DavisPolk – A version of this article was first published in Risk Magazine on June 24, 2014. [snipped]
“As swaps clearing rules take effect around the world, recognition of foreign clearinghouses by domestic  regulators is becoming increasingly important—and so are the international standards for clearinghouses, the Principles for financial market infrastructures (the “PFMIs”) developed by CPSS-IOSCO. The PFMIs are set to play a significant role in a forthcoming CFTC proposal that would allow foreign clearinghouses to clear swaps for U.S. market participants without having to register as a derivatives clearing organization (“DCO”) with the Commodity Futures Trading Commission (the “CFTC”). But while the PFMIs are fairly well-understood by the market, their potential application in the context of the proposed exempt DCO regime raises some important questions—about how prescriptive the CFTC’s approach will be, and how much flexibility the agency will give to clearinghouses established in jurisdictions that are not fully compliant with the principles. While some insight can be found in the role played by the PFMIs in current CFTC regulation, there are still several unknowns associated with the planned exempt DCO rule. Foreign regulators already appear to have expressed concern about a separate condition that would prevent an exempt clearinghouse from offerings its swaps clearing services to U.S. customers. In addition, with the CFTC’s new Chairman and two new Commissioners recently sworn in, the agency’s approach and priorities could change. As a result, significant uncertainty surrounds a rulemaking that has significant global implications…”