Extension of Time-Limited No-Action Relief to Eurex Clearing with Regard to Sections 5b(a) and 2(h)(1)(A) of the Commodity Exchange Act and Implementing Regulations Thereunder.

Summary: Extension of Time-Limited No-Action Relief to Eurex Clearing with Regard to Sections 5b(a) and 2(h)(1)(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) 418-5188

Facsimile: (202) 418-5547

aradhakrishnan@cftc.gov

a

Ananda Radhakrishnan

Director

Division of Clearing and Risk

CFTC Letter No. 14-27

No-Action

March 10, 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 17, 2013 (“Letter”), to the Division

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

(“Commission” or “CFTC”) requesting an extension of the no-action relief that the Division

granted to Eurex Clearing AG (“Eurex Clearing”) in CFTC Letter 13-44 and that expired on

December 31, 2013 (the “No-Action Relief”).1 In CFTC Letter 13-44, 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

he “No-Action Relief”).1 In CFTC Letter 13-44, 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”)3 through a registered or exempt DCO

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

1 CFTC Letter No. 13-44 (July 11, 2013) and its attachment, available at:

http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/13-44.pdf and

http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/eurexattachment.pdf, respectively.

2 7 U.S.C. 7a-1(a).

3 See supra note 1 for the attachment containing a list of the IRS and Index CDS contracts currently accepted for

clearing by Eurex Clearing.

Mr. Thomas Book

Mr. Oliver Haderup

March 10, 2014

Page 2

regulations thereunder as applicable.4 You have requested that the No-Action Relief be

extended until the earlier of December 31, 2014, or the date upon which the Commission

determines to grant or deny the pending application of Eurex Clearing for registration as a

DCO with respect to its IRS and Index CDS clearing businesses.

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

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

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

on January 31, 2014

n of Eurex Clearing for registration as a

DCO with respect to its IRS and Index CDS clearing businesses.

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

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

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

on January 31, 2014. The review period for consideration of the application has been

extended to December 31, 2014.5

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

status quo during the pendency of its application for registration. In addition, 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 and Index CDS clearing

businesses or December 31, 2014.

Extension of Grant of No-Action Relief

Based on the facts presented and the representations you have made,6 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 or Index CDS 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:

rcement 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 or Index CDS 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 and Index CDS currently accepted

for clearing by Eurex Clearing and identified in the attachment to this letter;

4 7 U.S.C. 2(h)(1)(A); 17 C.F.R. pt 50.

5 By letter dated December 17, 2013, Eurex Clearing requested that the review period for its DCO application be

extended until December 31, 2014.

6 By letter dated February 25, 2014, Eurex Clearing represented that additional IRS products were added to the

list of products offered for clearing after the issuance of CFTC Letter 13-44. An updated list of IRS products

cleared by Eurex Clearing is in the attachment to this letter and is marked to show changes from the attachment

included with CFTC Letter 13-44.

Mr. Thomas Book

Mr. Oliver Haderup

March 10, 2014

Page 3

(2)

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

U.S. Clearing Members in connection with their proprietary7 IRS and Index

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

clearing member will offer for clearing through Eurex Clearing, IRS or Index

CDS on behalf of a U.S. customer8);

(3)

Limited Duration. The no-action relief shall be effective retroactively

beginning on January 1, 2014 and shall expire at the earlier of: (i) December

31, 2014, or (ii) the date upon which Eurex Clearing becomes registered as a

DCO with respect to its IRS and Index CDS clearing businesses;9 and

fer for clearing through Eurex Clearing, IRS or Index

CDS on behalf of a U.S. customer8);

(3)

Limited Duration. The no-action relief shall be effective retroactively

beginning on January 1, 2014 and shall expire at the earlier of: (i) December

31, 2014, or (ii) the date upon which Eurex Clearing becomes registered as a

DCO with respect to its IRS and Index CDS clearing businesses;9 and

(4)

Reporting. Beginning June 1, 2014, 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,10 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).11

7 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.

8 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). See Adaptation of Regulations to Incorporate Swaps, 77 Fed.

Reg. 66,288, 66,316 (Nov. 2, 2012).

9 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.

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

45)

66,316 (Nov. 2, 2012).

9 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.

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

45).

11 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

Mr. Thomas Book

Mr. Oliver Haderup

March 10, 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

Mr. Oliver Haderup

March 10, 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 me at (202) 418-

5188, or Alicia Lewis, Special Counsel, at (202) 418-5862.

Sincerely,

Ananda Radhakrishnan

Director

Attachment

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, 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.