FIA today recommended changes to separate, but similar, CFTC rule proposals that would govern U.S. customer access to foreign clearinghouses. FIA’s principal concern with the proposals is that, taken together, they do not create a comprehensive framework to facilitate access to foreign cleared markets by U.S. customers. FIA’s comments were in response to the CFTC’s Notice of Proposed Rulemakings on Exemption from Derivatives Clearing Organization Registration and Registration with Alternative Compliance for Non-U.S. Derivatives Clearing Organizations. While noting the shortcomings of the proposals, FIA suggests a comprehensive solution for the Commission to consider.
Cross-border access to swaps markets is a critical issue for U.S. customers, clearing members and, ultimately, the health of global commerce and markets. FIA broadly supports the Commission’s efforts to combat market fragmentation by facilitating U.S. customer access to global derivatives markets and clearinghouses. The proposals attempt to provide new avenues for U.S. customers to access foreign cleared swaps, a product set that is of increasing importance to market participants, and FIA commends the Commission for trying to address how to open more avenues for clearing on non-US CCPs.
According to FIA’s letter: “Any limitations on a new customer access model for swaps cleared on non-U.S. DCOs (Foreign Swaps), which as proposed relies heavily and correctly on disclosure, should rest, first and foremost, on the principle that sophisticated U.S. swaps customers are best situated to evaluate whether and how to access Foreign Swaps markets. Indeed, we respectfully submit that market fragmentation will be meaningfully addressed only insofar as the regulations allow firms to access non-U.S. markets in a manner that is most efficient and free from unnecessary regulatory impediments and costs.”
FIA believes U.S customers should be able to clear through FCMs regardless of the regulatory status of the clearinghouse with the CFTC. The proposals would prohibit U.S. customers from accessing exempt DCOs through an FCM, whether directly or indirectly. This would limit the choice of U.S. customers and deprive them of the numerous benefits that flow from FCM relationships, including business efficiencies and regulatory protections.
FIA argues in the letter that there is a tried and tested approach for balancing access and protection of U.S. customers in non-U.S. markets: Part 30 of the Commission’s regulations governing foreign futures. The Commission should model the clearing of swaps on non-U.S. DCOs on the Part 30 regime for clearing foreign futures. This will respect customer choice, and encourage open, transparent and competitive markets, all while preserving customer protections.