On April 1, 2013, the Commodity Futures Trading Commission (CFTC) released a final rule providing an exemption from the clearing requirement for swaps between affiliated entities within a corporate group. The exemption had been on the industry’s wish list, but came with significant strings attached. In concept, the mechanics of the rule are relatively simple: affiliated counterparties may elect not to clear a swap subject to the CFTC’s clearing mandate if the counterparties are eligible. However, the rule is laden with complexities that make it difficult to employ, particularly in a cross border context.
The purpose of this FS Regulatory Brief is to describe the eligible affiliates and conditions that must be satisfied to take advantage of the exemption; to identify the practical implications for global enterprises pursuing the exemption; and to discuss the rule’s approach to substituted compliance and whether it may be a roadmap for possible cross border relief in July.