By Andrew Cross and Tom Watterson

The CFTC is currently reviewing clearing determinations for two new classes of swaps.

The CFTC is currently reviewing what would be the first clearing determination for non-deliverable FX forwards (NDFs). The clearing determination would cover NDFs in USD with the following currencies:

  • Brazilian real (BRL)
  • Russian ruble (RUB)
  • Indian rupee (INR)
  • Chinese yuan (CNY)
  • Chilean peso (CLP)
  • Korean won (KRW)
  • Colombian peso (COP)
  • Indonesian rupiah (IDR)
  • Malaysian ringgit (MYR)
  • Philippines peso (PHP)
  • Taiwanese dollar (TWD)

In addition, the second clearing determination will mandate central clearing (unless an exception to central clearing applies) for fixed-for-floating interest rate swaps denominated in Australian dollars (AUD), Swiss francs (CHF), or Canadian dollars (CAD). Fixed for floating interest rate swaps denominated in US dollars (USD), British pounds (GBP), or Euros (EUR) are already subject to the central clearing mandate.

We expect that the CFTC will use the same implementation phase-in as for the interest rate and credit default index swaps, which was:

Category 1 Swap dealers, security-based swap dealers, major swap participants, major security-based swap participants, or active funds. 90 days after publication of the clearing determination
Category 2 Commodity pools, private funds, and persons predominantly engaged in activities that are in the business of banking, or in activities that are financial in nature (other than third party sub accounts or ERISA plans) 180 days after publication of the clearing determination
Category 3 All other entities not exempt from the clearing requirement 270 days after publication of the clearing determination

We note that nothing is final until we see a release from the CFTC, but we wanted to alert you to the potential requirements on the horizon.

Good day. Good alert. TSR