Yesterday, the Commodity Futures Trading Commission’s (“CFTC”) adopted the final Customer Clearing Documentation, Timing of Acceptance for Clearing, and Clearing Member Risk Management rule (the “Final Rule”). The International Swaps and Derivatives Association (“ISDA”) fully endorses the use of central clearing to reduce systemic risk and agrees with the Commission that open access to clearing by market participants is a fundamental element of Dodd-Frank. We further agree that a principal goal should be to establish a clearing paradigm where, at the time of execution of a trade, as much certainty as possible that the trade will be accepted for clearing is provided to transacting parties.
The development of a cleared swap market is a complicated process and the FIA-ISDA Cleared Derivatives Execution Agreement (the “Agreement”) was designed to provide some initial structure to facilitate customer clearing in an uncertain environment. In this context, the Agreement provided for the voluntary use of an optional trilateral annex. ISDA acknowledged in the memorandum accompanying publication of the Agreement that provisions in the Agreement will almost certainly be superseded by CFTC rules and, for this reason, the Agreement provides that its terms are subject to such “Applicable Law”.
To proactively promote market infrastructure development, upon publication of the Agreement, ISDA and Futures Industry Association (“FIA”) set out to identify principles and themes that reflect the broader industry’s views as to how market infrastructure for the execution and clearing of swaps should develop. Market participants have devoted their expertise and resources to this effort. The group is working towards establishing a set of principles to facilitate the development of technological solutions consistent with the goals of the Final Rule. Given the complexity of the issues involved and the wide range of viewpoints concerning the state and capabilities of the swap clearing market, ISDA looks forward to the March 29th CFTC Technology Advisory Committee meeting where these issues and considerations may be discussed in greater detail.