commenters who expressed

similar objections, the Final Rule does not

contain the concerning provisions. Neither

registered FCMs nor their foreign

intermediary counterparts can clear for U.S.

person customers. With respect to clearing

for U.S. persons, the Final Rule restricts

clearing by an Exempt DCO to only U.S.

firms that become clearing members of the

Exempt DCO along with certain of their

affiliates and persons associated with those

firms in the manner identified in the

definition of ‘‘proprietary account’’ in section

1.3 of our regulations. In addition, registered

FCMs, including U.S. firms, can also clear at

exempt DCOs, but only for themselves and

persons associated with the FCMs in the

manner provided in the definition of

‘‘proprietary account.’’ These sophisticated

market participants are well equipped to

assess the risks of clearing swaps under the

foreign regime. Furthermore, by requiring

that they be members of the Exempt DCO (or

clear through an affiliate that is a member),

the Commission assures that such entities

have taken affirmative actions to assess and

accept those risks. The margin funds and

related obligations of these persons must also

be segregated from customer funds held by

registered FCMs thereby minimizing any

impact on U.S. customers of the cleared

positions at Exempt DCOs. These limitations

are a reasonable, practical approach to

implementing the authority provided to the

Commission to exempt certain foreign DCOs

without adding uncertain risk into our

system of fully registered DCOs and FCMs.

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Exemption from Derivatives Clearing

Organization Registration, 83 FR 39923, 39926

(proposed Aug. 13, 2018).

4

See Committee on Payment and Settlement

Systems and the Technical Committee of the

International Organization of Securities

Commissions, Principles for financial market

infrastructures (Apr. 2012), available at http://

www.iosco.org/library/pubdocs/pdf/IOSCOPD377-

PFMI.pdf.

5

See 17 CFR 39.30, 39.40.

Furthermore, the Commission has, on an

ad hoc basis, previously granted registration

exemptions to four foreign clearinghouses

limited to proprietary swap positions with

effectively the same conditions and

limitations as provided in the Final Rule. The

Final Rule will therefore maintain

consistency with the existing exemptions.

The Final Rule also contains fairly detailed

daily, quarterly, and annual reporting

requirements, as well as special event notice

requirements. These requirements allow the

Commission to monitor U.S. person clearing

activity at the Exempt DCO on a daily basis

and keep the Commission informed of any

material changes to the regulatory and

financial status of the Exempt DCO in its

home jurisdiction. While the Exempt DCOs

will be able to operate under the compliance

regime and oversight of its home country

regulator, the CFTC can maintain limited, but

up-to-date oversight of the activities that are

relevant for U.S. market participants and that

could have an impact on our financial

system.

As noted above, the Final Rule does not

permit registered FCMs to clear U.S.

customer swaps at Exempt DCOs. In the

Commission’s initial 2018 proposal to

establish a framework for Exempt DCOs, the

Commission proposed this prohibition. The

Commission explained:

Section 4d(f)(1) of the CEA makes it

unlawful for any person to accept money,

securities, or property (i.e., funds) from a

swaps customer to margin a swap cleared

through a DCO unless the person is registered

as an FCM. Any swaps customer funds held

by a DCO are also subject to the segregation

requirements of section 4d(f)(2) of the CEA,

and in order for a customer to receive

protection under this regime, particularly in

an insolvency context, its funds must be

carried by an FCM, and deposited with a

registered DCO. Absent that chain of

registration, the swaps customer’s funds may

not be treated as customer property under the

U.S. Bankruptcy Code and the Commission’s

regulations. Because of this, it has been the

Commission’s policy to allow exempt DCOs

to clear only proprietary positions of U.S.

persons and FCMs.

3

The Final Rule notes that the Commission

may revisit the prohibition on U.S. customer

clearing in the future. While I agree with the

outcome in the Final Rule as to customer

clearing given the Commission’s

interpretation of CEA Section 4d(f), if the

above interpretation changes, whether by a

change to the statute or by other appropriate

means, I could support a further amendment

of the Final Rule. Any such change should

place U.S. FCMs on an equal footing with

their foreign counterparts when competing

for U.S. customer clearing at Exempt DCOs.

In addition, such a change should not create

an advantage for unregistered Exempt DCOs

over registered DCOs who comply with all of

our regulations.

Finally, I note that CEA Section 5b(h)

provides for the registration exemption if the

foreign DCO is subject to ‘‘comparable,

comprehensive supervision and home

country regulation.’’ Under the Final Rule, to

demonstrate comparability, the DCO must be

subject to home country regulations that are

consistent with, and the DCO must ‘‘observe

in all material respects,’’ the ‘‘Principles for

Financial Market Infrastructures’’

4

(‘‘PFMIs’’)

applicable to central counterparties.

Several commenters objected to this

approach to comparability determinations on

a number of grounds. These commenters

stated that the Commission should not

substitute a commitment to adhere to the

PFMIs for its own examination and

assessment as to the comparability and

comprehensiveness of the actual foreign

regulations. As the PFMIs are only general

principles, even when the PFMIs are

implemented, material differences may exist

between the PFMI-compliant regime and the

Commission’s DCO core principles and

regulations. Commenters further argued that

Congress intended for the Commission to

analyze comparability only by direct

comparison to the CTFC’s laws and

regulations.

Over the past two years, I have expressed

concerns over the erosion of the

Commission’s standards and role in finding

comparability for various CFTC regulations.

The Commission’s approach has been

increasingly deferential to other regulators,

which has the potential to permit the

importation of increased risks into the U.S.

financial system.

In this regard, I too have some concerns

about the use of the PFMIs as a standard for

comparability. However, for the purpose of

granting DCO registration exemptions, I

believe the approach taken in the Final Rule

is reasonable. I have consistently said that

comparability determinations should involve

a detailed examination of the other

jurisdiction’s standards, but also should be

outcomes based. Regulators around the world

take substantively different approaches to

regulating DCOs, but that does not mean any

one approach is necessarily better or worse

than another as to its expected outcome. The

PFMIs tend to be more general in nature than

the DCO core principles and regulations in

the CEA and CFTC regulations. However,

regarding the general outcome of DCO

regulation, the PFMIs—which the CFTC has

contributed to and incorporated in

regulation

5

—are consistent with our DCO

core principles. Furthermore, given the

limited scope of the Final Rule in that it

applies only to clearing of proprietary

positions, using the PFMIs to find

comparability is not unwarranted. Finally,

the Final Rule allows for the Commission to

assess the extent to which the home country

regulations are consistent with the PFMIs

and the extent to which the applying DCO is

observing the PFMIs. As such, I believe the

approach taken in the Final Rule is

reasonable.

In conclusion, the Final Rule creates a

limited, practical set of policies and

procedures for granting exemptions from

registration for foreign DCOs. The Exempt

DCOs can only clear swaps for U.S. persons

who are proprietary traders and who are able

to assess the specific risks of clearing at the

Exempt DCO. The U.S. customer accounts at

registered FCMs will not be commingled

with accounts used for Exempt DCO clearing.

Finally, U.S. FCMs are not put at a

competitive disadvantage to their foreign

counterparts. For these reasons, I support the

changes made to the proposed rule that result

in an appropriate, codified approach to

exempting foreign DCOs who meet

appropriate standards.

[FR Doc. 2020–26527 Filed 1–6–21; 8:45 am]

BILLING CODE 6351–01–P

ENVIRONMENTAL PROTECTION

AGENCY

40 CFR Part 52

[EPA–R09–OAR–2020–0358 and EPA–R09–

OAR–2019–0423; FRL–10017–89–Region 9]

Air Plan Partial Approval, Partial

Disapproval, and Partial Conditional

Approval; Arizona; Maricopa County

Air Quality Department; Reasonably

Available Control Technology State

Implementation Plan and Surface

Coating Rule

AGENCY

: Environmental Protection

Agency (EPA).

ACTION

: Final rule.

SUMMARY

: The Environmental Protection

Agency (EPA) is finalizing a partial

approval, partial disapproval, and

partial conditional approval of revisions

to the Maricopa County Air Quality

Department (MCAQD or County)

portion of the Arizona State

Implementation Plan (SIP). This action

concerns the County’s demonstration

regarding reasonably available control

technology (RACT) requirements and

negative declarations for the 2008 8-

hour ozone National Ambient Air

Quality Standards (NAAQS or

‘‘standards’’) in the portion of the

Phoenix-Mesa ozone nonattainment area

under the jurisdiction of the MCAQD.

The EPA is also finalizing a conditional

approval of a MCAQD rule that

regulates emissions from surface coating

operations and was submitted with the

RACT SIP demonstration.

DATES

: This rule is effective on February

8, 2021.

ADDRESSES

: The EPA has established

dockets for this action under Docket No.

EPA–R09–OAR–2020–0358 and EPA–

R09–OAR–2019–0423. All documents in

VerDate Sep<11>2014 16:55 Jan 06, 2021 Jkt 253001 PO 00000 Frm 00039 Fmt 4700 Sfmt 4700 E:\FR\FM\07JAR1.SGM 07JAR1

jbell on DSKJLSW7X2PROD with RULES

Published date	07 January 2021
Citation	86 FR 949
Record Number	2020-26527
Section	Rules and Regulations
Court	Commodity Futures Trading Commission

Exemption From Derivatives Clearing Organization Registration

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