Extension of time-limited no-action relief for ASX Clear (Futures) Pty Limited with regard to Section 5b(a) of the Commodity Exchange Act and implementing regulations thereunder.

Summary: Extension of time-limited no-action relief for ASX Clear (Futures) Pty Limited with regard to Section 5b(a) of the Commodity Exchange Act and implementing regulations thereunder.

U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5000

Facsimile: (202) 418-5521

www.cftc.gov

Division of Clearing and

Risk

CFTC Letter No. 14-148

No-Action

December 18, 2014

Division of Clearing and Risk

Ms. Amanda J. Harkness

Group General Counsel & Company Secretary

ASX Group

Exchange Centre

20 Bridge Street

Sydney NSW 2000

PO Box H224

Australia Square NSW 1215, Australia

Re:

Extension of No-Action Relief with Regard to Section 5b(a) of the Commodity

Exchange Act and Commission Regulations Thereunder

Dear Ms. Harkness:

This is in response to your letter dated December 2, 2014 (“Letter”) to the Division of

Clearing and Risk (“Division”) of the Commodity Futures Trading Commission

(“Commission”). In the Letter, you request that the Division extend the no-action relief

granted to ASX Clear (Futures) Pty Limited (“ASXCLF”) by letter dated February 6, 2014,1

from the derivatives clearing organization (“DCO”) registration requirement under Section

5b(a) of the Commodity Exchange Act (“CEA”).

Pursuant to the no-action relief, ASXCLF is permitted to clear Australian and New

Zealand dollar-denominated interest rate swaps (“A&NZ$ IRS”) for the proprietary trades of

qualified U.S. clearing participants and their parent entities and affiliates. The relief is set to

expire at the earlier of: (i) December 31, 2014; or (ii) the date on which the Commission

either registers ASXCLF as a DCO under Section 5b(a) of the CEA, or the Commission

exempts ASXCLF from registration pursuant to Section 5b(h) of the CEA

te swaps (“A&NZ$ IRS”) for the proprietary trades of

qualified U.S. clearing participants and their parent entities and affiliates. The relief is set to

expire at the earlier of: (i) December 31, 2014; or (ii) the date on which the Commission

either registers ASXCLF as a DCO under Section 5b(a) of the CEA, or the Commission

exempts ASXCLF from registration pursuant to Section 5b(h) of the CEA.

By letter dated November 26, 2014, the Division informed ASXCLF that it was

amenable to extending the no-action relief until December 31, 2015, subject to ASXCLF

notifying the Division, no later than December 15, 2014, that it will file by June 30, 2015: (i)

a materially complete Form DCO application for registration as a DCO; or (ii) a petition for

1 CFTC Letter 14-07 (February 6, 2014).

Ms. Amanda J. Harkness

December 17, 2014

Page 2

an exemption from registration. The Division’s letter also set forth the standards and

procedures applicable to a petition for an exemption from registration.

In the Letter, you represent that ASXCLF will file, by June 30, 2015, a petition for an

exemption from DCO registration.2 Based on this representation, and in order to allow

ASXCLF the necessary time to prepare and file its petition, the Division will extend the no-

action relief now in effect and will not recommend that the Commission take enforcement

action against ASXCLF for failure to register as a DCO pursuant to the requirements of

Section 5b(a) of the CEA, subject to the following conditions:

(1) Product Scope. This relief is limited to A&NZ$ IRS contracts accepted for

clearing by ASXCLF;

(2) Participant Scope. The relief applies to ASXCLF’s clearing of proprietary trades3

of U.S. Clearing Members;

mmission take enforcement

action against ASXCLF for failure to register as a DCO pursuant to the requirements of

Section 5b(a) of the CEA, subject to the following conditions:

(1) Product Scope. This relief is limited to A&NZ$ IRS contracts accepted for

clearing by ASXCLF;

(2) Participant Scope. The relief applies to ASXCLF’s clearing of proprietary trades3

of U.S. Clearing Members;

(3) Reporting. If a clearing member clears through ASXCLF a swap (referred to as

the “alpha” swap) that has been reported to a Commission-registered swap data

repository (“SDR”) pursuant to Part 45 of the Commission’s regulations,4 then

ASXCLF must report to an SDR, pursuant to Part 45, data regarding the two swaps

resulting from the novation of the alpha swap that had been submitted to ASXCLF for

clearing (referred to as “beta” and “gamma” swaps);5 and

2 Pursuant to an exemption, ASXCLF would be authorized to clear only proprietary swaps positions for U.S.

persons. In order to clear both proprietary and customer swaps positions for U.S. persons, ASXCLF would have

to register with the Commission as a DCO.

3 See 17 C.F.R. § 1.3(y) (definition of “proprietary account”).

4 See Swap Data Recordkeeping and Reporting Requirements, 77 Fed. Reg. 2136 (Jan. 13, 2012) (adopting Part

45).

5 Pursuant to Regulation 39.12(b)(6), 17 C.F.R. § 39.12(b)(6), during the clearing process, a swap submitted for

clearing to a registered DCO (the alpha swap) is extinguished or terminated, and two new swaps (the beta and

gamma swaps) are created. The registered DCO must then report the beta and gamma swaps to an SDR under

Part 45 and associate the unique swap identifier of the alpha swap with the beta and gamma swaps in order for

the Commission to confirm that such alpha swap was cleared

p submitted for

clearing to a registered DCO (the alpha swap) is extinguished or terminated, and two new swaps (the beta and

gamma swaps) are created. The registered DCO must then report the beta and gamma swaps to an SDR under

Part 45 and associate the unique swap identifier of the alpha swap with the beta and gamma swaps in order for

the Commission to confirm that such alpha swap was cleared. See Statement of the Commission concerning

CME Rule 1001 (March 6, 2013), page 6, available at:

http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/statementofthecommission.pdf; see also 17

C.F.R. § 45.4(a) (“[R]eporting counterparties and [DCOs] required to report swap continuation data must do so

in a manner sufficient to ensure that all data in the [SDR] concerning the swap remains current and accurate, and

includes all changes to the primary economic terms of the swap occurring during the existence of the swap.”); 77

Fed. Reg. at 2153 (“[T]he final rule requires registered entities and reporting counterparties to report

continuation data in a manner sufficient to ensure that the information in the SDR concerning the swap is current

and accurate, and includes all changes to any of the primary economic terms of the swap.”).

In order to avoid duplicative reporting for such transactions, ASXCLF should have rules that prohibit the Part 45

reporting of the beta and gamma swaps by the original counterparties to the alpha swap. These rules should make

Ms. Amanda J. Harkness

December 17, 2014

Page 3

the swap is current

and accurate, and includes all changes to any of the primary economic terms of the swap.”).

In order to avoid duplicative reporting for such transactions, ASXCLF should have rules that prohibit the Part 45

reporting of the beta and gamma swaps by the original counterparties to the alpha swap. These rules should make

Ms. Amanda J. Harkness

December 17, 2014

Page 3

(4) Limited Duration. The no-action relief shall expire at the earlier of: (i) December

31, 2015 or (ii) the date upon which the Commission exempts ASXCLF from

registration as a DCO under Section 5b(h) of the CEA.

The position taken herein concerns enforcement action only and does not represent a

legal conclusion with respect to the applicability of any provision of the CEA or the

Commission’s regulations. In addition, the Division’s position does not necessarily reflect the

views of the Commission or any other division or office of the Commission. Because this

position is based upon the representations contained in the Letter, it should be noted that any

different, changed, or omitted material facts or circumstances may require a different

conclusion or render this letter void. Finally, as with all no-action letters, the Division retains

the authority to condition further, modify, suspend, terminate, or otherwise restrict the terms

of the no-action relief provided herein, in its discretion.

Should you have any questions, please do not hesitate to contact Eileen Donovan,

Acting Deputy Director, at (202) 418-5096, edonovan@cftc.gov; or Andrea Musalem, Special

Counsel, at (202) 418-5167, amusalem@cftc.gov.

Sincerely,

Phyllis Dietz

Acting Director

it clear to market participants that ASXCLF is reporting the beta and gamma swaps as if it were a registered

DCO under the Part 45 rules.