Better Markets filed this comment letter on the Commodity Futures Trading Commission’s (CFTC) supplemental notice of proposed rulemaking setting forth multiple new clearing-related exemptions. Better Markets objected, in particular, to two primary exemptions in the proposal: (1) the exemption from derivatives clearing organization registration and related requirements for certain non-U.S. clearing organizations; and (2) the exemption from futures commission merchant registration and related requirements for non-U.S. persons accepting U.S. customer funds to margin swaps cleared at an exempt clearing organization.
The Dodd-Frank Wall Street Reform and Consumer Protection Act mandates and encourages migration of significant over-the-counter derivatives risks to U.S. and non-U.S. clearinghouses, making comprehensive supervision and regulation of clearinghouses, clearing practices, and interconnected clearing intermediaries critical to U.S. financial stability. In its comment letter, Better Markets explains how the CFTC’s proposed unlawful and excessive deference to malleable international recommendations and foreign regulators—far from addressing those concerns—would be irresponsible and invite, if not guarantee, regulatory arbitrage. Moreover, Better Markets explains why the proposal, if adopted, would exceed the CFTC’s exemptive authority, violate statutory directives, and eliminate the most critical customer and bankruptcy protections for swaps cleared pursuant to the proposed exemptions.