Extension of time-limited no-action relief for Clearing Corporation of India Ltd. with regard to Section 5b(a) of the Commodity Exchange Act and implementing regulations thereunder.

Summary: Extension of time-limited no-action relief for Clearing Corporation of India Ltd. 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. 14-149

No-Action

December 18, 2014

Division of Clearing and Risk

Mr. R. Sridharan

Managing Director

The Clearing Corporation of India Ltd.

CCIL Bhavan

College Lane, Off. S K Bole Road

Dadar (West)

Mumbai, India

Re:

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

Exchange Act and Commission Regulations Thereunder

Dear Mr. Sridharan:

This is in response to your letter dated December 15, 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 Clearing Corporation of India Ltd. (“CCIL”) by letter dated August 18, 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, CCIL is permitted to clear Indian Rupee-denominated

interest rate swaps (“INR IRS”) and Indian Rupee-denominated forward-rate agreements

(“INR FRA”) for the proprietary trades of clearing members that are U.S. persons. The relief

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

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

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

and Indian Rupee-denominated forward-rate agreements

(“INR FRA”) for the proprietary trades of clearing members that are U.S. persons. The relief

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

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

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

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

to extending the no-action relief until December 31, 2015, subject to CCIL 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 an exemption

1 CFTC Letter 14-107 (August 18, 2014).

Mr. R. Sridharan

December 17, 2014

Page 2

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 CCIL will file, by June 30, 2015, a petition for an

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

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

CCIL 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 the INR IRS and INR FRA contracts

accepted for clearing by CCIL;

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

U.S. Clearing Members;

take enforcement action against

CCIL 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 the INR IRS and INR FRA contracts

accepted for clearing by CCIL;

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

U.S. Clearing Members;

(3) Reporting. If a clearing member clears through CCIL 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 CCIL 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 CCIL for clearing (referred to

as “beta” and “gamma” swaps);5 and

2 Pursuant to an exemption, CCIL 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, CCIL 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, CCIL 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

Mr. R. Sridharan

December 17, 2014

Page 3

ncerning 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, CCIL 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

Mr. R. Sridharan

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 CCIL 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 Shawn Durrani,

Attorney-Advisor, at (202) 418-5048, sdurrani@cftc.gov.

Sincerely,

Phyllis Dietz

Acting Director

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

under the Part 45 rules.