Clearing Requirement Determination Under Section 2(h) of the Commodity Exchange Act for Interest Rate Swaps To Account for the Transition From LIBOR and Other IBORs to Alternative Reference Rates, 52182-52221 [2022-17736]

Agencies

• Commodity Futures Trading Commission

[Federal Register Volume 87, Number 163 (Wednesday, August 24, 2022)]
[Rules and Regulations]
[Pages 52182-52221]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-17736]



[[Page 52181]]

Vol. 87

Wednesday,

No. 163

August 24, 2022

Part III





Commodity Futures Trading Commission





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17 CFR Part 50





Clearing Requirement Determination Under Section 2(h) of the Commodity 
Exchange Act for Interest Rate Swaps To Account for the Transition from 
LIBOR and Other IBORs to Alternative Reference Rates; Final Rule

Federal Register / Vol. 87 , No. 163 / Wednesday, August 24, 2022 / 
Rules and Regulations

[[Page 52182]]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 50

RIN 3038-AF18


Clearing Requirement Determination Under Section 2(h) of the 
Commodity Exchange Act for Interest Rate Swaps To Account for the 
Transition From LIBOR and Other IBORs to Alternative Reference Rates

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is modifying its existing interest rate swap clearing requirement 
regulations under applicable provisions of the Commodity Exchange Act 
(CEA) due to the global transition from reliance on certain interbank 
offered rates (IBORs) (e.g., the London Interbank Offered Rate (LIBOR)) 
that have been, or will be, discontinued as benchmark reference rates 
to alternative reference rates, which are predominantly overnight, 
nearly risk-free reference rates (RFRs). The amendments update the set 
of interest rate swaps that are required to be submitted for clearing 
pursuant to the CEA and the Commission's regulations to a derivatives 
clearing organization (DCO) that is registered under the CEA 
(registered DCO) or a DCO that has been exempted from registration 
under the CEA (exempt DCO) to reflect the market shift away from swaps 
that reference IBORs to swaps that reference RFRs.

DATES: This rule is effective September 23, 2022, except for amendatory 
instructions 3 and 5, which are effective July 1, 2023. Specific 
compliance dates are discussed in the SUPPLEMENTARY INFORMATION.

FOR FURTHER INFORMATION CONTACT: Sarah E. Josephson, Deputy Director, 
at 202-418-5684 or [email protected]; or Daniel O'Connell, Special 
Counsel, at 202-418-5583 or [email protected]; each in the Division of 
Clearing and Risk at the Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street NW, Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
    A. Commission's Existing Interest Rate Swap Clearing Requirement
    B. End of LIBOR
    C. Update on Work by DCOs To Support the Transition to RFRs
    D. Update on Work by Market Participants To Support the 
Transition to RFRs
II. Domestic and International Coordination Efforts
    A. Domestic Coordination Efforts
    B. International Coordination Efforts
    C. Interest Rate Swap Clearing Requirements in Other 
Jurisdictions
III. Overview of Comment Letters Received
    A. Scope of Amendments--Coverage of OIS and Removal of Existing 
Rules
    B. Implementation, Cross-Border Coordination, and Operational 
Considerations
    C. Issues Beyond the Scope of the Rulemaking
IV. Final Amendments to Regulation Sec.  50.4(a)
    A. Scope of Amendments--Coverage of OIS and Removal of Existing 
Rules
    B. Clarification Regarding OIS Product Specifications
    C. Swaps Referencing CHF SARON and SGD SORA
    D. RFR-IBOR Basis Swaps
V. Determination Analysis for RFR OIS
    A. General Description of Information Considered
    B. Consistency With DCO Core Principles Under Section 2(h) of 
the CEA
    C. Conclusions Regarding Consideration of Section 2(h)'s Five 
Statutory Factors
VI. Implementation Schedule
    A. Overview of Changes to Regulation Sec.  50.26(a)
    B. Consideration of Comments on Implementation
    C. EUR [euro]STR, GBP SONIA, CHF SARON, and JPY TONA OIS 
Implementation
    D. USD SOFR and SGD SORA OIS Implementation
    E. Removal of Rules for Swaps No Longer Offered for Clearing
    F. Removal of USD LIBOR and SGD SOR-VWAP Swap Clearing 
Requirement
    G. Technical Changes
VII. Cost Benefit Considerations
    A. Statutory and Regulatory Background
    B. Overview of Swap Clearing
    C. Consideration of the Costs and Benefits of the Commission's 
Action
    D. Costs and Benefits of the Amendments as Compared to 
Alternatives
    E. Section 15(a) Factors
VIII. Related Matters
    A. Regulatory Flexibility Act
    B. Paperwork Reduction Act
    C. Antitrust Laws
    D. Congressional Review Act

I. Background

A. Commission's Existing Interest Rate Swap Clearing Requirement

    The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act) established a comprehensive new regulatory framework 
for swaps.\1\ Title VII of the Dodd-Frank Act (Title VII) amended the 
CEA to require, among other things, that a swap be cleared through a 
registered DCO or an exempt DCO if the Commission has determined that 
the swap, or group, category, type, or class of swaps, is required to 
be cleared, unless an exception to the clearing requirement applies.\2\ 
The CEA, as amended by Title VII, provides that the Commission may 
issue a clearing requirement determination based either on a 
Commission-initiated review of a swap,\3\ or a swap submission from a 
DCO.\4\
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    \1\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ Section 2(h)(1)(A) of the CEA, 7 U.S.C. 2(h)(1)(A).
    \3\ Section 2(h)(2)(A) of the CEA, 7 U.S.C. 2(h)(2)(A). Section 
2(h)(2)(A) provides for a Commission-initiated review process 
whereby the Commission, on an ongoing basis, must review swaps, or a 
group, category, type, or class of swaps, to determine whether a 
swap, or a group, category, type, or class of swaps, should be 
required to be cleared.
    \4\ Section 2(h)(2)(B) of the CEA, 7 U.S.C. 2(h)(2)(B). Section 
2(h)(2)(B)(i) requires that each DCO submit to the Commission each 
swap, or group, category, type, or class of swaps, that it plans to 
accept for clearing. The swaps subject to this determination were 
submitted by DCOs pursuant to CEA section 2(h)(2)(B)(i) and 
regulation Sec.  39.5(b), 17 CFR 39.5(b). Pursuant to section 
2(h)(2)(B)-(C) of the CEA, the Commission must review swap 
submissions from DCOs to determine whether the swaps should be 
subject to required clearing. Regulation Sec.  39.5(b) implements 
the procedural elements of section 2(h)(2)(B)-(C) by establishing 
the process by which a DCO must submit the swaps it offers for 
clearing to the Commission for purposes of considering a clearing 
requirement determination.
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    Section 2(h)(2)(D)(ii) of the CEA requires the Commission to 
consider the following five factors when making a clearing requirement 
determination: (I) the existence of significant outstanding notional 
exposures, trading liquidity, and adequate pricing data; (II) the 
availability of rule framework, capacity, operational expertise and 
resources, and credit support infrastructure to clear the contract on 
terms that are consistent with the material terms and trading 
conventions on which the contract is traded; (III) the effect on the 
mitigation of systemic risk, taking into account the size of the market 
for such contract and the resources of the DCOs available to clear the 
contract; (IV) the effect on competition, including appropriate fees 
and charges applied to clearing; and (V) the existence of reasonable 
legal certainty in the event of the insolvency of the relevant DCO or 
one or more of its clearing members with regard to the treatment of 
customer and swap counterparty positions, funds, and property.\5\
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    \5\ 7 U.S.C. 2(h)(2)(D)(ii).
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    The Commission adopted its first clearing requirement determination 
(First Determination) in 2012.\6\ The First Determination was 
implemented between March 2013 and October 2013

[[Page 52183]]

based on the schedule described in regulation Sec.  50.25 and the 
preamble to the First Determination.\7\ The First Determination applied 
to interest rate swaps in four classes: fixed-to-floating swaps, basis 
swaps, forward rate agreements (FRAs), and overnight index swaps 
(OIS).\8\
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    \6\ Clearing Requirement Determination Under Section 2(h) of the 
CEA, 77 FR 74284 (Dec. 13, 2012) (First Determination).
    \7\ 17 CFR 50.25; First Determination, 77 FR 74319-74321.
    \8\ See generally First Determination. By way of background, an 
interest rate swap is generally an agreement by counterparties to 
exchange payments based on a series of cash flows over a specified 
period of time, typically calculated using two different rates. 
Fixed-to-floating swaps are interest rate swaps in which the 
payment(s) owed on one leg of the swap is calculated using a fixed 
rate, and the payment(s) owed on the other leg is calculated using a 
floating rate. Basis swaps are interest rate swaps for which the 
payments for both legs are calculated using floating rates. FRAs are 
interest rate swaps in which payments are exchanged on a 
predetermined date for a single period and one leg of the swap is 
calculated using a fixed rate while the other leg is calculated 
using a floating rate set on a predetermined date. OIS are interest 
rate swaps for which one leg of the swap is calculated using a fixed 
rate and the other leg is calculated using a floating rate based on 
a daily overnight rate.
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    In making its initial interest rate swap clearing determination, 
the Commission focused on the size of the interest rate swap market 
relative to the swap market overall, as well as the fact that these 
swaps were already widely being cleared.\9\ As set forth in regulation 
Sec.  50.4(a), the Commission required clearing for four classes of 
interest rate swaps having six specifications related to (i) the 
currency in which the notional and payment amounts are specified; (ii) 
the floating rate index referenced in the swap; (iii) the stated 
termination date; (iv) optionality; (v) dual currencies; and (vi) 
conditional notional amounts.\10\ The Commission also limited the 
interest rate swaps required to be cleared to those denominated in four 
currencies (U.S. dollar (USD), Euro (EUR), British pound (GBP), and 
Japanese yen (JPY)). The Commission noted that interest rate swaps 
denominated in these currencies comprised an outsized portion of the 
interest rate swap market in terms of notional amounts outstanding and 
trading volumes compared to interest rate swaps denominated in other 
currencies.\11\
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    \9\ Id. at 74287, 74307. To this day, significant amounts of 
notional in interest rate swaps are traded in markets around the 
world, and these swaps comprise an outsized portion of notional 
among all swaps. According to the Bank for International Settlements 
(BIS), as of December 2021, there was an estimated $475 trillion in 
outstanding notional of interest rate swaps, which represents 
approximately 79% of the total outstanding notional of all over-the-
counter (OTC) derivatives. See BIS, ``Interest rate derivatives,'' 
Table D7, H2 2021, updated May 12, 2022, available at https://stats.bis.org/statx/srs/table/d7?f=pdf; BIS, ``Global OTC 
derivatives market,'' Table D5.1, H2 2021, updated May 12, 2022, 
available at https://stats.bis.org/statx/srs/table/d5.1?f=pdf; BIS, 
``OTC derivatives statistics at end-December 2021,'' May 12, 2022, 
available at https://www.bis.org/publ/otc_hy2205.htm; BIS, ``Global 
OTC derivatives market,'' Table D5.2, H2 2021, updated May 12, 2022, 
available at https://stats.bis.org/statx/srs/table/d5.2?f=pdf.
    \10\ 17 CFR 50.4(a).
    \11\ First Determination, 77 FR 74308.
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    The First Determination covered a number of interest rate swaps 
that reference IBORs, including fixed-to-floating swaps, basis swaps, 
and FRAs denominated in USD, GBP, JPY, and EUR, referencing USD LIBOR, 
GBP LIBOR, JPY LIBOR, and the Euro Interbank Offered Rate (EURIBOR), 
respectively. The First Determination also included OIS denominated in 
EUR referencing the Euro Overnight Index Average (EONIA), as well as 
OIS denominated in USD referencing FedFunds and GBP referencing the 
Sterling Overnight Index Average (SONIA). The Commission observed that 
interest rate swaps referencing those rates had significant outstanding 
notional amounts and trading liquidity.\12\ The First Determination was 
implemented throughout 2013 by type of market participant pursuant to 
regulation Sec.  50.25, in subpart B of part 50 of the Commission's 
regulations.
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    \12\ Id. at 74309.
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    The Commission adopted its second clearing requirement 
determination for interest rate swaps (Second Determination) in 
2016.\13\ The Second Determination covered interest rate swaps in nine 
additional currencies: Australian dollar (AUD), Canadian dollar (CAD), 
Hong Kong dollar (HKD), Mexican peso (MXN), Norwegian krone (NOK), 
Polish zloty (PLN), Singapore dollar (SGD), Swedish krona (SEK), and 
Swiss franc (CHF), and was implemented between December 2016 and 
October 2018 based on the effective dates of analogous clearing 
mandates adopted by authorities in non-U.S. jurisdictions.\14\ The 
Commission adopted the Second Determination largely in order to further 
harmonize its interest rate swap clearing requirement with those of 
other jurisdictions that had already issued, or were in the process of 
issuing, interest rate swap clearing mandates.\15\ The Second 
Determination also covered swaps that reference other IBORs, including 
fixed-to-floating swaps denominated in SGD referencing the Singapore 
Swap Offer Rate (SOR-VWAP) and fixed-to-floating swaps denominated in 
CHF referencing CHF LIBOR.\16\
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    \13\ Clearing Requirement Determination Under Section 2(h) of 
the Commodity Exchange Act for Interest Rate Swaps, 81 FR 71202 
(Oct. 14, 2016) (Second Determination).
    \14\ 17 CFR 50.26; Second Determination, 81 FR 71202-71228.
    \15\ Second Determination, 81 FR 71203-71205. The Commission 
explained that such harmonization serves an important anti-evasion 
goal: if a non-U.S. jurisdiction issued a clearing requirement, and 
a swap dealer located in the United States were not subject to an 
analogous a clearing requirement under U.S. law, then market 
participants potentially could avoid the non-U.S. jurisdiction's 
clearing requirement by entering into a swap with a swap dealer 
located in the United States. Id. at 71203.
    \16\ Id. at 71205. These IBOR rates also were discussed 
specifically in the notice of proposed rulemaking (NPRM). Clearing 
Requirement Determination Under Section 2(h) of the Commodity 
Exchange Act for Interest Rate Swaps To Account for the Transition 
From LIBOR and Other IBORs to Alternative Reference Rates, 87 FR 
32898 at 32914-32915 (May 31, 2022) (NPRM).
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B. End of LIBOR

    LIBOR is an interest rate benchmark that was intended to measure 
the average rate at which a bank can obtain unsecured funding in the 
London interbank market for a given tenor and currency. It had been one 
of the world's most frequently referenced interest rate benchmarks, 
serving as a reference rate for a wide variety of swaps and other 
financial products. Over the years, LIBOR was calculated based on 
submissions from panels of contributor banks and published every London 
business day. Immediately prior to January 1, 2022, LIBOR was published 
for five currencies (USD, GBP, EUR, CHF, and JPY) and seven tenors 
(overnight or spot-next depending on currency, one-week, one-month, 
two-month, three-month, six-month, and 12-month), resulting in 35 
individual LIBOR rates.\17\ Beginning this year, these LIBOR rates have 
almost entirely ceased publication or become nonrepresentative of the 
underlying market they are intended to measure.
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    \17\ See generally ICE Benchmark Administration (IBA), LIBOR, 
available at https://www.theice.com/iba/libor.
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    Government investigations into LIBOR that occurred nearly a decade 
ago, as well as a decline in the volume of interbank lending 
transactions that LIBOR was intended to measure, gave rise to concerns 
regarding the integrity and reliability of LIBOR and other IBORs.\18\ 
Although LIBOR was subject to

[[Page 52184]]

a number of significant reform efforts,\19\ regulators and global 
standard-setting bodies did not view these reforms as a long-term 
solution. On July 27, 2017, Andrew Bailey, then-Chief Executive of the 
United Kingdom (UK) Financial Conduct Authority (FCA), LIBOR's primary 
regulator, announced that the FCA would not use its authority to compel 
LIBOR panel banks to contribute to the benchmark after 2021.\20\ On 
March 5, 2021, the FCA announced that publication of LIBOR would cease 
on December 31, 2021, for the following: \21\
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    \18\ See, e.g., International Organization of Securities 
Commissions (IOSCO), Principles for Financial Benchmarks, July 2013, 
at 1, available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD415.pdf. See also David Bowman, et al., ``How Correlated Is 
LIBOR With Bank Funding Costs?,'' FEDS Notes, June 29, 2020, 
available at https://www.federalreserve.gov/econres/notes/feds-notes/how-correlated-is-libor-with-bank-funding-costs-20200629.htm; 
and Alternative Reference Rates Committee, Second Report, Mar. 2018, 
at 1-3, available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2018/ARRC-Second-report.
    \19\ See generally IBA, Methodology, available at https://www.theice.com/publicdocs/ICE_LIBOR_Methodology.pdf; H.M. Treasury, 
The Wheatley Review of LIBOR: Final Report, Sept. 2012, available at 
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/191762/wheatley_review_libor_finalreport_280912.pdf; Intercontinental 
Exchange (ICE), ICE LIBOR Evolution, Apr. 25, 2018, at 4, available 
at https://www.theice.com/publicdocs/ICE_LIBOR_Evolution_Report_25_April_2018.pdf.
    \20\ Andrew Bailey, ``The future of Libor,'' July 27, 2017, 
available at https://www.fca.org.uk/news/speeches/the-future-of-libor.
    \21\ FCA, FCA Announcement on Future Cessation and Loss of 
Representativeness of the LIBOR Benchmarks, Mar. 5, 2021 (FCA 
Announcement on LIBOR Cessation), available at https://www.fca.org.uk/publication/documents/future-cessation-loss-representativeness-libor-benchmarks.pdf.
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    (i) EUR LIBOR in all tenors;
    (ii) CHF LIBOR in all tenors;
    (iii) JPY LIBOR in the spot-next, one-week, two-month, and 12-month 
tenors;
    (iv) GBP LIBOR in the overnight, one-week, two-month, and 12-month 
tenors; and
    (v) USD LIBOR in the one-week and two-month tenors.
    The FCA further determined that GBP and JPY LIBOR in one-month, 
three-month, and six-month tenors would become nonrepresentative after 
December 31, 2021.\22\ Additionally, the FCA determined that USD LIBOR 
in the overnight and 12-month tenors would cease after June 30, 2023, 
and that USD LIBOR in the one-month, three-month, and six-month tenors 
would not be representative after that date.\23\ At this time, EUR, 
CHF, JPY, and GBP LIBOR in all tenors, and USD LIBOR in the one-week 
and two-month tenors, have ceased publication or become 
nonrepresentative of the underlying market they are intended to 
measure.
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    \22\ FCA Announcement on LIBOR Cessation. The FCA stated that 
once a LIBOR rate becomes nonrepresentative, its representativeness 
will not be restored.
    \23\ Id.
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    The circumstances surrounding the transition from IBORs to RFRs are 
the result of significant private and public sector coordinated 
efforts.\24\ As plans to retire LIBOR proceeded, regulators in the 
United States and other jurisdictions worked to identify, develop, and 
implement reference rates to serve as alternatives to LIBOR and other 
IBORs.\25\ In the United States, the Alternative Reference Rates 
Committee (ARRC), convened in 2014 by the Federal Reserve Board (FRB) 
and the Federal Reserve Bank of New York (FRBNY) and comprised of 
private market participants and ex officio banking and financial sector 
regulators, selected the Secured Overnight Financing Rate (SOFR) \26\ 
as its preferred alternative to USD LIBOR.\27\ The ARRC developed a 
Paced Transition Plan, which has now been completed, to facilitate an 
orderly transition from USD LIBOR to USD SOFR.\28\
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    \24\ While not all benchmark rates considered to be alternative 
reference rates for IBORs may be RFRs, efforts to transition markets 
away from IBORs have focused on RFRs as alternatives. For purposes 
of brevity, the Commission uses the term ``RFR'' in this final 
rulemaking to refer to alternative reference rates.
    \25\ For additional background information, see generally Swap 
Clearing Requirement To Account for the Transition from LIBOR and 
Other IBORs to Alternative Reference Rates, 86 FR 66476 at 66480 
(Nov. 23, 2021) (Request for Information (RFI)).
    \26\ USD SOFR is an RFR that measures the cost of overnight 
repurchase agreement transactions collateralized by U.S. Treasury 
securities. FRBNY, Statement Introducing the Treasury Repo Reference 
Rates, Apr. 3, 2018, available at https://www.newyorkfed.org/markets/opolicy/operating_policy_180403. See also FRBNY, Secured 
Overnight Financing Rate Data, available at https://
apps.newyorkfed.org/markets/autorates/
SOFR#:~:text=The%20SOFR%20is%20calculated%20as,LLC%2C%20an%20affiliat
e%20of%20the; and FRBNY, Additional Information about the Treasury 
Repo Reference Rates, available at https://www.newyorkfed.org/markets/treasury-repo-reference-rates-information. USD SOFR has been 
published each New York business day at 8 a.m. ET since April 3, 
2018, by the FRBNY in cooperation with the U.S. Office of Financial 
Research (OFR).
    \27\ ARRC, ``The ARRC Selects a Broad Repo Rate as its Preferred 
Alternative Reference Rate,'' June 22, 2017, available at https://www.newyorkfed.org/medialibrary/microsites/arrc/files/2017/ARRC-press-release-Jun-22-2017.pdf.
    \28\ ARRC, Paced Transition Plan, available at https://www.newyorkfed.org/arrc/sofr-transition#pacedtransition. The Paced 
Transition Plan called for (i) the establishment of infrastructure 
for futures and/or OIS trading in USD SOFR by the second half of 
2018; (ii) the start of trading in futures and/or bilateral, 
uncleared OIS that reference USD SOFR by the end of 2018; (iii) the 
start of trading in cleared OIS that reference USD SOFR in the 
effective Federal funds rate (EFFR) price alignment interest (PAI) 
and discounting environment by the end of the first quarter of 2019; 
(iv) Chicago Mercantile Exchange, Inc. (CME)'s and LCH Limited 
(LCH)'s conversion of discounting, and PAI and price alignment 
amount, from EFFR to USD SOFR with respect to all outstanding 
cleared USD-denominated swaps by October 16, 2020; and (v) the 
ARRC's endorsement of a term reference rate based on USD SOFR 
derivatives markets by the end of the first half of 2021. All steps 
in this plan have been completed as of July 29, 2021.
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    Table 1 that follows this paragraph contains a non-exhaustive list 
of RFRs that have been identified to replace IBORs. Each of these RFRs 
is currently being published.\29\
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    \29\ See generally Financial Stability Board (FSB), Reforming 
Major Interest Rate Benchmarks, Nov. 20, 2020, at 29-43, 54-55, 
available at https://www.fsb.org/2020/11/reforming-major-interest-rate-benchmarks-2020-progress-report/. See also Andreas Schrimpf and 
Vladislav Sushko, ``Beyond Libor: a primer on the new reference 
rates,'' BIS Quarterly Review, Mar. 2019, at 35, available at 
https://www.bis.org/publ/qtrpdf/r_qt1903e.pdf; Bank of England, 
Preparing for 2022: What You Need to Know about LIBOR Transition, 
Nov. 2018, at 10, https://www.bankofengland.co.uk/-/media/boe/files/markets/benchmarks/what-you-need-to-know-about-libor-transition.pdf; 
ISDA, et al., IBOR Global Benchmark Survey 2018 Transition Roadmap, 
Feb. 2018, at 32, https://www.isda.org/a/g2hEE/IBOR-Global-Transition-Roadmap-2018.pdf; European Central Bank, Euro Short-Term 
Rate ([euro]STR), available at https://www.ecb.europa.eu/stats/
financial_markets_and_interest_rates/euro_short-term_rate/html/
index.en.html#:~:text=The%20euro%20short%2Dterm%20rate,activity%20on%
201%20October%202019.

                                       Table 1--RFRs Identified for IBORs
----------------------------------------------------------------------------------------------------------------
        Currency                  Index              Identified RFR       RFR administrator         Secured
----------------------------------------------------------------------------------------------------------------
AUD.....................  Bank Bill Swap Rate    Reserve Bank of        Reserve Bank of        No.
                           (BBSW).                Australia Interbank    Australia.
                                                  Overnight Cash Rate
                                                  (AONIA).
CAD.....................  Canadian Dollar        Canadian Overnight     Bank of Canada.......  Yes.
                           Offered Rate (CDOR).   Repo Rate Average
                                                  (CORRA).
CHF.....................  LIBOR................  Swiss Average Rate     SIX Swiss Exchange...  Yes.
                                                  Overnight (SARON).
EUR.....................  LIBOR................  Euro Short-Term Rate   European Central Bank  No.
                                                  ([euro]STR).           (ECB).
                          EONIA................  [euro]STR............  ECB..................  No.
                          EURIBOR..............  [euro]STR............  ECB..................  No.
GBP.....................  LIBOR................  SONIA................  Bank of England......  No.
HKD.....................  Hong Kong Interbank    Hong Kong Dollar       Treasury Market        No.
                           Offered Rate (HIBOR).  Overnight Index        Association.
                                                  Average (HONIA).

[[Page 52185]]

 
JPY.....................  LIBOR................  Tokyo Overnight        Bank of Japan........  No.
                                                  Average Rate (TONA).
MXN.....................  Term Interbank         Overnight TIIE.......  Banco de Mexico......  Yes.
                           Equilibrium Interest
                           Rate (TIIE).
SGD.....................  SOR..................  Singapore Overnight    Association of Banks   No.
                                                  Rate Average (SORA).   in Singapore (ABS).
                          Singapore Interbank    SORA.................  ABS..................  No.
                           Offered Rate (SIBOR).
USD.....................  LIBOR................  SOFR.................  FRBNY................  Yes.
----------------------------------------------------------------------------------------------------------------

    Regulators and global standard-setting bodies have urged market 
participants to accelerate their adoption of USD SOFR and other RFRs 
and cease entering new swaps referencing LIBOR and other IBORs,\30\ and 
Commission staff have issued no-action letters to facilitate the 
transition.\31\ In the United States, on July 13, 2021, the 
Commission's Market Risk Advisory Committee adopted SOFR First, a 
phased initiative to switch interdealer trading conventions from 
reliance on USD LIBOR to USD SOFR as a reference rate for swaps.\32\ 
SOFR First was implemented in four phases between July 26, 2021 and 
December 16, 2021.\33\ SOFR First mirrors similar best practices 
adopted in other jurisdictions to increase activity in swaps 
referencing RFRs.\34\
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    \30\ See, e.g., FSB, FSB Statement Welcoming Smooth Transition 
Away from LIBOR, Apr. 5, 2022, available at https://www.fsb.org/wp-content/uploads/P050422.pdf.
    \31\ See, e.g., CFTC Letter Nos. 20-25 and 21-28, available at 
https://www.cftc.gov/LawRegulation/CFTCStaffLetters/index.htm.
    \32\ CFTC, ``CFTC Market Risk Advisory Committee Adopts SOFR 
First Recommendation at Public Meeting,'' July 13, 2021, available 
at https://www.cftc.gov/PressRoom/PressReleases/8409-21.
    \33\ CFTC, CFTC's Interest Rate Benchmark Reform Subcommittee 
Issues User Guide for the Transition of Exchange-Traded Derivatives 
Activity to SOFR, Dec. 16, 2021, available at https://www.cftc.gov/PressRoom/PressReleases/8469-21. SOFR First spurred a significant 
shift in liquidity toward USD SOFR, particularly in the interbank 
market. See J.P. Morgan, SOFR Takes Over, Mar. 30, 2022, available 
at https://www.jpmorgan.com/solutions/cib/markets/libor-sofr-transition; Chatham Financial, ``LIBOR transition update--2022,'' 
Apr. 19, 2022, available at https://www.chathamfinancial.com/insights/libor-transition-update.
    \34\ See, e.g., Bank of England, ``The FCA and the Bank of 
England encourage market participants in further switch to SONIA in 
interest rate swap markets,'' Sept. 28, 2020, available at https://www.bankofengland.co.uk/news/2020/september/fca-and-boe-joint-statement-on-sonia-interest-rate-swap; Cross-Industry Committee on 
Japanese Yen Interest Rate Benchmarks, ``Transition of Quoting 
Conventions in the JPY interest rate swaps market (`TONA First'),'' 
July 26, 2021, available at https://www.boj.or.jp/en/paym/market/jpy_cmte/data/cmt210726b.pdf; European Securities and Markets 
Authority (ESMA), ``Recommendations from the Working Group on Euro 
Risk-Free Rates on the switch to risk free rates in the interdealer 
market,'' July 1, 2021, available at https://www.esma.europa.eu/sites/default/files/library/esma81-391-73_eur_rfr_wg_statements_on_estr_first_and_ccs.pdf.
---------------------------------------------------------------------------

C. Update on Work by DCOs To Support the Transition to RFRs

    As explained in the NPRM,\35\ the Chicago Mercantile Exchange Group 
(CME),\36\ the London Stock Exchange Group (LSEG),\37\ and Eurex 
Clearing AG (Eurex) all operate or are registered DCOs that offer for 
clearing RFR swaps subject to this final rule. Japan Securities 
Clearing Corporation (JSCC), an exempt DCO, offers JPY TONA swaps for 
clearing. OTC Clearing Hong Kong Limited (HKEX), another exempt DCO, 
offers USD SOFR and EUR [euro]STR swaps for clearing.\38\ Exempt DCOs, 
such as JSCC and HKEX, do not offer customer clearing to U.S. 
customers.
---------------------------------------------------------------------------

    \35\ NPRM, 87 FR 32902.
    \36\ CME Group is the parent company of CME.
    \37\ LSEG has majority ownership of LCH Group, which operates 
LCH.
    \38\ See Hong Kong Exchanges and Clearing, Interest Rate Swaps, 
available at https://www.hkex.com.hk/Products/OTC-Derivatives/Interest-Rate-Swaps?sc_lang=en.
---------------------------------------------------------------------------

    DCOs played an important role in the transition from IBORs to RFRs 
by offering clearing services for RFR swaps and converting cleared EUR 
EONIA and GBP, EUR, CHF, and JPY LIBOR swaps to RFR OIS.\39\ These 
efforts have helped to facilitate a smooth transition from cleared IBOR 
swaps to cleared RFR swaps.
---------------------------------------------------------------------------

    \39\ Conversion events were intended to address market 
participant concerns related to potential bifurcation of liquidity 
between trading in legacy IBOR swaps that had fallen back to RFRs 
(i.e., as a result of the operation of DCO rules implementing ISDA's 
fallbacks) and new RFR OIS, as well as certain operational costs. 
NPRM, 87 FR 32902; see also RFI, 86 FR 66484.
---------------------------------------------------------------------------

    In responding to the Commission's November 23, 2021 RFI regarding 
updates to the clearing requirement to account for the transition to 
RFRs, CME, LSEG, and Eurex also discussed plans to convert cleared USD 
LIBOR swaps to market standard USD SOFR OIS. In April 2022, LCH 
published a consultation on its proposed conversion process.\40\ Having 
learned from the conversion process for non-USD LIBOR and EUR EONIA 
interest rate swaps at the end of 2021 and received input based on this 
consultation, LCH is ``working closely with industry bodies, such as 
ARRC and [International Swaps and Derivatives Association (ISDA)], and 
with [its] user-base, to ensure clarity around the [USD LIBOR] 
transition process.'' \41\ In response to LCH's consultation, market 
participants have not raised any operational concerns about the USD 
LIBOR swap conversion process.
---------------------------------------------------------------------------

    \40\ LCH, USD LIBOR Contract Conversion, Apr. 2022, available at 
https://www.lch.com/system/files/media_root/LCH_USD%20LIBOR%20Conversion_Consultation.pdf (proposing a two-stage 
conversion based on product category over two weekends in April and 
May 2023).
    \41\ LCH, LCH Benchmark Reform Overview, available at https://www.lch.com/Services/swapclear/benchmark-reform.
---------------------------------------------------------------------------

    Since the publication of the NPRM, CME and Eurex published more 
detailed information regarding their plans to convert cleared USD LIBOR 
contracts to USD SOFR OIS, ahead of the June 30, 2023 end date for USD 
LIBOR.\42\ Additionally, JSCC converted all its JPY LIBOR interest rate 
swaps into JPY TONA swaps pursuant to plans announced in 2021.\43\ 
Finally, HKEX implemented RFR fallback rates identified by the ISDA in 
its IBOR Fallbacks Supplement for the interest rate swaps it offers for 
clearing.\44\
---------------------------------------------------------------------------

    \42\ CME, CME Conversion for USD LIBOR Cleared Swaps, June 2022, 
available at https://www.cmegroup.com/trading/interest-rates/files/cme-conversion-for-usd-libor-cleared-swaps.pdf (proposing a two-
stage conversion (based on product category) occurring on two dates 
in May and July 2023); Eurex, ``Eurex Clearing Readiness Newsflash: 
EurexOTC Clear: Details on OTCClear transition plan for transactions 
referencing the USD Libor benchmark,'' June 8, 2022, available at 
https://www.eurex.com/ec-en/find/circulars/Eurex-Clearing-Readiness-Newsflash-EurexOTC-Clear-Details-on-OTCClear-transition-plan-for-transactions-referencing-the-USD-Libor-benchmark-3103098 (proposing 
a conversion on a single date ahead of June 30, 2023).
    \43\ This conversion process is discussed in JSCC's response to 
the RFI, available at https://comments.cftc.gov/PublicComments/ReleasesWithComments.aspx.
    \44\ HKEX, Benchmark Reform, Feb. 4, 2021, available at https://www.hkex.com.hk/Services/Clearing/OTC-Clear/Special-Topics/Benchmark-Reform?sc_lang=en. For further discussion of ISDA's 
fallbacks, see RFI, 86 FR 66483-66484.

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[[Page 52186]]

    To be clear, these final rules apply only to swaps entered into on 
or after the implementation dates discussed below. As was in the case 
with the First Determination in 2012 and the Second Determination in 
2016, only these new swaps are required to be cleared. Market 
participants may wish to clear other interest rate swaps in their 
portfolios on a voluntary basis, as has been the case with a majority 
of RFR OIS. As reflected in the data presented below, the overwhelming 
majority of RFR OIS are being voluntarily cleared already.

D. Update on Work by Market Participants To Support the Transition to 
RFRs

    Market participants also play a critical role in the transition 
from reliance on IBORs to the adoption of RFRs through engagement with 
RFR working groups, such as ARRC, and the provision of trading 
liquidity in interest rate swaps referencing RFRs.\45\ As explained in 
the NPRM, many RFR swaps are now voluntarily cleared by market 
participants in large proportions.\46\ In its recent public 
announcements, ISDA reported that the proportion of cleared OTC and 
exchange-traded interest rate derivatives denominated in USD and 
referencing SOFR climbed to a record high of more than 50% in May 
2022.\47\
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    \45\ ISDA played a key role in the development of contractual 
fallbacks for IBORs, ensuring that swaps documented under ISDA 
agreements that reference certain key IBORs can transition to 
adjusted versions of corresponding RFRs when those IBORs cease or 
become non-representative. ISDA, ``Amendments to the 2006 ISDA 
Definitions to include new IBOR fallbacks,'' Oct. 23, 2020, 
available at https://assets.isda.org/media/3062e7b4/23aa1658.pdf; 
ISDA, ISDA 2020 IBOR Fallbacks Protocol, Oct. 23, 2020, available at 
https://assets.isda.org/media/3062e7b4/08268161-pdf/; ISDA 2021 
Fallbacks Protocol, December 2021 Benchmark Module, Dec. 16, 2021, 
available at https://www.isda.org/a/UhtgE/ISDA-2021-Fallbacks-Protocol_December-2021-Benchmark-Module_Publication-Version.pdf. See 
also RFI, 86 FR 66483-66484 (discussing ISDA's IBOR fallbacks 
protocol and supplement).
    \46\ NPRM, 87 FR 32903.
    \47\ ISDA, ISDA-Clarus RFR Adoption Indicator, May 2022, 
available at https://www.isda.org/a/AlWgE/ISDA-Clarus-RFR-Adoption-Indicator-May-2022.pdf?_zs=gOSgP1&_zl=PRxk6. See also ISDA, 
SwapsInfo, Interest Rate and Credit Derivatives Weekly Trading 
Volume: Week Ending June 10, 2022, June 13, 2022, available at 
https://analysis.swapsinfo.org/2022/06/interest-rate-and-credit-derivatives-weekly-trading-volume-week-ending-june-10-2022/ (showing 
for the week ending June 10, 2022 a year-to-date increase over 2021 
of 258% in traded notional and 364% in trade count for OIS, versus a 
2% increase in traded notional and 16% decrease in trade count for 
fixed-to-floating swaps).
---------------------------------------------------------------------------

II. Domestic and International Coordination Efforts

    The global shift from IBORs to RFRs represents a historic effort by 
international bodies such as IOSCO and FSB, regulators, cross-
jurisdictional working groups, market infrastructure providers, market 
participants, and others, to move the global interest rate swap market 
toward more reliable benchmarks.\48\ Due to the cross-border nature of 
this effort and the size of the affected markets, the Commission 
believes it is a priority to engage with domestic and international 
regulators, as it makes changes to the swap clearing requirement. As 
with prior clearing requirement determinations, the Commission engaged 
in ongoing consultation and coordination with regulatory authorities 
and with market participants.
---------------------------------------------------------------------------

    \48\ See generally NPRM, 87 FR 32903-32904; and RFI, 86 FR 
66478-66482.
---------------------------------------------------------------------------

A. Domestic Coordination Efforts

    The Commission is committed to working with domestic authorities, 
such as the FRB, FRBNY, and the Securities and Exchange Commission, to 
ensure transparency in its efforts and, to the greatest extent 
possible, consistency in the transition from IBORs to RFRs. For 
example, the Commission sought input from domestic authorities through 
this rulemaking process and continued its participation in relevant 
coordinating committees. Commission staff also shared a draft of this 
final rulemaking with certain domestic authorities.

B. International Coordination Efforts

    Section 752(a) of the Dodd-Frank Act directs the Commission to 
consult and coordinate with foreign regulatory authorities on the 
establishment of consistent international standards for the regulations 
of swaps.\49\ The Commission accomplished this with respect to the 
Second Determination by considering the ways in which it could 
harmonize its clearing requirement with clearing requirements in other 
jurisdictions.\50\ The Commission has long recognized the 
interconnectedness of the interest rate swap market and the importance 
of consulting and coordinating with its counterparts in other 
jurisdictions in the adoption of clearing requirements in order to (1) 
promote regulatory consistency and certainty and (2) prevent the 
evasion of clearing requirements.\51\
---------------------------------------------------------------------------

    \49\ Section 752 can be found in Title VII of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act. This section is not 
codified in the CEA.
    \50\ Second Determination, 81 FR 71203.
    \51\ E.g., Second Determination, 81 FR 71223 (noting that ``the 
interest rate swaps market is global and market participants are 
interconnected''); First Determination, 77 FR 74287 (``The 
Commission is mindful of the benefits of harmonizing its regulatory 
framework with that of its counterparts in foreign countries. The 
Commission has therefore monitored global advisory, legislative, and 
regulatory proposals, and has consulted with foreign regulators in 
developing the final regulations.'').
---------------------------------------------------------------------------

    In particular, as part of the ongoing regulatory dialogue among 
authorities, Commission staff consulted with counterparts, including 
those at Australian Securities and Investments Commission (ASIC), Bank 
of England, ESMA, Hong Kong Securities and Futures Commission 
(HKSFC),\52\ Japanese Financial Services Agency (JFSA), Monetary 
Authority of Singapore (MAS), and Swiss Financial Market Supervisory 
Authority (FINMA). This type of dialogue reflects an effort to ensure 
consistency in interest rate swap clearing requirements across 
jurisdictions.
---------------------------------------------------------------------------

    \52\ In Hong Kong, clearing rules are issued by HKSFC in 
consultation with the Hong Kong Monetary Authority (HKMA). For 
further information please see the FAQs issued by Hong Kong 
authorities, available at https://www.sfc.hk/-/media/EN/files/SOM/OTC/FAQ-CLearing-Rules-20220103-FINAL.pdf.
---------------------------------------------------------------------------

    The discussion below sets forth relevant updates and coordination 
efforts among international authorities. As part of this rulemaking 
process, the Commission sought input from overseas counterparts to 
ensure a coordinated approach to required clearing of interest rate 
swaps during the move from use of swaps referencing IBORs to swaps 
referencing RFRs and shared information regarding this final rulemaking 
with international counterparts.\53\
---------------------------------------------------------------------------

    \53\ Commission staff also participate in a number of 
international groups, including FSB Official Sector Steering Group, 
that work on IBOR transition issues.
---------------------------------------------------------------------------

C. Interest Rate Swap Clearing Requirements in Other Jurisdictions

    Regulators and public-private working groups have been working to 
identify, develop, and encourage market uptake of interest rate swaps 
referencing RFRs to replace interest rate swaps referencing IBORs. As 
relevant to these amendments, RFRs identified as alternatives for 
IBORs, in addition to SOFR for USD, include: (i) SONIA for GBP; (ii) 
SARON for CHF; (iii) TONA for JPY; and (iv) [euro]STR for EUR.
    In finalizing these amendments, the Commission considered relevant 
changes to clearing requirements in other jurisdictions. As noted in 
the NPRM, the Commission sought to

[[Page 52187]]

harmonize these part 50 amendments to the greatest extent possible with 
those adopted by international counterparts. This goal is consistent 
with the Commission's approach in the Second Determination and the 
views of commenters on both the NPRM and the RFI. The discussion that 
follows addresses specific IBOR swap reform efforts by jurisdiction.
1. Australia
    On December 6, 2021, ASIC published a consultation proposing 
changes to its interest rate swap clearing requirement. The 
consultation proposed (i) removing contracts referencing EUR EONIA from 
the OIS class and replacing them with OIS referencing EUR [euro]STR 
with a termination date range of seven days to two years; (ii) removing 
contracts referencing JPY LIBOR from the fixed-to-floating swap, basis 
swap, and FRA classes and replacing them with OIS referencing JPY TONA 
with a termination date range of seven days to 30 years; and (iii) 
removing contracts referencing GBP LIBOR from the fixed-to-floating 
swap, basis swap, and FRA classes, and extending the termination date 
range for OIS referencing GBP SONIA to include seven days to 50 
years.\54\
---------------------------------------------------------------------------

    \54\ ASIC, Consultation Paper 353, ``Proposed amendments to the 
ASIC Derivative Transaction Rules (Clearing) 2015,'' Dec. 6, 2021, 
at 5, 14, available at https://download.asic.gov.au/media/mjknuhlh/cp-353-published-6-december-2021.pdf.
---------------------------------------------------------------------------

    On May 12, 2022, Australia finalized changes to its clearing 
requirement. There was only one change from the proposal: the 
termination date range for EUR-denominated [euro]STR OIS required to be 
cleared was expanded from two years to three years, in line with final 
European Union (EU) rules.\55\ In its explanatory statement, ASIC 
referenced the Commission's NPRM and suggested ASIC may be waiting for 
final rule changes to part 50 before updating its USD-denominated 
interest rate swap clearing obligation.\56\
---------------------------------------------------------------------------

    \55\ ASIC Derivative Transaction Rules (Clearing) Amendment 
Instrument 2022/224, May 12, 2022 (ASIC Derivative Transaction 
Rules), available at https://www.legislation.gov.au/Details/F2022L00697. ASIC's adopted termination date range for EUR [euro]STR 
OIS is consistent with changes adopted in the UK and EU and proposed 
in Switzerland. It is also consistent with the termination date 
range established for EUR [euro]STR OIS in this final rulemaking.
    \56\ Id. (noting ASIC would revisit the removal and replacement 
of swaps referencing USD LIBOR ``once the US authorities settled 
their approach'').
---------------------------------------------------------------------------

2. European Union
    In the EU, the Working Group on Euro Risk-Free Rates, convened in 
2018 by the ECB in connection with Belgian Financial Services, ESMA, 
and European Commission (EC), identified EUR [euro]STR as its preferred 
alternative to EUR EONIA, which ceased publication on January 3, 
2022.\57\
---------------------------------------------------------------------------

    \57\ ESMA, Working Group on Euro Risk-Free Rates, available at 
https://www.esma.europa.eu/policy-activities/benchmarks/working-group-euro-risk-free-rates; European Money Markets Institute, EONIA, 
available at https://www.emmi-benchmarks.eu/benchmarks/eonia/.
---------------------------------------------------------------------------

    In 2021, ESMA published a consultation proposing to (i) remove 
swaps referencing EUR EONIA from the OIS class and replace them with 
swaps referencing EUR [euro]STR with a termination date range of seven 
days to three years; (ii) remove swaps referencing GBP LIBOR from the 
fixed-to-floating swap, basis swap, and FRA classes and extend the 
termination date range for OIS referencing GBP SONIA to include seven 
days to 50 years; (iii) remove swaps referencing JPY LIBOR from the 
fixed-to-floating and basis swap classes; and (iv) add swaps 
referencing USD SOFR to the OIS class with a termination date range of 
seven days to three years.\58\ The changes were proposed to come into 
force on the later of January 3, 2022, or 20 days after publication in 
the Official Journal of the European Union.
---------------------------------------------------------------------------

    \58\ ESMA, Consultation Paper, ``On the clearing and derivative 
trading obligations in view of the benchmark transition,'' July 9, 
2021, at 37-39, 58-59, available at https://www.esma.europa.eu/sites/default/files/library/consultation_paper_on_the_co_and_dto_for_swaps_referencing_rfrs.pdf.
---------------------------------------------------------------------------

    On February 8, 2022, ESMA adopted final regulatory technical 
standards (RTS), which also removed swaps referencing USD LIBOR from 
the fixed-to-floating swap, basis swap, and FRA classes.\59\ These RTS 
changes were approved by the EC and published on May 17, 2022.
---------------------------------------------------------------------------

    \59\ Commission Delegated Regulation (EU) 2022/750 of 8 February 
2022 amending the regulatory technical standards laid down in 
Delegated Regulation (EU) 2015/2205 as regards the transition to new 
benchmarks referenced in certain OTC derivative contracts (Text with 
EEA relevance), May 17, 2022, available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32022R0750&qid=1654283051240. See also ESMA, Final 
Report, ``On draft RTS on the clearing and derivative trading 
obligations in view of the benchmark transition to risk free 
rates,'' Nov. 18, 2021, at 31 (ESMA Final Report), available at 
https://www.esma.europa.eu/sites/default/files/library/esma70-156-4953_final_report_on_the_co_and_dto_re_benchmark_transition.pdf.
---------------------------------------------------------------------------

    On July 11, 2022, ESMA proposed adding OIS referencing JPY TONA 
(seven days to 30 years) to its clearing obligation, as well as 
expanding the termination date range for OIS referencing USD SOFR to 
include seven days to 50 years.\60\ ESMA noted trading activity 
increased for USD SOFR activity up to and including 50 years. In terms 
of implementation timing, ESMA considered it unnecessary to provide a 
specific implementation date. Rather, ESMA proposed that its modified 
clearing obligation for USD SOFR OIS, and its new clearing obligation 
for JPY TONA OIS, would take effect on the twentieth day following 
publication of the final RTS, as per common practice. ESMA also 
indicated that it will analyze the feedback received on its 
consultation and to publish final rules by the end of 2022 or beginning 
of 2023.
---------------------------------------------------------------------------

    \60\ ESMA, Consultation Paper, ``On the clearing and derivative 
trading obligations in view of the 2022 status of the benchmark 
transition,'' July 11, 2022, available at https://www.esma.europa.eu/file/124582/download?token=rnNMa9ak.
---------------------------------------------------------------------------

3. Hong Kong
    HKSFC and HKMA have jurisdiction over the clearing obligation in 
Hong Kong. As of September 1, 2016, clearing mandate rules promulgated 
jointly by HKSFC and HKMA require that swaps between certain local and 
foreign-incorporated entities covering fixed-to-floating and basis 
swaps denominated in USD, GBP, and JPY each referencing LIBOR, fixed-
to-floating and basis swaps denominated in EUR referencing EURIBOR, and 
fixed-to-floating and basis swaps denominated in HKD referencing HIBOR 
be cleared.\61\ The same mandate requires that OIS denominated in USD 
referencing Fed Funds, EUR referencing EONIA, and GBP referencing SONIA 
be cleared.
---------------------------------------------------------------------------

    \61\ The Securities and Futures (OTC Derivative Transactions--
Clearing and Record Keeping Obligations and Designation of Central 
Counterparties) Rules impose a clearing obligation on transactions 
between prescribed persons, including local and foreign (i) licensed 
corporations, (ii) authorized financial institutions, and (iii) 
approved money brokers, that have reached the clearing threshold of 
USD $20 billion during the applicable three-month calculation 
period. In addition, any transactions between such a prescribed 
person and a financial services provider must be cleared. Financial 
services providers are designated by HKSFC, with the consent of 
HKMA. Securities and Futures (OTC Derivative Transactions--Clearing 
and Record Keeping Obligations and Designation of Central 
Counterparties) Rules, The Government of the Hong Kong Special 
Administrative Region Gazette, available at https://www.gld.gov.hk/egazette/pdf/20162005/es22016200528.pdf.
---------------------------------------------------------------------------

    A recent publication of frequently asked questions indicated that 
``certain indexes may not be relevant if they are no longer maintained. 
For example, we do not expect HIBOR-ISDC will be used as it is no 
longer maintained by [ISDA]. The list of indexes may evolve over time 
but changes will be subject to consultation and the industry will be 
given time to make necessary arrangement before changes are 
implemented.'' \62\ The list of designated

[[Page 52188]]

central counterparties (CCPs) in Hong Kong includes CME, JSCC, LCH, and 
HKEX.
---------------------------------------------------------------------------

    \62\ Frequently Asked Questions on the Implementation and 
Operation of the Mandatory Clearing Regime, January 2022, available 
at https://www.sfc.hk/en/faqs/OTC-derivatives. However, HKMA 
recently noted that there is no plan to discontinue HIBOR. HKMA, 
Reform of Interest Rate Benchmarks, Feb. 2, 2022, available at 
https://www.hkma.gov/hk/eng/key-functions/banking/banking-regulatory-and-supervisory-regime/reform-of-interest-rate-benchmarks/.
---------------------------------------------------------------------------

4. Japan
    On December 6, 2021, proposed changes to JFSA's clearing rules 
became effective.\63\ The changes removed contracts referencing three-
month and six-month JPY LIBOR from the fixed-to-floating swap class and 
replaced them with OIS referencing JPY TONA with a termination date 
range of seven days to 40 years.\64\ In a May 2022 report, Bank of 
Japan stated that a smooth transition from JPY LIBOR has been achieved 
due to JFSA and Bank of Japan support of efforts by financial 
institutions and market participants.\65\ The report went on to 
indicate that ``[f]uture challenges include the transition from USD 
LIBOR, for which the publication of some of the tenor settings will be 
ceased at the end of June 2023, and the development of infrastructure 
to facilitate the smooth use of JPY interest rate benchmarks to replace 
LIBOR.'' \66\
---------------------------------------------------------------------------

    \63\ Prior to implementation of the changes, Bank of Japan urged 
market participants to cease entering new JPY LIBOR transactions by 
the end of September 2021 and announced that JPY TONA would become 
the primary replacement RFR for JPY LIBOR interest rate swaps. Bank 
of Japan, ``Preparations for the discontinuation of LIBOR in the JPY 
interest rate swaps market,'' Mar. 26, 2021, available at https://www.boj.or.jp/en/paym/market/jpy_cmte/cmt210326c.pdf.
    \64\ Although JFSA does not clearly prescribe a termination date 
range in its public notice regarding its JPY TONA clearing 
requirement, JSCC rules provide for the clearing of JPY TONA OIS 
with a termination date range of seven days to 40 years. JSCC, 
Interest Rate Swap Clearing Products: List of Cleared Products, 
available at https://www.jpx.co/jp/jscc/en/cash/irs/product.html.
    \65\ Review of JPY LIBOR Transition and Future Initiatives, Bank 
of Japan Review, May 2022, available at www.fsa.go.jp.
    \66\ Id.
---------------------------------------------------------------------------

    Japanese authorities accomplished the smooth transition from swaps 
referencing JPY LIBOR to JPY TONA OIS in coordination with JSCC. As 
JSCC explains in its comment letter,\67\ the conversion of JPY IRS 
referencing LIBOR was completed without any issue and market liquidity 
has now completely shifted to JPY TONA OIS. JSCC no longer accepts 
clearing of any new JPY interest rate swaps referencing LIBOR. As 
discussed further below, JSCC now clears increased volumes of JPY TONA 
OIS.\68\
---------------------------------------------------------------------------

    \67\ A complete discussion of comment letters received in 
response to the NPRM is found in section III.
    \68\ It is the Commission's understanding that under Japanese 
law, all swaps entered into by two Japanese entities must be cleared 
through a CCP located in Japan.
---------------------------------------------------------------------------

5. Singapore
    With regard to SGD denominated interest rate swaps, MAS established 
the Steering Committee for SOR & SIBOR Transition to SORA. This group 
has been working to oversee a transition from SGD SOR-VWAP to SGD 
SORA.\69\ SGD SOR-VWAP relies on USD LIBOR as an input and is expected 
to be discontinued across all tenors after June 30, 2023.\70\ 
Commission staff updated MAS regarding the status of IBOR OIS 
conversion efforts as part of this rulemaking process and staff 
identified no major concerns. Additional discussion of SGD SORA OIS is 
included below.
---------------------------------------------------------------------------

    \69\ ABS, About SC-STS, available at https://www.abs.org.sg/benchmark-rates/about-sc-sts.
    \70\ Steering Committee for SOR & SIBOR Transition to SORA, 
Update to the SORA Market Compendium: Transition from SOR to SORA, 
Nov. 17, 2021, at 4, available at https://www.abs.org.sg/docs/library/sora-market-compendium-on-the-transition-from-sor-to-sora-version-1-1.pdf.
---------------------------------------------------------------------------

6. Switzerland
    On May 9, 2022, FINMA launched a consultation on amendments to its 
Financial Market Infrastructure Ordinance to, among other things, 
update the list of interest rate swaps subject to mandatory clearing. 
The consultation closed on July 5, 2022. In relevant part, the proposal 
would require clearing of the following OIS: (i) EUR [euro]STR OIS for 
a termination date range of seven days to three years; (ii) GBP SONIA 
OIS for a termination date range of seven days to 50 years; and (iii) 
USD SOFR OIS for a termination date range of seven days to three 
years.\71\
---------------------------------------------------------------------------

    \71\ Ordinance of the Federal Financial Market Supervisory 
Authority on the Financial Market Infrastructure and Market Behavior 
in Securities and Derivatives Trading, May 9, 2022, available at 
https://www.finma.ch/~/media/finma/dokumente/dokumentencenter/
anhoerungen/laufende-anhoerungen/20220509-
finanzmarktinfrastrukturverordnung/
20220509_finfrav_finma_anhoerung_verordnung.pdf?sc_lang=de&hash=17383
BC6490B694C7CC2D82354100AFB (translated from original German).
---------------------------------------------------------------------------

    The publicly available English language documents state that 
proposed changes to FINMA's clearing mandate ``will be adjusted in line 
with foreign legal developments to the altered market conditions 
resulting from benchmark reform,'' and that, more specifically, FINMA 
will ``align[ ] itself closely with EU law.'' \72\ The consultation 
states that adoption of the revised ordinance is planned for the third 
quarter of 2022, with an effective date in early 2023.
---------------------------------------------------------------------------

    \72\ FINMA, ``FINMA Financial Market Infrastructure Ordinance--
partial revision,'' Key Points, May 9, 2022, available at https://
www.finma.ch/~/media/finma/dokumente/dokumentencenter/anhoerungen/
abgeschlossene-anhoerungen/20220509-
finanzmarktinfrastrukturverordnung/
20220509_finfrav_finma_anhoerung_kernpunkte.pdf?sc_lang=en&hash=39645
D542F56C608D72C1A8C4D408580; FINMA, Press Release, ``FINMA to adjust 
FinMIO-FINMA,'' May 9, 2022, available at https://www.finma.ch/~/
media/finma/dokumente/dokumentencenter/8news/medienmitteilungen/
2022/05/20220509-mm-anhoerung-finfrav-
de.pdf?sc_lang=en&hash=08F6A2BB006408179809E99958977762.
---------------------------------------------------------------------------

    As explained in the NPRM, following the Commission's action in 
2016, FINMA did not require clearing of swaps referencing CHF LIBOR, 
and to date no jurisdiction has implemented mandatory clearing for 
swaps referencing CHF SARON.\73\ Commission staff updated FINMA 
regarding the status of IBOR OIS conversion efforts as part of this 
rulemaking process and identified no major concerns regarding the 
transition process. Additional discussion of CHF SARON OIS is included 
below.
---------------------------------------------------------------------------

    \73\ NPRM, 87 FR 32914.
---------------------------------------------------------------------------

7. United Kingdom
    On May 20, 2021, Bank of England proposed to (i) effective October 
18, 2021, remove contracts referencing EUR EONIA from the OIS class and 
replace them with contracts referencing EUR [euro]STR with a 
termination date range of seven days to three years; and (ii) effective 
December 20, 2021, remove contracts referencing GBP LIBOR from the 
fixed-to-floating swap, basis swap, and FRA classes, and extend the 
termination date range for OIS referencing GBP SONIA to include seven 
days to 50 years.\74\ Additionally, on September 29, 2021, Bank of 
England proposed to remove contracts referencing JPY LIBOR from the 
fixed-to-floating and basis swap classes and replace them with OIS 
referencing JPY TONA with a termination date range of seven days to 40 
years, effective December 6, 2021.\75\ On December 3, 2021, Bank of 
England updated the effective date for its new JPY TONA clearing 
requirement to be January 31, 2022, rather than December 6, 2021.\76\

[[Page 52189]]

These changes went into effect as proposed.
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    \74\ Bank of England, ``Derivatives clearing obligation--
modifications to reflect interest rate benchmark reform: Amendments 
to BTS 2015/2205,'' May 20, 2021, available at https://www.bankofengland.co.uk/paper/2021/derivatives-clearing-obligation-modifications-to-reflect-interest-rate-benchmark-reform-amendments.
    \75\ Bank of England, ``Derivatives clearing obligation--
modifications to reflect interest rate benchmark reform: Amendments 
to BTS 2015/2205,'' Sept. 29, 2021, available at https://www.bankofengland.co.uk/paper/2021/derivatives-clearing-obligation-modifications-to-reflect-interest-rate-benchmark-reform.
    \76\ Bank of England, ``Derivatives clearing obligation--
introduction of contracts referencing TONA: Amendment to BTS 2015/
2205,'' Dec. 3, 2021, available at https://www.bankofengland.co.uk/paper/2021/derivatives-clearing-obligation-introduction-of-contracts-referencing-tona-ps. Bank of England noted that the change 
was designed to ``provide firms with more time to complete their 
preparations without . . . posing a risk to UK financial 
stability.'' Id. There were no changes to the date for removing Bank 
of England's JPY LIBOR clearing requirement.
---------------------------------------------------------------------------

    On June 9, 2022, Bank of England published a proposal to remove 
contracts referencing USD LIBOR from the fixed-to-floating swap, basis 
swap, and FRA classes, that would come into force ``around the same 
time as a number of CCPs contractually convert these contracts and 
remove them from their list of contracts eligible for clearing,'' and 
add OIS referencing USD SOFR effective October 31, 2022.\77\
---------------------------------------------------------------------------

    \77\ Bank of England, Derivatives clearing obligation--
modifications to reflect USD interest rate benchmark reform: 
Amendments to BTS 2015/2205, June 9, 2022 (Bank of England SOFR 
Proposal), available at https://www.bankofengland.co.uk/paper/2022/derivatives-clearing-obligation-modifications-reflect-usd-interest-rate-benchmark-reform-amendment.
---------------------------------------------------------------------------

    This proposal, and the proposed implementation approach, are 
largely aligned with the Commission's proposal.\78\ The proposal for 
mandatory clearing of USD SOFR OIS is for an identical termination date 
range of seven days to 50 years. As discussed further below, Bank of 
England's proposed implementation timing of October 31, 2022, would 
align with Commission action.
---------------------------------------------------------------------------

    \78\ Id. (``In the light of the changes in market activity 
observed since [2021], and aligning with the Commodity Futures 
Trading Commission's (CFTC's) recent announcements, the Bank is now 
proposing to add OIS contracts referencing SOFR to the clearing 
obligation and remove contracts referencing USD Libor.'')
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III. Overview of Comment Letters Received

    The interest rate swap market has made tremendous progress toward 
completing the transition from reliance on swaps that reference LIBOR 
and other IBORs to clearing and trading swaps that reference RFRs. In 
issuing this final rule, the Commission further facilitates this 
transition by amending its interest rate swap clearing requirement to 
reflect the cessation or loss of representativeness of certain IBORs 
and the market adoption of swaps referencing RFRs.
    On May 31, 2022, the Commission published an NPRM seeking public 
input regarding how it should amend the interest rate swap clearing 
requirement to address the cessation or loss of representativeness of 
IBORs that have been used as benchmark reference rates and the market 
adoption of swaps that reference RFRs. The NPRM was preceded by an RFI 
that the Commission issued on November 23, 2021.\79\ Both these efforts 
sought input on all aspects of the swap clearing requirement that may 
be affected by the transition from IBORs to RFRs, including enumerated 
requests for data and other information related to IBOR and RFR swaps.
---------------------------------------------------------------------------

    \79\ RFI, 86 FR 66486-66488. The following 14 entities responded 
to the RFI: Alternative Investment Management Association (AIMA), 
American Council of Life Insurers (ACLI), Bloomberg L.P., CCP12, 
Citadel, CME, Eurex, ISDA, Investment Company Institute (ICI), JSCC, 
LSEG, Managed Funds Association (MFA), Toronto-Dominion Bank (TD 
Bank), and Tradeweb Markets LLC (Tradeweb), available at https://comments.cftc.gov/PublicComments/ReleasesWithComments.aspx.
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    The NPRM proposed amending regulation Sec.  50.4(a) to remove from 
the clearing requirement interest rate swaps in all classes referencing 
LIBOR (USD, GBP, CHF, and JPY), EUR EONIA, and SGD SOR-VWAP, as 
applicable. The NPRM also proposed updating the clearing requirement to 
include OIS referencing USD SOFR (seven days to 50 years), CHF SARON 
(seven days to 30 years), JPY TONA (seven days to 30 years), EUR 
[euro]STR (seven days to three years), and SGD SORA (seven days to 10 
years), as well as extending the termination date range of GBP SONIA 
OIS to include seven days to 50 years. The NPRM proposed an 
implementation date of 30 days after publication of final rules in the 
Federal Register for nearly all the amendments. The one exception 
proposed was an implementation date of July 1, 2023, for removing the 
requirement to clear interest rate swaps referencing USD LIBOR and SGD 
SOR-VWAP.
    The Commission received 12 comments on its NPRM from a variety of 
market infrastructure providers, market participants, and industry 
organizations.\80\ All NPRM comment letters, as well as the RFI 
response letters, are available on the CFTC's Comments Portal. Most 
commenters largely supported the Commission's proposal and offered 
specific responses to questions posed in the NPRM. Several commenters 
asked for clarification regarding certain issues. These matters are 
addressed in the discussion and analysis below.
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    \80\ Comments were submitted by: AIMA, ACLI, CCP12, Citadel, 
CME, ISDA, ICI, JSCC, MFA, and SOFR Academy. In addition to these 
ten responses from institutional entities, two individuals submitted 
responses to the NPRM. All letters related to this rulemaking are 
available on the CFTC Comments Portal: https://comments.cftc.gov/PublicComments/ReleasesWithComments.aspx.
---------------------------------------------------------------------------

A. Scope of Amendments--Coverage of OIS and Removal of Existing Rules

    Nearly all of the commenters expressed support for the scope of the 
OIS covered under the Commission's proposal, and many agreed with the 
Commission's analysis that an updated swap clearing requirement would 
enhance financial stability by reducing systemic risk, improving market 
integrity, and increasing transparency in the interest rate swap 
market.\81\ Commenters also noted the important role played by the 
Commission throughout the IBOR transition process.\82\
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    \81\ Comments from AIMA, ACLI, CCP12, Citadel, CME, ISDA, ICI, 
JSCC, MFA, and one of the individual commenters were largely 
supportive of the Commission's proposal. Several raised additional 
issues, questions, and/or requests that will be discussed further 
below. SOFR Academy and the other individual commenter requested 
clarification regarding SOFR.
    \82\ See, e.g., comment letters from CCP12, ISDA, ICI, and MFA.
---------------------------------------------------------------------------

1. Importance of Harmonization
    Commenters, including CCP12, CME, Citadel, ISDA, JSCC, and MFA 
supported the Commission's goal of harmonizing its clearing requirement 
with those of non-U.S. jurisdictions. CCP12 stated such coordination 
with counterparts would allow the U.S. to align its interest rate swap 
clearing requirement with other major jurisdictions in a manner that 
promotes legal certainty, regulatory transparency, and the preservation 
of liquidity in cleared swaps. CME stated its support for adding the 
RFR OIS covered by the NPRM to the clearing requirement in light of 
rapid market adoption of voluntary clearing of RFR OIS and the 
objective of harmonizing global clearing requirements to the extent 
possible. CME also noted the Commission's commitment to coordination, 
transparency, and consistency in engaging with domestic authorities. 
JSCC stated support for the inclusion of JPY TONA OIS in the 
modifications to regulation Sec.  50.4(a) because such action would 
harmonize the Commission's interest rate swap clearing requirement with 
those of other jurisdictions. JSCC stated that this harmonization, in 
turn, would lower the operational and compliance burden for market 
participants active across multiple jurisdictions. Market participants 
including those represented by ISDA, MFA, and others stated their 
support for global harmonization efforts as well.
2. DCOs' Ability To Clear OIS
    CCP12 highlighted the work done by CCPs to support the transition 
to RFRs. CCP12 stated that CCPs offered clearing for new RFR swaps, 
which has encouraged participation, growth, and liquidity in these 
products, and enabled a smooth conversion of certain cleared

[[Page 52190]]

IBOR swaps to RFR OIS at the end of 2021. CCP12 stated that DCOs are 
required to ensure that they have sufficient resources and liquidity, 
adequate pricing data, and risk management practices and capabilities 
in terms of default management with respect to the swaps covered by the 
NPRM.
    This point is consistent with comments submitted by both CME and 
JSCC, among others. For example, CME stated that with the expected 
increase in the number of transactions, it is prepared to continue 
clearing RFR OIS. JSCC stated that requiring JPY TONA OIS to be cleared 
would not affect the ability of DCOs to comply with the CEA or the 
relevant legal and regulatory regime of any other jurisdiction.
3. Inclusion of CHF-Denominated OIS Referencing SARON
    ISDA recommended that the Commission delay the issuance of a 
clearing requirement for CHF-denominated interest rate swaps 
referencing SARON that would take the place of an existing Commission 
clearing requirement for interest rate swaps referencing LIBOR, until 
such time as the Swiss authorities adopt a clearing requirement for 
interest rate swaps referencing CHF SARON.\83\ No other commenter 
responded to the NPRM's question on this topic.
---------------------------------------------------------------------------

    \83\ In the alternative, ISDA suggests that the Commission delay 
the effective date of its CHF SARON OIS clearing requirement until 
three months after the effective date of any Swiss clearing mandate.
---------------------------------------------------------------------------

4. Inclusion of USD SOFR-USD LIBOR Basis Swaps
    ACLI stated its support for the Commission's decision not to 
include USD SOFR-USD LIBOR basis swaps in the interest rate swap 
clearing requirement. ACLI pointed to the limited and dwindling use 
cases for these swaps, along with low liquidity and limitations on the 
ability to electronically execute such basis swaps. No other commenter 
responded to the NPRM's question on this topic.
5. Effect of Margin Rules for Uncleared Swaps
    ACLI stated that because both the cleared swaps framework and 
uncleared swap margin rules reduce risk, life insurers should be free 
to weigh the pros and cons of cleared versus uncleared swaps and choose 
a regime that provides the most flexibility in allocating 
collateral.\84\ ACLI stated that central clearing provides market 
participants with numerous advantages over bilateral arrangements, 
including increased safety, transparency, and customer protection. 
However, ACLI stated that mandatory clearing elevates concentration of 
risk in CCPs and futures commission merchants (FCMs).\85\ ACLI also 
stated that central clearing's risk mitigation benefits are decreased 
by the Commission's rules that require swap dealers to margin their 
uncleared swaps with certain counterparties.\86\
---------------------------------------------------------------------------

    \84\ The ability to choose not to clear swaps subject to the 
clearing requirement is reserved for those entities that are 
eligible to elect an exception or exemption from the swap clearing 
requirement under subpart C of part 50 of the Commission's 
regulations. Section 2(h)(7)(C)(i)(VIII) excludes certain financial 
entities from such eligibility by defining financial entity as ``a 
person predominantly engaged in activities that are in the business 
of banking, or in activities that are financial in nature,'' as 
defined in section 4(k) of the Bank Holding Company Act of 1956, 12 
U.S.C. 1843(k). Section 4(k) of the Bank Holding Company Act defines 
such activities to include the activities of life insurers and 
certain related entities. 12 U.S.C. 1843(k)(4)(B), (H)(ii)(II), and 
(I)(ii)-(iii).
    \85\ ACLI stated that (1) when large FCMs face financial 
difficulties, their clients will face elevated credit risk; (2) if 
an FCM were to default, the FCM's clients may have difficulty 
porting their swap positions on short notice; (3) the process of 
negotiating new FCM arrangements, completing operational setup, and 
porting positions from one FCM to another takes significant time and 
is operationally burdensome; and (4) some smaller life insurers have 
difficulty finding FCMs who will take on their business at 
competitive costs.
    \86\ ACLI stated that practical solutions to allow end-users to 
clear directly at CCPs do not currently exist, and there are 
significant operational and regulatory hurdles to their creation. 
This issue is beyond the scope of this rulemaking.
---------------------------------------------------------------------------

    No other commenter raised these issues.\87\
---------------------------------------------------------------------------

    \87\ ACLI's comment is discussed further in the Cost Benefit 
Considerations section VII.
---------------------------------------------------------------------------

6. Clarification Regarding USD SOFR
    In its comment letter, SOFR Academy recommended that the Commission 
clarify the definition of USD SOFR OIS in the final rule to avoid 
potential confusion in the event a market develops for OIS referencing 
a new index that combines USD SOFR as administered and published by 
FRBNY with a credit spread supplement.\88\ Similarly, an individual 
commenter requested that the Commission clarify which version of USD 
SOFR is referenced by the swaps to which its USD SOFR OIS clearing 
requirement would apply.\89\ The individual asked the Commission to 
confirm that the proposed determination (i) would not apply to swaps 
using a CME term USD SOFR rate; and (ii) would apply to swaps using 
both compounded USD SOFR and daily simple USD SOFR.
---------------------------------------------------------------------------

    \88\ According to SOFR Academy, such ``all-in'' benchmark rates 
combine across-the-curve credit spreads with variations of USD SOFR 
that are administered and published by FRBNY.
    \89\ The commenter sought clarification regarding whether such 
swaps reference term USD SOFR, compounded USD SOFR, or daily simple 
USD SOFR. This commenter also requested that the Commission clarify 
whether the Commission intends its USD SOFR OIS clearing requirement 
to apply retroactively to existing USD SOFR OIS that were executed 
before implementation but not voluntarily cleared. Consistent with 
its past clearing requirement determinations, this final clearing 
requirement determination will not apply retroactively. It will 
apply to swaps executed on or after the implementation dates 
discussed below.
---------------------------------------------------------------------------

    In its comment letter, CME referred to the ongoing industry 
transition of swaps referencing LIBOR to the relevant nominated 
successor RFRs and noted that market participants have demonstrated a 
preference for transition to market standard RFR OIS.

B. Implementation, Cross-Border Coordination, and Operational 
Considerations

    Commenters expressed a number of views with regard to the 
implementation schedule for the RFR OIS clearing requirement and the 
removal of the existing clearing requirement for LIBOR, EUR EONIA, and 
SGD SOR-VWAP interest rate swaps.
1. Immediate Implementation of RFR OIS Clearing Requirement
    A majority of commenters favored the Commission's proposed approach 
of implementing the RFR OIS clearing requirement 30 days after 
publication of this final rulemaking in the Federal Register. For 
example, CCP12 supported this approach because the market has already 
gravitated toward central clearing of RFR OIS (including USD SOFR OIS) 
to a significant degree, and 30 days would provide market participants 
with sufficient time to comply with the new determination. CCP12 stated 
that the new determination would not lead to a material change in 
operations for a majority of market participants. Likewise, Citadel and 
MFA stated that the Commission's proposed 30-day compliance date is 
appropriate as almost all USD SOFR OIS transactions are cleared 
voluntarily. AIMA stated that the Commission should expedite its 
consideration of a final rule, consistent with the NPRM, and update the 
clearing requirement as quickly as possible. Finally, CME and JSCC 
agreed with the Commission's proposal to adopt a single compliance date 
that would be 30 days after the publication of the final rule in the 
Federal Register.
2. Harmonizing Implementation Timing With International Counterparts
    ISDA recommended that the implementation date for the RFR OIS

[[Page 52191]]

clearing requirement be October 31, 2022, which would align with Bank 
of England's proposed effective date for its USD SOFR OIS clearing 
obligation. According to ISDA, this alignment of implementation dates 
would reduce operational burdens for clearing members and their 
clients. ISDA stated that a shorter deadline might require ISDA members 
to adopt tactical solutions and place unnecessary strain on resources, 
preventing an efficient implementation.\90\
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    \90\ ISDA noted that compliance with new clearing requirements 
requires ISDA members to adapt systems, create and run internal 
trainings, and issue client communications; develop and implement 
control frameworks and internal governance; and address unique 
jurisdictional requirements. For example, ISDA noted that in some 
jurisdictions such as Germany, creation and delivery of job-related 
training which introduces changes to working practices such as 
clearing requirements require review with and sign-off by workers' 
representatives.
---------------------------------------------------------------------------

    No other commenter expressly recommended October 31, 2022, as an 
implementation date for all RFR OIS. However, despite supporting the 
Commission's 30-day implementation approach, CCP12 stated that a 
harmonized approach to timing would reduce the potential operational 
burden for clearing members and clients of having to comply with the 
same, or very similar, clearing mandates at different times and in 
different jurisdictions.
3. Delay Implementation Until June 30, 2023
    ACLI stated that the Commission should postpone the inclusion of 
USD SOFR OIS in the clearing requirement until June 30, 2023, which 
would coincide with the date USD LIBOR swaps are removed from the 
clearing requirement and create an incentive for market participants 
concerned about clearing trades to move from USD LIBOR to USD SOFR 
swaps. ACLI stated that the Commission and other regulators have 
offered significant relief to smooth the transition from USD LIBOR to 
USD SOFR, and that postponing implementation of the USD SOFR OIS 
clearing requirement would be consistent with that approach. No other 
commenter supported this view.
4. Removal of Existing USD LIBOR Clearing Requirement
    AIMA supported the Commission's proposal, particularly the proposal 
to require USD SOFR OIS clearing out to 50 years, and to maintain the 
USD LIBOR clearing requirement until July 1, 2023. Likewise, Citadel 
agreed with the Commission's proposal to maintain the current clearing 
requirement for USD LIBOR swaps until July 1, 2023, in light of 
continued significant trading activity in USD LIBOR swaps. Citadel 
stated that this would provide the Commission with flexibility to 
continue evaluating market developments for specific tenors and adjust 
requirements as necessary.
    CME supported the Commission's proposal to retain its USD LIBOR 
swap clearing requirement because USD LIBOR is widely expected to 
continue until June 30, 2023, and clearing services are expected to 
continue to be offered up to or shortly before that date. CME stated 
that retaining the USD LIBOR swap clearing requirement until CCPs cease 
to provide clearing services and/or convert swaps would provide clarity 
and certainty for market participants.
    ISDA proposed March 6, 2023, as the implementation date for 
removing rules requiring clearing interest rate swaps referencing USD 
LIBOR. ISDA stated that the removal date for USD LIBOR swaps should be 
no earlier than any CCP conversion date because a later removal date 
would be inconsistent with Commission objectives. ISDA stated that 
because CCPs are unlikely to convert simultaneously, there will be 
confusion when one converts and others do not.\91\ In the alternative, 
ISDA suggested the removal date be the earlier of July 1, 2023, or the 
first conversion date at any registered or exempt DCO clearing USD 
LIBOR swaps. However, as ISDA noted, this could result in uncertainty 
if a clearinghouse were to change its proposed conversion date on short 
notice.
---------------------------------------------------------------------------

    \91\ ISDA raised the possibility that market participants could 
be required to establish new clearing relationships to comply with a 
USD LIBOR swap clearing requirement that may be months or days away 
from ceasing to be effective or opt to continue unhedged until the 
expiration of the clearing requirement if the IBOR clearing 
requirement remains in place beyond the initiation of a conversion 
at any one CCP.
---------------------------------------------------------------------------

    MFA stated that the Commission's proposal to maintain its USD LIBOR 
interest rate swap clearing requirement until July 1, 2023, is 
appropriate, as liquidity in swaps denominated in USD that reference 
LIBOR in the fixed-to-floating swap, basis swap, and FRA classes is 
sufficient to continue to support required clearing.\92\ Other 
commenters, including Citadel and CME, generally supported this view.
---------------------------------------------------------------------------

    \92\ MFA also suggested that if before July 1, 2023, concerns 
arise regarding the sufficiency of outstanding notional, liquidity, 
or pricing data to support required clearing, the Commission could 
take appropriate action that expires on June 30, 2023, to facilitate 
the IBOR transition.
---------------------------------------------------------------------------

C. Issues Beyond the Scope of the Rulemaking

    Commenters raised the following two issues that are related to the 
IBOR transition. They are presented for the sake of a complete 
consideration of comments submitted, but the Commission observes that, 
as discussed below, they are beyond the scope of this rulemaking.
1. Trade Execution Requirement
    ICI supported the proposed modifications to the interest rate swap 
clearing requirement, but urged the Commission to recognize the 
separate nature of the trade execution requirement. ICI commented that 
the Commission should not approve or allow certification of a 
subsequent made-available-to-trade (MAT) determination solely on the 
basis of the swap being subject to a clearing requirement. ICI stated 
that the MAT process is especially important with respect to longer-
dated swaps proposed to be cleared, which are less liquid. ISDA also 
stated that a corresponding MAT determination alongside or closely 
following a clearing mandate could challenge a smooth and orderly IBOR 
transition, and ISDA requested that the Commission consider changes to 
its MAT determination process to ensure that any MAT determination in 
new RFRs occur at the appropriate time and in line with overall policy 
objectives.
    Pursuant to section 2(h)(8) of the CEA and Commission regulations 
Sec. Sec.  37.10 and 38.12, a trade execution requirement could, in the 
future, apply to some or all of the interest rate swaps covered by this 
rulemaking. The process for determining which swaps are subject to the 
trade execution requirement is separate from the clearing requirement 
determination process. Therefore, it is beyond the scope of this 
rulemaking for the Commission to address the suitability of particular 
swaps for a trade execution requirement or to address issues related to 
the MAT process.
2. Post-Trade Risk Reduction
    ISDA stated that currently swap dealers are able to book OIS into 
their cleared or uncleared portfolios to match changes in risk as part 
of portfolio compression exercises. According to ISDA, a clearing 
requirement for RFR OIS would impair swap dealers' ability to manage 
their uncleared portfolios. ISDA requested that the Commission consider 
an exemptive order or staff no-action from the clearing requirement for 
RFR swaps where the trades result from post-trade risk reduction (PTRR) 
exercises.
    By contrast, Citadel stated that the Commission should continue to 
reject requests for additional exemptions, including for PTRR services, 
when updating the clearing requirement.

[[Page 52192]]

Citadel stated that existing no-action relief for multilateral 
portfolio compression exercises provides market participants with 
adequate flexibility to reduce exposures in uncleared portfolios while 
ensuring swaps subject to the clearing requirement are cleared. Citadel 
also stated that a broader exemption risks circumventing the clearing 
requirement, increasing trading activity in uncleared OTC derivatives, 
and increasing systemic risk.
    No other commenters raised this issue.
    In 2013, Commission staff issued a no-action letter regarding PTRR 
services.\93\ This letter explained that compression is an important 
tool to facilitate post-trade risk reduction. Prior Commissions have 
declined to codify this no-action letter, and this matter is beyond the 
scope of this rulemaking.
---------------------------------------------------------------------------

    \93\ Staff No-Action Letter Re: Relief from Required Clearing 
for Swaps Resulting from Multilateral Portfolio Compression 
Exercises, CFTC Letter No. 13-01, Mar. 18, 2013, available at 
https://www.cftc.gov/LawRegulation/CFTCStaffLetters/index.htm.
---------------------------------------------------------------------------

IV. Final Amendments to Regulation Sec.  50.4(a)

    The Commission is finalizing amendments to regulation Sec.  50.4(a) 
to remove certain IBORs and EUR EONIA interest rate swap clearing 
requirements and add requirements to clear corresponding RFR OIS. The 
IBOR swaps for which clearing requirements are being removed span all 
four classes of swaps currently required to be cleared--fixed-to-
floating swaps, basis swaps, FRAs, and (in the case of EUR EONIA) 
OIS.\94\ The RFR swaps that the Commission is adding to the clearing 
requirement are all OIS.\95\ OIS are swaps where one leg is calculated 
based on a fixed rate and the other is calculated based on a daily 
overnight floating rate (i.e., the RFR).
---------------------------------------------------------------------------

    \94\ Beyond the IBOR swaps that will be removed from regulation 
Sec.  50.4 and replaced with RFR swaps pursuant to this 
determination, regulation Sec.  50.4 contains requirements to clear 
a number of swaps referencing IBORs that have not yet been 
discontinued. In the future the Commission may consider further 
modifications to the interest rate swap clearing requirement in 
regulation Sec.  50.4 to address the cessation of additional IBORs 
and market adoption of corresponding RFRs. But no further 
modifications are necessary at this time.
    \95\ GBP SONIA OIS are already required to be cleared. 
Regulation Sec.  50.4(a) Table 2.
---------------------------------------------------------------------------

A. Scope of Amendments--Coverage of OIS and Removal of Existing Rules

    These amendments to the interest rate swap clearing requirement are 
the first rule changes that the Commission has issued to facilitate the 
transition from IBORs to RFRs. The amendments update the existing 
clearing requirement. In effect, the amendments replace the requirement 
to clear certain IBOR swaps in a number of different classes with a 
requirement to clear RFR OIS because the IBOR swaps have become 
unavailable and liquidity has shifted into RFR OIS. Accordingly, 
pursuant to this final rulemaking, the following swaps will no longer 
be required to be cleared:
     Swaps denominated in USD, GBP, CHF, and JPY that reference 
LIBOR as a floating rate index in each of the fixed-to-floating swap, 
basis swap, and FRA classes, as applicable.
     Swaps denominated in EUR that reference EONIA as a 
floating rate index in the OIS class.
     Swaps denominated in SGD that reference SOR-VWAP as a 
floating rate index in the fixed-to-floating swap class.
    The Commission is amending the OIS class of interest rate swaps 
under regulation Sec.  50.4(a) that are required to be cleared to 
include the following:
     Swaps denominated in USD that reference SOFR as a floating 
rate index with a stated termination date range of seven days to 50 
years,
     Swaps denominated in EUR that reference [euro]STR as a 
floating rate index with a stated termination date range of seven days 
to three years,
     Swaps denominated in CHF that reference SARON as a 
floating rate index with a stated termination date range of seven days 
to 30 years,
     Swaps denominated in JPY that reference TONA as a floating 
rate index with a stated termination date range of seven days to 30 
years, and
     Swaps denominated in SGD that reference SORA as a floating 
rate index with a stated termination date range of seven days to 10 
years.
     Swaps denominated in GBP that reference SONIA as a 
floating rate index with a stated termination date range of seven days 
to 50 years.\96\
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    \96\ For GBP SONIA OIS, these amendments expand the existing 
maximum termination date range to 50 years, for a new termination 
date range of seven days to 50 years.
---------------------------------------------------------------------------

    While these amendments are legally effective 30 days after 
publication of the final rule in the Federal Register, they will be 
implemented according to a schedule discussed in detail below.\97\
---------------------------------------------------------------------------

    \97\ Specific implementation timing is set forth in section VI.
---------------------------------------------------------------------------

B. Clarification Regarding OIS Product Specifications

    SOFR Academy and one of the individual commenters requested 
clarification regarding the product specifications subject to this 
rulemaking. These commenters asked which interest rates apply to the 
USD-denominated OIS referencing SOFR.
    The final rules apply to the USD SOFR OIS that are offered for 
clearing at registered and exempt DCOs. These DCOs' product 
specifications provide that the USD SOFR OIS that they clear reference 
USD-SOFR-COMPOUND under the 2006 ISDA Definitions and USD-SOFR-OIS 
Compound under the 2021 ISDA Definitions. Similarly, GBP SONIA, CHF 
SARON, JPY TONA, SGD SORA, and EUR [euro]STR OIS clearing requirements 
refer to the GBP SONIA, CHF SARON, JPY TONA, SGD SORA, and EUR 
[euro]STR OIS that are offered for clearing at registered and exempt 
DCOs. Each of these rates reference compound RFR indexes as defined in 
ISDA Definitions.\98\
---------------------------------------------------------------------------

    \98\ See generally CME, Product Scope, available at https://www.cmegroup.com/trading/interest-rates/cleared-otc.html; LCH, 
Product Specific Contract Terms and Eligibility Criteria Manual, 
June 20, 2022, at 36-44, available at https://www.lch.com/system/files/media_root/220620%20-%20Product%20Specific%20Contract%20Terms%20-%20SGD%20SORA.pdf; 
Eurex, EurexOTC Clear Product List, available at https://www.eurex.com/ec-en/clear/eurex-otc-clear/interest-rate-swaps; JSCC, 
List of Clearing Products, available at https://www.jpx.co.jp/jscc/en/cash/irs/product.html; HKEX, Interest Rate Swaps, available at 
https://www.hkex.com.hk/Products/OTC-Derivatives/Interest-Rate-Swaps?sc_lang=en. Some DCOs' product specifications reference both 
the 2021 and 2006 ISDA Definitions whereas other DCOs' product 
specifications refer only to the 2021 ISDA Definitions (or reference 
both only with respect to certain swaps).
---------------------------------------------------------------------------

C. Swaps Referencing CHF SARON and SGD SORA

    The Commission is the only authority to require CHF LIBOR swaps be 
submitted for clearing. In 2016, FINMA considered adopting a clearing 
mandate for swaps referencing CHF LIBOR, but after the Commission's 
final rules that included CHF LIBOR swaps went into effect, FINMA did 
not adopt a similar mandate.\99\ To date, FINMA has not adopted a 
clearing mandate for CHF SARON OIS. However, as explained above, FINMA 
may adjust its clearing obligation in line with international 
authorities and altered market conditions resulting from benchmark 
reform.
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    \99\ The Commission provided an opportunity for comment prior to 
adopting its requirement to clear CHF-denominated interest rate 
swaps. Clearing Requirement Determination Under Section 2(h) of the 
CEA for Interest Rate Swaps, 81 FR 39506 at 39508 (June 16, 2016); 
see also Second Determination, 81 FR 71205.
---------------------------------------------------------------------------

    Likewise, while MAS did not require clearing of SGD SOR-VWAP swaps 
with a termination date range of 28 days to 10 years until October 
2018, the Commission was aware of this expected action, and took it 
into account when adopting a clearing requirement for SGD

[[Page 52193]]

SOR-VWAP swaps in 2016.\100\ At this time, MAS has not yet implemented 
mandatory clearing for SGD SORA OIS.
---------------------------------------------------------------------------

    \100\ Second Determination, 81 FR 71205; MAS, MAS Requires OTC 
Derivatives to be Centrally Cleared to Mitigate Systemic Risk, May 
2, 2018, available at https://www.mas.gov.sg/news/media-releases/2018/mas-requires-otc-derivatives-to-be-centrally-cleared-to-mitigate-systemic-risk; MAS, Response to Feedback Received: Draft 
Regulations for Mandatory Clearing of Derivatives Contracts, May 2, 
2018, at 4, available at https://www.mas.gov.sg/-/media/MAS/News-and-Publications/Consultation-Papers/2018-May-02-Response-to-consultation-on-draft-regs-on-mandatory-clearing-of-derivatives/Response-to-Feedback-on-Draft-Regulations-for-Mandatory-Clearing-of-Derivatives-Contracts.pdf.
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1. Data Analysis
    Against this regulatory backdrop, clearing rates for CHF SARON OIS 
and SGD SORA OIS are already high. The Commission estimates that more 
than 97% of notional transacted in these rates each month between 
November 2021 and April 2022 was cleared.\101\
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    \101\ The data referenced is from Commission's weekly swaps 
report data. In the NPRM, the Commission estimated that more than 
98% of notional transacted in these rates in each of November 2021, 
December 2021, and January 2022 was cleared. NPRM, 87 FR 32914-
32915.
---------------------------------------------------------------------------

    Furthermore, the Commission estimates that, as of April 29, 2022, 
there was $1,497 billion in outstanding notional in CHF SARON OIS, 
whereas there was $282 billion in outstanding notional in CHF LIBOR 
fixed-to-floating swaps.\102\ Similarly, the Commission estimates that, 
as of April 29, 2022, there was $558 billion in outstanding notional in 
SGD SORA OIS, and $248 billion in outstanding notional in SGD SOR-VWAP 
fixed-to-floating swaps.\103\ In comparison, as of January 28, 2022, 
there was $1,730 billion in outstanding notional in CHF SARON OIS and 
$686 billion in outstanding notional in CHF LIBOR fixed-to-floating 
swaps.\104\ Further, estimates as of the same date indicate there was 
$449 billion in outstanding notional in SGD SORA OIS and $307 billion 
in outstanding notional in SGD SOR-VWAP fixed-to-floating swaps.\105\
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    \102\ These outstanding notional figures are based on data for 
swaps that have been cleared at CME, LCH, or Eurex and reported to 
the CFTC under part 39 of the Commission's regulations. Commission 
staff compiled, processed, and reviewed the data presented in this 
rulemaking.
    \103\ Id.
    \104\ NPRM, 87 FR 32915.
    \105\ Id.
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    Comparing the January and April 2022 month-end estimates, there is 
a slight decline in outstanding notional in CHF SARON OIS, but a steep 
decline in outstanding notional for CHF LIBOR fixed-to-floating swaps. 
With respect to the SGD rates, there is a decline in outstanding 
notional for SGD SOR-VWAP fixed-to-floating swaps roughly proportional 
to the increase in outstanding notional for SGD SORA OIS. The 
Commission believes these numbers demonstrate that CHF LIBOR and SGD 
SOR-VWAP are steadily being replaced by their corresponding RFRs.
    Based on this data, it would appear that, since the time the 
Commission issued its NPRM, the CHF interest rate swap market has moved 
from comprising roughly one-half LIBOR swaps to only approximately one-
fifth LIBOR swaps. Additionally, while SGD SOR-VWAP is anticipated to 
continue until June 30, 2023, the transition to SGD SORA is well 
underway. Data presented in tables 2 and 3 below further illustrate 
that the CHF LIBOR and SGD SOR-VWAP swap markets have rapidly 
diminished as markets shift to swaps referencing RFRs. The Commission 
estimates that, in April 2022, there were no CHF LIBOR fixed-to-
floating swap transactions, and 39 SGD SOR-VWAP fixed-to-floating swap 
transactions (comprising $2 billion notional). The Commission also 
estimates that, in April 2022, there were 1,913 CHF SARON OIS 
transactions (comprising $91 billion notional) and 3,277 SGD SORA OIS 
transactions (comprising $124 billion notional).
2. Consideration of Comments
    In response to the NPRM, ISDA commented that the Commission should 
delay the update of the CHF-denominated interest rate swap clearing 
requirement until such time as the Swiss authorities issue a clearing 
mandate. The requirement to clear interest rate swaps denominated in 
Swiss francs has been in place under U.S. law since 2016.
    With regard to SGD-denominated interest rate swaps, the Commission 
did not receive any comments. Nor is the Commission aware of any 
concerns on the part of its fellow authorities with regard to update 
the clearing requirement to include SGD SORA OIS. The requirement to 
clear interest rate swaps denominated in SGD has been in place under 
U.S. law since 2016.
3. Inclusion of CHF SARON OIS and SGD SORA OIS
    The Commission is unaware of any risk-related or operational 
concerns that have arisen with regard to this requirement. In addition, 
to delay updating the Commission's existing interest rate swap clearing 
requirement for swaps denominated in these two currencies would limit 
the scope of the Commission's existing clearing requirement. It also 
would risk introducing unnecessary market confusion by unexpectedly 
changing the scope of the interest rate swap market that is required to 
be cleared.
    Swiss and European authorities generally have indicated that they 
are reviewing this matter and may act to require clearing of CHF SARON 
OIS under the laws of their respective jurisdictions at some point in 
the future. The Commission proceeded in 2016 under the Second 
Determination and now updates those regulations to further the 
extensive work pursuant to a public-private partnership that has taken 
place to prepare the interest rate swap markets for IBOR conversions. 
While Singaporean authorities have not yet amended their regulations, a 
similar justification exists with regard to updating the SGD-
denominated interest rate swap clearing requirement.

D. RFR-IBOR Basis Swaps

    Based on responses to the RFI, as well as ACLI's comment, the 
Commission is not adding any new requirements to clear RFR-linked basis 
swaps at this time. These swaps are used primarily to move out of IBOR 
swap positions and into RFR swap positions.\106\ The Commission 
recognizes the added flexibility RFR-linked basis swaps offer market 
participants, but will continue to monitor their use as the IBOR 
transition process reaches its conclusion. Such monitoring will focus 
on volumes of RFR-linked basis swaps after the date on which IBOR rates 
cease publication.
---------------------------------------------------------------------------

    \106\ RFR-linked basis swaps offered for clearing are generally 
RFR-IBOR basis swaps. See ACLI's RFI response letter (``We also do 
not believe that SOFR-LIBOR basis swaps should be added to the 
clearing requirement due to low liquidity and limitations on 
electronic execution. We expect SOFR-LIBOR basis swaps to require 
bilateral OTC treatment for their limited and dwindling use 
cases.''); ISDA's RFI response letter (``Due to low liquidity, we 
think SOFR-LIBOR basis swaps should not be subject to mandatory 
clearing.''). RFI response letters are available at https://comments.cftc.gov/PublicComments/ReleasesWithComments.aspx.
---------------------------------------------------------------------------

V. Determination Analysis for RFR OIS

    The Commission is amending its interest rate swap clearing 
requirement to include OIS referencing RFRs by adopting a new clearing 
requirement determination. The Commission has completed a review of the 
current RFR OIS offered for clearing and has considered the specific 
statutory factors required to make a new clearing requirement 
determination.

A. General Description of Information Considered

    CME, LCH, and Eurex provided the Commission with regulation Sec.  
39.5(b)

[[Page 52194]]

submissions relating to RFR OIS.\107\ In addition to the DCOs' 
submissions, the Commission looks to the ability of each DCO to clear 
RFR OIS, DCO swap data, swap data repository (SDR) data, publicly 
available data, the rule frameworks and risk management policies of 
each DCO, and information provided through public comment.
---------------------------------------------------------------------------

    \107\ Regulation Sec.  39.5(b) submissions from DCOs are 
available on the Commission's website, www.cftc.gov, under DCO Swaps 
Submissions.
---------------------------------------------------------------------------

    This clearing requirement determination is distinguishable from 
prior determinations insofar as it responds to a public and private 
sector, consensus-driven market event that has resulted, or will 
result, in liquidity shifting to new benchmark rates from rates that 
have become, or will soon become, unavailable. In that sense, central 
clearing in the RFR OIS markets, which rely on benchmark rates that are 
less susceptible to manipulation, may offer unique benefits that prior 
interest rate swap market clearing did not.\108\ As a result, and in 
light of the quick pace of market adoption and DCOs' willingness to 
provide clearing for a wide variety of RFR swaps, the RFR interest rate 
swap markets are prepared for this clearing requirement determination.
---------------------------------------------------------------------------

    \108\ A discussion of the costs and benefits of this rulemaking 
appears in section VII below.
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B. Consistency With DCO Core Principles Under Section 2(h) of the CEA

    Section 2(h)(2)(D)(i) of the CEA requires the Commission to 
determine whether a clearing requirement determination is consistent 
with core principles for DCOs set forth in section 5b(c)(2) of the 
CEA.\109\ CME, LCH, and Eurex are registered DCOs, and currently clear 
the RFR OIS subject to this rulemaking. CME, LCH, and Eurex are 
required to comply with the DCO core principles (and applicable 
Commission regulations) with respect to the RFR OIS subject to this 
determination. These DCOs also are subject to the Commission's 
examination and risk surveillance programs.
---------------------------------------------------------------------------

    \109\ 7 U.S.C. 2(h)(2)(D)(i). The core principles address 
numerous issues, including financial resources, participant and 
product eligibility, risk management, settlement procedures, default 
management, system safeguards, reporting, recordkeeping, public 
information, and legal risk, among other subjects. 7 U.S.C. 7a-
1(c)(2). The Commission implemented the core principles through 
regulations that are applicable to registered DCOs. 17 CFR part 39.
---------------------------------------------------------------------------

    The Commission believes that CME, LCH, and Eurex will be able to 
maintain compliance with the DCO core principles and applicable 
Commission regulations following adoption of this clearing requirement 
determination. For the reasons discussed below, the Commission has 
determined that subjecting any of the RFR OIS to required clearing is 
unlikely to impair CME's, LCH's, or Eurex's ability to comply with the 
DCO core principles, along with applicable Commission regulations.\110\
---------------------------------------------------------------------------

    \110\ In their public comments, each DCO stated that requiring 
clearing of USD SOFR and other RFR OIS would not negatively affect 
their ability to comply with the DCO core principles and applicable 
Commission regulations. See RFI response letters from CME, LSEG, and 
Eurex, and NPRM comment letter from CME.
---------------------------------------------------------------------------

    While exempt DCOs are not subject to the DCO core principles per 
se, the Commission determined that each was subject to comparable, 
comprehensive supervision and regulation by its home country regulator 
before granting such DCOs an exemption from registration, as required 
by the CEA.\111\ With regard to the two exempt DCOs that offer RFR OIS 
for clearing, namely, JSCC and HKEX, the Commission expects that both 
DCOs will continue to comply with their home country law and 
regulations for purposes of this clearing requirement determination for 
RFR OIS.
---------------------------------------------------------------------------

    \111\ The Commission may exempt a DCO from registration if it 
determines that the DCO is subject to comparable, comprehensive 
supervision by appropriate government authorities in its home 
country. The Commission determined that JSCC demonstrated compliance 
with the requirements of the CEA with which it must comply in order 
to be eligible for an exemption from registration as a DCO. JSCC 
Order of Exemption from Registration, Oct. 26, 2015, at 1, available 
at https://www.cftc.gov/idc/groups/public/@otherif/documents/ifdocs/jsccdcoexemptorder10-26-15.pdf; JSCC Amended Order of Exemption from 
Registration, May 15, 2017, at 1, available at https://www.cftc.gov/sites/default/files/idc/groups/public/@otherif/documents/ifdocs/jsccdcoexemptamdorder5-15-17.pdf. Likewise, HKEX is an exempt DCO 
that the Commission determined has demonstrated compliance with the 
requirements of the CEA. OTC Clearing Hong Kong Limited Order of 
Exemption from Registration, Dec. 21, 2015, at 1, available at 
https://www.cftc.gov/sites/default/files/idc/groups/public/@otherif/documents/ifdocs/otccleardcoexemptorder12-21-15.pdf.
---------------------------------------------------------------------------

    As outlined in the summary of comments, the Commission's 
conclusions regarding the DCOs' ability to remain in compliance with 
applicable regulations, as well as sound risk management practices, is 
supported by commenters.\112\ No commenter raised any concern regarding 
a registered or an exempt DCO maintaining its ability to clear the 
interest rate swaps that it offers for clearing. The Commission also 
notes the importance of its ongoing examination and risk surveillance 
programs for all registered DCOs, as well as its ability to work with 
fellow authorities to ensure DCOs located outside the United States 
remain in compliance with the highest standards. In 2016, the 
Commission explained the rigor of the DCO registration and exemption 
processes, along with subsequent examination and risk surveillance 
scrutiny that DCOs receive. These processes remain in place and have 
been enhanced over the intervening years.\113\
---------------------------------------------------------------------------

    \112\ See, e.g., comment letters from CME, CCP12, Citadel, ISDA, 
JSCC, and MFA.
    \113\ Second Determination, 81 FR 71207-71208. In particular, 
Commission staff monitors the risks posed to and by DCOs, clearing 
members, and market participants, including market risk, liquidity 
risk, credit risk, and concentration risk with the objective (1) to 
identify positions in cleared products subject to the Commission's 
jurisdiction that pose significant financial risk; and (2) to 
confirm that these risks are being appropriately managed.
---------------------------------------------------------------------------

    Clearing the RFR OIS swaps subject to this determination does not 
pose financial or legal risks that are materially distinguishable from 
those posed by the IBOR interest rate swaps that the Commission 
required to be cleared in 2012 and 2016 and that DCOs have been 
offering for clearing for over a decade. For additional information 
regarding the ability of DCOs and exempt DCOs to clear these swaps, see 
the discussion of Factor II in the Commission's determination analysis 
below.

C. Conclusions Regarding Consideration of Section 2(h)'s Five Statutory 
Factors

    Set forth below is the Commission's consideration of the five 
factors set forth in section 2(h)(2)(D)(ii) of the CEA as they relate 
to all OIS being added to the interest rate swap clearing requirement, 
which includes OIS (i) denominated in USD and referencing SOFR; (ii) 
denominated in GBP and referencing SONIA; (iii) denominated in CHF and 
referencing SARON; (iv) denominated in JPY and referencing TONA; (v) 
denominated in EUR and referencing [euro]STR; and (vi) denominated in 
SGD and referencing SORA.\114\
---------------------------------------------------------------------------

    \114\ The Commission is conducting this analysis only with 
respect to the swaps that are being added to the clearing 
requirement under this determination. Removing swaps that are no 
longer offered for clearing from Commission regulation Sec.  50.4 is 
not considered in this analysis.

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[[Page 52195]]

1. Factor (I)--Outstanding Notional Exposures and Trading Liquidity
    Liquidity has shifted, and continues to shift, from swaps 
referencing IBORs to swaps referencing RFRs. The first of the five 
factors under section 2(h)(2)(D)(ii) of the CEA requires the Commission 
to consider ``the existence of significant outstanding notional 
exposures, trading liquidity, and adequate pricing data'' related to 
``a submission made [by a DCO].'' \115\ The Commission reviewed data 
from multiple sources, including but not limited to data from SDRs, 
data from DCOs, and other, publicly available data (e.g., data 
published by ISDA). For purposes of this rulemaking, the Commission 
principally considered notional exposures and trading liquidity based 
on the Commission's own collected data.
---------------------------------------------------------------------------

    \115\ 7 U.S.C. 2(h)(2)(D)(ii).
---------------------------------------------------------------------------

a. Outstanding Notional Exposures and Trading Liquidity
    The Commission reviewed data to determine whether there is an 
active market for the swap, including whether there is a measurable 
amount of notional exposure and whether the swap is traded regularly as 
reflected by trade count. The data presented in the NPRM and below 
indicates that there is sufficient outstanding notional exposure and 
trading liquidity in RFR OIS to support a clearing requirement 
determination.\116\ Specifically, the data generally demonstrates that 
there is significant activity in new USD SOFR, GBP SONIA, EUR 
[euro]STR, CHF SARON, JPY TONA, and SGD SORA OIS trading. The 
Commission compiled the data used in tables 2-5 below from transaction 
data collected under part 45 of the Commission's regulations.\117\ This 
analysis also supports a DCO's ability to adequately risk manage the 
swap.
---------------------------------------------------------------------------

    \116\ Data considered includes all material presented in the 
NPRM along with updated information presented in this final rule.
    \117\ The data presented in these tables is the same as the data 
used to create the Commission's weekly swaps report. This data 
represents only those swaps that are reported to the CFTC's 
registered SDRs by swap market participants. The Commission's weekly 
swaps report currently incorporates data from three SDRs (CME Group 
SDR, DTCC Data Repository, and ICE Trade Vault). The raw SDR data 
has been filtered to represent, as accurately as possible, the 
market-facing trades that occur and excludes certain inter-affiliate 
transactions. For more information about the data components in the 
weekly swaps report, please visit the CFTC's web page available at: 
https://www.cftc.gov/MarketReports/SwapsReports/index.htm.
---------------------------------------------------------------------------

    In Table 2 below, the Commission provides estimates of notional 
transacted by month for various categories of RFR OIS, and IBOR fixed-
to-floating and basis swaps, for the period beginning November 1, 2021, 
and ending April 30, 2022. The data in Table 2 generally indicates 
significant, and relatively steady or increasing, amounts of notional 
transacted in RFR OIS from November 2021 through April 2022. The data 
also illustrates that there was comparatively little notional 
transacted during the same time period in fixed-to-floating swaps 
referencing IBORs that ceased publication or became nonrepresentative 
in December 2021 and January 2022.
    Significant amounts of notional were transacted in USD LIBOR fixed-
to-floating swaps. In the NPRM, the Commission observed that while 
notional traded per month in USD SOFR OIS nearly doubled between 
December 2021 and January 2022, the amount of such notional transacted 
in January 2022 was still less than half that of the amount of notional 
transacted during the same month in USD LIBOR fixed-to-floating swaps. 
However, as shown below, in April 2022, notional transacted in USD SOFR 
OIS outpaced notional transacted in USD LIBOR fixed-to-floating swaps. 
Thus, while the transition of liquidity from USD LIBOR fixed-to-
floating swaps to USD SOFR OIS is not yet complete, it is well 
underway.

                                     Table 2--Estimated Notional Transacted
                                              [USD billions] \118\
----------------------------------------------------------------------------------------------------------------
                                      November     December     January      February
              Product                   2021         2021         2022         2022      March 2022   April 2022
----------------------------------------------------------------------------------------------------------------
USD SOFR OIS......................       $2,384       $2,011       $3,918       $5,008       $6,439       $4,807
USD LIBOR Fixed-to-Floating Swaps.        6,674        4,409        9,598        6,708        6,480        4,470
USD LIBOR-LIBOR Basis Swaps.......        1,049          602          292          476          626          490
EUR [euro]STR OIS.................        3,394        2,022        3,488        7,716        7,706        7,371
EUR EONIA OIS.....................            2            8            0            5            0            7
CHF SARON OIS.....................          208          108          130          152          164           91
CHF LIBOR Fixed-to-Floating Swaps.           62            0            0            0            0            0
GBP SONIA OIS.....................        5,852        3,151        4,149        4,956        4,458        2,629
GBP LIBOR Fixed-to-Floating Swaps.          340          205            2            2            1            0
JPY TONA OIS......................          425          360          377          434          576        1,372
JPY LIBOR Fixed-to-Floating Swaps.           45           15            0            2            2            1
SGD SORA OIS......................           74           41          119           97          156          124
SGD SOR Fixed-to-Floating Swaps...            8            3            5            9            5            2
----------------------------------------------------------------------------------------------------------------

    Table 3 that follows this paragraph provides estimates of trade 
counts for the same categories of RFR and IBOR swaps during the same 
six-month period. The data in Table 3 indicates that, with regard to 
RFR OIS, monthly trade count generally increased or was relatively 
steady between November 2021 and April 2022, with an especially 
pronounced increase in the number of USD SOFR OIS transactions. 
Conversely, trade counts for swaps referencing IBORs that ceased or 
became nonrepresentative in December 2021 and January 2022 dropped off 
precipitously by January 2022. While there were still a significant 
number of USD LIBOR fixed-to-floating swap transactions during the six-
month period that Table 3 measures, the monthly trade count for such 
transactions declined significantly during that period. Similarly, the 
monthly trade count for SGD SOR-VWAP fixed-to-floating swaps declined 
significantly between November 2021 and April 2022.
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    \118\ The data in Table 2 is based on the Commission's weekly 
swaps report data. In this table, a notional figure of $0 billion 
indicates that the notional transacted during a given time period 
was less than $1 billion.

[[Page 52196]]



                                      Table 3--Estimated Trade Count \119\
----------------------------------------------------------------------------------------------------------------
                                      November     December     January      February
              Product                   2021         2021         2022         2022      March 2022   April 2022
----------------------------------------------------------------------------------------------------------------
USD SOFR OIS......................       18,484       19,110       41,728       45,696       66,644       54,439
USD LIBOR Fixed-to-Floating Swaps.       48,245       29,309       30,749       25,061       27,284       20,184
USD LIBOR-LIBOR Basis Swaps.......        1,025          831          329          384          690          477
EUR [euro]STR OIS.................        8,415        5,420        8,962       14,222       16,957       12,341
EUR EONIA OIS.....................            7            1            0            3            0            3
CHF SARON OIS.....................        2,698        1,574        2,283        2,775        3,380        1,913
CHF LIBOR Fixed-to-Floating Swaps.          390           19            0            0            0            0
GBP SONIA OIS.....................       24,275       12,913       17,654       21,139       21,396       14,656
GBP LIBOR Fixed-to-Floating Swaps.        2,061        1,286           12           33            5            2
JPY TONA OIS......................        5,311        4,639        5,141        6,227        7,859        6,692
JPY LIBOR Fixed-to-Floating Swaps.          577           69            9           26           22           17
SGD SORA OIS......................        2,422        1,846        3,794        3,715        4,652        3,277
SGD SOR Fixed-to-Floating Swaps...          197           94           69          143           77           39
----------------------------------------------------------------------------------------------------------------

    Table 4 that follows this paragraph presents estimates of the 
percentage of notional cleared for the RFR OIS subject to this 
determination, based on notional transacted by month during the period 
beginning November 1, 2021, and ending April 30, 2022. The data in 
Table 4 illustrates that, with respect to the RFR OIS, significant 
amounts of notional are already being cleared voluntarily. The 
proportion of notional transacted each month from November 2021 through 
April 2022 that was cleared was consistently high--approaching 100%--
with regard to OIS referencing each of USD SOFR, GBP SONIA, EUR 
[euro]STR, CHF SARON, JPY TONA, and SGD SORA.
---------------------------------------------------------------------------

    \119\ The data in Table 3 is based on the Commission's weekly 
swaps report data.
    \120\ The data in Table 4 is based on the Commission's weekly 
swaps report data.

                                                    Table 4--Estimated Percentage of Notional Cleared
                                                      [Based on notional transacted by month] \120\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           November 2021   December 2021   January 2022    February 2022
                           OIS                                  (%)             (%)             (%)             (%)       March 2022 (%)  April 2022 (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
USD SOFR................................................            96.3            94.9            95.1            96.0            95.3            96.2
GBP SONIA...............................................            98.8            98.7            97.8            98.1            98.2            97.6
EUR [euro]STR...........................................            99.0            99.2            97.6            99.0            98.4            98.9
CHF SARON...............................................            99.6            98.1            99.2            98.9            99.7            98.4
JPY TONA................................................            96.6            98.7            98.0            98.1            98.5            99.3
SGD SORA................................................            98.2            98.6            98.7            97.9            98.0            98.9
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Table 5 that follows this paragraph presents a breakdown of 
notional transacted and trade count for the period beginning April 1, 
2022 and ending April 30, 2022, by tenor, for the relevant RFR OIS. 
Table 5 illustrates that RFR OIS are being cleared across a wide range 
of maturities. By notional and trade count, most clearing activity 
occurs in RFR OIS dated between three months and 15 years. However, 
with respect to USD SOFR and GBP SONIA OIS in particular, there is also 
significant clearing activity in swaps dated 15 years or greater.
---------------------------------------------------------------------------

    \121\ The data in Table 5 is based on the Commission's weekly 
swaps report data. Tenor length is approximate. In Table 5, a 
notional figure of $0 billion USD indicates that the notional 
transacted during a given time period was less than $1 billion.

                          Table 5--Estimated Cleared Notional and Trade Count by Tenor
                                       [April 2022 transaction data] \121\
----------------------------------------------------------------------------------------------------------------
                                                                               Notional cleared
                     OIS                                   Tenor                (USD billions)      Trade count
----------------------------------------------------------------------------------------------------------------
USD SOFR....................................  7 days-3 months...............                $282             384
                                              3-6 months....................                 230             463
                                              6 months-1 year...............                 211             853
                                              1-5 years.....................               1,900          13,507
                                              5-15 years....................               1,736          27,698
                                              >15 years.....................                 264           8,752
GBP SONIA...................................  7 days-3 months...............                 548             351
                                              3-6 months....................                 624             391
                                              6 months-1 year...............                 509             364
                                              1-5 years.....................                 407           3,101
                                              5-15 years....................                 410           7,508
                                              >15 years.....................                  66           2,600
EUR [euro]STR...............................  7 days-3 months...............                 735             364
                                              3-6 months....................               3,128           1,491

[[Page 52197]]

 
                                              6 months-1 year...............               2,300           1,318
                                              1-5 years.....................                 831           4,440
                                              5-15 years....................                 260           3,652
                                              >15 years.....................                  33             817
CHF SARON...................................  7 days-3 months...............                   5               3
                                              3-6 months....................                   6               7
                                              6 months-1 year...............                  10              29
                                              1-5 years.....................                  27             417
                                              5-15 years....................                  40           1,298
                                              >15 year......................                   2             146
JPY TONA....................................  7 days-3 months...............                   3               3
                                              3-6 months....................                  14              25
                                              6 months-1 year...............                  10              30
                                              1-5 years.....................                 121             944
                                              5-15 years....................               1,182           3,646
                                              >15 years.....................                  33           1,887
SGD SORA....................................  7 days-3 months...............                   6              29
                                              3-6 months....................                   4              20
                                              6 months-1 year...............                  12              86
                                              1-5 years.....................                  75           1,383
                                              5-15 years....................                  26           1,720
                                              >15 years.....................                   0               5
----------------------------------------------------------------------------------------------------------------

    In addition to this transaction-level data, Table 6 that follows 
this paragraph presents open swaps data illustrating outstanding 
notional in the RFR OIS subject to this determination.
---------------------------------------------------------------------------

    \122\ The data in Table 6 represents swaps that have been 
cleared at CME, LCH, or Eurex and reported to the CFTC under part 39 
of the Commission's regulations.

        Table 6--Outstanding Notional as of April 29, 2022 \122\
------------------------------------------------------------------------
                                                   Outstanding notional
                      OIS                             (USD billions)
------------------------------------------------------------------------
USD SOFR.......................................                  $16,104
GBP SONIA......................................                   21,885
EUR [euro]STR..................................                   16,099
CHF SARON......................................                    1,497
JPY TONA.......................................                    4,035
SGD SORA.......................................                      558
------------------------------------------------------------------------

    Finally, to demonstrate that clearing has expanded beyond the 
short-dated maturities for USD SOFR fixed-to-floating swaps, in 
particular, the data in Table 7 that follows this paragraph reflects 
the total volumes of cleared outstanding notional by tenor for USD 
LIBOR fixed-to-floating swaps and USD SOFR OIS. The Commission has 
determined that the data collectively indicates sufficient outstanding 
notional exposures and regular trading activity in RFR OIS for purposes 
of demonstrating the liquidity necessary for DCOs to risk manage these 
products and to support a clearing requirement. The Commission 
anticipates that RFR OIS notional exposures and trading activity will 
increase over time as markets continue to adopt RFR OIS in place of 
swaps referencing IBORs that have, or will by mid-2023, become 
unavailable. In addition to the extensive data presented and analyzed 
in this rulemaking, and as discussed in detail below, the Commission is 
basing this determination on its ongoing supervision of DCOs and its 
monitoring of the cleared interest rate swap market for purposes of 
risk surveillance.
---------------------------------------------------------------------------

    \123\ The data in Table 7 represents swaps that have been 
cleared at CME, LCH, or Eurex and reported to the CFTC under part 39 
of the Commission's regulations.

        Table 7--Outstanding Notional as of April 26, 2022 \123\
------------------------------------------------------------------------
                                                       Notional cleared
           Swap class                    Tenor          (USD billions)
------------------------------------------------------------------------
USD LIBOR Fixed-to-Floating       0-1 months........                 $67
 Swaps.
                                  >1 month to 3                      247
                                   months.
                                  >3 months to 1                     901
                                   year.
                                  >1-3 years........               1,674
                                  >3-5 years........                 703

[[Page 52198]]

 
                                  >5-7 years........                 439
                                  >7-10 years.......                 379
                                  >10-15 years......                 233
                                  >15-25 years......                 276
                                  >25-35 years......                 124
                                  >35 years.........                  14
USD SOFR OIS....................  0-1 months........                  12
                                  >1 month to 3                      121
                                   months.
                                  >3 months to 1                     807
                                   year.
                                  >1-3 years........               1,274
                                  >3-5 years........                 282
                                  >5-7 years........                 123
                                  >7-10 years.......                 149
                                  >10-15 years......                  59
                                  >15-25 years......                  62
                                  >25-35 years......                  44
                                  >35 years.........                   5
------------------------------------------------------------------------

b. Pricing Data
    The Commission regularly reviews pricing data for the RFR OIS 
subject to this determination and has found that these OIS are capable 
of being priced off of deep and liquid markets. Commission staff 
regularly receives and reviews margin model information from DCOs that 
includes particular procedures that they follow to ensure that market 
liquidity exists in order to close out a position in a stressed market, 
including the time required to determine a price.\124\ Because of the 
stability of access to pricing data from these markets, the pricing 
data for the OIS that are the subject of this determination is 
generally viewed as being reliable. Based on this information, the 
Commission has determined that there is adequate pricing data to 
support required clearing of RFR OIS.
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    \124\ As discussed further below, Commission staff receives and 
reviews margin model information from the registered DCOs that clear 
these swaps, including information regarding how those DCOs would 
ensure that liquidity exists in order to exit a position in a 
stressed market. For purposes of the first statutory factor, the 
Commission considers possible periods of market stress, particularly 
when assessing whether there is sufficient liquidity and pricing 
data. Second Determination, 81 FR 71210 (noting that the Commission 
considered ``the effect a new clearing mandate will have on a DCO's 
ability to withstand stressed market conditions'' as part of its 
analysis in connection with the Second Determination).
---------------------------------------------------------------------------

    In addition, as part of their regulation Sec.  39.5(b) submissions, 
the registered DCOs that clear the RFR OIS subject to this 
determination provided information to support the Commission's 
conclusion that there exists adequate pricing data to justify a 
clearing requirement determination. In its regulation Sec.  39.5(b) 
submissions, CME provided data regarding transaction volumes and market 
participation, and LCH provided information on daily volumes, and noted 
that pricing data for each of the RFR OIS that it clears is available 
from brokers. LCH also noted the range of maturities for which quotes 
can be obtained from brokers. In its submissions to the Commission, 
Eurex provided relevant language from its FCM Regulations and Clearing 
Conditions regarding determination of daily pricing. Eurex stated that 
it believes its reliance on Reuters for pricing data is accurate 
because it is a readily available and conventional source. Eurex noted 
that it also can receive pricing data from Bloomberg and has multiple 
backup sources.
c. Comments Received Regarding Factor (I)
    Commenters provided support for the conclusion that sufficient 
liquidity and pricing data exists in RFR OIS markets to withstand 
stressed market conditions. Commenters also supported the DCOs' 
representations that adequate pricing data exists for DCO risk and 
default management of swaps referencing RFRs. CCP12 noted that SOFR 
liquidity improved materially in the past 12 months as a function of 
SOFR First and subsequent restrictions on new USD LIBOR activity that 
began on January 1, 2022. Citadel agreed that the data in the NPRM 
clearly demonstrates that there are significant outstanding notional 
amounts in USD SOFR OIS, and that trading in USD SOFR OIS continues to 
increase. Citadel also cited more recent data demonstrating that 
trading in USD SOFR OIS has steadily increase since January 2022, 
noting that over half of the USD interest rate derivatives market 
references SOFR as of May 2022. Citadel stated that this data 
demonstrates that significant outstanding notional exposures, trading 
liquidity, and adequate pricing data are present in the USD SOFR OIS 
market to support a clearing requirement determination.
    CME stated that adequate pricing data for risk and default 
management purposes is available across all stated termination date 
ranges, and stated that CME is capable of offering uninterrupted 
clearing services for all instruments it clears even during times of 
market stress.
    JSCC likewise noted that the JPY swaps market has now fully 
transitioned away from JPY LIBOR interest rate swaps and that as of the 
end of April 2022, JPY TONA OIS accounted for 97% of DV01 traded in the 
under two-year tenor category, in the interest rate derivatives market. 
Additionally, JSCC stated that, because the JPY swaps market has fully 
migrated from JPY LIBOR interest rate swaps to JPY TONA OIS, JSCC 
believes there is adequate pricing data in a liquid market across 
different tenors for DCO risk and default management of JPY TONA OIS. 
JSCC also regularly holds default management fire drills to verify that 
its default management process is robust and would be capable of 
managing a default in stressed market conditions.
    Based on the data presented and analyzed above, and in light of the 
comments received, the Commission has determined that there are 
sufficient outstanding notional exposures, trading liquidity, and 
pricing information for the RFR OIS subject to this rulemaking to 
support a clearing requirement determination.

[[Page 52199]]

2. Factor (II)--Availability of Rule Framework, Capacity, Operational 
Expertise and Resources, and Credit Support Infrastructure
    Section 2(h)(2)(D)(ii)(II) of the CEA requires the Commission to 
consider the availability of rule framework, capacity, operational 
expertise and resources, and credit support infrastructure to clear the 
classes of swaps on terms that are consistent with current material 
terms and trading conventions. Based on their regulation Sec.  39.5(b) 
submissions, as well as ongoing oversight, the Commission has 
determined that each of the registered DCOs has developed rule 
frameworks, capacity, operational expertise and resources, and credit 
support infrastructure to clear the interest rate swaps they currently 
clear, including the RFR OIS subject to this rulemaking, on terms that 
are consistent with the material terms and trading conventions on which 
those swaps are being traded. The Commission subjects each of the 
registered DCOs to ongoing review, risk surveillance, and examination 
to ensure compliance with the CEA's core principles and Commission 
regulations, including with respect to the submitted swaps.\125\
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    \125\ In order to be registered with the Commission, a DCO must 
comply with the DCO core principles under section 5b of the CEA and 
applicable Commission regulations. Once a DCO is registered with the 
Commission, Commission staff periodically examine each DCO to 
determine whether the DCO is maintaining compliance with the CEA and 
Commission regulations. In addition, Commission staff monitors the 
risks posed to and by DCOs, clearing members, and market 
participants, and conducts independent stress testing.
---------------------------------------------------------------------------

    Each of the registered DCOs has procedures pursuant to which they 
regularly review their RFR OIS clearing in order to confirm or adjust 
margin and other risk management tools. When reviewing each of the 
registered DCOs' risk management tools, the Commission considers 
whether the DCO is able to manage risk during stressed market 
conditions to be one of the most significant considerations. Each of 
the registered DCOs has developed detailed risk management practices, 
including a description of risk factors considered when establishing 
margin levels.\126\ The Commission reviews and oversees each of the 
registered DCOs' risk management practices and development of margin 
models. Margin models are further refined by stress testing and daily 
back testing. The Commission also considers stress testing and back 
testing when assessing whether each of the registered DCOs can clear 
swaps safely during stressed market conditions.
---------------------------------------------------------------------------

    \126\ E.g., historical volatility, intraday volatility, seasonal 
volatility, liquidity, open interest, market concentration, and 
potential moves to default. For additional information, each of CME, 
LCH, and Eurex has published a document outlining its compliance 
with the Principles for Financial Market Infrastructures (PFMI) 
published by the Committee on Payments and Market Infrastructures 
(CPMI; formerly, CPSS) and IOSCO. CPSS-IOSCO Principles for 
Financial Market Infrastructure (PFMI), Apr. 16, 2012, available at 
https://www.bis.org/cpmi/publ/d101.htm. See CME, CME Clearing: PFMI 
Disclosure, Nov. 30, 2021, available at https://www.cmegroup.com/clearing/risk-management/files/cme-clearing-principles-for-financial-market-infrastructures-disclosure.pdf; LCH PFMI Self-
Assessment 2020, available at https://www.lch.com/system/files/media_root/CPMI%20IOSCO%20Self%20Qualitative%20Assessment%20of%20LCH%20LTD_1.pdf
; and Eurex Clearing AG, Assessment of Eurex Clearing AG's 
compliance against the PFMI and disclosure framework associated to 
the PFMI, Feb. 16, 2021, available at https://www.eurex.com/resource/blob/2446522/22f4869a8649f15b54a1e86bf635c63c/data/cpss-iosco-pfmi_assessment_2020_en.pdf.
---------------------------------------------------------------------------

    The registered DCOs clearing the RFR OIS subject to this 
determination design and conduct stress tests, and Commission staff 
monitors development of these stress tests. Each of the registered DCOs 
also conducts reverse stress tests to ensure that their default funds 
are sized appropriately and to ascertain whether any changes to their 
financial resources or margin models are necessary.\127\ Commission 
staff monitors markets in real-time and also performs stress tests 
against the DCOs' margin models and may recommend changes to a margin 
model. The registered DCOs conduct back testing on a daily basis to 
ensure that the margin models capture market movements for member 
portfolios.\128\
---------------------------------------------------------------------------

    \127\ Reverse stress testing uses plausible market movements 
that could deplete guaranty funds and cause large losses for top 
clearing members. For example, CME, LCH, and Eurex may use scenarios 
for stress testing and reverse stress testing that capture, among 
other things, historical price volatilities, shifts in price 
determinants and yield curves, multiple defaults over various time 
horizons, and simultaneous pressures in funding and asset markets.
    \128\ Back testing tests margin models to determine whether they 
are performing as intended, and checks whether margin models produce 
margin coverage levels that meet the DCO's established standards. 
Back testing helps CME, LCH, and Eurex determine whether their 
clearing members satisfy the required margin coverage levels and 
liquidation timeframe.
---------------------------------------------------------------------------

    Before offering a new product for clearing, each of the DCOs 
considers stress tests and back testing results in determining whether 
it has sufficient financial resources to offer new clearing services. 
The Commission also reviews initial margin models and default resources 
to ensure that the DCOs can risk manage their portfolio of products 
offered for clearing. This combination of stress testing and back 
testing in anticipation of offering swaps for clearing provides the 
registered DCOs with greater certainty that their offerings will be 
risk-managed appropriately. The process of stress testing and back 
testing also gives DCOs practice incorporating new swaps into their 
models. In addition to the Commission's surveillance and oversight, 
each of the registered DCOs continues to monitor and test their margin 
models over time so that they can operate effectively in stressed and 
non-stressed market environments. Registered DCOs review and validate 
their margin models regularly.\129\
---------------------------------------------------------------------------

    \129\ Exempt DCOs, such as JSCC and HKEX, are subject to 
oversight by their home country regulators, along with regulations 
regarding risk management. For instance, JSCC is subject to the 
supervision of JFSA. JSCC, Principles for Financial Market 
Infrastructures Disclosure, Mar. 31, 2021, at 19, available at 
https://www.jpx.co.jp/jscc/en/company/cimhll0000000osu-att/JSCC_PFMI_Disclosure_20210331_EN.pdf. In granting JSCC's order of 
exemption, the Commission determined that JSCC is subject to 
comparable, comprehensive supervision and regulation by its home 
country regulator. See JSCC Order of Exemption from Registration, 
Oct. 26, 2015, at 1, available at https://www.cftc.gov/idc/groups/public/@otherif/documents/ifdocs/jsccdcoexemptorder10-26-15.pdf; 
JSCC Amended Order of Exemption from Registration, May 15, 2017, at 
1, available at https://www.cftc.gov/sites/default/files/idc/groups/public/@otherif/documents/ifdocs/jsccdcoexemptamdorder5-15-17.pdf. 
Among other requirements, JSCC must provide the Commission with an 
annual certification that it continues to observe the PFMI in all 
material respects, and the Commission must receive annually, at 
JSCC's request, a certification from JFSA that JSCC is in good 
regulatory standing. Likewise, HKEX is overseen by HKMA, which 
provides ongoing supervision, and must meet the same requirements 
for an exempt DCO as JSCC. See HKFE Clearing Corporation Limited, 
Principles for Financial Market Infrastructures Disclosure, Feb. 
2021, available at https://www.hkex.com.hk/-/media/HKEX-Market/Services/Clearing/Listed-Derivatives/PFMI/HKCC_PFMI_Disclosure_Feb2021.pdf?la=en.
---------------------------------------------------------------------------

    Each DCO monitors and manages credit risk exposure by asset class, 
clearing member, account, or individual customer. They manage credit 
risk by establishing position and concentration limits based on product 
type or counterparty. These limits reduce potential market risks so 
that DCOs are better able to withstand stressed market conditions. Each 
of the DCOs monitors exposure concentrations and may require additional 
margin deposits for clearing members with weak credit scores, with 
large or concentrated positions, with positions that are illiquid or 
exhibit correlation with the member itself, and/or where the member has 
particularly large exposures under stress scenarios. DCOs also can call 
for additional margin, on top of collecting initial and variation 
margin, to meet the current DCO exposure and protect against stressed 
market conditions.\130\
---------------------------------------------------------------------------

    \130\ As a general matter, any DCO offering RFR OIS for 
clearing, including exempt DCOs, would follow this risk management 
approach with regard to offering these swaps for clearing.

---------------------------------------------------------------------------

[[Page 52200]]

    In support of its ability to clear RFR OIS subject to this 
determination, CME's regulation Sec.  39.5(b) submissions cite to its 
rulebook to demonstrate the availability of rule framework, capacity, 
operational expertise and resources, and credit support infrastructure 
to clear interest rate swap contracts on terms that are consistent with 
the material terms and trading conventions on which the contracts are 
traded. LCH's submissions state that it has a well-developed rule 
framework and support infrastructure for clearing interest rate swaps, 
which it leverages to offer clearing services for RFR OIS. Eurex's 
submissions state that Eurex has a well-developed rule framework and 
support infrastructure for clearing RFR OIS. Eurex further states that 
it has the appropriate risk management, operations, and technology 
capabilities to ensure that it is able to liquidate positions in such 
swaps in an orderly manner in the event of a clearing member default, 
and that the RFR OIS are subject to margin and clearing fund 
requirements set forth in Eurex's FCM Regulations and Clearing 
Conditions.
    Commenters supported these positions. In particular, Citadel 
commented that it is clear that market participants, including FCMs, 
have the operational and technological infrastructure in place to 
support the clearing of USD SOFR OIS, pointing out that almost all USD 
SOFR OIS transactions are cleared. Citadel stated that this significant 
voluntary clearing activity demonstrates that market participants are 
confident in current DCO offerings.
    For all of these reasons, the Commission has determined that there 
are available rule frameworks, capacity, operational expertise and 
resources, and credit support infrastructures, consistent with material 
terms and trading conventions, to support the required clearing of the 
RFR OIS subject to this clearing requirement determination. The 
application of DCO risk management practices to the RFR OIS subject to 
this clearing requirement determination should ensure that the swaps 
subject to this rulemaking can be cleared safely, even during times of 
market stress.\131\
---------------------------------------------------------------------------

    \131\ For additional information related to this factor, please 
see the public disclosures made by CME, Eurex and LCH. CME, CME 
Clearing: Principles for Financial Market Infrastructures 
Disclosure, Nov. 30, 2021, available at https://www.cmegroup.com/clearing/risk-management/files/cme-clearing-principles-for-financial-market-infrastructures-disclosure.pdf; LCH Ltd., CPMI--
IOSCO Self-Assessment 2020, Mar. 31, 2020, available at https://www.lch.com/system/files/media_root/CPMI%20IOSCO%20Self%20Qualitative%20Assessment%20of%20LCH%20LTD_1.pdf
; Eurex, ``Assessment of Eurex Clearing AG's compliance against the 
CPMI-IOSCO Principles for financial market infrastructures (PFMI) 
and the disclosure framework associated to the PFMIs,'' Feb. 28, 
2022, available at https://www.eurex.com/resource/blob/2973806/422b675a412d96e3c8cf97a570b899a2/data/cpss-iosco-pfmi_assessment_2021_en.pdf. As explained above, similar disclosures 
are available for JSCC and HKEX.
---------------------------------------------------------------------------

3. Factor (III)--Effect on the Mitigation of Systemic Risk
    Section 2(h)(2)(D)(ii)(III) of the CEA requires the Commission to 
consider the effect of the clearing requirement on the mitigation of 
systemic risk in light of the size of the market for such contract and 
the resources of the DCO available to clear the contract. As presented 
in the data and discussion above, the Commission has concluded that the 
market for each RFR OIS subject to this determination is significant, 
and mitigating counterparty credit risk through clearing likely will 
reduce systemic risk in the interest rate swap market generally. While 
not every individual RFR OIS market has large outstanding notional 
exposures, each such market is important, and as liquidity shifts from 
IBOR swaps to RFR OIS, continuity of clearing for RFR OIS serves to 
reduce systemic risk.
    In its regulation Sec.  39.5(b) submissions, CME explains the 
benefits of centralized clearing, including freer counterparty credit 
lines, enhanced risk management, operational efficiencies, and ease of 
offsetting risk exposures. LCH's submissions note that clearing avoids 
complex bilateral relationships, provides for default management, and 
enhances transparency into the risks posed by swap positions. Eurex's 
submissions highlight the benefits of reduction of counterparty risk, 
margin and collateral efficiencies, protections for customer assets, 
and legal certainty. Each DCO's submissions indicate that they maintain 
adequate resources to clear the swaps that are the subject of this 
rulemaking. Additionally, JSCC noted that it has been clearing JPY TONA 
OIS since 2014 ``without facing any challenge from a governance, rule 
framework, operational, resourcing, or credit support infrastructure 
perspective.'' \132\
---------------------------------------------------------------------------

    \132\ JSCC Comment Letter.
---------------------------------------------------------------------------

    CME commented on the RFI that mitigation of systemic risk is one of 
the key advantages of centralized clearing over bilateral 
arrangements.\133\ Similarly, LSEG stated that ``a clearing requirement 
will mitigate systemic risk, making sure that USD SOFR risk moves from 
the bilateral space to the cleared market to the necessary extent.'' 
\134\ In its RFI response, Citadel noted that ``[a]pplying a clearing 
requirement to OTC derivatives referencing SOFR will ensure these 
markets develop as centrally-cleared markets,'' and further noted that 
``central clearing provides greater systemic risk mitigation than 
bilateral margining for uncleared swaps.'' \135\ TD Bank agreed that a 
clearing requirement for USD SOFR swaps ``might increase the clearing 
rate and therefore mitigate[] systemic risk even more,'' but TD Bank 
also noted that the ``bulk'' of USD SOFR swaps are already voluntarily 
cleared.\136\
---------------------------------------------------------------------------

    \133\ CME RFI Letter.
    \134\ LSEG RFI Letter.
    \135\ Citadel RFI Letter.
    \136\ TD Bank RFI Letter. See also Tradeweb RFI Letter (``The 
swap clearing and execution requirements under Title VII of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act have 
increased investor protections, improved market liquidity, and 
reduced systemic risk, especially in the dealer-to-customer market. 
It will be critical for the CFTC to maintain these market 
improvements as new swap transactions increasingly utilize 
alternative risk-free reference rates . . . .'').
---------------------------------------------------------------------------

    Commenters on the NPRM further supported these positions. CME, 
Citadel, ISDA, and MFA each described the importance of central 
clearing as a means of mitigating systemic risk. ACLI also noted the 
importance of central clearing.\137\ CME stated that the significant 
and rapid adoption of voluntary clearing of RFR OIS demonstrates the 
beneficial effects on mitigation of systemic risk in these products, 
noting that high levels of voluntary clearing mean that there is 
already a wide range of clearing members supporting clearing of these 
products. CME stated that it has sufficient diversity in clearing 
members, as well as the capability to default manage RFR OIS 
portfolios, regardless of the introduction of a clearing requirement. 
JSCC stated that amendments to the current interest rate swap clearing 
requirement to include swaps with RFRs would maintain the momentum in 
the shift from bilateral to cleared markets, which would enhance safety 
and transparency, and result in a reduction of systemic risk.
---------------------------------------------------------------------------

    \137\ ACLI's concerns about use of FCMs and allocation of 
capital for purposes of margin are discussed below.
---------------------------------------------------------------------------

    Centrally clearing the RFR OIS subject to this rulemaking through a 
registered or exempt DCO should reduce systemic risk by providing 
counterparties with daily mark-to-market valuations upon which to 
exchange variation margin pursuant to the DCO's risk management 
framework and requiring posting of initial margin to cover potential 
future exposures in the event of a default. In

[[Page 52201]]

addition, swaps transacted through a DCO are secured by the DCO's 
guaranty fund and other available financial resources, which are 
intended to cover extraordinary losses that would not be covered by 
initial margin.
    Central clearing was developed and designed to handle significant 
concentration of risk. Each of the DCOs that clears the RFR OIS covered 
by this rulemaking has a procedure for closing out and/or transferring 
a defaulting clearing member's positions and collateral.\138\ 
Transferring customer positions to solvent clearing members in the 
event of a default is critical to reducing systemic risk. DCOs are 
designed to withstand defaulting positions and to prevent a defaulting 
clearing member's loss from spreading further and triggering additional 
defaults. To the extent that introduction of an RFR OIS clearing 
requirement increases the number of clearing members and market 
participants in the interest rate swap market, then DCOs may find it 
easier to transfer positions from defaulting clearing members if there 
is a larger pool of potential clearing members to receive the 
positions.\139\
---------------------------------------------------------------------------

    \138\ For further discussion of treatment of customer and swap 
counterparty positions, funds, and property in the event of the 
insolvency of a DCO or one or more of its clearing members, please 
see Factor (V)--Legal certainty in the event of insolvency, in 
section V.C below.
    \139\ The Commission recognizes that with high rates of 
voluntary clearing RFR OIS at this time, the likelihood of adding 
additional clearing members and market participants in these swaps 
is limited.
---------------------------------------------------------------------------

    Each DCO has experience risk managing interest rate swaps, and the 
Commission believes that the DCOs have the necessary financial 
resources available to clear the RFR OIS that are the subject of this 
determination. In addition, the application of DCO risk management 
practices to the RFR OIS subject to this clearing requirement 
determination should ensure that the swaps subject to this rulemaking 
can be cleared safely.
    The RFR OIS data presented in this rulemaking indicates varying 
levels of activity, measured by outstanding notional amounts and trade 
counts. The Commission acknowledges that the data comes from various, 
limited periods of time that do not explicitly include periods of 
market stress. However, the Commission concludes that the data 
demonstrates sufficient regular trading activity and outstanding 
notional exposures in these RFR OIS to provide the liquidity necessary 
for DCOs to successfully risk manage these products and to support the 
adoption of a clearing requirement.
    Accordingly, the Commission determines that these DCOs would be 
able to manage the risk posed by clearing the RFR OIS required to be 
cleared pursuant to this determination. In addition, the central 
clearing of the RFR OIS that are added under this rulemaking serves to 
mitigate counterparty credit risk, thereby potentially reducing 
systemic risk. Having considered the comments and the likely effect on 
the mitigation of systemic risk, the Commission is issuing this 
determination to add these RFR OIS to the clearing requirement.
4. Factor (IV)--Effect on Competition
    Section 2(h)(2)(D)(ii)(IV) of the CEA requires the Commission to 
consider the effect on competition, including appropriate fees and 
charges applied to clearing. Of particular concern to the Commission is 
whether this determination would harm competition by creating, 
enhancing, or entrenching market power in an affected product or 
service market, or facilitating the exercise of market power.\140\ 
Market power is viewed as the ability to raise prices, including 
clearing fees and charges, reduce output, diminish innovation, or 
otherwise harm customers as a result of diminished competitive 
constraints or incentives.\141\
---------------------------------------------------------------------------

    \140\ First Determination, 77 FR 74313; Second Determination, 81 
FR 71220.
    \141\ First Determination, 77 FR 74313 (discussing market power 
as described under U.S. Department of Justice guidelines). See 
generally U.S. Department of Justice and the Federal Trade 
Commission, Horizontal Merger Guidelines (Horizontal Merger 
Guidelines) at section 1 (Aug. 19, 2010), available at https://www.justice.gov/sites/default/files/atr/legacy/2010/08/19/hmg-2010.pdf.
---------------------------------------------------------------------------

    The Commission has identified one putative service market as 
potentially affected by this clearing determination: a DCO service 
market encompassing those clearinghouses that currently clear the RFR 
OIS subject to this determination.\142\ This clearing requirement 
potentially could impact competition within the affected market. Of 
particular importance to whether any such impact is positive or 
negative, is: (1) whether the demand for these clearing services and 
swaps is sufficiently elastic that a small but significant price 
increase above competitive levels would prove unprofitable because 
users of the interest rate swap products and DCO clearing services 
would substitute other clearing services coexisting in the same 
market(s); and (2) the potential for new entry into this market. The 
availability of substitute clearing services to compete with those 
encompassed by this determination, and the likelihood of timely, 
sufficient new entry in the event prices do increase above competitive 
levels, each operate independently to constrain anti-competitive 
behavior.
---------------------------------------------------------------------------

    \142\ First Determination, 77 FR 74298; Second Determination, 81 
FR 71220. The DCO service market includes the registered and exempt 
DCOs that currently offer RFR OIS for clearing.
---------------------------------------------------------------------------

    Any competitive import likely would stem from the fact that the 
determination and regulations would remove the alternative of not 
clearing for RFR OIS subject to this rulemaking. The determination does 
not specify who may or may not compete to provide clearing services for 
the RFR OIS subject to this rulemaking, as well as those not required 
to be cleared.
    Removing the choice to enter into a swap without submitting it for 
clearing under this rulemaking is not determinative of negative 
competitive impact. Other factors, including the availability of other 
substitutes within the market or potential for new entry into the 
market, may constrain market power. The Commission does not foresee 
that the determination constructs barriers that would deter or impede 
new entry into a clearing services market,\143\ and the Commission 
anticipates this determination might foster an environment conducive to 
new entry. For example, the clearing determination may reinforce, if 
not encourage, growth in demand for clearing services. Demand growth, 
in turn, can enhance the sales opportunity, a condition hospitable to 
new entry.\144\ Moreover, to the extent that there are high rates of 
voluntary clearing in the RFR OIS subject to this determination 
already, a regulatory requirement to clear such swaps provides 
additional certainty that those high rates of clearing remain constant.
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    \143\ However, the Commission recognizes that (1) to the extent 
the clearing services market for the interest rate swaps identified 
in this rulemaking, after foreclosing uncleared swaps, would be 
limited to a concentrated few participants with highly aligned 
incentives, and (2) the clearing services market is insulated from 
new competitive entry through barriers (e.g., high sunk capital cost 
requirements, high switching costs to transition from embedded 
incumbents, and access restrictions), the determination could have a 
negative competitive impact by increasing market concentration.
    \144\ See, e.g., Horizontal Merger Guidelines, section 9.2 
(entry likely if it would be profitable which is in part a function 
of ``the output level the entrant is likely to obtain'').
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    Respondents to the RFI who provided feedback regarding the 
potential effect on competition due to a modified clearing requirement 
did not identify any potential negative effects. To the contrary, 
Citadel stated that applying a clearing requirement to OTC derivatives 
referencing USD SOFR would increase liquidity and competition, citing, 
among

[[Page 52202]]

other research, a study that found that ``the Commission's clearing and 
trading reforms led to a significant reduction in execution costs in 
the USD interest rate swap market, with market participants saving as 
much as $20 million-$40 million per day.'' \145\ RFI response letters 
from LSEG, Eurex, JSCC, and TD Bank similarly stated that they did not 
identify potential competition-related concerns.\146\
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    \145\ Citadel RFI response letter.
    \146\ LSEG RFI letter (``LCH does not believe that adopting a 
clearing requirement for a new product that references an 
alternative reference rate, or expanding the scope of an existing 
clearing requirement to cover additional maturities would create 
conditions that increase or facilitate an exercise of market power 
over clearing services by any DCO. Any clearing requirement that 
applies equally to all DCOs that provide clearing services for a 
product would not adversely affect competition.''); Eurex RFI letter 
(``Eurex Clearing believes there is healthy competition currently in 
the market for the clearing of swaps referencing the RFRs and, 
previously, the LIBORs. Eurex Clearing does not believe that 
adopting a clearing requirement for a new product that references an 
RFR or expanding the scope of the Clearing Requirement to cover 
additionally maturities would cause [adverse effects related to 
competition or an increase in the cost of clearing services].''); 
JSCC RFI letter (``In relation to TONA OIS, it has been accepted for 
clearing at 3 registered DCOs . . . . Therefore, we believe that 
replacing JPY-LIBOR with TONA OIS would not change (i) the existing 
competition for clearing services of JPY swaps nor (ii) the cost of 
clearing services, in any regard.''); and TD Bank RFI letter (``We 
do not perceive these issues [related to adverse competitive effects 
or increasing costs of clearing services] to come'' as a result of a 
clearing requirement for a new product that references an 
alternative reference rate or expanding the scope of the clearing 
requirement to cover additional maturities).
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    For the reasons described above and in light of the comments 
received, the Commission concludes that it has considered the effect of 
the updated clearing requirement on competition and found that it 
potentially could impact competition within the affected market, but 
anticompetitive behavior is likely to be constrained and demand for 
clearing services is expected to grow. Accordingly, the Commission 
reaffirms its conclusion stated in the NPRM that its consideration of 
competitiveness is sufficient to modify the existing interest rate swap 
clearing requirement to include the RFR OIS subject to this rulemaking.
5. Factor (V)--Legal Certainty in the Event of Insolvency
    Section 2(h)(2)(D)(ii)(V) of the CEA requires the Commission to 
consider the existence of reasonable legal certainty in the event of 
the insolvency of the relevant DCO or one or more of its clearing 
members with regard to the treatment of customer and swap counterparty 
positions, funds, and property. The Commission is issuing this clearing 
requirement determination based on its view that there is reasonable 
legal certainty regarding the treatment of customer and swap 
counterparty positions, funds, and property in connection with cleared 
swaps, including RFR OIS, in the event of the insolvency of the 
relevant DCO or one or more of the DCO's clearing members.
    The Commission believes that, in the case of a clearing member 
insolvency at CME, where the clearing member is the subject of a 
proceeding under the U.S. Bankruptcy Code, subchapter IV of Chapter 7 
of the U.S. Bankruptcy Code (11 U.S.C. 761-767) along with parts 22 and 
190 of the Commission's regulations would govern the treatment of 
customer positions.\147\ Pursuant to section 4d(f) of the CEA, 7 U.S.C. 
4d(f), a clearing member accepting funds from a customer to margin a 
cleared swap must be a registered FCM. Pursuant to 11 U.S.C. 761-767 
and part 190 of the Commission's regulations, the customer's interest 
rate swap positions, carried by an insolvent FCM, would be deemed 
``commodity contracts.'' \148\ As a result, neither a clearing member's 
bankruptcy nor any order of a bankruptcy court could prevent CME from 
closing out/liquidating such positions. However, customers of clearing 
members would have priority over all other claimants with respect to 
customer funds that had been held by the defaulting clearing member to 
margin swaps, such as the RFR OIS subject to this determination.\149\ 
Thus, customer claims would have priority over proprietary claims and 
general creditor claims. Customer funds would be distributed to swap 
customers, including interest rate swap customers, in accordance with 
Commission regulations and section 766(h) of the Bankruptcy Code. 
Moreover, the Bankruptcy Code and the Commission's rules thereunder (in 
particular 11 U.S.C. 764(b) and 17 CFR 190.07) permit the transfer of 
customer positions and collateral to solvent clearing members.
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    \147\ An FCM or DCO also may be subject to resolution under 
Title II of the Dodd-Frank Act to the extent it would qualify as a 
covered financial company (as defined in section 201(a)(8) of the 
Dodd-Frank Act). Under Title II, different rules would apply to the 
resolution of an FCM or DCO. Discussion in this section relating to 
what might occur in the event an FCM or DCO defaults or becomes 
insolvent describes procedures and powers that exist in the absence 
of a Title II receivership.
    \148\ If an FCM is registered as a broker-dealer, certain issues 
related to its insolvency proceeding would be governed by the 
Securities Investor Protection Act, as well.
    \149\ Claims seeking payment for the administration of customer 
property would share this priority.
---------------------------------------------------------------------------

    Similarly, 11 U.S.C. 761-767 and part 190 would govern the 
bankruptcy of a DCO where the DCO is the subject of a proceeding under 
the U.S. Bankruptcy Code, in conjunction with DCO rules providing for 
the termination of outstanding contracts and/or return of remaining 
clearing member and customer property to clearing members.
    With regard to LCH, the Commission understands that in general the 
default of an LCH clearing member would be governed by LCH's rules, and 
LCH would be permitted to close out and/or transfer positions of a 
defaulting clearing member. The Commission further understands that, 
under applicable law, LCH's rules governing a clearing member default 
would supersede insolvency laws in the clearing member's jurisdiction. 
For an FCM based in the United States and clearing at LCH, the 
applicable law as a general matter, would be the U.S. Bankruptcy Code 
and part 190 of the Commission's regulations. According to LCH's 
regulation Sec.  39.5(b) submissions, the insolvency of LCH itself 
would be governed by English insolvency law, which protects the 
enforceability of the default-related provisions of LCH's rulebook, 
including in respect of compliance with applicable provisions of the 
U.S. Bankruptcy Code and part 190 of the Commission's regulations. LCH 
has obtained, and made available to the Commission, legal opinions that 
support the existence of such legal certainty in relation to the 
protection of customer and swap counterparty positions, funds, and 
property in the event of the insolvency of one or more of its clearing 
members.\150\
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    \150\ Letters of counsel on file with the Commission.
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    On December 20, 2018, the Commission issued permission for Eurex to 
begin clearing swap transactions on behalf of customers of FCMs.\151\ 
According to Eurex's regulation Sec.  39.5(b) submissions, Eurex 
observes the PFMI. Eurex represented

[[Page 52203]]

that in February 2015, it published an assessment of its compliance 
with the PFMI, which was reviewed and validated by an independent 
outside auditor. The assessment concluded that Eurex fully complies 
with the PFMI, and Eurex's default management procedures were assessed 
to be certain in the event of its or a clearing member's insolvency 
with regard to the treatment of customer and counterparty positions and 
collateral. Such certainty continues to be reflected in Eurex's most 
recent PFMI assessment.\152\ According to Eurex's regulation Sec.  
39.5(b) submissions, a potential insolvency of Eurex Clearing, and the 
operation of default management procedures under Eurex's Clearing 
Conditions, would be governed by German law, with the exception of 
certain FCM Regulations and Clearing Conditions that relate to cleared 
swaps customer collateral that are governed by U.S. law.\153\
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    \151\ Commission Letter Nos. 18-30, 18-31, and 18-32. 
Additionally, in responding to the RFI, Eurex noted that, with 
respect to Eurex clearing members that are FCMs and that clear swaps 
under Eurex's U.S. regulatory framework, Eurex's FCM Regulations 
``foresee a clear process for a potential porting of client-related 
transactions to a replacement clearing member following the 
termination of a clearing member.'' Eurex RFI Letter. In the event 
that the termination is based on an Insolvency Termination Event, as 
defined in Eurex's FCM Regulations, Eurex will seek to coordinate 
with the CFTC and bankruptcy trustee with respect to porting the 
positions. This procedure applies to all cleared products. However, 
Eurex noted that following IBOR conversion events, it no longer 
clears any trades where obtaining new GBP LIBOR, JPY LIBOR, or CHF 
LIBOR fixings (or reliance on the relevant fallback provisions) 
would be necessary. Id.
    \152\ Eurex Clearing AG, Assessment of Eurex Clearing AG's 
compliance against the PFMI and disclosure framework associated to 
the PFMI, available at https://www.eurex.com/resource/blob/2446522/22f4869a8649f15b54a1e86bf635c63c/data/cpss-iosco-pfmi_assessment_2020_en.pdf.
    \153\ For example, in the case of an insolvency termination 
event, as defined in Eurex's Clearing Conditions, the relevant FCM 
clearing member would be subject to an insolvency proceeding 
pursuant to applicable U.S. law, and Eurex would seek to coordinate 
with the Commission and the bankruptcy trustee (or comparable person 
responsible for administering the proceeding) with respect to the 
transfer of FCM client transactions and eligible margin assets 
allocated to the relevant FCM client. Id. at 100.
---------------------------------------------------------------------------

    In response to the NPRM, CME stated that the legal framework on 
which it operates complies with DCO Core Principle R and regulation 
Sec.  39.27(b) (requiring legal certainty of clearing arrangements). 
CME stated that its legal framework is sound, tested, and provides a 
high degree of assurance that it will be able to conduct its clearing 
and settlement activities on an ongoing basis, including managing a 
clearing member default, and that its legal framework also provides 
arrangements for the failure of a DCO. CME stated that the U.S. 
Bankruptcy Code and part 190 of the Commission's regulations provide 
safe harbors that protect a DCO's right to immediately enforce its 
interest in the collateral it holds to margin positions and to 
guarantee performance of its clearing members' obligations.
    Finally, as exempt DCOs, JSCC and HKEX demonstrate they are subject 
to ongoing comparable, comprehensive supervision by their home country 
regulator with regard to legal certainty in the event of 
insolvency.\154\ Both exempt DCOs maintain disclosures discussing the 
ways in which they comply with the PFMI, including principles related 
to legal certainty in the event of insolvency.\155\ Principle 1 of the 
PFMI provides that a CCP should have a well-founded, clear, 
transparent, and enforceable legal basis for each material aspect of 
its activities, in all relevant jurisdictions.\156\ Among other key 
considerations for this factor, ``[t]he legal basis should provide a 
high degree of certainty for each material aspect of an FMI's 
activities in all relevant jurisdictions.'' \157\ The PFMI also provide 
that a CCP should have effective and clearly defined rules and 
procedures to manage a participant default.\158\ JSCC's and HKEX's PFMI 
disclosures provide, among other information, a discussion of the 
applicable law and legal basis for their clearing activities, as well 
as the way in which their rules address insolvency events.\159\
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    \154\ Exempt DCOs are not permitted to clear swaps for U.S. 
customers pursuant to regulation Sec.  39.6(b)(1). Accordingly, this 
discussion of JSCC's and HKEX's insolvency regimes does not address 
issues related to U.S. customer clearing.
    \155\ JSCC, Principles for Financial Market Infrastructures 
Disclosure, Mar. 31, 2021, available at https://www.jpx.co.jp/jscc/en/company/cimhll0000000osu-att/JSCC_PFMI_Disclosure_20210331_EN.pdf; and HKFE Clearing Corporation 
Limited, Principles for Financial Market Infrastructures Disclosure, 
Feb. 2021, available at https://www.hkex.com.hk/-/media/HKEX-Market/Services/Clearing/Listed-Derivatives/PFMI/HKCC_PFMI_Disclosure_Feb2021.pdf?la=en.
    \156\ PFMI, Principle 1.
    \157\ PFMI, Principle 1, Key consideration 1.
    \158\ PFMI, Principle 13.
    \159\ JSCC, Principles for Financial Market Infrastructures 
Disclosure, Mar. 31, 2021, at 19-24, 83-91, available at https://www.jpx.co.jp/jscc/en/company/cimhll0000000osu-att/JSCC_PFMI_Disclosure_20210331_EN.pdf; and HKFE Clearing Corporation 
Limited, Principles for Financial Market Infrastructures Disclosure, 
Feb. 2021, at 20-21, 58-60, available at https://www.hkex.com.hk/-/media/HKEX-Market/Services/Clearing/Listed-Derivatives/PFMI/HKCC_PFMI_Disclosure_Feb2021.pdf?la=en.
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    Lastly, JSCC provided information regarding how it would address a 
default by a clearing member under its rules,\160\ including 
information regarding the treatment of certain RFR swaps for default 
management purposes. Specifically, JSCC described the process by which 
it offered JPY TIBOR-TONA basis swaps as a way to transition away from 
IBOR swaps without incident.\161\ JSCC's comment supported the 
Commission's conclusions regarding the bankruptcy regime under Japanese 
law, as well as customer protection through global bankruptcy regimes 
for exempt DCOs.
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    \160\ See JSCC's relevant PFMI disclosures.
    \161\ JSCC RFI letter (stating that, for default management 
purposes, JPY TIBOR-TONA basis swaps will be treated in the same 
manner as cleared JPY TONA OIS. JSCC noted that creation of these 
basis swaps was a temporary measure and the basis swaps will expire 
at the settlement of the rates that were fixed prior to the end of 
2021).
---------------------------------------------------------------------------

    JSCC's comment also recommended that the Commission reconsider its 
restrictions on exempt DCOs offering clearing services for U.S. 
customers in order to allow U.S. customers access non-U.S. swap 
markets. The Commission issued JSCC an order of exemption from 
registration as a DCO in 2015.\162\ This order remains in place, and 
JSCC is providing non-client clearing services to U.S.-based entities 
pursuant to this order. As exempt DCOs, both JSCC and HKEX are not 
permitted to offer clearing services for U.S. customers. JSCC's 
additional comments regarding exempt DCOs and client clearing are 
beyond the scope of this rulemaking.\163\
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    \162\ The order was amended in 2017.
    \163\ JSCC's interest in providing clearing services for U.S. 
customers would be considered by the Commission as a separate matter 
of DCO registration. As the Commission explained in the Second 
Determination, exempt DCOs ``could apply to the Commission for DCO 
registration in order to clear for U.S. customer accounts should 
they decide to pursue that line of business at any time in the 
future.'' Second Determination, 81 FR 71221. Section VII contains 
additional discussion of JSCC's comment regarding the benefits of 
exempt DCOs offering client clearing.
---------------------------------------------------------------------------

    The Commission received no other comments related to legal 
certainty in the event of insolvency. For the reasons described above 
and in light of the comments received, the Commission reaffirms its 
conclusion stated in the NPRM that reasonable legal certainty exists in 
the event of the insolvency of each of the relevant DCOs or one or more 
of their clearing members with regard to the treatment of customer and 
swap counterparty positions, funds, and property to modify the interest 
rate swap clearing requirement to include the RFR OIS subject to this 
rulemaking.

VI. Implementation Schedule

    The Commission phased in the First Determination according to the 
schedule contained in regulation Sec.  50.25.\164\ Under this schedule, 
implementation was phased in by the type of market participant. The 
phase-in occurred over a 270-day period following publication of the 
final rule in the Federal Register. The Commission phased in its Second 
Determination based on the first compliance date for market 
participants in non-U.S. jurisdictions pursuant to a schedule in 
regulation Sec.  50.26.\165\ The decision to adopt one implementation 
date for all market participants was driven by the fact that most 
market

[[Page 52204]]

participants were already clearing the swaps subject to the Second 
Determination, as well as the successful implementation of the 2012 
clearing requirement determination over a nine-month period in 
2013.\166\ In both cases, the Commission took into account global 
efforts in support of central clearing for swaps and input from market 
participants regarding implementation.
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    \164\ Swap Transaction Compliance and Implementation Schedule: 
Clearing Requirement Under Section 2(h) of the CEA, 77 FR 44441 
(July 30, 2012).
    \165\ Second Determination, 81 FR 71227--71228.
    \166\ Id. at 71227.
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    In arriving at an appropriate implementation schedule, the 
Commission considered the fact that EUR EONIA and non-USD LIBOR rates 
have now entirely ceased publication or become nonrepresentative,\167\ 
DCOs have largely completed IBOR swap conversions, and many market 
participants already clear the vast majority of RFR OIS subject to this 
rulemaking. The Commission also considered recent and anticipated 
changes to interest rate swap clearing requirements in other 
jurisdictions. Additionally, the Commission considered comments 
received in response to the RFI and NPRM. While some commenters 
recommended that the Commission proceed through an interim final rule 
process, other responses asked for longer periods of time for market 
participants to come into compliance with proposed rule changes.
---------------------------------------------------------------------------

    \167\ Remaining USD LIBOR settings, as well as SGD SOR-VWAP 
settings, will cease publication or become nonrepresentative after 
June 30, 2023.
---------------------------------------------------------------------------

    Significantly, no DCOs offering OIS for clearing identified any 
operational challenges with regard to prompt implementation of the RFR 
OIS clearing requirement. During its IBOR conversion processes, LCH has 
not encountered any operational challenges nor have its members 
identified any issues related to proprietary or customer clearing. 
\168\ In addition, the Commission is not aware of any operational or 
other issues that are likely to impede other DCOs' conversion plans. 
Comments from CME and JSCC similarly support this conclusion. Smooth 
DCO conversion from USD LIBOR interest rate swaps to USD SOFR OIS will 
facilitate smooth implementation of the modified clearing requirement.
---------------------------------------------------------------------------

    \168\ LSEG RFI Letter (stating that the implementation date be 
set ``not too far from the completion of the Commission's review'' 
in order to ``reduce uncertainty in the market and limit the risk of 
bifurcation of liquidity between the cleared and uncleared market 
for the LIBOR rates that ceased on December 31, 2021 and their 
respective replacement rates.''). Comments from CME and JSCC support 
this concern about splitting liquidity.
---------------------------------------------------------------------------

A. Overview of Changes to Regulation Sec.  50.26(a)

    As stated above, these final amendments to part 50 will become 
legally effective 30 days after publication of the final rule in the 
Federal Register. However, the implementation schedule discussed below 
accounts for non-U.S. jurisdictions' mandatory clearing timelines and 
incorporates feedback from DCOs and market participants. In this 
manner, the Commission seeks to provide flexibility and facilitate 
efficient implementation of the amendments.
    The implementation date of the requirement to clear RFR OIS for 
which the corresponding IBOR rate has ceased publication or become 
nonrepresentative will be the same as the effective date of the final 
rulemaking, i.e. 30 days after publication in the Federal Register. 
However, the implementation date for the requirement to clear OIS 
referencing USD SOFR and SGD SORA will be October 31, 2022.
    Amendments to remove clearing requirement rules for IBOR swaps from 
regulation Sec.  50.4(a) will be implemented in two stages. For the 
removal of the requirement to clear all interest rate swaps for which 
the IBOR rate has ceased publication or become nonrepresentative,\169\ 
the implementation date will be the same as the effective date of the 
final rulemaking, i.e. 30 days after publication in the Federal 
Register. However, for the reasons discussed below, the removal of the 
requirement to clear USD LIBOR and SGD SOR-VWAP swaps will be 
implemented on July 1, 2023.
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    \169\ This includes removing all interest rate swaps referencing 
non-USD LIBOR and EUR EONIA from regulations Sec. Sec.  50.4(a) and 
50.26 30 days after publication of the final rules. The Commission 
is removing IBOR swaps from regulation Sec.  50.4, with swaps 
referencing non-USD LIBOR and EUR EONIA removed 30 days after 
publication of the final rule in the Federal Register. Removal of 
clearing requirement rules for interest rate swaps referencing USD 
LIBOR and SGD SOR-VWAP will be implemented on July 1, 2023.
---------------------------------------------------------------------------

B. Consideration of Comments on Implementation

    The majority of commenters supported the Commission's proposal to 
implement the final rulemaking 30 days after publication in the Federal 
Register. These commenters, including AIMA, CCP12, Citadel, CME, and 
MFA, pointed to the extremely high rates of voluntary clearing and 
overall industry preparedness as support for that view.\170\ These 
commenters also largely agreed with the Commission's proposal to remove 
swaps referencing USD LIBOR and SGD SOR-VWAP from existing regulations 
effective July 1, 2023.
---------------------------------------------------------------------------

    \170\ See section III above for additional information regarding 
comments received.
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    By contrast, ACLI stated that implementation of the USD SOFR OIS 
clearing requirement should be delayed until June 30, 2023, which would 
coincide with the date USD LIBOR swaps are removed from the clearing 
requirement. In ACLI's view, this alignment would create an incentive 
for market participants concerned about clearing trades to move from 
USD LIBOR to USD SOFR swaps, thereby supporting overall LIBOR 
transition objectives.
    ISDA recommended a date that would promote ``efficient 
implementation'' of the amended rules for all RFR OIS and suggested 
October 31, 2022, as such a date. In ISDA's view, this date would serve 
two purposes: (1) harmonizing with Bank of England's proposed 
implementation date for its USD SOFR OIS clearing requirement; and (2) 
avoiding unnecessary strain on market participants' resources and 
operational capabilities. ISDA also recommended March 6, 2023, as the 
date for removal of the requirement to clear interest rate swaps 
referencing USD LIBOR.\171\
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    \171\ See summary of comments in section III above.
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C. EUR [euro]STR, GBP SONIA, CHF SARON, and JPY TONA OIS Implementation

    CME, LCH, Eurex, and JSCC have completed their conversion plans for 
all cleared EUR EONIA and non-USD LIBOR swaps into RFR OIS. Moreover, 
EUR EONIA and non-USD LIBOR interest rate swaps are generally no longer 
offered for clearing.\172\ Beyond ISDA, discussed above, no commenter 
raised concerns specifically about a 30-day implementation period for 
requiring clearing of the OIS referencing EUR [euro]STR, GBP SONIA, CHF 
SARON, and JPY TONA, which are the alternative reference rates 
corresponding to these IBORs.
---------------------------------------------------------------------------

    \172\ Clearing services also are no longer available for EUR 
LIBOR swaps, but these swaps are not subject to required clearing 
under regulation Sec.  50.4(a).
---------------------------------------------------------------------------

    Non-USD LIBOR rates ceased publication or became nonrepresentative 
at the end of 2021, and EUR EONIA ceased publication in early 2022. In 
many instances, non-U.S. jurisdictions have updated their clearing 
mandates to reflect this fact already, and market participants are 
voluntarily clearing the vast majority of the OIS subject to this 
rulemaking. By adding these OIS to the clearing requirement as

[[Page 52205]]

promptly as possible, the final rules modify the existing clearing 
requirement to reflect the cessation or loss of representativeness of 
EUR EONIA and non-USD LIBOR swaps.
    Given the overwhelming amount of voluntary clearing, reflecting a 
significant volume of the outstanding market for these OIS, and the 
fact that DCOs no longer offer EUR EONIA and non-USD LIBOR interest 
rate swaps for clearing, the Commission is adopting its implementation 
schedule for required clearing of EUR [euro]STR, GBP SONIA, CHF SARON, 
and JPY TONA OIS as proposed. Accordingly, rules requiring clearing of 
these OIS will be implemented 30 days after publication of the final 
rules in the Federal Register. If this date falls on a Saturday, 
Sunday, or U.S. Federal public holiday, the date will be the next 
available business day when markets are open in the United States.

D. USD SOFR and SGD SORA OIS Implementation

    To the extent practicable, the Commission believes that an 
implementation schedule for these modified rules should provide 
flexibility for market participants and further the Commission's goals 
of harmonizing its clearing requirement rules with those abroad. 
Commenters generally supported the Commission's efforts to implement a 
modified clearing requirement in a manner that provides certainty and 
fosters further international harmonization with regard to swap 
clearing requirements. Over the years, commenters have applauded 
Commission efforts to work cooperatively with regulators in other 
jurisdictions while responding to the operational needs of market 
participants in a flexible manner.
    Recognizing all these factors and striking a middle ground, the 
Commission is adjusting its proposed implementation schedule with 
respect to clearing requirement rules for OIS referencing USD SOFR and 
SGD SORA to reflect input from commenters and align with Bank of 
England's proposed implementation date for mandatory clearing of USD 
SOFR OIS under UK law. Accordingly, the implementation date for 
required clearing of USD SOFR and SGD SORA OIS will be October 31, 
2022.

E. Removal of Rules for Swaps No Longer Offered for Clearing

    In addition to adding certain RFR OIS to the clearing requirement, 
these amendments modify the existing clearing requirement to reflect 
the cessation or loss of representativeness of certain IBORs. For 
purposes of this rulemaking, all relevant LIBOR settings with the 
exception of overnight, one-month, three-month, six-month, and 12-month 
USD LIBOR, and EUR EONIA, have ceased publication or become 
nonrepresentative.
    As discussed above, DCOs no longer offer these IBOR swaps for 
clearing. In addition, regulators in the United States and other 
jurisdictions have called on market participants to transfer their swap 
positions from IBORs to RFRs, with corresponding liquidity shifting, 
and continuing to shift, from swaps referencing these IBORs to swaps 
referencing RFRs. No commenter raised concerns regarding removing the 
requirement to clear swaps referencing IBOR rates that have ceased 
publication or become nonrepresentative.
    For these reasons, the Commission will implement the rules removing 
all interest rate swaps referencing EUR EONIA, GBP LIBOR, CHF LIBOR, 
and JPY LIBOR as proposed. Accordingly, the implementation date for the 
removal of these swaps from regulation Sec.  50.4 shall be 30 days 
after publication of the final rule in the Federal Register. If this 
date falls on a Saturday, Sunday, or U.S. Federal public holiday, the 
date will be the next available business day when markets are open in 
the United States.

F. Removal of USD LIBOR and SGD SOR-VWAP Swap Clearing Requirement

    In the interests of international harmonization and in alignment 
with many commenters, the Commission will retain its existing 
requirement to clear swaps referencing USD LIBOR and SGD SOR-VWAP until 
July 1, 2023. International authorities are in the process of updating 
their clearing mandates to reflect the fact that USD LIBOR will cease 
publication or become nonrepresentative after June 30, 2023. Bank of 
England has indicated that existing clearing mandates will remain in 
place until near the time USD LIBOR ceases publication.
    Remaining USD LIBOR settings will cease publication or become 
nonrepresentative after June 30, 2023. SGD SOR-VWAP, which relies on 
USD LIBOR as an input, will also cease after June 30, 2023. The 
Commission expects that there will be no new interest rate swaps 
referencing USD LIBOR entered into on or after July 1, 2023. In 
anticipation of USD LIBOR ceasing publication, DCOs will continue to 
conduct conversion events to replace all outstanding USD LIBOR swaps 
with USD SOFR OIS, and will cease offering clearing services for USD 
LIBOR swaps.
    International authorities are in the process of updating their 
clearing mandates to reflect the fact that USD LIBOR will cease 
publication or become nonrepresentative after June 30, 2023. Bank of 
England's recent proposal indicated support for leaving its existing 
clearing mandates in place until close to the time that USD LIBOR 
ceases publication or becomes non-representative. Bank of England 
proposed removing its USD LIBOR interest rate swap clearing requirement 
``around the same time as a number of CCPs contractually convert'' USD 
LIBOR swaps and remove these swaps from clearing eligibility.\173\
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    \173\ Bank of England SOFR Proposal.
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    Last year, ESMA adopted regulatory technical standards that removed 
its existing USD LIBOR clearing obligation and added a requirement to 
clear USD SOFR OIS (seven days to three years).\174\ ASIC has not yet 
proposed changes to its USD LIBOR interest rate swap clearing 
requirement, and has indicated it may be waiting for the finalization 
of changes to the Commission's part 50 interest rate swap clearing 
rules before doing so.\175\
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    \174\ In choosing to replace its USD LIBOR interest rate swap 
clearing requirement with a USD SOFR OIS clearing requirement, ESMA 
stated, ``ESMA believes it is important to be consistent for the 
[clearing obligation] with the communication made by ESMA and other 
EU authorities, as well as the communications made by several other 
authorities in other jurisdictions and at the international level 
who expect entities to stop referencing LIBOR (including USD LIBOR) 
by the end of the year. If ESMA and other regulators\[\'\]\ 
expectations are fulfilled, there should no longer be material 
liquidity in OTC interest rate derivatives referencing USD LIBOR 
from the start of next year. Therefore, the liquidity criteria of 
the [European Market Infrastructure Regulation] procedure would no 
longer be met at the end of the year. Following from this, ESMA is 
proposing to remove the USD LIBOR classes from the clearing 
obligation and the RTS has been modified accordingly.'' ESMA Final 
Report.
    \175\ ASIC Derivative Transaction Rules.
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    As noted above, commenters, including AIMA, Citadel, CME, and MFA, 
were generally supportive of the Commission's proposal to retain USD 
LIBOR and SGD SOR-VWAP swap clearing requirements until July 1, 2023, 
while ISDA suggested March 6, 2023 or, in the alternative, the first 
conversion date at any registered or exempt DCO clearing USD LIBOR 
swaps.
    Setting a specified date for the removal of the Commission's USD 
LIBOR (and SGD SOR-VWAP) interest rate swap clearing requirement will 
provide clarity to the interest rate swap market as a whole. Removing 
the USD LIBOR and SGD SOR-VWAP interest rate swap clearing requirement 
on July 1, 2023, also reflects both international coordination and 
input from the public. Retaining these clearing requirement rules until 
such time as USD LIBOR is

[[Page 52206]]

no longer available also serves to continue to mitigate systemic risk 
while there remains outstanding USD LIBOR swap activity. In addition, 
by not tying the removal of its USD LIBOR (and SGD SOR-VWAP) interest 
rate swap clearing requirement to any particular DCOs' conversion 
plans, the Commission is not signaling a preferred DCO conversion plan.
    Lastly, the Commission observes that its clearing requirement for 
interest rate swaps referencing EUR EONIA and non-USD LIBOR has 
remained in place for months after the DCO conversion events for those 
rates, and the Commission is unaware of any market difficulties 
resulting from those rules remaining in place, despite U.S. market 
participant activity throughout global interest rate swap markets.
    The Commission will continue to monitor the use of interest rate 
swaps referencing USD LIBOR and SGD SOR-VWAP as the IBOR transition 
process concludes.

G. Technical Changes

    As a technical amendment, because the Commission is removing 
certain interest rate swaps from regulation Sec.  50.4, it is also 
removing those same swaps from regulation Sec.  50.26. The Commission 
is changing this regulation for consistency and to eliminate any 
confusion that might arise if different swap products are included in 
regulations Sec. Sec.  50.4 and 50.26. Additionally, the Commission is 
making technical revisions related to the formatting of the table of 
compliance dates for required clearing of credit default swaps in 
regulation Sec.  50.26.

VII. Cost Benefit Considerations

A. Statutory and Regulatory Background

    Amended regulation Sec.  50.4(a) identifies certain swaps that are 
required to be cleared under section 2(h)(1)(A) of the CEA in addition 
to those required to be cleared by existing regulations Sec. Sec.  50.2 
and 50.4(a), and removes certain other swaps from the clearing 
requirement. These clearing requirement amendments are designed to 
update the Commission's regulations in light of the interest rate swap 
market's move away from use of swaps referencing IBORs to swaps 
referencing RFRs. Currently, most RFR OIS are being cleared 
voluntarily, so the amended regulation largely serves to ensure that 
the swap market under the Commission's jurisdiction continues to clear 
all RFR OIS subject to this clearing requirement determination. The 
continued central clearing of RFR OIS may limit the counterparty risk 
associated with such swaps, thereby mitigating the possibility of such 
risks having a systemic impact, which might cause or exacerbate 
instability in the financial system. In addition, required clearing of 
RFR OIS would reflect the global effort to rely on benchmark rates that 
are less susceptible to manipulation.
    This determination is consistent with one of the fundamental 
premises of the Dodd-Frank Act and the 2009 commitments adopted by the 
G20 nations: the use of central clearing can reduce systemic risk. The 
following discussion is a consideration of the costs and benefits of 
the Commission's action in this rulemaking, pursuant to the regulatory 
requirements discussed above.

B. Overview of Swap Clearing

1. How Clearing Reduces Risk
    When a bilateral swap is cleared, the DCO becomes the counterparty 
to each original swap counterparty. This arrangement mitigates 
counterparty risk to the extent that the DCO may be a more creditworthy 
counterparty than the original swap counterparties. Central clearing 
reduces the interconnectedness of market participants' swap positions 
because the DCO, an independent third party that takes no market risk, 
guarantees the collateralization of swap counterparties' exposures. 
DCOs have demonstrated resilience in the face of past market stress.
    The Commission anticipates that DCOs will continue to be some of 
the most creditworthy swap counterparties because, among other things, 
they are able to monitor and manage counterparty risk effectively 
through (1) collection of initial and variation margin associated with 
outstanding swap positions; (2) marking positions to market regularly, 
usually multiple times per day, and issuing margin calls when the 
margin in a customer's account has dropped below predetermined levels 
that the DCO sets; (3) adjusting the amount of margin that is required 
to be held against swap positions in light of changing market 
circumstances, such as increased volatility in the underlying product; 
and (4) closing out swap positions if margin calls are not met within a 
specified period of time.
2. The Clearing Requirement and Role of the Commission
    With the passage of the Dodd-Frank Act, Congress gave the 
Commission the responsibility for determining which swaps would be 
required to be cleared pursuant to section 2(h)(1)(A) of the CEA. Since 
2012, there is ample evidence that the interest rate swap market has 
been moving toward increased use of central clearing in response to 
both market incentives and clearing requirements.\176\ Now with the 
IBOR transition completed for most LIBOR rates and with most RFR OIS 
already being voluntarily cleared, as discussed further below, it is 
possible that the effect of this rulemaking will be limited to ensuring 
that market participants continue to clear the RFR OIS that are subject 
to this clearing requirement determination.\177\ The Commission has 
determined that the costs and benefits related to the required clearing 
of the RFR OIS to be added under this determination are attributable, 
in part to (1) Congress's stated goal of reducing systemic risk by, 
among other things, requiring clearing of swaps; and (2) the 
Commission's exercise of its discretion in selecting swaps or classes 
of swaps to achieve those ends.
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    \176\ Second Determination, 81 FR 71210; BIS, ``Statistical 
release: OTC derivatives at end-December 2020,'' May 12, 2021, at 4, 
Graph 4, available at https://www.bis.org/publ/otc_hy2105.pdf 
(charting central clearing rates for interest rate swaps from 2012 
to 2020 and noting a particularly significant rise during the 2012-
2015 period). CCP12 and CME also discussed the adoption of central 
clearing in their RFI responses.
    \177\ It is possible that some market participants might respond 
to the requirement that RFR OIS be cleared by decreasing their use 
of such swaps, particularly if the cost of clearing increases in the 
future relative to the cost of not clearing. Thus, there is some 
uncertainty regarding how the determination will affect the quantity 
of swaps that are cleared.
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C. Consideration of the Costs and Benefits of the Commission's Action

1. CEA Section 15(a)
    Section 15(a) of the CEA requires the Commission to ``consider the 
costs and benefits'' of its actions before promulgating a regulation 
under the CEA or issuing certain orders.\178\ Section 15(a) further 
specifies that the costs and benefits shall be evaluated in light of 
five broad areas of market and public concern: (1) protection of market 
participants and the public; (2) efficiency, competitiveness and 
financial integrity; (3) price discovery; (4) sound risk management 
practices; and (5) other public interest considerations (collectively 
referred to herein as the Section 15(a) Factors). Accordingly, the 
Commission considers the costs and benefits associated with the 
clearing requirement determination in light of the Section 15(a) 
Factors. In the sections that follow, the Commission considers: (1) The 
costs and benefits of required clearing for the

[[Page 52207]]

RFR OIS to be added under this determination as well as the costs and 
benefits of removing certain swaps from required clearing; (2) the 
alternatives contemplated by the Commission and their costs and 
benefits; and (3) the impact of required clearing for the swaps subject 
to this determination and listed in amended regulation Sec.  50.4(a) in 
light of the Section 15(a) Factors.
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    \178\ 7 U.S.C. 19(a).
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    The Commission is considering these costs and benefits against a 
baseline of the current set of interest rates swaps subject to the 
clearing requirement adopted under regulation Sec.  50.4. This 
determination adds specified RFR OIS to the clearing requirement and it 
removes certain swaps referencing IBORs from the clearing requirement.
    In most cases, this will be a simultaneous exchange: as an IBOR 
swap is removed from the clearing requirement, an RFR swap is added. 
This is the case for almost all non-USD LIBOR and non-SGD SOR-VWAP 
interest rate swaps. (For the existing GBP SONIA OIS clearing 
requirement, the termination date range will be extended to include 7 
days to 50 years.) However, for USD SOFR OIS and SGD SORA OIS there 
will be a delay in this substitution. The Commission is adopting a 
clearing requirement for USD SOFR and SGD SORA OIS that will be 
implemented on October 31, 2022, but it is not removing the requirement 
to clear USD LIBOR and SGD SOR-VWAP interest rate swaps until July 1, 
2023. Thus, the requirement to clear USD LIBOR and SGD SOR-VWAP swaps 
will coexist with requirement to clear USD SOFR and SGD SORA OIS for 
approximately eight months. The period includes the planned DCO 
conversion processes.
    As explained above, almost all RFR OIS that are subject to this 
determination are cleared voluntarily today, so the percentage of such 
swaps that would be cleared following implementation of this rulemaking 
is unlikely to increase materially. The Commission's analysis below 
compares amendments in this rulemaking to the clearing requirement in 
effect today. The costs and benefits discussed below are, for the most 
part, already accounted for in the market through the current industry 
practice of high levels of RFR OIS clearing.
    The swap market functions internationally with (i) transactions 
that involve U.S. firms and DCOs occurring across different 
international jurisdictions; (ii) some entities organized outside of 
the United States that are, or may become, Commission registrants or 
registered entities; and (iii) some entities that typically operate 
both within and outside the United States and that follow substantially 
similar business practices wherever located. Where the Commission does 
not specifically refer to matters of location, this discussion of costs 
and benefits refers to the effects of the determination on all relevant 
swaps activity, whether based on their actual occurrence in the United 
States or on their connection with activities in, or effect on, 
commerce of the United States, pursuant to section 2(i) of the 
CEA.\179\
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    \179\ Pursuant to section 2(i) of the CEA, activities outside of 
the United States are not subject to the swap provisions of the CEA, 
including any rules prescribed or regulations promulgated 
thereunder, unless those activities either ``have a direct and 
significant connection with activities in, or effect on, commerce of 
the United States''; or contravene any rule or regulation 
established to prevent evasion of a CEA provision enacted under the 
Dodd-Frank Act. 7 U.S.C. 2(i).
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2. Costs and Benefits of Required Clearing Under the Final Rule
    Market participants may incur certain costs in order to clear the 
RFR OIS included in this determination. For example, to the extent that 
there are market participants entering into RFR OIS that are not 
already clearing interest rate swaps voluntarily or pursuant to the 
Commission's prior clearing requirement determinations, such market 
participants may incur certain startup and ongoing costs related to 
developing technology and infrastructure, updating or creating new 
legal agreements, service provider fees, and collateralization of the 
cleared positions.\180\ The costs of collateralization, on the other 
hand, are likely to vary depending on whether an entity is subject to 
capital and margin requirements for uncleared swaps,\181\ and the 
differential between the cost of capital for the assets they use as 
collateral and the returns realized on those assets.
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    \180\ These per-entity costs would vary widely depending on the 
needs of such market participants. Costs likely would be lower for 
market participants who already clear interest rate swaps covered by 
the Commission's prior clearing requirement determinations. The 
opposite would be true for market participants that start clearing 
because of the determination. However, given the high rates of 
voluntary clearing, there are likely to be few, if any, new 
participants. In addition, these market participants may have 
otherwise incurred costs associated with margining their uncleared 
swaps with bilateral counterparties, as well as incurring other 
costs associated with bilateral uncleared swaps, such as startup or 
ongoing costs related to developing technology and infrastructure, 
and updating or creating new legal agreements related to their 
uncleared swap positions. Moreover, operational costs for these 
market participants would increase based on the number of different 
counterparties with whom they enter into uncleared swaps.
    \181\ The Commission's capital and margin requirements for 
uncleared swaps are codified in subpart E of part 23 of the 
Commission's regulations.
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    As noted above, almost all RFR OIS subject to this determination 
are already cleared voluntarily, and market participants currently 
clearing RFR OIS already realize the benefits of clearing. The 
Commission believes that this determination will ensure that the 
percentage of RFR OIS that are cleared remains high in the future and 
that these benefits continue to be realized. These benefits include 
reduced and standardized counterparty credit risk, increased 
transparency, and easier swap market access for market participants who 
are required to clear. Together, these benefits contribute 
significantly to the stability and efficiency of the financial system, 
but they are difficult to quantify with any degree of precision.
    While there may be a benefit to removing certain swaps from 
required clearing, such as fewer costs to market participants who no 
longer have to submit such swaps to clearinghouses, in this instance, 
the reason the Commission is removing certain swaps referencing IBORs 
from the clearing requirement is because they are, with limited 
exceptions, no longer offered for clearing. The swap rates that the 
Commission is removing from the clearing requirement, other than USD 
LIBOR and SGD SOR-VWAP, should no longer be available or used by market 
participants, pursuant to broad international consensus and industry 
progress, as described above.\182\ Therefore, removing these swaps 
referencing IBORs from the clearing requirement should not impose 
additional costs on market participants and should result in the 
benefit of market and regulatory certainty. There may be no meaningful 
benefit to market participants from this removal because they generally 
cannot clear these swaps today. However, there may be benefits 
associated with the effort to reach broad consensus around the 
transition away from IBORs.
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    \182\ Regulators in the United States and internationally have 
called on market participants to cease new USD LIBOR activity.
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    Any potential costs associated with this determination should be 
viewed in light of the fact that each new RFR OIS that is required to 
be cleared is already widely cleared voluntarily, and stands in the 
place of an IBOR swap that is already subject to required clearing and 
is being removed from required clearing under this rulemaking.\183\
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    \183\ As explained in section VI, the Commission is requiring 
clearing of USD SOFR and SGD SORA OIS beginning on October 31, 2022. 
Rules removing the requirement to clear swaps referencing USD LIBOR 
and SGD SOR-VWAP will be implemented on July 1, 2023.

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[[Page 52208]]

    Liquidity tied to IBORs has shifted, and will continue to shift, to 
RFRs as those IBORs are discontinued or become nonrepresentative. That 
shift has occurred, and continues to occur, as a result of numerous 
market events, including DCO conversions of IBOR swaps to RFR swaps, 
the operation of contractual fallbacks, and new use of RFRs in parallel 
with declining liquidity in IBOR swaps. The RFR OIS subject to this 
determination are already widely cleared so that the costs associated 
with clearing these swaps are already being incurred. In the NPRM, the 
Commission stated that the additional cost of compliance for market 
participants would be de minimis and invited comment on all aspects of 
the costs and benefits associated with this rulemaking, including the 
extent to which such costs are already being incurred.
3. Overview of Comments Received
    As stated above, the Commission received 12 comment letters 
following publication of the NPRM, and almost all of these commenters 
supported the rulemaking. Some commenters specifically addressed the 
costs and benefits of the proposed rule. This summary of the comments 
is divided into categories of costs and benefits, but all commenters 
accounted for the fact that the Commission's rulemaking updates rather 
than materially expands or alters the underlying interest rate swap 
clearing requirement.
    Commenters made several key points regarding costs associated with 
this rulemaking. ACLI stated that mandatory clearing elevates 
concentration of risk in CCPs and FCMs insofar as when a large FCM 
faces financial difficulties, then end-users clearing swaps through the 
FCM face elevated credit risk, and in the event of an FCM default may 
have difficulty porting positions on short notice. ACLI also stated 
that the process of negotiating new FCM arrangements, completing 
operational setup, and porting positions from one FCM to another takes 
significant time and is operationally burdensome. Finally, ACLI stated 
that some smaller life insurers may have difficulty finding FCMs that 
will take on their business at competitive costs.\184\
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    \184\ ACLI stated that practical solutions to allow end-users to 
directly clear at CCPs do not currently exist, and there are 
significant operational and regulatory hurdles to their creation. 
This issue is beyond the scope of this rulemaking.
---------------------------------------------------------------------------

    The potential costs of using FCMs identified by ACLI are not 
increased by this rulemaking. As ACLI acknowledges, these potential 
costs are associated with central clearing as a general matter, and are 
applicable as much to RFR OIS as to IBOR swaps (and other types of 
swaps) that are required to be cleared. Additionally, ACLI did not 
submit data regarding the number of life insurers who might need 
establish a business relationship with an FCM or associated costs 
resulting from an RFR OIS clearing requirement.\185\
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    \185\ As discussed more fully below, FCMs are currently being 
used to facilitate clearing of RFR OIS swaps for clients; therefore, 
the Commission anticipates that there will be no additional costs in 
establishing a business relationship between current clients and 
their FCMs.
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    CCP12 stated that the overall cost of the transition to non-USD RFR 
IRS has already been borne by the market and so the introduction of 
clearing requirements for these swaps should not increase the cost of 
clearing. JSCC stated that JPY TONA OIS is accepted for clearing at 
three registered DCOs (CME, LCH, and Eurex) and one exempt DCO (JSCC), 
and that, therefore, replacing JPY LIBOR with JPY TONA OIS in 
regulation Sec.  50.4 would not change the cost of clearing services in 
any regard.
    Commenters made several key points regarding benefits associated 
with this rulemaking. AIMA stated that voluntary clearing is not a 
substitute for mandatory clearing and mandatory clearing provides an 
array of market improvements and benefits. These benefits include 
increasing the availability of client clearing offerings, consolidating 
liquidity, and providing clients with confidence that there will be 
sufficient liquidity to properly manage risk.
    CCP12 stated that the benefits of central clearing and the 
voluntary market move towards CCP clearing of RFR swaps is consistent 
with the 2009 Pittsburgh G20 commitments, which supports the 
Commission's appropriate decision to require clearing for RFR swaps. 
CME stated that the benefits of central clearing include CCP risk 
management protections, multilateral netting, and reduced capital 
requirements for exposures to DCOs. CME stated that these benefits have 
incentivized, and will continue to incentivize, voluntary clearing 
ahead of any clearing requirement determination. JSCC stated that the 
proposal would harmonize the CFTC's interest rate swap clearing 
requirement with those of other jurisdictions, which would lower 
operational and compliance burdens for market participants active 
across multiple jurisdictions.
    JSCC also stated that the benefits of the proposal would be 
significantly enhanced if the CFTC's swap customer clearing regime, 
which currently limits clearing to DCOs registered with the CFTC 
through CFTC-registered FCMs, is reviewed with an eye toward giving 
U.S. customers expanded access to non-U.S. swap markets cleared by non-
U.S. exempt DCOs. JSCC contended that, under the current regime, these 
non-U.S. exempt DCOs are subject to comparable and comprehensive 
supervision and regulation by their home country regulators, but U.S. 
customers are not able to access their clearing services because 
registration with the CFTC would require application of the U.S. 
Bankruptcy Code and the relevant CFTC regulations to the local 
operations of non-U.S. exempt DCOs. This application of U.S. law may 
create legal conflicts in some jurisdictions. JSCC recommended that the 
Commission prioritize a review of these restrictions for U.S. customers 
with a view toward allowing U.S. customers to access non-U.S. swap 
markets.
a. Technology, Infrastructure, and Legal Costs
    Market participants already clearing swaps may incur costs in 
making necessary changes to technology systems if they are not yet 
clearing RFR OIS. Such market participants may incur costs if they need 
to implement technology to connect to FCMs that will clear their 
transactions.\186\ Market participants who do not currently have 
established clearing relationships with an FCM will have to set up and 
maintain such a relationship in order to clear swaps that are required 
to be cleared. Market participants who transact a limited number of 
swaps per year likely will be required to pay monthly or annual fees 
that FCMs charge to maintain both the relationship and outstanding swap 
positions belonging to the customer. In addition, the FCM is likely to 
pass along fees charged by the DCO for establishing and maintaining 
open positions.
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    \186\ As stated in the NPRM, the Commission does not have the 
information necessary to determine either the costs associated with 
entities that need to establish relationships with one or more FCMs 
or the costs associated with entities that already have 
relationships with one or more FCMs but need to revise their 
agreements. The Commission requested commenters provide the 
necessary data where available. No commenter provided data in 
response to this request.
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    As a general matter, it is likely that most market participants 
already complied with prior clearing requirements and that the 
incremental burdens associated with clearing any of the new RFR OIS 
should be minimal, especially given that these products are intended to 
replace already widely

[[Page 52209]]

cleared swaps,\187\ and most market participants already will have 
undertaken the steps necessary to move away from the use of IBOR swaps 
in the cleared interest rate swap market.\188\ Any new costs, including 
legal costs, are likely to depend on the specific business needs of 
each entity and therefore would vary widely among market participants.
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    \187\ In responding to the RFI, TD Bank noted that the 
implementation of new clearing requirements to address the 
transition from IBORs to RFRs ``should not materially increase 
costs'' (but should be ``forecasted appropriately to allow firms to 
become operationally ready''). TD Bank RFI Letter. JSCC noted that 
``DCOs and market participants have already incurred significant 
costs to transition LIBOR swaps denominated in non-USD currencies to 
alternative reference rates'' and stated that JSCC ``[does] not 
believe there would be any additional costs to be borne by DCOs and 
market participants if the CFTC includes alternative reference 
rates, such as TONA OIS, in the Clearing Requirement.'' JSCC RFI 
Letter. ISDA stated that ``[w]hile the changes in [the clearing 
requirement] will have a cost attached . . . these costs are part of 
the overall cost of LIBOR transition and spread across multiple 
jurisdictions.'' ISDA RFI Letter. ISDA noted that for institutional 
clients, additional costs ``will be incremental as opposed to 
something completely new and potentially prohibitive,'' but also 
noted that ``[f]or smaller less sophisticated counterparties who do 
not have to currently clear, [a new clearing requirement] could be a 
significant cost that could deter them from hedging using swaps.'' 
Id. ISDA requested that the Commission ``not enact a [clearing 
requirement] . . . in a way that increases cost, for instance by 
providing [a] short notice period that would require the 
implementation of tactical solutions to meet short deadlines.'' Id. 
ACLI encouraged the Commission to ``consider whether the marginal 
risk mitigation benefits of an expanded clearing requirement 
outweigh the costs of compliance'' in light of uncleared swap margin 
rules. ACLI RFI Letter.
    \188\ E.g., Tradeweb RFI Letter (``In effect, the CFTC is not 
expanding the existing clearing determinations, rather it will be 
applying the existing IBOR determinations to contracts based on the 
new RFRs.''); Citadel RFI Letter (``As noted above, OTC derivatives 
referencing SOFR are currently being cleared by DCOs in material 
volumes, demonstrating that the rule frameworks and operational 
infrastructure already exist to support a clearing requirement. 
Significant voluntary clearing demonstrates the confidence market 
participants have in the current DCO offerings.''); Eurex RFI Letter 
(``Eurex Clearing does not believe that adopting a clearing 
requirement for swaps referencing SOFR would be any hindrance to 
trading activity in those swaps. Any such clearing requirements for 
the RFRs, if adopted, were already in effect for the IBOR-based 
rates being replaced.'').
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    In the NPRM, the Commission requested comment, including any 
quantifiable data and analysis, on the changes that market participants 
would have to make to their technological and legal infrastructures in 
order to clear the RFR OIS subject to the proposed determination.\189\ 
No commenter provided any such data. As described above, ACLI stated 
that small life insurers may have to establish new clearing 
relationships with FCMs and face other potential costs and risks of 
central clearing, but did not offer specific examples or data. Given 
that this final rulemaking constitutes an update to reflect the end of 
certain IBOR swaps and the market-wide shift to alternative RFR OIS, 
rather than an expansion of the interest rate swap clearing 
requirement, and in light of the high rates of voluntary clearing in 
the RFR OIS subject to this determination, it is unlikely that new 
clearing arrangements will need to be made for most, if not all, 
interest rate swap market participants.
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    \189\ The Commission further requested comment on how many 
market participants, if any, may have to establish new relationships 
with FCMs, or significantly upgrade those relationships based on the 
clearing requirement proposal. The Commission also requested comment 
regarding the fee structures of FCMs in general, and in particular 
as they relate to the clearing of the types of RFR OIS covered by 
the proposed rule. No commenter provided specific feedback on these 
matters.
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b. Ongoing Costs Related to FCMs and Other Service Providers
    In addition to costs associated with technological and legal 
infrastructures, market participants transacting in RFR OIS subject to 
the determination face ongoing costs associated with fees charged by 
FCMs. DCOs typically charge FCMs an initial transaction fee for each 
cleared interest rate swap its customers enter, as well as an annual 
maintenance fee for each open position. The Commission understands that 
customers that occasionally transact in swaps are typically required to 
pay a monthly or annual fee to each FCM.\190\ Because most RFR OIS are 
already cleared these costs are largely being incurred by market 
participants.
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    \190\ As stated in the NPRM, the Commission does not have 
current information regarding such fees and requested that 
commenters provide the necessary data where available. No commenter 
provided such data.
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    As discussed above, it is difficult to predict precisely how the 
requirement to clear RFR OIS will promote the use of swap clearing, as 
compared to the use of clearing that would occur in the absence of the 
requirement. However, as presented by the data above, voluntary 
clearing rates are so high that the percentage of swaps that would be 
cleared pursuant to the rule is unlikely to increase materially. The 
estimated percentage of USD SOFR OIS (based on monthly notional 
transacted) that were cleared in April 2022 was approximately 96 
percent.\191\ Some RFR OIS will continue to be uncleared pursuant the 
exceptions and exemptions set out in subpart C of part 50 of the 
Commission's regulations.
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    \191\ This estimate is based on swaps transacted after the most 
recent revisions to subpart C of part 50 went into effect (on or 
after December 30, 2020), so it captures all applicable exemptions 
from the swap clearing requirement.
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    The Commission anticipates that a similar percentage of RFR OIS 
subject to this determination will continue to be cleared given that 
subpart C of part 50 has not changed. Because the clearing percentages 
for non-USD RFR OIS are even higher than for USD SOFR OIS, the increase 
in clearing as a result of this rule also will likely be de minimis. 
Any increase in the use of clearing due to this determination would 
lead in most cases to an incremental increase in the transaction costs 
noted above. However, because most market participants already 
undertook the steps necessary to accommodate the clearing of swaps 
subject to required clearing, the Commission anticipates that the 
burden associated with clearing RFR OIS should be de minimis.
c. Costs Related to Collateralization of Cleared Swap Positions
    Market participants that enter into RFR OIS subject to the amended 
rule will be required to post initial margin at a DCO. The Commission 
understands that the RFR OIS subject to this clearing requirement 
determination already are being widely cleared on a voluntary basis, 
and so any additional amounts of initial margin that market 
participants would be required to post to a DCO as a result of this 
determination likely would be relatively small. In reaching this view, 
the Commission considered situations where (1) uncleared RFR OIS may be 
otherwise collateralized; \192\ (2) uncleared RFR OIS between certain 
swap dealers and ``financial end-users'' are, or will be, subject to 
initial and variation margin requirements under the Commission's margin 
regulations for uncleared swaps; \193\ (3) the pricing of certain 
uncleared swaps may account for implicit contingent liabilities and 
counterparty risk; (4) not all RFR OIS will necessarily be eligible for 
clearing if they have terms that prevent them from being cleared; \194\ 
and (5) certain entities may elect an exception or exemption from the 
clearing requirement.\195\
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    \192\ E.g., under the terms of a credit support annex.
    \193\ Margin Requirements for Uncleared Swaps for Swap Dealers 
and Major Swap Participants, 81 FR 636 (Jan. 6, 2016); Margin 
Requirements for Uncleared Swaps for Swap Dealers and Major Swap 
Participants, 85 FR 71246 (Nov. 9, 2020). Swap dealers that are 
banks are subject to capital and margin rules promulgated by U.S. 
prudential authorities.
    \194\ For example, if such swaps do not meet the specifications 
set forth in revised regulation Sec.  50.4(a).
    \195\ See subpart C of part 50 (Exceptions and Exemptions to the 
Clearing Requirement).

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[[Page 52210]]

    The Commission acknowledges that market participants who are not 
clearing voluntarily and not otherwise required to post margin or 
collateral may incur costs related to funding collateral once they are 
required to clear. The greater the funding cost relative to the rate of 
return on the asset used as initial margin, the greater the cost of 
procuring collateral.\196\ Quantifying this cost with any precision is 
challenging because different entities may have different funding costs 
and may choose assets with different rates of return.
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    \196\ Certain entities, such as pension funds and asset 
managers, may use as initial margin assets that they already own. In 
such cases, market participants would not incur funding costs in 
order to post initial margin.
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    In the NPRM, the Commission requested comments on all aspects of 
quantifying the cost of funding initial margin that would be required 
to be posted at a DCO pursuant to the proposed rule. ACLI commented on 
the ability of life insurers to be able to choose how to allocate 
financial resources as between cleared and uncleared interest rate 
swaps. In ACLI's view this choice should rest with life insurers.\197\
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    \197\ ACLI also stated that requirement to post cash collateral 
to a clearinghouse could pose liquidity risk for life insurers 
(e.g., those that may need to liquidate higher-yielding securities 
for cash), despite the benefits of a reduction in counterparty 
credit risk, and that the application of bilateral uncleared margin 
requirements decreases the risk-mitigation benefits of required 
clearing.
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    ACLI did not assert or provide any evidence that life insurers are 
choosing to clear the RFR OIS subject to this rulemaking at a lower 
rate than they would if such swaps were subject to required clearing, 
nor that life insurers are clearing these swaps at a lower rate than 
they cleared swaps referencing the corresponding IBOR rates. Data 
presented in Table 4 above, indicates there is an overwhelming 
preference for clearing in the RFR OIS market. The Commission estimates 
that more than 94% of notional transacted each month between November 
2021 and April 2022 in non-inter-affiliate trades in USD SOFR OIS has 
been cleared, with clearing rates for other RFR OIS subject to this 
rulemaking approaching 100%.
    Regarding the requirement to post cash collateral, ACLI stated that 
posting such collateral to a clearinghouse could pose liquidity risk 
for life insurers if they were required to liquidate higher-yielding 
securities for cash. ACLI did not provide any quantifiable data in 
support of this comment. As ACLI acknowledged in its comment, the 
requirement to post cash collateral is imposed by DCOs and FCMs.\198\ 
To the extent some life insurers could face greater collateralization 
costs if required to clear RFR OIS, those costs are not imposed by this 
rulemaking.
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    \198\ While Commission regulation Sec.  39.13(g)(10) provides 
that DCOs may accept as initial margin certain non-cash assets, DCOs 
(and FCMs) may impose more stringent collateral requirements.
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    As explained in prior clearing requirement determinations, the CEA 
directs the Commission to consider whether swaps should be required to 
be cleared. In 2012 and 2016, the Commission issued rules requiring the 
clearing of certain interest rate swaps. Additionally, in issuing its 
2016 clearing requirement determination, the Commission noted specific 
benefits offered by central clearing over bilateral margining in terms 
of mitigation of systemic risk for swaps that are sufficiently 
standardized and meet the Commission's suitability requirements, 
including applicability to a wider set of counterparties and the 
security offered by a DCO's guaranty fund and other resources.\199\ In 
this rulemaking the Commission is updating its 2012 and 2016 rules to 
account for the IBOR transition.\200\
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    \199\ See Second Determination, 81 FR 71219.
    \200\ In the NPRM, the Commission also requested comment on 
funding costs that market participants may face due to interest 
rates on bonds issued by a sovereign nation that also issues the 
currency in which the RFR OIS subject to the proposed determination 
is denominated. By way of background, CME, LCH, and Eurex accept as 
initial margin bonds issued by several sovereigns, and market 
participants may post such bonds as initial margin under this 
rulemaking. No commenter addressed this issue.
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    Additionally, the Commission recognizes that the new initial margin 
amounts required to be posted to DCOs for cleared RFR OIS will, for 
entities required to post initial margin under the uncleared swap 
margin regulations, replace the initial margin amount that has been, or 
will be, required to be posted to their swap counterparties, pursuant 
to the uncleared swap margin regulations. The uncleared swap margin 
regulations require swap dealers and certain ``financial end-users'' to 
post and collect initial and variation margin for uncleared swaps, 
subject to various conditions and limitations.\201\
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    \201\ See generally subpart E of part 23 of the Commission's 
regulations. The swap clearing requirement under part 50 of the 
Commission's regulations applies to a broader scope of market 
participants than the uncleared swap margin regulations. For 
example, under subpart E of part 23, a ``financial end-user'' that 
does not have ``material swaps exposure'' (as defined by regulation 
Sec.  23.151) is not required to post initial margin, but such an 
entity may be subject to the swap clearing requirement. 17 CFR 
23.151.
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    The Commission anticipates that initial margin required to be 
posted for a cleared swap to be added under this determination 
typically will be less than the initial margin that would be required 
to be posted for uncleared swaps pursuant to the uncleared swap margin 
regulations. Whereas the initial margin requirement for cleared swaps 
must be established according to a margin period of risk of at least 
five days,\202\ under the uncleared swap margin regulations, the 
minimum initial margin requirement is set with a margin period of risk 
of 10 days or, under certain circumstances, less or no initial margin 
for inter-affiliate transactions.\203\ Phase-in of the initial margin 
requirements for uncleared swaps began on September 1, 2016, and will 
be fully implemented by September 1, 2022. The requirement for entities 
subject to uncleared swap margin regulations to exchange variation 
margin was fully implemented on March 1, 2017.
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    \202\ Commission regulation Sec.  39.13(g)(2)(ii)(c), 17 CFR 
39.13(g)(2)(ii)(c).
    \203\ Commission regulations Sec. Sec.  23.154(b)(2)(i) and 
23.159. See generally Margin and Capital Requirements for Covered 
Swap Entities, 80 FR 77840 (Nov. 3, 2015).
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    With respect to swaps added to the clearing requirement under this 
determination, but not subject to the uncleared swap margin 
regulations, the Commission believes that the new initial margin 
amounts to be deposited will displace costs that are currently embedded 
in the prices and fees for transacting the swaps on an uncleared and 
uncollateralized basis, rather than add a new cost. Entering into a 
swap is costly for any market participant because of the default risk 
posed by its counterparty. When a market participant faces a DCO, the 
DCO accounts for that counterparty credit risk by requiring the market 
participant to post collateral, and the cost of capital for the 
collateral is part of the cost that is necessary to maintain the swap 
position.
    When a market participant faces a swap dealer or other counterparty 
in an uncleared swap, however, the uncleared swap contains an implicit 
line of credit upon which the market participant effectively draws when 
its swap position is out of the money. Typically, counterparties charge 
for this implicit line of credit in the spread they offer on 
uncollateralized, uncleared swaps.\204\ Additionally, because the 
counterparty credit risk that the implicit line of credit

[[Page 52211]]

creates is the same as the counterparty risk that would result from an 
explicit line of credit provided to the same market participant, to a 
first order approximation, the charge for each should be the same as 
well.\205\ This means that the cost of capital for additional 
collateral posted as a consequence of requiring uncollateralized swaps 
to be cleared takes a cost that is implicit in an uncleared, 
uncollateralized swap and makes it explicit.\206\ This observation 
applies to capital costs associated with both initial margin and 
variation margin.
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    \204\ It has been argued that the cash flows of an 
uncollateralized swap (i.e., a swap with an implicit line of credit) 
are over time substantially equivalent to the cash flows of a 
collateralized swap with an explicit line of credit. See generally 
Antonio S. Mello & John E. Parsons, Margins, Liquidity, and the Cost 
of Hedging, MIT Center for Energy and Environmental Policy Research, 
May 2012, available at https://dspace.mit.edu/bitstream/handle/1721.1/70896/2012-005.pdf?sequence=1.
    \205\ Id. Mello and Parsons state, ``[h]edging is costly. But 
the real source of the cost is not the margin posted, but the 
underlying credit risk that motivates counterparties to demand that 
margin be posted.'' Id. at 12. They also note that, ``[t]o a first 
approximation, the cost charged for the non-margined swap must be 
equal to the cost of funding the margin account. This follows from 
the fact that the non-margined swap just includes funding of the 
margin account as an embedded feature of the package.'' Id. at 15-
16.
    \206\ But note that the cost may be greater for uncleared swaps 
as the initial margin is computed on a counterparty by counterparty 
basis, whereas in the clearing context, there is most likely greater 
opportunity for netting exposures at the DCO.
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    The amended rule also may result in added operational costs for 
those few market participants who are not already clearing these swaps 
voluntarily. With uncleared swaps, under some circumstances, 
counterparties may agree not to collect variation margin until certain 
thresholds are reached thereby reducing or eliminating the need to 
exchange daily variation margin.\207\ By contrast, DCOs collect and pay 
variation margin daily and sometimes more frequently. Increased 
required clearing therefore may increase certain operational costs 
associated with paying variation margin to the DCO.\208\
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    \207\ However, part 23 regulations require the mandatory 
exchange of variation margin under certain circumstances. 17 CFR 
23.151 and 23.153.
    \208\ However, exchange of variation margin will lower the 
build-up of current exposure.
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    The amended rule may result in slight additional costs for clearing 
members in the form of guaranty fund contributions that are held by the 
DCO. However, it also could decrease guaranty fund contributions for 
certain clearing members. Once the determination takes effect, there 
may be market participants who currently trade swaps bilaterally who 
would have to either become clearing members of a DCO or submit such 
swaps for clearing through an existing clearing member. A market 
participant who becomes a direct clearing member must make a guaranty 
fund contribution, while a market participant who clears its swaps 
through a clearing member may pay higher fees if the clearing member 
passes the costs of the guaranty fund contribution to its customers. 
While the addition of new clearing members and new customers for 
existing clearing members may result in an increase in guaranty fund 
requirements, it should be noted that if (1) new clearing members are 
not among the two clearing members used to calculate the guaranty fund 
and (2) any new customers trading through a clearing member do not 
increase the size of uncollateralized risks at either of the two 
clearing members used to calculate the guaranty fund, all else held 
constant, existing clearing members may experience a decrease in their 
guaranty fund requirement.
    In the NPRM, the Commission requested comment regarding the total 
amount of additional collateral that would be posted due to required 
clearing of the RFR OIS covered by the proposed determination. The 
Commission also invited comment, and the provision of quantifiable data 
and analysis, regarding (1) the cost of capital and returns on capital 
for that collateral, (2) the effects of required clearing on the 
capital requirements for financial institutions, and (3) the costs and 
benefits associated with operational differences related to the 
collateralization of uncleared versus cleared swaps.
    As discussed above, only ACLI raised the issue of allocation of 
capital as between cleared and uncleared interest rate swaps. ACLI did 
not provide specific data in support of its comment. Life insurers are 
not eligible to elect an exception or exemption from the swap clearing 
requirement under the section 2(h)(7)(C) of the CEA, as implemented by 
subpart C of part 50 of the Commission's regulations. Similarly, life 
insurers entering into bilateral swaps with swap dealers are considered 
to be financial entities for purposes of margin requirements under part 
23 of the Commission's regulations.\209\ As explained above, the 
potentially greater collateralization costs for life insurance 
companies required to clear RFR OIS flow from the requirements of 
individual DCOs and FCMs rather than the Commission's determination 
that certain RFR OIS are required to be cleared.
---------------------------------------------------------------------------

    \209\ 17 CFR 23.151 (defining ``financial end user''). ACLI 
stated that the benefits of central clearing are reduced by the 
requirement to margin uncleared swaps entered into with swap 
dealers. Central clearing provides a number of benefits over 
bilateral margining of uncleared swaps, including, in the case of 
required clearing, use of central clearing by a broad set of market 
participants, ensuring that market participants face a highly 
creditworthy counterparty, and the availability of DCO default and 
risk management resources and processes.
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    Moreover, the CEA and Commission rules direct the Commission to 
determine which swaps are required to be cleared.\210\ Maintaining 
updated rules is important, particularly where, as here, benchmarks 
become unavailable and liquidity shifts into swaps referencing new 
rates.
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    \210\ Section 2(h) of the CEA and 17 CFR 39.5.
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3. Benefits of Clearing
    As noted above, there are significant benefits to central clearing 
of swaps. These benefits include reducing and standardizing 
counterparty credit risk, improving market transparency, and promoting 
access to clearing services. Specifically, there are important risk 
mitigation benefits of clearing RFR OIS that replace IBOR swaps (which 
are removed from the clearing requirement under this rulemaking). In 
addition, requiring the central clearing of RFR OIS promotes regulatory 
continuity and cross-border harmonization of clearing requirements.
    The Commission believes that while the requirement to margin 
uncleared swaps mitigates counterparty credit risk, such risk is 
mitigated further for swaps that are cleared through a central 
counterparty. Moreover, the determination applies to a larger set of 
market participants than the uncleared swaps margin requirements. Thus, 
to the extent that the determination to add RFR OIS to the clearing 
requirement leads to increased clearing overall, these benefits are 
likely to result. As is the case for the costs noted above, it is 
likely that the use of clearing will not increase materially as a 
result of the amended rule, but implementing a clearing requirement 
helps ensure the benefits of the rule continue to be realized as market 
participants continue to clear RFR OIS.
    The amended rule's requirement that certain swaps be cleared is 
intended to ensure that market participants face a DCO, and therefore, 
face a highly creditworthy counterparty. As discussed above, DCOs are 
some of the most creditworthy counterparties in the swap market because 
of the risk management tools they have available. The Commission 
recognizes that the beneficial value of adding RFR OIS to the clearing 
requirement may be lessened, in part, because the swap volumes that 
will be subject to a new clearing requirement are expected to be 
shifting from one set of swaps (IBORs) to another (RFRs) rather than a 
straightforward addition of new swap

[[Page 52212]]

products to the clearing requirement.\211\ Moreover, as noted, these 
benefits are already being realized for the large majority of these 
swaps that are cleared voluntarily.
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    \211\ As discussed in section IV.A above.
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    In the NPRM, the Commission requested comment on the benefits of 
the proposed rule, such as the expected magnitude of such benefits and 
whether the rule would further international harmonization of swap 
clearing requirements. As explained throughout the preamble, many 
commenters noted the benefits of central clearing for interest rate 
swaps generally and the importance of international harmonization for 
the IBOR transition in particular.
    One commenter, JSCC, stated that the benefits of the proposal would 
be enhanced if the Commission's swap customer clearing regime is 
reviewed in order to provide U.S. customers with expanded access to 
non-U.S. swap markets cleared by non-U.S. DCOs. JSCC stated that, under 
the current regime, exempt DCOs are subject to comparable and 
comprehensive regulation by their home country regulators, but U.S. 
customers are not able to access their clearing services. Currently, 
DCO registration is limited to registered DCOs and FCMs because 
registration with the CFTC requires application of the U.S. Bankruptcy 
Code and the relevant CFTC regulations. As explained above, because 
this issue is outside the scope of this rulemaking, this benefit is not 
applicable.
    Lastly, with regard to the benefits of clearing, the current high 
rates of voluntary clearing for the RFR OIS subject to this rulemaking 
reflect the high value that market participants place on central 
clearing. Amending the interest rate swap clearing requirement to 
remove IBOR swaps and add RFR OIS will ensure the continuation of these 
benefits, including by shifting market activity into RFR OIS markets 
and away from IBOR swap markets.

D. Costs and Benefits of the Amendments as Compared to Alternatives

    The final rule accounts for the market importance of the RFR OIS 
subject to this clearing requirement determination and the fact that 
these swaps already are widely cleared. The Commission believes that 
these interest rate swaps should be required to be cleared because they 
are widely used and infrastructure for clearing and risk management of 
these swaps already exists.
    DCOs, FCMs, and market participants already have experience 
clearing the swaps subject to this determination. Because of the wide 
use of these swaps and their importance to the market, and because 
these swaps are already successfully being cleared, the Commission is 
adding RFR OIS to the interest rate swap clearing requirement. The 
Commission believes that RFR OIS should be added to the swap clearing 
requirement after analyzing the factors under section 2(h)(2)(D) of the 
CEA, in order to promote consistency with its regulatory counterparts 
in other jurisdictions and to ensure that the benefits of required 
clearing accrue to the RFR OIS that replace IBOR swaps no longer 
offered for clearing.
    The Commission considered alternative implementation scenarios for 
this RFR OIS clearing requirement. Specifically, the Commission 
considered the implementation plan for removing existing requirements 
to clear USD LIBOR and SGD SOR-VWAP swaps 30 days after publication of 
the final rule in the Federal Register instead of on July 1, 2023.
    As discussed in section VI, the Commission modified its 
implementation plan in response to input from commenters. For example, 
rather than going into effect 30 days after the final rules are 
published, the requirement to clear USD SOFR OIS and SGD SORA OIS will 
be implemented on October 31, 2022.
    In declining to delay implementation of the proposed requirement to 
clear USD SOFR and SGD SORA OIS until July 1, 2023, the Commission 
considered the alternative in light of whether there is sufficient 
outstanding notional and liquidity (or pricing data) to support 
requiring clearing of USD SOFR OIS out to 50 years, and SGD SORA OIS 
out to 10 years. Both the data discussed with regard to Factor I in 
section V above and input from commenters support the Commission's 
decision to require these swaps be cleared and implement the clearing 
requirement on October 31, 2022. Proceeding with this alternative 
reflects a compromise approach that harmonizes with international 
counterparts and incorporates feedback from market participants.
    Similarly, the Commission accounted for market input when declining 
to adjust the implementation plan for removing the requirements to 
clear interest rate swaps referencing IBORs. For the reasons discussed 
above, removal of USD LIBOR and SGD SOR-VWAP swaps from the existing 
interest rate swap clearing requirement will not take place 30 days 
after the final rules go into effect, but will remain in place until 
the underlying IBOR rates upon which the swap is based cease 
publication or become nonrepresentative.
    Finally, the Commission considered an alternative scenario in which 
it did not adopt any new clearing requirement for RFR OIS. Under this 
alternative, the cost to the market would be an increased risk of 
uncleared swaps (and the associated financial stability risks) should 
market participants decide to clear less in the future. This cost may 
be significant because of the potential effect on the market-wide 
effort to replace IBOR swaps with RFR swaps, but may be mitigated given 
the current high level of clearing. The benefit of not adopting any new 
clearing requirements would be a savings experienced by market 
participants that would not be required to clear new swaps referencing 
an RFR and that would not otherwise find it beneficial to do so. 
However, given the high rate of voluntary clearing, any cost savings in 
the aggregate would be de minimis, and it is likely that many, if not 
most market participants entering into the RFR OIS subject to this 
determination find it beneficial to clear such swaps. In light of this, 
and in the absence of significant change in the interest rate swap 
markets, the Commission determined not to pursue this alternative.

E. Section 15(a) Factors

    The Commission anticipates that the amendments to add certain swaps 
to the clearing requirement while removing others will result in a 
slight increase in the already high use of clearing, although it is 
impossible to quantify with certainty the extent of that increase.\212\ 
This section discusses the expected results from an overall increase, 
or maintenance at high levels, in swap clearing based on factors set 
forth in section 15(a) of the CEA.
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    \212\ It is possible that the level of clearing overall may 
remain similar if the use of swaps referencing RFRs replaces the use 
of swaps referencing IBORs.
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1. Protection of Market Participants and the Public
    The required clearing of the RFR OIS added under this rulemaking 
should ensure the reduction of counterparty risk for market 
participants that clear those swaps, because they will be required to 
face the DCO rather than another market participant that lacks the full 
set of risk management tools that the DCO possesses. This also should 
reduce uncertainty in times of market stress because, for cleared 
trades, market participants facing a DCO would not be concerned with 
the impact of such stress on the solvency of their original

[[Page 52213]]

counterparty. By requiring clearing of RFR OIS, all of which are 
already available for clearing and predominantly cleared voluntarily, 
the Commission aims to further encourage a smooth transition away from 
IBORs. More specifically, the Commission expects that the registered 
DCOs currently clearing these RFR OIS will clear a slightly increased 
volume of swaps that they already understand and have experience 
managing.\213\ Similarly, FCMs may realize slightly increased customer 
and transaction volume as a result of the requirement, but would not 
have to simultaneously learn how to operationalize clearing for the 
covered interest rate swaps.
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    \213\ See CME RFI Letter (``CME Clearing currently accepts OIS 
referencing SOFR, SARON, [euro]STR, SONIA and TONA . . . . CME 
Clearing is therefore already in a position to support a Clearing 
Requirement in relation to these swaps.''); LSEG (noting RFR OIS 
that LCH already clears and discussing significant recent increases 
in liquidity in certain swaps, particularly swaps referencing JPY 
TONA and USD SOFR); Eurex RFI Letter (``Eurex Clearing has a well-
developed rule framework, compliance process and procedures, and 
support infrastructure to support clearing of swaps referencing the 
RFRs and already offers clearing of these swaps. Eurex Clearing has 
leveraged and will continue to leverage this operational capacity 
for the clearing of swaps referencing the RFRs and has the 
appropriate risk management, operations, technology, and compliance 
capabilities in place to continue to provide for compliance with all 
CEA core principles for DCOs.''). See also JSCC RFI Letter (noting 
that JSCC has been clearing JPY TONA OIS since 2014 and that because 
``JPY swap market liquidity has already fully transitioned from IRS 
referencing LIBOR to TONA OIS,'' there is ``no concern for DCOs to 
accept [JPY TONA OIS] for clearing.''). See also CME and JSCC 
comment letters.
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    In addition, uncleared swaps subject to collateral agreements can 
be the subject of valuation disputes, which sometimes require several 
months or longer to resolve. Potential future exposures can grow 
significantly and even beyond the amount of initial margin posted 
during that time, leaving one of the two counterparties exposed to 
counterparty credit risk. DCOs virtually eliminate valuation disputes 
for cleared swaps, as well as the risk that uncollateralized exposure 
can develop and accumulate during the time when such a dispute would 
have otherwise occurred, thus providing additional protection to market 
participants who transact in swaps that are cleared. Because most RFR 
OIS are cleared voluntarily, these protections are currently being 
widely realized by market participants. Requiring clearing under part 
50 of the Commission's regulations ensures that they continue to be 
realized.
    As noted above, while required clearing of RFR OIS may result in 
certain costs for market participants (e.g., costs related to 
establishing and maintaining relationships with FCMs), the incremental 
burdens associated with clearing the RFR OIS subject to this 
determination should be de minimis because most market participants 
already will have had experience complying with prior clearing 
requirements, the determination effectively replaces IBORs already 
subject to the clearing requirement with RFR OIS, and there is existing 
widespread voluntary clearing of RFR OIS.
2. Efficiency, Competitiveness, and Financial Integrity of Swap Markets
    Swap clearing, in general, reduces uncertainty regarding 
counterparty risk in times of market stress and promotes liquidity and 
efficiency during those times. Increased liquidity promotes the ability 
of market participants to limit losses by exiting positions effectively 
and efficiently when necessary in order to manage risk during a time of 
market stress. In addition, to the extent that positions move from 
facing multiple counterparties in the bilateral market to being cleared 
through a smaller number of clearinghouses, clearing facilitates 
increased netting. This reduces the amount of collateral that a party 
must post in margin accounts. As discussed above, in formulating this 
determination, the Commission considered a number of specific factors 
that relate to the financial integrity of the swap markets. 
Specifically, the Commission assessed whether the registered DCOs that 
clear RFR OIS have the rule framework, capacity, operational expertise 
and resources, and credit support infrastructure to clear these swaps 
on terms that are consistent with the material terms and trading 
conventions on which the contract is then traded.\214\ The Commission 
also considered the resources of DCOs to handle additional clearing 
during stressed and non-stressed market conditions, as well as the 
existence of reasonable legal certainty in the event of a clearing 
member or DCO insolvency.
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    \214\ See section V above.
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    Also, as discussed above, bilateral swaps create counterparty risk 
that may lead market participants to discriminate among potential 
counterparties based on their creditworthiness. Such discrimination is 
expensive and time consuming insofar as market participants must 
conduct due diligence in order to evaluate a potential counterparty's 
creditworthiness. Requiring certain types of swaps to be cleared 
reduces the number of transactions for which such due diligence is 
necessary, thereby contributing to the efficiency of the swap markets.
    In adopting a clearing requirement for RFR OIS, the Commission must 
consider the effect on competition, including appropriate fees and 
charges applied to clearing. There are a number of potential outcomes 
that may result from required clearing. Some of these outcomes may 
impose costs, such as if a DCO possessed market power and exercised 
that power in an anti-competitive manner, and some of the outcomes 
would be positive, such as if the clearing requirement facilitated a 
stronger entry opportunity for competitors.\215\ Because most of these 
swaps are cleared voluntarily, these effects on efficiency, 
competitiveness, and financial integrity are, to a large degree, 
currently being realized. Requiring clearing ensures that they continue 
to be realized.
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    \215\ Issues related to competition also are considered in 
sections V and VIII.
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3. Price Discovery
    Clearing, in general, encourages better price discovery because it 
eliminates the importance of counterparty creditworthiness in pricing 
swaps cleared through a given DCO. By making the counterparty 
creditworthiness of all swaps of a certain type essentially the same, 
prices should reflect factors related to the terms of the swap, rather 
than the idiosyncratic risk posed by the entities trading it. Because 
most of these swaps are cleared voluntarily, these effects on price 
discovery are currently being realized. Requiring clearing ensures that 
they continue to be realized.
    As discussed above, CME, LCH, and Eurex obtain adequate pricing 
data for the interest rate swaps that they clear. Each of these DCOs 
establishes a rule framework for its pricing methodology and rigorously 
tests its pricing models to ensure that its risk management regime is 
as sound as possible.
4. Sound Risk Management Practices
    If a firm enters into uncleared and uncollateralized swaps to hedge 
certain positions and then the counterparty to those swaps defaults 
unexpectedly, the firm could be left with large outstanding exposures. 
Even for uncleared swaps that are subject to the Commission's uncleared 
swap margin regulations, some counterparty credit risk remains.\216\ As 
stated above, when a

[[Page 52214]]

swap is cleared the DCO becomes the counterparty facing each of the two 
original participants in the swap. This standardizes and reduces 
counterparty risk for each of the two original participants. To the 
extent that a market participant's hedges comprise swaps that are 
required to be cleared and would not be cleared voluntarily, the 
requirement enhances their risk management practices by reducing their 
counterparty risk.
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    \216\ For example, there is a small risk of a sudden price move 
so large that a counterparty would be unable to post sufficient 
variation margin to cover the loss, which may exceed the amount of 
initial margin posted, and could be forced into default.
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    In addition, to the extent that required clearing reduces or deters 
a potential increase in bilateral trading, it reduces the complexity of 
unwinding or transferring swap positions from large entities that 
default. Procedures for transfer of swap positions and mutualization of 
losses among DCO members are already in place, and the Commission 
anticipates that they are much more likely to function in a manner that 
enables rapid transfer of defaulted positions than legal processes that 
would surround the enforcement of bilateral contracts for uncleared 
swaps.\217\
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    \217\ Sound risk management practices are critical for all DCOs, 
especially those offering clearing for interest rate swaps given the 
size and interconnectedness of the global interest rate swap market. 
The Commission considered whether each regulation Sec.  39.5(b) 
submission under review was consistent with the DCO core principles. 
In particular, the Commission considered the DCO submissions in 
light of Core Principle D, which relates to risk management. This 
determination also considers the effect on the mitigation of 
systemic risk in the interest rate swap market, as well as the 
protection of market participants during insolvency events at either 
the clearing member or DCO level.
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    Central clearing has evolved since the 2009 G20 Pittsburgh Summit, 
when G20 leaders committed to central clearing of all standardized 
swaps.\218\ The percentage of the swap market that is centrally cleared 
has increased significantly, clearinghouses have expanded their 
offerings, and the range of banks and other financial institutions that 
submit swaps to clearinghouses has broadened. At the same time, the 
numbers of swap clearinghouses and swap clearing members has remained 
highly concentrated. This has created concerns about a concentration of 
credit and liquidity risk at clearinghouses that could have systemic 
implications.\219\
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    \218\ The G20 Leaders Statement made in Pittsburgh is available 
at https://www.g20.utoronto.ca/2009/2009communique0925.html.
    \219\ See Dietrich Domanski, et al., ``Central clearing: Trends 
and current issues,'' BIS Quarterly Review, Dec. 2015, available at 
https://www.bis.org/publ/qtrpdf/r_qt1512g.pdf; U.S. Department of 
the Treasury, Office of Financial Research, Financial Stability 
Report, at 35 (Nov. 2018), available at https://www.federalreserve.gov/publications/files/financial-stability-report-201811.pdf; Umar Faruqui, et al., ``Clearing risks in OTC 
derivatives markets: the CCP-bank nexus,'' at 77-79 (2018), 
available at https://www.bis.org/publ/qtrpdf/r_qt1812h.pdf.
---------------------------------------------------------------------------

    However, the Commission believes that DCOs are capable of risk 
managing the swaps that are the subject of this determination. 
Moreover, because most of the RFR OIS to be added to the clearing 
requirement are already cleared voluntarily, the Commission anticipates 
that the extent to which this determination will increase the credit 
risk and liquidity risk that is concentrated at DCOs will be relatively 
small.
    The Commission requested comment on the extent to which the 
determination would increase the credit risk and liquidity risk that is 
concentrated at DCOs. As discussed above, ACLI raised concerns about 
concentrating credit and liquidity risk in DCOs. Other commenters, 
including CCP12 and two DCOs, responded to questions and provided an 
explanation to account for such concerns.\220\ The Commission believes 
that this clearing requirement determinations fully accounts for those 
issues.
---------------------------------------------------------------------------

    \220\ See section III above.
---------------------------------------------------------------------------

5. Other Public Interest Considerations
    In September 2009, the President and other leaders of the G20 
nations met in Pittsburgh and committed to a program of action that 
includes, among other things, central clearing of all standardized 
swaps.\221\ The Commission believes that this clearing requirement 
determination is consistent with the G20's commitment and reflects the 
Commission's ongoing confidence in central clearing for swaps and other 
derivatives. As discussed throughout this rulemaking, central clearing 
of derivatives by DCOs can serve the public interest in numerous ways.
---------------------------------------------------------------------------

    \221\ The G20 Leaders Statement made in Pittsburgh is available 
at https://www.g20.utoronto.ca/2009/2009communique0925.html.
---------------------------------------------------------------------------

VIII. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires agencies to consider 
whether their rules have a significant economic impact on a substantial 
number of small entities and, if so, provide a regulatory flexibility 
analysis with respect to such impact.\222\ This determination will not 
affect any small entities, as the RFA uses that term. Only eligible 
contract participants (ECPs) may enter into swaps, unless the swap is 
listed on a designated contract market (DCM),\223\ and the Commission 
has determined that ECPs are not small entities for purposes of the 
RFA.\224\ This determination affects only ECPs because all persons that 
are not ECPs are required to execute their swaps on a DCM, and all 
contracts executed on a DCM must be cleared by a DCO, as required by 
statute and regulation, not the operation of any clearing requirement 
determination. Therefore, the Chairman, on behalf of the Commission, 
hereby certifies pursuant to 5 U.S.C. 605(b) that this rulemaking will 
not have a significant economic impact on a substantial number of small 
entities.
---------------------------------------------------------------------------

    \222\ 5 U.S.C. 601 et seq.
    \223\ Section 2(e) of the CEA, 7 U.S.C. 2(e).
    \224\ Opting Out of Segregation, 66 FR 20740 at 20743 (Apr. 25, 
2001).
---------------------------------------------------------------------------

B. Paperwork Reduction Act

    The Paperwork Reduction Act (PRA) \225\ imposes certain 
requirements on Federal agencies, including the Commission, in 
connection with conducting or sponsoring any collection of information 
as defined by the PRA. This rulemaking will not require a new 
collection of information from any persons or entities, and there are 
no existing information collections related to this final rule.
---------------------------------------------------------------------------

    \225\ 44 U.S.C. 3507(d).
---------------------------------------------------------------------------

C. Antitrust Laws

    Section 15(b) of the CEA requires the Commission to take into 
consideration the public interest to be protected by the antitrust laws 
and endeavor to take the least anti-competitive means of achieving the 
objectives of the CEA, as well as the policies and purposes of the CEA, 
in issuing any order or adopting any Commission rule or regulation 
(including any exemption under section 4(c) or 4c(b)), or in requiring 
or approving any bylaw, rule, or regulation of a contract market or 
registered futures association established pursuant to section 17 of 
the CEA.\226\ The Commission believes that the public interest to be 
protected by the antitrust laws is generally to protect competition. 
The Commission did not identify any anti-competitive effects in the 
NPRM.\227\ The Commission requested comment regarding its analysis 
about the possible anti-competitive effects of the proposal and whether 
there are any other specific public interests to be protected by the 
antitrust laws in this context.\228\ The

[[Page 52215]]

Commission did not receive any comments in response to this particular 
request.
---------------------------------------------------------------------------

    \226\ Section 15(b) of the CEA, 7 U.S.C. 15(b).
    \227\ As discussed above and in the NPRM, the Commission 
identified one potential anti-competitive effect; however, the 
Commission determined that the amendments would not have an anti-
competitive effect and in fact, may result in positive market 
effects. See section V.C.4 and 87 FR 32924.
    \228\ NPRM, 87 FR 32933.
---------------------------------------------------------------------------

    The Commission confirms its determination that this final rule is 
not anti-competitive and has no anti-competitive effects. Given this 
determination, the Commission has not identified any less anti-
competitive means of achieving the purposes of the CEA.

D. Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated this rule 
as not a ``major rule,'' as defined by 5 U.S.C. 804(2).

List of Subjects in 17 CFR Part 50

    Business and industry, Clearing, Swaps.

    For the reasons set forth in the preamble, the Commodity Futures 
Trading Commission amends 17 CFR part 50 as follows:

PART 50--CLEARING REQUIREMENT AND RELATED RULES

0
1. The authority citation for part 50 continues to read as follows:

    Authority:  7 U.S.C. 2(h), 6(c), and 7a-1, as amended by Pub. L. 
111-203, 124 Stat. 1376.


0
2. Effective September 23, 2022, in Sec.  50.4, revise paragraph (a) to 
read as follows:


Sec.  50.4   Classes of swaps required to be cleared.

    (a) Interest rate swaps. Swaps that have the following 
specifications are required to be cleared under section 2(h)(1) of the 
Act, and shall be cleared pursuant to the rules of any derivatives 
clearing organization eligible to clear such swaps under Sec.  39.5(a) 
of this chapter.

                                                                                                        Table 1 to Paragraph (a)
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Specification                                                                                                          Fixed-to-floating swap class
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1. Currency.....................  Australian Dollar   Canadian Dollar     Euro..............  Hong Kong Dollar    Mexican Peso (MXN)  Norwegian Krone     Polish Zloty (PLN)  Singapore Dollar    Swedish Krona       U.S. Dollar (USD).
                                   (AUD).              (CAD).             (EUR).............   (HKD).                                  (NOK).                                  (SGD).              (SEK).
2. Floating Rate Indexes........  BBSW..............  CDOR..............  EURIBOR...........  HIBOR.............  TIIE-BANXICO......  NIBOR.............  WIBOR.............  SOR-VWAP..........  STIBOR............  LIBOR.
3. Stated Termination Date Range  28 days to 30       28 days to 30       28 days to 50       28 days to 10       28 days to 21       28 days to 10       28 days to 10       28 days to 10       28 days to 15       28 days to 50
                                   years.              years.              years.              years.              years.              years.              years.              years.              years.              years.
4. Optionality..................  No................  No................  No................  No................  No................  No................  No................  No................  No................  No.
5. Dual Currencies..............  No................  No................  No................  No................  No................  No................  No................  No................  No................  No.
6. Conditional Notional Amounts.  No................  No................  No................  No................  No................  No................  No................  No................  No................  No.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                            Table 2 to Paragraph (a)
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Specification                                                       Basis swap class
----------------------------------------------------------------------------------------------------------------
1. Currency..........................  Australian Dollar (AUD)  Euro (EUR).............  U.S. Dollar (USD).
2. Floating Rate Indexes.............  BBSW...................  EURIBOR................  LIBOR.
3. Stated Termination Date Range.....  28 days to 30 years....  28 days to 50 years....  28 days to 50 years.
4. Optionality.......................  No.....................  No.....................  No.
5. Dual Currencies...................  No.....................  No.....................  No.
6. Conditional Notional Amounts......  No.....................  No.....................  No.
----------------------------------------------------------------------------------------------------------------


                                                                Table 3 to Paragraph (a)
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Specification                                                                    Forward rate agreement class
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Currency........................  Euro (EUR)............  Polish Zloty (PLN)....  Norwegian Krone (NOK)  Swedish Krona (SEK)..  U.S. Dollar (USD).
2. Floating Rate Indexes...........  EURIBOR...............  WIBOR.................  NIBOR................  STIBOR...............  LIBOR.
3. Stated Termination Date Range...  3 days to.............  3 days to.............  3 days to............  3 days to............  3 days to
                                     3 years...............  2 years...............  2 years..............  3 years..............  3 years.
4. Optionality.....................  No....................  No....................  No...................  No...................  No.
5. Dual Currencies.................  No....................  No....................  No...................  No...................  No.
6. Conditional Notional Amounts....  No....................  No....................  No...................  No...................  No.
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                                                                    Table 4 to Paragraph (a)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Specification                                                                                      Overnight index swap class
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1. Currency...................  Australian        Canadian Dollar   Euro (EUR)......  Singapore Dollar  Sterling (GBP)..  Swiss Franc       U.S. Dollar       U.S. Dollar       Yen (JPY).
                                 Dollar (AUD).     (CAD).                              (SGD).                              (CHF).            (USD).            (USD).
2. Floating Rate Indexes......  AONIA-OIS.......  CORRA-OIS.......  [euro]STR.......  SORA............  SONIA...........  SARON...........  FedFunds........  SOFR............  TONA.
3. Stated Termination Date      7 days to 2       7 days to 2       7 days to 3       7 days to 10      7 days to 50      7 days to 30      7 days to 3       7 days to 50      7 days to 30
 Range.                          years.            years.            years.            years.            years.            years.            years.            years.            years.
4. Optionality................  No..............  No..............  No..............  No..............  No..............  No..............  No..............  No..............  No.

[[Page 52216]]

 
5. Dual Currencies............  No..............  No..............  No..............  No..............  No..............  No..............  No..............  No..............  No.
6. Conditional Notional         No..............  No..............  No..............  No..............  No..............  No..............  No..............  No..............  No.
 Amounts.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

* * * * *

0
3. Effective July 1, 2023, Sec.  50.4 is further amended by revising 
paragraph (a) to read as follows:


Sec.  50.4   Classes of swaps required to be cleared.

    (a) Interest rate swaps. Swaps that have the following 
specifications are required to be cleared under section 2(h)(1) of the 
Act, and shall be cleared pursuant to the rules of any derivatives 
clearing organization eligible to clear such swaps under Sec.  39.5(a) 
of this chapter.

                                                                                    Table 1 to Paragraph (a)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Specification                                                                                      Fixed-to-floating swap class
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1. Currency.....................  Australian Dollar   Canadian Dollar     Euro (EUR)........  Hong Kong Dollar    Mexican Peso (MXN)  Norwegian Krone     Polish Zloty (PLN)  Swedish Krona
                                   (AUD).              (CAD).                                  (HKD).                                  (NOK).                                  (SEK).
2. Floating Rate Indexes........  BBSW..............  CDOR..............  EURIBOR...........  HIBOR.............  TIIE-BANXICO......  NIBOR.............  WIBOR.............  STIBOR.
3. Stated Termination Date Range  28 days to 30       28 days to 30       28 days to 50       28 days to 10       28 days to 21       28 days to 10       28 days to 10       28 days to 15
                                   years.              years.              years.              years.              years.              years.              years.              years.
4. Optionality..................  No................  No................  No................  No................  No................  No................  No................  No.
5. Dual Currencies..............  No................  No................  No................  No................  No................  No................  No................  No.
6. Conditional Notional Amounts.  No................  No................  No................  No................  No................  No................  No................  No.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                        Table 2 to Paragraph (a)
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Specification                                Basis swap class
------------------------------------------------------------------------
1. Currency.....................  Australian Dollar   Euro (EUR).
                                   (AUD).
2. Floating Rate Indexes........  BBSW..............  EURIBOR.
3. Stated Termination Date Range  28 days to 30       28 days to 50
                                   years.              years.
4. Optionality..................  No................  No.
5. Dual Currencies..............  No................  No.
6. Conditional Notional Amounts.  No................  No.
------------------------------------------------------------------------


                                            Table 3 to Paragraph (a)
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Specification                                              Forward rate agreement class
----------------------------------------------------------------------------------------------------------------
1. Currency.....................  Euro (EUR)........  Polish Zloty (PLN)  Norwegian Krone     Swedish Krona
                                                                           (NOK).              (SEK).
2. Floating Rate Indexes........  EURIBOR...........  WIBOR.............  NIBOR.............  STIBOR.
3. Stated Termination Date Range  3 days to 3 years.  3 days to 2 years.  3 days to 2 years.  3 days to 3 years.
4. Optionality..................  No................  No................  No................  No.
5. Dual Currencies..............  No................  No................  No................  No.
6. Conditional Notional Amounts.  No................  No................  No................  No.
----------------------------------------------------------------------------------------------------------------


                                                                                    Table 4 to Paragraph (a)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Specification                                                                                      Overnight index swap class
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1. Currency...................  Australian        Canadian Dollar   Euro (EUR)......  Singapore Dollar  Sterling (GBP)..  Swiss Franc       U.S. Dollar       U.S. Dollar       Yen (JPY).
                                 Dollar (AUD).     (CAD).                              (SGD).                              (CHF).            (USD).            (USD).
2. Floating Rate Indexes......  AONIA-OIS.......  CORRA-OIS.......  [euro]STR.......  SORA............  SONIA...........  SARON...........  FedFunds........  SOFR............  TONA.
3. Stated Termination Date      7 days to 2       7 days to 2       7 days to 3       7 days to 10      7 days to 50      7 days to 30      7 days to 3       7 days to 50      7 days to 30
 Range.                          years.            years.            years.            years.            years.            years.            years.            years.            years.
4. Optionality................  No..............  No..............  No..............  No..............  No..............  No..............  No..............  No..............  No.
5. Dual Currencies............  No..............  No..............  No..............  No..............  No..............  No..............  No..............  No..............  No.
6. Conditional Notional         No..............  No..............  No..............  No..............  No..............  No..............  No..............  No..............  No.
 Amounts.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 52217]]

* * * * *

0
4. Effective September 23, 2022, revise Sec.  50.26 to read as follows:


Sec.  50.26   Swap clearing requirement compliance dates.

    (a) Compliance dates for interest rate swap classes. The compliance 
dates for swaps that are required to be cleared under Sec.  50.4(a) are 
specified in the following table.

                                            Table 1 to Paragraph (a)
----------------------------------------------------------------------------------------------------------------
                                                       Currency and          Stated
        Swap asset class             Swap class       floating rate     termination date   Clearing requirement
                                      subtype             index              range            compliance date
----------------------------------------------------------------------------------------------------------------
Interest Rate Swap.............  Fixed-to-Floating  Euro (EUR)         28 days to 50      Category 1 entities
                                                     EURIBOR.           years.             March 11, 2013. All
                                                                                           non-Category 2
                                                                                           entities June 10,
                                                                                           2013. Category 2
                                                                                           entities September 9,
                                                                                           2013.
Interest Rate Swap.............  Fixed-to-Floating  U.S. Dollar (USD)  28 days to 50      Category 1 entities
                                                     LIBOR.             years.             March 11, 2013. All
                                                                                           non-Category 2
                                                                                           entities June 10,
                                                                                           2013. Category 2
                                                                                           entities September 9,
                                                                                           2013.
Interest Rate Swap.............  Fixed-to-Floating  Australian Dollar  28 days to 30      All entities December
                                                     (AUD) BBSW.        years.             13, 2016.
Interest Rate Swap.............  Fixed-to-Floating  Canadian Dollar    28 days to 30      All entities July 10,
                                                     (CAD) CDOR.        years.             2017.
Interest Rate Swap.............  Fixed-to-Floating  Hong Kong Dollar   28 days to 10      All entities August
                                                     (HKD) HIBOR.       years.             30, 2017.
Interest Rate Swap.............  Fixed-to-Floating  Mexican Peso       28 days to 21      All entities December
                                                     (MXN) TIIE-        years.             13, 2016.
                                                     BANXICO.
Interest Rate Swap.............  Fixed-to-Floating  Norwegian Krone    28 days to 10      All entities April 10,
                                                     (NOK) NIBOR.       years.             2017.
Interest Rate Swap.............  Fixed-to-Floating  Polish Zloty       28 days to 10      All entities April 10,
                                                     (PLN) WIBOR.       years.             2017.
Interest Rate Swap.............  Fixed-to-Floating  Singapore Dollar   28 days to 10      All entities October
                                                     (SGD) SOR-VWAP.    years.             15, 2018.
Interest Rate Swap.............  Fixed-to-Floating  Swedish Krona      28 days to 15      All entities April 10,
                                                     (SEK) STIBOR.      years.             2017.
Interest Rate Swap.............  Basis............  Euro (EUR)         28 days to 50      Category 1 entities
                                                     EURIBOR.           years.             March 11, 2013. All
                                                                                           non-Category 2
                                                                                           entities June 10,
                                                                                           2013. Category 2
                                                                                           entities September 9,
                                                                                           2013.
Interest Rate Swap.............  Basis............  U.S. Dollar (USD)  28 days to 50      Category 1 entities
                                                     LIBOR.             years.             March 11, 2013. All
                                                                                           non-Category 2
                                                                                           entities June 10,
                                                                                           2013. Category 2
                                                                                           entities September 9,
                                                                                           2013.
Interest Rate Swap.............  Basis............  Australian Dollar  28 days to 30      All entities December
                                                     (AUD) BBSW.        years.             13, 2016.
Interest Rate Swap.............  Forward Rate       Euro (EUR)         3 days to 3 years  Category 1 entities
                                  Agreement.         EURIBOR.                              March 11, 2013. All
                                                                                           non-Category 2
                                                                                           entities June 10,
                                                                                           2013. Category 2
                                                                                           entities September 9,
                                                                                           2013.
Interest Rate Swap.............  Forward Rate       U.S. Dollar (USD)  3 days to 3 years  Category 1 entities
                                  Agreement.         LIBOR.                                March 11, 2013. All
                                                                                           non-Category 2
                                                                                           entities June 10,
                                                                                           2013. Category 2
                                                                                           entities September 9,
                                                                                           2013.
Interest Rate Swap.............  Forward Rate       Polish Zloty       3 days to 2 years  All entities April 10,
                                  Agreement.         (PLN) WIBOR.                          2017.
Interest Rate Swap.............  Forward Rate       Norwegian Krone    3 days to 2 years  All entities April 10,
                                  Agreement.         (NOK) NIBOR.                          2017.
Interest Rate Swap.............  Forward Rate       Swedish Krona      3 days to 3 years  All entities April 10,
                                  Agreement.         (SEK) STIBOR.                         2017.
Interest Rate Swap.............  Overnight Index    Euro (EUR)         7 days to 3 years  All entities September
                                  Swap.              [euro]STR.                            23, 2022.
Interest Rate Swap.............  Overnight Index    Singapore Dollar   7 days to 10       All entities October
                                  Swap.              (SGD) SORA.        years.             31, 2022.
Interest Rate Swap.............  Overnight Index    Sterling (GBP)     7 days to 2 years  Category 1 entities
                                  Swap.              SONIA.                                March 11, 2013. All
                                                                                           non-Category 2
                                                                                           entities June 10,
                                                                                           2013. Category 2
                                                                                           entities September 9,
                                                                                           2013.
                                 .................  .................  2 years + 1 day    All entities December
                                                                        to 3 years.        13, 2016.
                                 .................  .................  3 years + 1 day    All entities September
                                                                        to 50 years.       23, 2022.
Interest Rate Swap.............  Overnight Index    Swiss Franc (CHF)  7 days to 30       All entities September
                                  Swap.              SARON.             years.             23, 2022.
Interest Rate Swap.............  Overnight Index    U.S. Dollar (USD)  7 days to 2 years  Category 1 entities
                                  Swap.              FedFunds.                             March 11, 2013. All
                                                                                           non-Category 2
                                                                                           entities June 10,
                                                                                           2013. Category 2
                                                                                           entities September 9,
                                                                                           2013.
                                 .................  .................  2 years + 1 day    All entities December
                                                                        to 3 years.        13, 2016.
Interest Rate Swap.............  Overnight Index    U.S. Dollar (USD)  7 days to 50       All entities October
                                  Swap.              SOFR.              years.             31, 2022.
Interest Rate Swap.............  Overnight Index    Australian Dollar  7 days to 2 years  All entities December
                                  Swap.              (AUD) AONIA-OIS.                      13, 2016.
Interest Rate Swap.............  Overnight Index    Canadian Dollar    7 days to 2 years  All entities July 10,
                                  Swap.              (CAD) CORRA-OIS.                      2017.

[[Page 52218]]

 
Interest Rate Swap.............  Overnight Index    Yen (JPY) TONA...  7 days to 30       All entities September
                                  Swap.                                 years.             23, 2022.
----------------------------------------------------------------------------------------------------------------

    (b) Compliance dates for credit default swap classes. The 
compliance dates for swaps that are required to be cleared under Sec.  
50.4(b) are specified in the following table.

                                            Table 2 to Paragraph (b)
----------------------------------------------------------------------------------------------------------------
                                     Swap class                                            Clearing requirement
        Swap asset class              subtype            Indices             Tenor            compliance date
----------------------------------------------------------------------------------------------------------------
Credit Default Swap............  North American     CDX.NA.IG........  3Y, 5Y, 7Y, 10Y..  Category 1 entities
                                  untranched CDS                                           March 11, 2013. All
                                  indices.                                                 non-Category 2
                                                                                           entities June 10,
                                                                                           2013. Category 2
                                                                                           entities September 9,
                                                                                           2013.
Credit Default Swap............  North American     CDX.NA.HY........  5Y...............  Category 1 entities
                                  untranched CDS                                           March 11, 2013. All
                                  indices.                                                 non-Category 2
                                                                                           entities June 10,
                                                                                           2013. Category 2
                                                                                           entities September 9,
                                                                                           2013.
Credit Default Swap............  European           iTraxx Europe....  5Y, 10Y..........  Category 1 entities
                                  untranched CSD                                           April 26, 2013.
                                  indices.                                                 Category 2 entities
                                                                                           July 25, 2013. All
                                                                                           non-Category 2
                                                                                           entities October 23,
                                                                                           2013.
Credit Default Swap............  European           iTraxx Europe      5Y...............  Category 1 entities
                                  untranched CSD     Crossover.                            April 26, 2013.
                                  indices.                                                 Category 2 entities
                                                                                           July 25, 2013. All
                                                                                           non-Category 2
                                                                                           entities October 23,
                                                                                           2013.
Credit Default Swap............  European           iTraxx Europe      5Y...............  Category 1 entities
                                  untranched CSD     HiVol.                                April 26, 2013.
                                  indices.                                                 Category 2 entities
                                                                                           July 25, 2013. All
                                                                                           non-Category 2
                                                                                           entities October 23,
                                                                                           2013.
----------------------------------------------------------------------------------------------------------------


0
5. Effective July 1, 2023, Sec.  50.26 is further amended by revising 
paragraph (a) to read as follows:


Sec.  50.26   Swap clearing requirement compliance dates.

    (a) Compliance dates for interest rate swap classes. The compliance 
dates for swaps that are required to be cleared under Sec.  50.4(a) are 
specified in the following table.

                                            Table 1 to Paragraph (a)
----------------------------------------------------------------------------------------------------------------
                                                       Currency and          Stated
        Swap asset class             Swap class       floating rate     termination date   Clearing requirement
                                      subtype             index              range            compliance date
----------------------------------------------------------------------------------------------------------------
Interest Rate Swap.............  Fixed-to-Floating  Euro (EUR)         28 days to 50      Category 1 entities
                                                     EURIBOR.           years.             March 11, 2013. All
                                                                                           non-Category 2
                                                                                           entities June 10,
                                                                                           2013. Category 2
                                                                                           entities September 9,
                                                                                           2013.
Interest Rate Swap.............  Fixed-to-Floating  Australian Dollar  28 days to 30      All entities December
                                                     (AUD) BBSW.        years.             13, 2016.
Interest Rate Swap.............  Fixed-to-Floating  Canadian Dollar    28 days to 30      All entities July 10,
                                                     (CAD) CDOR.        years.             2017.
Interest Rate Swap.............  Fixed-to-Floating  Hong Kong Dollar   28 days to 10      All entities August
                                                     (HKD) HIBOR.       years.             30, 2017.
Interest Rate Swap.............  Fixed-to-Floating  Mexican Peso       28 days to 21      All entities December
                                                     (MXN) TIIE-        years.             13, 2016.
                                                     BANXICO.
Interest Rate Swap.............  Fixed-to-Floating  Norwegian Krone    28 days to 10      All entities April 10,
                                                     (NOK) NIBOR.       years.             2017.
Interest Rate Swap.............  Fixed-to-Floating  Polish Zloty       28 days to 10      All entities April 10,
                                                     (PLN) WIBOR.       years.             2017.
Interest Rate Swap.............  Fixed-to-Floating  Swedish Krona      28 days to 15      All entities April 10,
                                                     (SEK) STIBOR.      years.             2017.
Interest Rate Swap.............  Basis............  Euro (EUR)         28 days to 50      Category 1 entities
                                                     EURIBOR.           years.             March 11, 2013. All
                                                                                           non-Category 2
                                                                                           entities June 10,
                                                                                           2013. Category 2
                                                                                           entities September 9,
                                                                                           2013.
Interest Rate Swap.............  Basis............  Australian Dollar  28 days to 30      All entities December
                                                     (AUD) BBSW.        years.             13, 2016.
Interest Rate Swap.............  Forward Rate       Euro (EUR)         3 days to 3 years  Category 1 entities
                                  Agreement.         EURIBOR.                              March 11, 2013. All
                                                                                           non-Category 2
                                                                                           entities June 10,
                                                                                           2013. Category 2
                                                                                           entities September 9,
                                                                                           2013.
Interest Rate Swap.............  Forward Rate       Polish Zloty       3 days to 2 years  All entities April 10,
                                  Agreement.         (PLN) WIBOR.                          2017.
Interest Rate Swap.............  Forward Rate       Norwegian Krone    3 days to 2 years  All entities April 10,
                                  Agreement.         (NOK) NIBOR.                          2017.
Interest Rate Swap.............  Forward Rate       Swedish Krona      3 days to 3 years  All entities April 10,
                                  Agreement.         (SEK) STIBOR.                         2017.

[[Page 52219]]

 
Interest Rate Swap.............  Overnight Index    Euro (EUR)         7 days to 3 years  All entities September
                                  Swap.              [euro]STR.                            23, 2022.
Interest Rate Swap.............  Overnight Index    Singapore Dollar   7 days to 10       All entities October
                                  Swap.              (SGD) SORA.        years.             31, 2022.
Interest Rate Swap.............  Overnight Index    Sterling (GBP)     7 days to 2 years  Category 1 entities
                                  Swap.              SONIA.                                March 11, 2013. All
                                                                                           non-Category 2
                                                                                           entities June 10,
                                                                                           2013. Category 2
                                                                                           entities September 9,
                                                                                           2013.
                                 .................  .................  2 years + 1 day    All entities December
                                                                        to 3 years.        13, 2016.
                                 .................  .................  3 years + 1 day    All entities September
                                                                        to 50 years.       23, 2022.
Interest Rate Swap.............  Overnight Index    Swiss Franc (CHF)  7 days to 30       All entities September
                                  Swap.              SARON.             years.             23, 2022.
Interest Rate Swap.............  Overnight Index    U.S. Dollar (USD)  7 days to 2 years  Category 1 entities
                                  Swap.              FedFunds.                             March 11, 2013. All
                                                                                           non-Category 2
                                                                                           entities June 10,
                                                                                           2013. Category 2
                                                                                           entities September 9,
                                                                                           2013.
                                 .................  .................  2 years + 1 day    All entities December
                                                                        to 3 years.        13, 2016.
Interest Rate Swap.............  Overnight Index    U.S. Dollar (USD)  7 days to 50       All entities October
                                  Swap.              SOFR.              years.             31, 2022.
Interest Rate Swap.............  Overnight Index    Australian Dollar  7 days to 2 years  All entities December
                                  Swap.              (AUD) AONIA-OIS.                      13, 2016.
Interest Rate Swap.............  Overnight Index    Canadian Dollar    7 days to 2 years  All entities July 10,
                                  Swap.              (CAD) CORRA-OIS.                      2017.
Interest Rate Swap.............  Overnight Index    Yen (JPY) TONA...  7 days to 30       All entities September
                                  Swap.                                 years.             23, 2022.
----------------------------------------------------------------------------------------------------------------

* * * * *

    Issued in Washington, DC, on August 12, 2022, by the Commission.
Christopher Kirkpatrick,
Secretary of the Commission.

    Note:  The following appendices will not appear in the Code of 
Federal Regulations.

Appendices to Clearing Requirement Determination Under Section 2(h) of 
the Commodity Exchange Act for Interest Rate Swaps To Account for the 
Transition From LIBOR and Other IBORs to Alternative Reference Rates--
Commission Voting Summary and Commissioners' Statements

Appendix 1--Commission Voting Summary

    On this matter, Chairman Behnam and Commissioners Johnson, 
Goldsmith Romero, and Mersinger voted in the affirmative. Commissioner 
Pham concurred. No Commissioner voted in the negative.

Appendix 2--Statement of Commissioner Kristin N. Johnson

    In the fall of 2008, global financial markets reeled as evidence 
emerged indicating that market participants failed to effectively 
manage risks in the then-unregulated $400 trillion (notional) swaps 
market. The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act) directed the Commodity Futures Trading Commission 
(Commission) to develop and implement formal rules, and bring the swaps 
market under the ambit of the Commission's authority.\1\ The Commission 
introduced clearing requirements, a vital regulatory tool that has 
increased transparency and promoted market integrity.
---------------------------------------------------------------------------

    \1\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, tit. VII, 124 Stat. 1376, 1641 (2010).
---------------------------------------------------------------------------

Clearing Requirements

    To determine which swaps are subject to clearing requirements, the 
Commission examines several transaction-based risk factors.\2\ In 
accordance with this approach, the Commission later determined that 
swaps that reference Interbank Offered Rates, or IBORs, including most 
notably the London Interbank Offered Rate--LIBOR, would be subject to 
clearing requirements. For decades, these global benchmark interest 
rates have served as the dominant rate setting standards for market 
participants around the world. Market participants have employed these 
reference rates to determine interest rates that impact financial 
agreements in almost every sector of the economy--including significant 
volumes of swaps and futures contracts, commercial and personal 
consumer loans, and home mortgages.\3\ U.S. Dollar LIBOR, for example, 
has for decades served as the basis for the settlement of the three-
month Eurodollar futures contract listed on the Chicago Mercantile 
Exchange--one of the most liquid financial derivatives contract that 
has ever traded.\4\ Significant notional amounts of swaps and loans 
also referenced U.S. Dollar LIBOR.\5\
---------------------------------------------------------------------------

    \2\ See Commodity Exchange Act sec. 2(h)(2)(D)(ii), 7 U.S.C. 
2(h)(2)(D)(ii) (setting forth the five factors to be considered when 
making a clearing requirement determination).
    \3\ See Notice of Proposed Rulemaking, Clearing Requirement 
Determination Under Section 2(h) of the Commodity Exchange Act for 
Interest Rate Swaps to Account for the Transition from LIBOR and 
Other IBORs to Alternative Reference Rates, 87 FR 32898 at 32899-
32900 (May 31, 2022); CFTC Release No. 6289-12, CFTC Orders Barclays 
to pay $200 Million Penalty for Attempted Manipulation of and False 
Reporting concerning LIBOR and Euribor Benchmark Interest Rates 
(June 27, 2012), https://www.cftc.gov/PressRoom/PressReleases/6289-12.
    \4\ Id.
    \5\ Id.
---------------------------------------------------------------------------

Transition to Alternative Reference Rates

    Even though the clearing requirement for LIBOR and other IBORs have 
reduced certain risks arising from the origination and trading of 
swaps, the clearing requirement did not eliminate risks inherent in the 
manner these reference rates were calculated. Determinations of LIBOR 
and other IBORs were based on submissions received from a relatively 
small and select panel of major banks. These rates were calculated and 
published daily for several different currencies by the British 
Banker's Association. While the rates were intended to reflect the cost 
to the banks of borrowing unsecured funds, evidence revealed through a 
number of enforcement actions brought by the CFTC over the past decade

[[Page 52220]]

demonstrated marked manipulation of the submitted rates.\6\ In order to 
protect investors from this misconduct and to preserve market 
integrity, the CFTC and other regulators, including the Bank of 
England, have been overseeing a market transition away from LIBOR and 
other IBORs to replacement rates based primarily on risk free rate 
overnight index swaps (RFR OIS).\7\ In addition, as a result of the 
enforcement actions and other market shifts, the volume of interbank 
lending transactions upon which these rates were calculated has 
declined, leading to additional concerns regarding the integrity and 
reliability of the rates.\8\ As a result, the Commission seeks to amend 
its Part 50 clearing requirements to remove all LIBOR and related IBOR 
interest rate swap clearing requirements and introduce clearing 
requirements for swaps referencing the corresponding replacement RFR 
OIS.
---------------------------------------------------------------------------

    \6\ 87 FR 32899-32900.
    \7\ Id. at 32901; see also CFTC, CFTC Market Risk Advisory 
Committee Adopts SOFR First Recommendation at Public Meeting, July 
13, 2021, https://www.cftc.gov/PressRoom/PressReleases/8409-21.
    \8\ 87 FR 32899-32901.
---------------------------------------------------------------------------

    The comments received in response to our notice of proposed 
rulemaking earlier this year support this proposal. Moreover, this 
final rule represents the culmination of years of work by the 
Commission as well as its counterparts across the globe to ensure a 
more reliable, more transparent set of interest rate benchmarks. In 
collaboration with our international colleagues' efforts in 
jurisdictions around the world, the Commission's efforts to adopt and 
implement this final rule serves to preserve the stability and 
integrity of our markets and to reduce the systemic risks that 
precipitated the financial crisis. Accordingly, I support the 
Commission's modification of its clearing requirements and transition 
from LIBOR and other IBORs to the RFR OISs.

Appendix 3--Statement of Commissioner Christy Goldsmith Romero

    I support the Commission's amended clearing requirement for swaps 
referencing rates less susceptible to manipulation than the London 
Interbank Offered Rate (``LIBOR'') because it promotes market integrity 
and supports the risk-mitigating benefits of central clearing. I thank 
the CFTC staff for their work on this and other efforts to support the 
transition away from LIBOR.

Clearing Requirement

    The 2008 financial crisis revealed how over-the-counter derivatives 
could render market participants vulnerable to the weaknesses of their 
counterparties and leave the markets and regulators in the dark about 
risks. Pre-crisis, risks were hidden, and firms were vulnerable to 
interconnected and complex, bilateral transactions. This contributed to 
the failure of many banks and financial institutions. American 
households paid the price, left with the catastrophic consequences of a 
near meltdown of the U.S. financial system, a housing crisis, the 
inability to access credit, and an unprecedented government bailout.
    One of the most critical reforms in the Dodd-Frank Act was a 
framework to channel swaps through central clearing, thereby reducing 
risk and increasing transparency across U.S. financial markets. The 
CFTC has been a global leader in driving swaps trading into centralized 
clearing, and coordinating with international regulators in a globally 
harmonized approach.
    Central clearing has lived up to its promise. The markets, 
investors, end users, and regulators have benefited from increased 
visibility into swap exposures and from reduced interconnectedness and 
complexity.

LIBOR Transition

    Reliable and sound benchmark rates promote market integrity and 
protect the American public. A decade ago, allegations of LIBOR 
manipulation led to investigations by government authorities, including 
the CFTC, that resulted in billions of dollars of penalties and other 
sanctions. These investigations revealed that a handful of dominant 
players profited from manipulating LIBOR and markets, including U.S. 
mortgage markets. Here again, American households paid the price.
    Through significant coordinated efforts across the public and 
private sectors, great progress has been made to transition towards 
sounder, alternative reference rates--namely, overnight, so-called 
``nearly risk-free'' reference rates. Today's final rule amends the 
CFTC's swap clearing requirement to account for the continuing shift in 
liquidity to these more reliable rates. Market reliance on USD LIBOR 
has already considerably decreased, and we have experienced significant 
liquidity in, and voluntary clearing of, swaps referencing the Secured 
Overnight Financing Rate (``SOFR''). We aim to bolster and accelerate 
this shift and ensure the risk-mitigating benefits of clearing continue 
to be realized in the evolving interest-rate swaps markets.
    The final rule also reflects the CFTC's longstanding priority of 
harmonizing with international regulators. The certainty of the CFTC's 
timeline for adding interest rate swaps referencing USD SOFR to its 
clearing requirement, and for removing interest rate swaps referencing 
USD LIBOR, should assist international regulators who are also revising 
clearing requirements for these swaps.
    Given the global nature of financial markets, international 
coordination is necessary in order for the LIBOR transition to be 
successful. International coordination will also help to ensure that 
central clearing remains a cornerstone of post-crisis financial 
reforms.

Appendix 4--Concurring Statement of Commissioner Caroline D. Pham

    I respectfully concur with the final rule updating the CFTC's 
interest rate swap clearing requirement regulations. Pursuant to the 
Commodity Exchange Act (CEA) and the Commission's regulations, subject 
to Commission determination, certain interest rate swaps are required 
to be submitted for clearing to a derivatives clearing organization 
(DCO) registered under the CEA or a DCO exempted from registration 
under the CEA.\1\ The final rule updates this set of interest rate 
swaps required to be cleared in light of the global transition from 
reliance on certain interbank offered rates (IBORs) such as the London 
Interbank Offered Rate (LIBOR), to alternative reference rates, which 
are predominantly overnight, nearly risk-free reference rates (RFRs). 
This rulemaking is an essential part of that transition. I commend the 
CFTC staff for their work here, as well as for their leadership in a 
historic global effort by the CFTC alongside other regulators, 
international bodies such as IOSCO and FSB, cross-jurisdictional 
working groups, financial market infrastructures, swap dealers, other 
market participants, and more, to reform the global interest rate swap 
market and benchmarks.
---------------------------------------------------------------------------

    \1\ Section 2(h)(1)(A) of the CEA, 7 U.S.C. 2(h)(1)(A).
---------------------------------------------------------------------------

    I would like to note, however, a few points. I believe in 
international harmonization and a practical approach wherever possible.
    First, with those principles in mind, we should not impose a 
clearing requirement for CHF Swiss Average Rate Overnight (SARON) swaps 
or SGD Singapore Overnight Rate Average (SORA) swaps until the Swiss

[[Page 52221]]

authorities or Singaporean authorities, respectively, adopt their own 
swap clearing requirements for those swaps.\2\
---------------------------------------------------------------------------

    \2\ Cf. Comment No. 69489, Urlich Karl, International Swaps and 
Derivatives Association, Inc. (June 30, 2022).
---------------------------------------------------------------------------

    Second, absent a compelling reason otherwise, I would support an 
October 31, 2022 effective date, rather than 30 days after publication 
in the Federal Register, for the overnight index swaps (OIS) 
referencing RFRs covered by the rulemaking, consistent with the Bank of 
England's proposed effective date.\3\ This would be consistent with 
principles of international harmonization and also would recognize the 
implementation requirements associated with any rule changes. For 
example, as raised by commenters, complying with new clearing 
requirements requires market participants to ``adapt systems; create 
and run internal training; issue client communications; and develop and 
implement control frameworks, internal governance; and address unique 
jurisdictional requirements where they exist.'' \4\ We should recognize 
and take a practical approach to the very real implementation issues 
and operational challenges like these which necessitate sufficient 
planning and time.
---------------------------------------------------------------------------

    \3\ Derivatives clearing obligation--modifications to reflect 
USD interest rate benchmark reform: Amendments to BTS 2015/2205, 
Bank of England (June 9, 2022), available at https://www.bankofengland.co.uk/paper/2022/derivatives-clearing-obligation-modifications-reflect-usd-interest-rate-benchmark-reform-amendment.
    \4\ Comment No. 69489, Urlich Karl, International Swaps and 
Derivatives Association, Inc. (June 30, 2022).
---------------------------------------------------------------------------

    Finally, I note two issues relating to the IBOR transition that are 
identified as beyond the scope of the rulemaking. These relate to trade 
execution requirements and to post-trade risk reduction.\5\ We should 
consider these issues further as appropriate.
---------------------------------------------------------------------------

    \5\ See Notice of Final Rulemaking, Section III.C.

[FR Doc. 2022-17736 Filed 8-23-22; 8:45 am]
BILLING CODE 6351-01-P