To provide regulatory certainty and better facilitate appropriate exceptions from the swaps clearing requirement for commercial end users engaged in bona fide hedging or mitigation of commercial risks, Treasury would support a legislative amendment to CEA Section 2(h)(7) providing the CFTC with rulemaking authority to modify and clarify the scope of the financial entity definition and the treatment of affiliates.
- Such authority should include consideration of non-prudentially regulated entities that currently fall under subclause VIII of CEA Section 2(h)(7)(c)(i) — i.e., entities that are “predominantly engaged… in activities that are financial in nature” — but which might warrant exception from the clearing requirement if they engage in swaps primarily to hedge or mitigate the business risks of a commercial affiliate.
- Such authority should also be flexible enough to permit, for example, the CFTC to formalize its no-action relief for central treasury units (CTUs) in a rulemaking.
- Further, any exceptions provided by the CFTC under such authority should be subject to appropriate conditions and allow the CFTC to appropriately monitor exempted activity. The conditions could include, for example, making the exception dependent on the size and nature of swaps activities, demonstration of risk-management requirements in lieu of clearing, and reporting requirements.
Any legislative amendment should provide the SEC analogous rulemaking authority under Exchange Act Section 3C(g) with respect to exceptions from the clearing requirement for security-based swaps.