Associations Differ on Expanding Swaps Clearing Requirement

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By Richard Hill

July 18 — The CFTC shouldn't expand its clearing requirement by bringing more interest rate contracts under the mandate, the Japanese Bankers Association said.

The Managed Funds Association, however, lauded the Commodity Futures Trading Commission's proposal to require clearing for more contracts.

The CFTC proposed in June to require more interest rate swaps to be cleared (112 SLD, 6/10/16). Currently, only contracts within four classes of interest rate swaps and two classes of credit default swaps are required to be cleared.

JBA cited rising costs associated with clearing, including paying for collateral, in arguing against expanding the mandate. Requiring clearing of certain interest rate products would force market participants to become members of particular clearinghouses or come up with other arrangements, “which undermines efficiency,” it said.

A lack of fully integrated clearing rules around the world makes expanding the clearing requirement inefficient, JBA said. If the CFTC mandates clearing of more swaps, it also should provide exemptions in cases where multiple clearinghouses wouldn't be able to clear a product, JBA said.

Many Improvements

Expanding mandatory clearing would increase transparency, enhance market integrity and oversight and improve competition, MFA said July 18. More mandatory clearing would allow market participants to trade with a wider range of counterparties, it said.

MFA also agreed with the CFTC that expanding mandatory clearing to the interest rate contracts will better align U.S. rules with the rest of the world.

The CFTC said in proposing the rule that the requirement would put its rules more in step with those in Australia, Canada, the European Union, Hong Kong, Mexico and Singapore.

The International Swaps and Derivatives Association praised the proposal July 18 and urged the CFTC to harmonize the timing of mandatory clearing with other jurisdictions. Such timing would be consistent “with maximizing liquidity and reducing risk,” it said.

To contact the reporter on this story: Richard Hill in Washington at

To contact the editor responsible for this story: Phyllis Diamond at

For More Information

JBA's letter can be seen at

MFA's letter can be seen at

ISDA's letter can be seen at

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