Exemption from required clearing from Inter-Affiliate Swaps

The Commodity Futures Trading Commission (CFTC) issued a final rule to exempt swaps between certain affiliated entities within a corporate group from the clearing requirement of the Commodity Exchange Act (CEA) and Commission regulations, subject to a number of conditions.

The regulation permits affiliated counterparties to elect not to clear a swap subject to the clearing requirement if those counterparties are majority-owned affiliates whose financial statements are included in the same consolidated financial statements.  In addition, both affiliated counterparties must elect not to clear the swap, the terms of the swap must be:

• documented in a swap trading relationship document (or comply with the requirements of Commission regulation 23.504);
• the swap must be subject to a centralized risk management program that is reasonably designed to monitor and manage the risks associated with the swap (or the requirements of Commission regulation 23.600 must be met); and
• each swap entered into by the affiliated counterparties with unaffiliated counterparties must be cleared.

RELATED LINK

http://www.cftc.gov/PressRoom/PressReleases/pr6553-13