Today, the CFTC announced today that swap dealers, major swap participants, and private funds active in the swaps market, are required to begin clearing certain index credit default swaps (CDS) and interest rate swaps that they entered into on, or after March 11, 2013.
The CFTC stated in a press release, that the Dodd-Frank Act amended the Commodity Exchange ACT (CEA) to require the clearing of specific swaps. The Dodd-Frank act also requires the Commission to determine whether a swap is required to be cleared by either a Commission-initiated review, or a submission from a DCO for the review of a swap, or group, category, type, or class of swap.
The clearing requirement determination does not apply to those who are eligible to elect an exception from clearing because they are non-financial entities hedging commercial risk.
CFTC Chairman Gary Gensler stated in a press release, “Central clearing lowers the risk of the highly interconnected financial system. It promotes competition in and broadens access to the market by eliminating the need for market participants to individually determine counterparty credit risk, as now clearinghouses stand between buyers and sellers.”
The clearing requirement applies to newly executed swaps, as well as changes in the ownership of a swap. Market participants electing an exception from mandatory clearing under section 2(h)(7) of the CEA do not have to comply with the reporting requirements for electing the exception until September 9, 2013.