The Division of Clearing and Risk extended the no-action relief granted in CFTC Letter 14-27 to Eurex Clearing and its U.S. clearing members with regard to Sections 5b(a) and 2(h)(1)(A) of the Commodity Exchange Act....

Summary: The Division of Clearing and Risk extended the no-action relief granted in CFTC Letter 14-27 to Eurex Clearing and its U.S. clearing members with regard to Sections 5b(a) and 2(h)(1)(A) of the Commodity Exchange Act. The time-limited no-action relief is subject to several conditions.

U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5449

Facsimile: (202) 418-5547

pdietz@cftc.gov

a

Phyllis Dietz

Acting Director

Division of Clearing and Risk

CFTC Letter No. 14-156

No-Action

December 23, 2014

Division of Clearing and Risk

Mr. Thomas Book, Chief Executive Officer

Mr. Oliver Haderup, Executive Director

Eurex Clearing AG

Mergenthalerallee 61

65760 Eschborn, Germany

Re:

Extension of Time-Limited No-Action Relief with Regard to Sections 5b(a) and

2(h)(1)(A) of the Commodity Exchange Act and Implementing Regulations

Thereunder

Dear Mr. Book and Mr. Haderup:

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” or “CFTC”) requesting a further extension of the no-action relief that the

Division granted to Eurex Clearing AG (“Eurex Clearing”) in CFTC Letter 14-27 and that

expires on December 31, 2014 (the “No-Action Relief”).1 In CFTC Letter 14-27, the

Division stated it would not recommend that the Commission take enforcement action against

(1) Eurex Clearing for failure to register as a derivatives clearing organization (“DCO”)

pursuant to the requirements of Section 5b(a) of the Commodity Exchange Act (“CEA”),2 or

x Clearing”) in CFTC Letter 14-27 and that

expires on December 31, 2014 (the “No-Action Relief”).1 In CFTC Letter 14-27, the

Division stated it would not recommend that the Commission take enforcement action against

(1) Eurex Clearing for failure to register as a derivatives clearing organization (“DCO”)

pursuant to the requirements of Section 5b(a) of the Commodity Exchange Act (“CEA”),2 or

(2) clearing members of Eurex Clearing that are U.S. persons (each, a “U.S. Clearing

Member”) for failure to clear certain interest rate swaps (“IRS”) or certain credit default

swaps (“CDS”) on a broad-based index of reference entities (“Index CDS”) through a

1 CFTC Letter No. 14-27 (March 10, 2014) and its attachment, available at

http://www.cftc.gov/ucm/groups/public/@newsroom/documents/letter/14-27.pdf and

http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/eurexattachmentnal031014.pdf.

CFTC Letter No. 14-27 extended the no-action relief originally granted in CFTC Letter No. 13-44 (July 11,

2013).

2 7 U.S.C. § 7a-1(a).

Mr. Thomas Book

Mr. Oliver Haderup

December 23, 2014

Page 2

registered or exempt DCO pursuant to the requirements of Section 2(h)(1)(A) of the CEA and

the implementing regulations thereunder as applicable.3 You have requested that the No-

Action Relief be extended until the earlier of September 30, 2015, or the date upon which

Eurex Clearing becomes registered as a DCO with respect to its IRS clearing business.4

Eurex Clearing filed its initial application for DCO registration on May 17, 2011 and

amended applications on September 14, 2012 and September 21, 2012. Subsequently, Eurex

Clearing has submitted additional materials, which further support its application, most

recently on October 20, 2014

e upon which

Eurex Clearing becomes registered as a DCO with respect to its IRS clearing business.4

Eurex Clearing filed its initial application for DCO registration on May 17, 2011 and

amended applications on September 14, 2012 and September 21, 2012. Subsequently, Eurex

Clearing has submitted additional materials, which further support its application, most

recently on October 20, 2014. The review period for consideration of the application has been

extended to September 30, 2015.5

Eurex Clearing requests the further extension of the No-Action Relief in order to

maintain the status quo during the pendency of its application for registration. Eurex Clearing

further states that such extension of the No-Action Relief is an appropriate means of

promoting competition and enhancing choice in clearing services and is in the public interest.

In view of the foregoing, the Division has decided to extend the No-Action Relief,

subject to the conditions described below, until the earlier of the date on which Eurex

Clearing becomes registered as a DCO with respect to its IRS clearing business or September

30, 2015.

Extension of Grant of No-Action Relief

Based on the facts presented and the representations you have made, the Division will

not recommend that the Commission take enforcement action against (i) Eurex Clearing for

failure to register as a DCO pursuant to the requirements of Section 5b(a) of the CEA, or (ii)

U.S. Clearing Members for failure to clear IRS through a registered or exempt DCO, pursuant

to the requirements of Section 2(h)(1)(A) of the CEA and the implementing regulations

thereunder as applicable, subject to the following conditions:

ion take enforcement action against (i) Eurex Clearing for

failure to register as a DCO pursuant to the requirements of Section 5b(a) of the CEA, or (ii)

U.S. Clearing Members for failure to clear IRS through a registered or exempt DCO, pursuant

to the requirements of Section 2(h)(1)(A) of the CEA and the implementing regulations

thereunder as applicable, subject to the following conditions:

(1)

Product Scope. This relief is limited to IRS currently accepted for clearing by

Eurex Clearing for U.S. Clearing Members and identified in the attachment to

this letter;

3 7 U.S.C. § 2(h)(1)(A); 17 C.F.R. pt 50.

4 Eurex Clearing is not requesting an extension of the No-Action Relief with respect to its Index CDS business.

A list of IRS products offered for clearing by Eurex Clearing for U.S. Clearing Members is in the attachment to

this letter. Moreover, Eurex Clearing is no longer pursuing registration as a DCO for the clearing of Index CDS.

5 By separate letter dated December 15, 2014, Eurex Clearing requested that the review period for its DCO

application be extended until September 30, 2015.

Mr. Thomas Book

Mr. Oliver Haderup

December 23, 2014

Page 3

(2)

Participant Scope. The relief applies to Eurex Clearing and to its prospective

U.S. Clearing Members in connection with their proprietary6 IRS clearing

businesses (Eurex Clearing will not accept, and no Eurex clearing member will

offer for clearing through Eurex Clearing, IRS on behalf of a U.S. customer7);

(3)

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

September 30, 2015, or (ii) the date upon which Eurex Clearing becomes

registered as a DCO with respect to its IRS clearing business;8 and

IRS clearing

businesses (Eurex Clearing will not accept, and no Eurex clearing member will

offer for clearing through Eurex Clearing, IRS on behalf of a U.S. customer7);

(3)

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

September 30, 2015, or (ii) the date upon which Eurex Clearing becomes

registered as a DCO with respect to its IRS clearing business;8 and

(4)

Reporting. If a U.S. Clearing Member clears through Eurex Clearing 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,9 then Eurex Clearing 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 Eurex Clearing for clearing

(referred to as “beta” and “gamma” swaps).10

6 The term “proprietary account” is defined in § 1.3(y) of the Commission’s regulations, 17 C.F.R. § 1.3(y). The

relief granted herein to U.S. Clearing Members includes transactions of a parent or affiliate of a U.S. Clearing

Member.

7 The scope of the relief provided herein does not extend to customer clearing by U.S. Clearing Members or U.S.

customer clearing by any clearing member of Eurex Clearing. The term “customer” is defined in § 1.3(k) of the

Commission’s regulations, 17 C.F.R. § 1.3(k).

8 Should the Commission deny Eurex Clearing’s application for DCO registration, the Division will provide

Eurex Clearing and its U.S. Clearing Members with guidance and, as appropriate, no-action relief to facilitate the

orderly disposition of open positions.

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

45)

s, 17 C.F.R. § 1.3(k).

8 Should the Commission deny Eurex Clearing’s application for DCO registration, the Division will provide

Eurex Clearing and its U.S. Clearing Members with guidance and, as appropriate, no-action relief to facilitate the

orderly disposition of open positions.

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

45).

10 Pursuant to Commission Regulation 39.12(b)(6), during the clearing process, a swap submitted for clearing to

a DCO (the alpha swap) is extinguished or terminated, and two new swaps (the beta and gamma swaps) are

created. The DCO must then report the beta and gamma swaps to an SDR under Part 45 and associate the

unique swap identifier (USI) of the alpha swap with the beta and gamma swap 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 Commission Regulation 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.”); see also Commission Regulation 49.11 (Confirmation of data accuracy).

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.”); see also Commission Regulation 49.11 (Confirmation of data accuracy).

Mr. Thomas Book

Mr. Oliver Haderup

December 23, 2014

Page 4

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 and in Eurex Clearing’s

DCO application, 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 at

(202) 418-5096, or Alicia Lewis, Special Counsel, at (202) 418-5862.

Sincerely,

Phyllis Dietz

Acting Director

Attachment

In order to avoid duplicative reporting for such transactions, Eurex Clearing should have rules that prohibit the

Part 45 reporting of the beta and gamma swaps by the original counterparties to the alpha swap

achment

In order to avoid duplicative reporting for such transactions, Eurex Clearing 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 it clear to market participants that Eurex Clearing is reporting the beta and gamma swaps as if it

were a registered DCO under the Part 45 rules.

-··-·--·· ·-----------------------------------!"",

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. ATTACHMENT. A- Prc~ucls Offered. for Clearing by Eurex Clearfn~ AG for u.s. Person.s

Interest Rate Swap•:

Proc(1,1ats:

Slog!~ ·curtartcy .ll)~rest r~te swaps ("IRS")

Forwa~ i'~t~t'ag~~meiits ("FRA") ·

Ovl!lrillght !rid.e~. liW8P ('Jdfst?, excep~ In Japanese yen

Sl~gla c~,.~cy basis swaps

~rp coupon swaps

~PO\ and forward ~tarts

Compoundl!'lg ~ fl~t and. ~ght. (f9r IRS and basis swaps)

Ll!l~ar !!'lte;pqlatl~n. of stub .Periods

Front and back atub!J (for IRS arid OIS)

Neg~tfva lnte,_l iatei

·

v~~ltp ~oUop~l- ainortlz!ng ~nd rol!er C1Qa&ter (for IRS and basis SWSP\1)

Var(abla l"ifex spreil~ on·f{oatlng rat~ that can differ peifod per pe~od (IRS and basis swaps)

FI!Ca.~ coupon rates that can differ period per period (IRS and baslil swaps)

II'J!M -lnternatlonar Moneta,Y Mark.&ts - roll .dates

.

Cummales:

· Euro,·I).S. dollar, B~llsh pounds, Swiss franc, and Japanese yen

TeffiiB:

Swaps en~r~ Into under ISDA® 2000/2!106 and Garman Master Agreements- standard swaps

and {9~ ratJ agreement wllh standard day count arid buslne8s day eonventlons, fee legs,

ccinstant noUonills, front ot back &tubs and floating rate Indexes fOr eaCh currency •

. .

IRs

EtiR, GBP, USD

Up lo50 rt;m

Plain wnara (lJluldJlluaQ

Boabllancr (lloalli!oaQ

CHF,JPY

Uptoaovuurs

EUR. OBI', USD, CIIF

Uplo30 )'8iJa

Plain vanilla (~aQ

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