The CFTC proposed a new rule on Tuesday that would require central clearing within a specified period after the agency designates a swap category for clearing.
Large swap traders will have 90 days to comply, private funds and commodity pools will have 180 days, and all other firms will have 270 days to commence compliance.
Credit default swaps and interest rate swaps would be the first singled out for mandatory central clearing under the proposal, partly because many swaps in these categories are already being cleared.
The rule is part of a large group of new regulations required by the Dodd-Frank Act, which made the CFTC responsible for creating a new regulatory framework that would reduce the likelihood of an event like the 2008 financial crisis occurring in the future. The rule is intended to minimize the risk of a defaulting counterparty. Instead of trading directly with each other, market participants will route their trades through a central counterparty (CCP), which will net its clearing members’ trades, and use other methods, in order to minimize risk.
“The rule provides greater clarity to market participants regarding the time frame for bringing their swaps into compliance with the clearing requirement,” CFTC Chairman Gary Gensler said.