Proposed Rule2026-09428
Clearing Requirement Determination Under Section 2(h) of the Commodity Exchange Act for Interest Rate Swaps to Account for CAD and MXN Interest Rate Benchmark Transitions
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Published
May 12, 2026
Issuing agencies
Commodity Futures Trading Commission
Abstract
The Commodity Futures Trading Commission (Commission or CFTC) is proposing to amend its interest rate swap clearing requirement regulations adopted under applicable provisions of the Commodity Exchange Act (CEA) to address the transition from the Canadian Dollar Offered Rate (CDOR) to the Canadian Overnight Repo Rate Average (CORRA), and the transition from the Mexican Interbank Equilibrium Interest Rate (la Tasa de Inter[eacute]s Interbancaria de Equilibrio, or TIIE by its Spanish acronym) to the Overnight TIIE Funding Rate (TIIE de Fondeo or F-TIIE), as benchmark reference rates for interest rate swaps denominated, respectively, in Canadian dollars (CAD) and Mexican pesos (MXN). These transitions are part of an ongoing global effort by market participants, benchmark administrators, regulators, and others to shift away from reliance on certain interbank offered rates (IBORs) that are, or are expected to become, unavailable as benchmark reference rates, and increase adoption of alternative reference rates, which are predominantly overnight, nearly risk-free reference rates (RFRs). The proposed amendments would revise the set of interest rate swaps that are required to be submitted for clearing, pursuant to the CEA and the Commission's regulations, to a derivatives clearing organization (DCO) that is registered under the CEA (registered DCO) or a DCO that has been exempted from such registration (exempt DCO). Among other things, the proposed amendments would modify the Commission's interest rate swap clearing requirement to reflect the market transitions from CAD CDOR to CAD CORRA and from MXN TIIE to MXN F-TIIE.
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<title>Federal Register, Volume 91 Issue 91 (Tuesday, May 12, 2026)</title>
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[Federal Register Volume 91, Number 91 (Tuesday, May 12, 2026)]
[Proposed Rules]
[Pages 25812-25840]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-09428]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 50
RIN 3038-AF69
Clearing Requirement Determination Under Section 2(h) of the
Commodity Exchange Act for Interest Rate Swaps to Account for CAD and
MXN Interest Rate Benchmark Transitions
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)
is proposing to amend its interest rate swap clearing requirement
regulations adopted under applicable provisions of the Commodity
Exchange Act (CEA) to address the transition from the Canadian Dollar
Offered Rate (CDOR) to the Canadian Overnight Repo Rate Average
(CORRA), and the transition from the Mexican Interbank Equilibrium
Interest Rate (la Tasa de Inter[eacute]s Interbancaria de Equilibrio,
or TIIE by its Spanish acronym) to the Overnight TIIE Funding Rate
(TIIE de Fondeo or F-TIIE), as benchmark reference rates for interest
rate swaps denominated, respectively, in Canadian dollars (CAD) and
Mexican pesos (MXN). These transitions are part of an ongoing global
effort by market participants, benchmark administrators, regulators,
and others to shift away from reliance on certain interbank offered
rates (IBORs) that are, or are expected to become, unavailable as
benchmark reference rates, and increase adoption of alternative
reference rates, which are predominantly overnight, nearly risk-free
reference rates (RFRs). The proposed amendments would revise the set of
interest rate swaps that are required to be submitted for clearing,
pursuant to the CEA and the Commission's regulations, to a derivatives
clearing organization (DCO) that is registered under the CEA
(registered DCO) or a DCO that has been exempted from such registration
(exempt DCO). Among other things, the proposed amendments would modify
the Commission's interest rate swap clearing requirement to reflect the
market transitions from CAD CDOR to CAD CORRA and from MXN TIIE to MXN
F-TIIE.
DATES: Comments must be received on or before June 11, 2026.
ADDRESSES: You may submit comments, specifically referencing ``Clearing
Requirement Determination Under Section 2(h) of the Commodity Exchange
Act for Interest Rate Swaps to Account for CAD and MXN Interest Rate
Benchmark Transitions'' and RIN 3038-AF69, by any of the following
methods:
<bullet> <a href="http://Regulations.gov">Regulations.gov</a>: Go to <a href="https://www.regulations.gov">https://www.regulations.gov</a> and
press the ``Search'' button, then proceed as follows:
1. Under Refine Documents Results--check the box to ``Only show
documents open for comment'';
2. Under Agency--select ``See More'' and check the box for
``Commodity Futures Trading Commission,'' then press the Apply button;
[[Page 25813]]
3. Identify this proposal in the list of CFTC documents open for
comment, press the ``Comment'' button to open the submission form, and
follow the instructions on the form.
Alternatively, if you are viewing this proposal on
<a href="http://www.federalregister.gov">www.federalregister.gov</a>, click the ``Submit A Public Comment'' button
at the top of the page to open the comment form. Follow the
instructions on the form to submit your comment to <a href="http://Regulations.gov">Regulations.gov</a>.
<bullet> Mail: Send to--Christopher Kirkpatrick, Secretary of the
Commission, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW, Washington, DC 20581.
<bullet> Hand Delivery/Courier: Address to--CFTC Comment
Submission, Attn: Christopher Kirkpatrick, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street NW, Washington, DC 20581.
Please submit your comments using only one of these methods. To
avoid possible delays with mail or in-person deliveries, submissions
through <a href="http://Regulations.gov">Regulations.gov</a> are encouraged.
All comments must be submitted in English or, if not, accompanied
by an English translation. Do not include in your comment text or
attachments any personal identifying information or business
information that you do not want published online. Comments (regardless
of submission method) will be published without review for, and without
removal of, any personal identifying information or information your
business may consider confidential.
If you wish to submit confidential information for the Commission's
consideration, please contact the CFTC personnel listed in this Notice
under FOR FURTHER INFORMATION CONTACT before making any submission.
Please also carefully review the Commission's procedures in 17 CFR
145.9 for requesting confidential treatment under the Freedom of
Information Act (FOIA) of information submitted to the Commission.
The CFTC reserves the right, but shall have no obligation, to
review, pre-screen, filter, or redact all or any part of your comment
submission. The CFTC also reserves the right, without further
notification, to refuse to publish or to remove from public view all or
any part of your submission to the extent it contains content
inappropriate for publication in a comment file, such as--without
limitation--obscene language, threats of violence, solicitations for
commercial sales or illegal activity, or obvious spam. If a submission
that is refused for or withdrawn from publication because of
inappropriate content also contains comments on the merits of this
proposal, such submission will be retained in the record for the matter
and will be considered as required under the Administrative Procedure
Act and other applicable laws, and may be accessible under the FOIA.
FOR FURTHER INFORMATION CONTACT: Sarah E. Josephson, Deputy Director,
at 202-418-5684 or <a href="/cdn-cgi/l/email-protection#3340595c4056435b405c5d73505547501d545c45"><span class="__cf_email__" data-cfemail="b1c2dbdec2d4c1d9c2dedff1d2d7c5d29fd6dec7">[email protected]</span></a>; Daniel O'Connell, Special
Counsel, at 202-418-5583 or <a href="/cdn-cgi/l/email-protection#75111a161a1b1b10191935161301165b121a03"><span class="__cf_email__" data-cfemail="dfbbb0bcb0b1b1bab3b39fbcb9abbcf1b8b0a9">[email protected]</span></a>; or Philip Tumminio,
Special Counsel, at 202-418-5910 or <a href="/cdn-cgi/l/email-protection#7f0f0b0a1212161116103f1c190b1c51181009"><span class="__cf_email__" data-cfemail="ff8f8b8a929296919690bf9c998b9cd1989089">[email protected]</span></a>, Division of
Clearing and Risk at the Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street NW, Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Commission's Swap Clearing Requirement
B. Global Progress on Benchmark Reform
C. CAD and MXN Interest Rate Benchmark Transitions
II. Domestic and International Coordination and Outreach
A. Domestic Coordination Efforts
B. International Coordination Efforts
C. Clearing Requirements in Other Jurisdictions
III. Proposed Amendments to Regulation Sec. 50.4(a)
A. Overview of the Proposed Regulation
B. Modifications to the Clearing Requirement
IV. Proposed Determination Analysis for CAD CORRA and MXN F-TIIE OIS
A. General Description of Information Considered
B. Consistency With DCO Core Principles
C. Consideration of the Five Statutory Factors
V. Proposed Implementation Schedule and Compliance Dates
VI. Cost Benefit Considerations
A. Statutory and Regulatory Background
B. Overview of Swap Clearing
C. Consideration of the Costs and Benefits of the Commission's
Action
D. Costs and Benefits of the Proposed Amendments as Compared to
Alternatives
E. Section 15(a) Factors
VII. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Antitrust Laws
D. Executive Orders 12866, 13563, and 14192
I. Background
A. Commission's Swap Clearing Requirement
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) established a comprehensive new regulatory framework
for swaps.\1\ Title VII of the Dodd-Frank Act (Title VII) amended the
CEA to require, among other things, that a swap be cleared through a
registered DCO or an exempt DCO if the Commission has determined that
the swap, or group, category, type, or class of swaps, is required to
be cleared, unless an exception to the clearing requirement applies.\2\
The CEA, as amended by Title VII, provides that the Commission may
issue a clearing requirement determination based either on a
Commission-initiated review of a swap \3\ or a swap submission from a
DCO.\4\
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\1\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010).
\2\ Section 2(h)(1)(A) of the CEA, 7 U.S.C. 2(h)(1)(A).
\3\ Section 2(h)(2)(A) of the CEA, 7 U.S.C. 2(h)(2)(A). Section
2(h)(2)(A) provides for a Commission-initiated review process
whereby the Commission, on an ongoing basis, must review swaps, or a
group, category, type, or class of swaps, to determine whether a
swap, or a group, category, type, or class of swaps, should be
required to be cleared.
\4\ Section 2(h)(2)(B) of the CEA, 7 U.S.C. 2(h)(2)(B). Section
2(h)(2)(B)(i) requires that each DCO submit to the Commission each
swap, or group, category, type, or class of swaps, that it plans to
accept for clearing. The swaps subject to this proposed
determination were submitted by DCOs pursuant to CEA section
2(h)(2)(B)(i) and Regulation Sec. 39.5(b), 17 CFR 39.5(b). Pursuant
to section 2(h)(2)(B)-(C) of the CEA, 7 U.S.C. 2(h)(2)(B)-(C), the
Commission must review swap submissions from DCOs to determine
whether the swaps should be subject to required clearing. Regulation
Sec. 39.5(b) implements the procedural elements of section
2(h)(2)(B)-(C) by establishing the process by which a DCO must
submit the swaps it offers for clearing to the Commission for
purposes of considering a clearing requirement determination. DCO
swap submissions are published on the Commission website at <a href="https://www.cftc.gov/IndustryOversight/IndustryFilings/ClearingOrganizationProducts">https://www.cftc.gov/IndustryOversight/IndustryFilings/ClearingOrganizationProducts</a>.
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Section 2(h)(2)(D)(ii) of the CEA requires the Commission to
consider the following five factors when making a clearing requirement
determination: (I) the existence of significant outstanding notional
exposures, trading liquidity, and adequate pricing data; (II) the
availability of rule framework, capacity, operational expertise and
resources, and credit support infrastructure to clear the contract on
terms that are consistent with the material terms and trading
conventions on which the contract is traded; (III) the effect on the
mitigation of systemic risk, taking into account the size of the market
for such contract and the resources of the DCOs available to clear the
contract; (IV) the effect on competition, including appropriate fees
and charges applied to clearing; and (V) the existence of reasonable
legal certainty in the event of the insolvency of the relevant DCO or
one or more of
[[Page 25814]]
its clearing members with regard to the treatment of customer and swap
counterparty positions, funds, and property.\5\
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\5\ 7 U.S.C. 2(h)(2)(D)(ii).
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1. 2012 Clearing Requirement Determination
The Commission adopted its first clearing requirement determination
(First Determination) in 2012.\6\ The First Determination was
implemented between March 2013 and October 2013 based on the schedule
described in regulation Sec. 50.25 and the preamble to the First
Determination.\7\ The First Determination applied to interest rate
swaps in four classes: fixed-to-floating swaps, basis swaps, forward
rate agreements (FRAs), and overnight index swaps (OIS).\8\
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\6\ Clearing Requirement Determination Under Section 2(h) of the
CEA, 77 FR 74284 (Dec. 13, 2012) (First Determination).
\7\ 17 CFR 50.25; First Determination, 77 FR at 74319-74321.
\8\ See generally First Determination. An interest rate swap is
generally an agreement by counterparties to exchange payments based
on a series of cash flows over a specified period, typically
calculated using two different rates. Fixed-to-floating swaps are
interest rate swaps in which the payment(s) owed on one leg of the
swap is calculated using a fixed rate, and the payment(s) owed on
the other leg is calculated using a floating rate. Basis swaps are
interest rate swaps for which the payments for both legs are
calculated using floating rates. FRAs are interest rate swaps in
which payments are exchanged on a predetermined date for a single
period and one leg of the swap is calculated using a fixed rate
while the other leg is calculated using a floating rate set on a
predetermined date. OIS are interest rate swaps for which one leg of
the swap is calculated using a fixed rate and the other leg is
calculated using a floating rate based on a daily overnight rate.
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In making its initial interest rate swap clearing requirement
determination, the Commission focused on the size of the interest rate
swap market relative to the swap market overall, as well as the fact
that interest rate swaps were already widely being cleared.\9\ As set
forth in regulation Sec. 50.4(a), the Commission identified four
classes of interest rate swaps having certain specifications related to
(i) the currency in which the notional and payment amounts are
specified; (ii) the floating rate index referenced in the swap; (iii)
the stated termination date; (iv) optionality; (v) dual currencies; and
(vi) conditional notional amounts.\10\
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\9\ Id. at 74287, 74307. Significant amounts of notional in
interest rate swaps continue to be traded in markets around the
world, and these swaps comprise an outsized portion of notional
among all swaps. According to the Bank for International Settlements
(BIS), as of June 2024, there was an estimated $579 trillion in
outstanding notional of interest rate swaps, which represents
approximately 80% of the total outstanding notional of all over-the-
counter (OTC) derivatives. See BIS, ``OTC derivatives statistics at
end-June 2024,'' Nov. 21, 2024, at 1-2, available at <a href="https://www.bis.org/publ/otc_hy2411.pdf">https://www.bis.org/publ/otc_hy2411.pdf</a> (OTC derivatives statistics at end-
June 2024).
\10\ 17 CFR 50.4(a).
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The Commission limited the interest rate swaps required to be
cleared to those denominated in four currencies: (i) U.S. dollar (USD);
(ii) Euro (EUR); (iii) British pound (GBP); and (iv) Japanese yen
(JPY). The Commission noted that interest rate swaps denominated in
these currencies comprised an outsized portion of the interest rate
swap market in terms of notional amounts outstanding and trading
volumes compared to interest rate swaps denominated in other
currencies.\11\
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\11\ First Determination, 77 FR at 74308.
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The First Determination covered a number of interest rate swaps
that reference IBORs, including fixed-to-floating swaps, basis swaps,
and FRAs denominated in USD, GBP, and JPY, referencing, respectively,
the USD London Interbank Offered Rate (LIBOR), GBP LIBOR, and JPY
LIBOR, as well as fixed-to-floating swaps, basis swaps, and FRAs
denominated in EUR referencing the Euro Interbank Offered Rate
(EURIBOR). The First Determination also covered OIS denominated in USD,
GBP, and EUR referencing, respectively, the Federal Funds rate, the
Sterling Overnight Index Average (SONIA), and the Euro Overnight Index
Average (EONIA). The Commission observed then that interest rate swaps
referencing those indexes had significant outstanding notional amounts
and trading liquidity.\12\
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\12\ Id. at 74309.
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2. 2016 Clearing Requirement Determination
The Commission adopted its second clearing requirement
determination (Second Determination) in 2016.\13\ The Second
Determination was implemented between December 2016 and October
2018,\14\ and covered interest rate swaps denominated in nine
additional currencies: (i) Australian dollar (AUD); (ii) CAD; (iii)
Hong Kong dollar (HKD); (iv) MXN; (v) Norwegian krone (NOK); (vi)
Polish zloty (PLN); (vii) Singapore dollar (SGD); (viii) Swedish krona
(SEK); and (ix) Swiss franc (CHF).
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\13\ Clearing Requirement Determination Under Section 2(h) of
the Commodity Exchange Act for Interest Rate Swaps, 81 FR 71202
(Oct. 14, 2016) (Second Determination).
\14\ 17 CFR 50.26; Second Determination, 81 FR at 71202.
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The Commission adopted the Second Determination largely in order to
further harmonize its interest rate swap clearing requirement with
those of other jurisdictions that had already issued, or were in the
process of issuing, clearing mandates for similar interest rate
swaps.\15\ The Second Determination covered, among other swaps, CAD-
denominated fixed-to-floating swaps that reference CAD CDOR and OIS
that reference CAD CORRA, and MXN-denominated fixed-to-floating swaps
that reference MXN TIIE.\16\
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\15\ Id. at 71203-71205. The Commission explained that such
harmonization serves an important anti-evasion goal: if a non-U.S.
jurisdiction issued a clearing requirement, and a swap dealer
located in the United States were not subject to an analogous a
clearing requirement under U.S. law, then market participants
potentially could avoid the non-U.S. jurisdiction's clearing
requirement by entering a swap with a swap dealer located in the
United States. Id. at 71203.
\16\ Id. at 71240.
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3. End of LIBOR and 2022 Clearing Requirement Determination
The Commission adopted its third clearing requirement determination
(Third Determination) in 2022.\17\ The Commission adopted the Third
Determination to address the global transition from IBORs to RFRs;
specifically, the transition from LIBOR (covering five currencies), SGD
Singapore Dollar Swap Offer Rate--Volume Weighted Average Price (SOR-
VWAP) (which relied on USD LIBOR as an input), and EUR EONIA to
corresponding RFRs.\18\ EUR EONIA ceased publication on January 3,
2022,\19\ and the transition away from LIBOR was largely complete in
June 2023 with the cessation or permanent loss of representativeness of
the underlying markets of USD LIBOR and SGD SOR-VWAP.\20\
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\17\ Clearing Requirement Determination Under Section 2(h) of
the Commodity Exchange Act for Interest Rate Swaps To Account for
the Transition From LIBOR and Other IBORs to Alternative Reference
Rates, 87 FR 52182 (Aug. 24, 2022) (Third Determination).
\18\ Id. at 52183-52185.
\19\ European Money Markets Institute, EONIA, available at
<a href="https://www.emmi-benchmarks.eu/benchmarks/eonia/">https://www.emmi-benchmarks.eu/benchmarks/eonia/</a>.
\20\ Settings for GBP LIBOR, CHF LIBOR, and JPY LIBOR ceased or
became unrepresentative prior to June 2023, as did settings for EUR
LIBOR. The Commission did not adopt a clearing requirement for swaps
referencing EUR LIBOR.
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LIBOR was an interest rate benchmark that was intended to measure
the average rate at which a bank could obtain unsecured funding in the
London interbank market for a given tenor and currency. It was one of
the world's most frequently referenced interest rate benchmarks and
served as a reference rate for a wide variety of swaps and other
financial products. LIBOR was calculated based on submissions from a
panel of contributor banks for each LIBOR currency and published every
London business day. Immediately prior
[[Page 25815]]
to January 1, 2022, LIBOR was published for five currencies (USD, GBP,
EUR, CHF, and JPY) and seven tenors (overnight or spot next depending
on currency, 1-week, 1-month, 2-month, 3-month, 6-month, and 12-month),
resulting in 35 individual LIBOR rates.\21\ ICE Benchmark
Administration (IBA) administered LIBOR from 2014 (when it assumed the
role of administrator from the British Bankers' Association) until 2024
(when it ceased publishing synthetic LIBOR settings, as discussed
below).\22\
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\21\ See generally ICE Benchmark Administration, LIBOR,
available at <a href="https://www.theice.com/iba/libor">https://www.theice.com/iba/libor</a>.
\22\ Id.; IBA, ICE Benchmark Administration to Become New
Administrator of LIBOR on February 1, 2014, Jan. 17, 2014, available
at <a href="https://ir.theice.com/press/news-details/2014/ICE-Benchmark-Administration-to-Become-New-Administrator-of-LIBOR-on-February-1-2014/default.aspx">https://ir.theice.com/press/news-details/2014/ICE-Benchmark-Administration-to-Become-New-Administrator-of-LIBOR-on-February-1-2014/default.aspx</a>; Financial Conduct Authority, ``The end of
Libor,'' Oct. 1, 2024, available at <a href="https://www.fca.org.uk/news/press-releases/end-libor">https://www.fca.org.uk/news/press-releases/end-libor</a>.
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More than a decade ago, a decline in the volume of interbank
lending transactions that LIBOR was intended to measure,\23\ as well as
government investigations concerning LIBOR,\24\ gave rise to concerns
regarding the integrity and reliability of LIBOR and other IBORs.\25\
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\23\ Declining unsecured interbank lending volumes, due in
significant part to changes in the funding of balance sheets and
trading positions by market participants since the 2008 financial
crisis, meant that LIBOR panel banks increasingly relied on ``expert
judgment'' rather than reference transactions in the rate setting
process. Financial Stability Oversight Council (FSOC), 2013 Annual
Report, 2013, at 137, available at <a href="https://home.treasury.gov/system/files/261/FSOC-2013-Annual-Report.pdf">https://home.treasury.gov/system/files/261/FSOC-2013-Annual-Report.pdf</a> (FSOC 2013 Annual Report). In
its 2013 Annual Report, the Financial Stability Oversight Council
noted that ``the deterioration in the perception of some banks'
credit risk since the beginning of the European debt crisis has
exacerbated the reluctance of banks to engage in unsecured
lending,'' ``[t]he very large volume of excess reserves in the
banking system provided by central banks has also contributed to
significantly reduced activity in interbank lending markets,'' and
``banks are [also] more closely managing demands on their balance
sheets.'' Id. For example, while the pre-2008 financial crisis
interbank market saw an estimated $100 billion in transactions per
day, daily volumes had declined to an estimated $5 billion by 2018.
Kyungmin Kim, et al., Finance and Economics Discussion Series,
Division of Research & Statistics and Monetary Affairs, Federal
Reserve Board, Washington, DC, ``Can the US interbank market be
revived?,'' Nov. 5, 2018, at 1, available at <a href="https://www.federalreserve.gov/econres/feds/files/2018088pap.pdf">https://www.federalreserve.gov/econres/feds/files/2018088pap.pdf</a>. In a June
2020 LIBOR cessation progress report, the Office of the Comptroller
of the Currency noted that daily underlying transactions volumes for
LIBOR were less than $1 billion. Office of the Comptroller of the
Currency, LIBOR Cessation Status and Progress, June 2020, at 10,
available at <a href="https://www.occ.gov/topics/supervision-and-examination/bank-management/minority-depository-institutions/libor-knowledge-transfer-jun-2020.pdf">https://www.occ.gov/topics/supervision-and-examination/bank-management/minority-depository-institutions/libor-knowledge-transfer-jun-2020.pdf</a>. In comparison, the underlying transaction
volume for the USD Secured Overnight Financing Rate (discussed
below), the RFR that has superseded USD LIBOR, has ranged from
approximately $700 billion to over $1 trillion. Alternative
Reference Rates Committee, Frequently Asked Questions, Aug. 27,
2021, at 5, available at <a href="https://www.newyorkfed.org/medialibrary/microsites/arrc/files/ARRC-faq.pdf">https://www.newyorkfed.org/medialibrary/microsites/arrc/files/ARRC-faq.pdf</a>.
\24\ See, e.g., In re Soci[eacute]t[eacute]
G[eacute]n[eacute]rale S.A., No. 18-14 (CFTC June 4, 2018) ($475
million penalty); In re Deutsche Bank AG, No. 15-20 (CFTC Apr. 23,
2015) ($800 million penalty); In re The Royal Bank of Scotland plc,
No. 13-14 (CFTC Feb. 6, 2013) ($325 million penalty); In re UBS AG,
No. 13-09 (CFTC Dec. 19, 2012) ($700 million penalty); In re
Barclays PLC, No. 12-25 (CFTC June 27, 2012) ($200 million penalty).
As a general matter, the investigations variously concerned charges
of actual and attempted manipulation and false reporting in
connection with the rate-setting process.
\25\ See, e.g., International Organization of Securities
Commissions, Principles for Financial Benchmarks, July 2013, at 1,
available at <a href="https://www.iosco.org/library/pubdocs/pdf/IOSCOPD415.pdf">https://www.iosco.org/library/pubdocs/pdf/IOSCOPD415.pdf</a>. See also David Bowman, et al., ``How Correlated Is
LIBOR With Bank Funding Costs?,'' FEDS Notes, June 29, 2020,
available at <a href="https://www.federalreserve.gov/econres/notes/feds-notes/how-correlated-is-libor-with-bank-funding-costs-20200629.htm">https://www.federalreserve.gov/econres/notes/feds-notes/how-correlated-is-libor-with-bank-funding-costs-20200629.htm</a>;
Alternative Reference Rates Committee, Second Report, Mar. 2018, at
1-3, available at <a href="https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2018/ARRC-Second-report">https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2018/ARRC-Second-report</a> (ARRC Second Report).
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Although LIBOR was subject to significant reform efforts,\26\
regulators and global standard-setting bodies did not view these
reforms as a long-term solution. On July 27, 2017, Andrew Bailey, then-
Chief Executive of the United Kingdom (UK) Financial Conduct Authority
(FCA), LIBOR's primary regulator, announced that the FCA would not use
its authority to compel LIBOR panel banks to contribute to the
benchmark after 2021.\27\
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\26\ See generally IBA, Methodology, available at <a href="https://www.theice.com/publicdocs/ICE_LIBOR_Methodology.pdf">https://www.theice.com/publicdocs/ICE_LIBOR_Methodology.pdf</a>; H.M. Treasury,
The Wheatley Review of LIBOR: Final Report, Sept. 2012, available at
<a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/191762/wheatley_review_libor_finalreport_280912.pdf">https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/191762/wheatley_review_libor_finalreport_280912.pdf</a>; Intercontinental
Exchange, ICE LIBOR Evolution, Apr. 25, 2018, at 4, available at
<a href="https://www.theice.com/publicdocs/ICE_LIBOR_Evolution_Report_25_April_2018.pdf">https://www.theice.com/publicdocs/ICE_LIBOR_Evolution_Report_25_April_2018.pdf</a>.
\27\ Andrew Bailey, ``The future of Libor,'' July 27, 2017,
available at <a href="https://www.fca.org.uk/news/speeches/the-future-of-libor">https://www.fca.org.uk/news/speeches/the-future-of-libor</a>.
---------------------------------------------------------------------------
On March 5, 2021, the FCA announced that IBA had notified the FCA
that it intended to cease providing all LIBOR settings for all
currencies, subject to any rights of the FCA to compel IBA to continue
publication.\28\ The FCA further announced that publication of LIBOR
would cease in stages based on currency and tenor.\29\
---------------------------------------------------------------------------
\28\ FCA, FCA Announcement on Future Cessation and Loss of
Representativeness of the LIBOR Benchmarks, Mar. 5, 2021 (FCA
Announcement on LIBOR Cessation), available at <a href="https://www.fca.org.uk/publication/documents/future-cessation-loss-representativeness-libor-benchmarks.pdf">https://www.fca.org.uk/publication/documents/future-cessation-loss-representativeness-libor-benchmarks.pdf</a>.
\29\ Id.
---------------------------------------------------------------------------
LIBOR settings that became permanently unrepresentative rather than
ceasing continued to be published under a synthetic methodology on a
temporary basis for use in certain legacy contracts. The last of these
settings (for USD LIBOR) was published on September 30, 2024.\30\
---------------------------------------------------------------------------
\30\ Financial Conduct Authority, ``The end of Libor,'' Oct. 1,
2024, available at <a href="https://www.fca.org.uk/news/press-releases/end-libor">https://www.fca.org.uk/news/press-releases/end-libor</a>. Following the cessation of the final synthetic LIBOR
settings, in a joint press release, the Bank of England, the FCA,
and the Working Group on Sterling Risk-Free Reference Rates (an
industry-led working group convened in 2015 by the Bank of England
to support benchmark reform efforts in the UK) said in a joint press
release, ``The transition away from LIBOR, once referenced in an
estimated $400 trillion of financial contracts, has made financial
markets safer, more stable and fit for modern use. UK regulators,
their international counterparts and market participants have worked
together over the past decade to move to risk-free rates (`RFRs'),
based on robust data.'' Id.
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Significant private and public sector coordinated efforts have
driven the transition from IBORs to RFRs.\31\ In response to
recommendations by international organizations, such as the Financial
Stability Board (FSB), and domestic organizations, such as the
Financial Stability Oversight Council in the United States, to address
the risks posed by LIBOR and other IBORs,\32\ central banks in IBOR
currency jurisdictions convened private-public working groups (such as
the Alternative Reference Rates Committee (ARRC) in the United States,
convened in 2014 by the Federal Reserve Board (FRB) and the Federal
Reserve Bank of New York (FRBNY)), to identify, develop, and support
the implementation of reference rates to serve as alternatives to LIBOR
and other IBORs.\33\ In 2017, the ARRC
[[Page 25816]]
identified the Secured Overnight Financing Rate (SOFR) as its preferred
USD LIBOR alternative.\34\ SOFR, which measures the cost of borrowing
cash overnight collateralized by U.S. Treasury securities, is
administered by the FRBNY and was first published in conjunction with
the U.S. Department of the Treasury's Office of Financial Research \35\
on April 3, 2018.\36\
---------------------------------------------------------------------------
\31\ While not all interest rate benchmarks considered to be
alternative reference rates for IBORs may be RFRs, private and
public sector participants in benchmark reform efforts have focused
on RFRs as alternatives due in part to an expectation of continued
greater reliance on secured funding, structural changes in
derivatives markets requiring greater use of collateral, and
increased use of central clearing. Financial Stability Board,
Reforming Major Interest Rate Benchmarks, July 2, 2014, at 40,
available at <a href="https://www.fsb.org/uploads/r_140722.pdf">https://www.fsb.org/uploads/r_140722.pdf</a> (Reforming
Major Interest Rate Benchmarks). Nevertheless, for purposes of
brevity, the Commission uses the term ``RFR'' in this notice of
proposed rulemaking to refer to alternative reference rates
generally.
\32\ See, e.g., Reforming Major Interest Rate Benchmarks; FSOC
2013 Annual Report; BIS, ``Towards better reference rate practices:
a central bank perspective,'' Mar. 2013, available at <a href="https://www.bis.org/publ/othp19.pdf">https://www.bis.org/publ/othp19.pdf</a>.
\33\ The ARRC was comprised of private market participants and
ex officio banking and financial sector regulators. ARRC, About,
available at <a href="https://www.newyorkfed.org/arrc/about">https://www.newyorkfed.org/arrc/about</a>. The ARRC
concluded its work in November 2023. See ARRC, ARRC Closing Report:
Final Reflections on the Transition from LIBOR, Nov. 2023, available
at <a href="https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2023/ARRC-Closing-Report.pdf">https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2023/ARRC-Closing-Report.pdf</a>. On September 26, 2024, the FRBNY
announced the formation of the Reference Rates Use Committee to
serve as a forum on the use of interest rate benchmarks and the
evolution of the markets that underpin them. FRBNY, Press Release,
New York Fed Launches the Reference Rate Use Committee, Sept. 26,
2024, available at <a href="https://www.newyorkfed.org/newsevents/news/markets/2024/20240926">https://www.newyorkfed.org/newsevents/news/markets/2024/20240926</a>.
\34\ ARRC Second Report at 6.
\35\ FRBNY, Secured Overnight Financing Rate Data, available at
<a href="https://www.newyorkfed.org/markets/reference-rates/sofr">https://www.newyorkfed.org/markets/reference-rates/sofr</a>.
\36\ FRBNY, Statement Regarding Publication of SOFR Averages and
a SOFR Index, Feb. 12, 2020, available at <a href="https://www.newyorkfed.org/markets/opolicy/operating_policy_200212">https://www.newyorkfed.org/markets/opolicy/operating_policy_200212</a>.
---------------------------------------------------------------------------
Regulators and global standard-setting bodies urged market
participants to accelerate the use of LIBOR alternatives and to cease
entering new swaps referencing LIBOR,\37\ and issued guidance and
regulatory relief to facilitate the transition. In the United States,
on July 13, 2021, the Commission's Market Risk Advisory Committee
adopted SOFR First, an initiative to switch interdealer trading
conventions from reliance on USD LIBOR to USD SOFR as a reference rate
for swaps, in four phases between July 2021 and December 2021.\38\ SOFR
First mirrored similar best practices adopted in other jurisdictions to
increase activity in swaps referencing RFRs.\39\ DCOs supported the
transition by, among other things, offering clearing services for RFR
swaps and converting IBOR swaps to RFR swaps ahead of IBOR cessation
dates.\40\ Market participants also played a key role in the transition
by engaging with working groups such as the ARRC, providing liquidity
in RFR swaps, and voluntarily clearing many RFR swaps.\41\
---------------------------------------------------------------------------
\37\ See, e.g., FRB, Federal Deposit Insurance Corporation, and
Office of the Comptroller of the Currency, Statement on LIBOR
Transition, Nov. 30, 2020, available at <a href="https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20201130a1.pdf">https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20201130a1.pdf</a>; International Organization of Securities
Commissions, Statement on Benchmarks Transition, June 2, 2021,
available at <a href="https://www.iosco.org/library/pubdocs/pdf/IOSCOPD676.pdf">https://www.iosco.org/library/pubdocs/pdf/IOSCOPD676.pdf</a>.
\38\ CFTC, ``CFTC Market Risk Advisory Committee Adopts SOFR
First Recommendation at Public Meeting,'' July 13, 2021, available
at <a href="https://www.cftc.gov/PressRoom/PressReleases/8409-21">https://www.cftc.gov/PressRoom/PressReleases/8409-21</a>; CFTC,
CFTC's Interest Rate Benchmark Reform Subcommittee Issues User Guide
for the Transition of Exchange-Traded Derivatives Activity to SOFR,
Dec. 16, 2021, available at <a href="https://www.cftc.gov/PressRoom/PressReleases/8469-21">https://www.cftc.gov/PressRoom/PressReleases/8469-21</a>.
\39\ See, e.g., Bank of England, ``The FCA and the Bank of
England encourage market participants in further switch to SONIA in
interest rate swap markets,'' Sept. 28, 2020, available at <a href="https://www.bankofengland.co.uk/news/2020/september/fca-and-boe-joint-statement-on-sonia-interest-rate-swap">https://www.bankofengland.co.uk/news/2020/september/fca-and-boe-joint-statement-on-sonia-interest-rate-swap</a>; Cross-Industry Committee on
Japanese Yen Interest Rate Benchmarks, ``Transition of Quoting
Conventions in the JPY interest rate swaps market (`TONA First'),''
July 26, 2021, available at <a href="https://www.boj.or.jp/en/paym/market/jpy_cmte/data/cmt210726b.pdf">https://www.boj.or.jp/en/paym/market/jpy_cmte/data/cmt210726b.pdf</a>.
\40\ Third Determination, 87 FR at 52185 (providing additional
information regarding DCO conversions).
\41\ Id. at 52186.
---------------------------------------------------------------------------
Considering these developments and following publication of a
request for information \42\ and notice of proposed rulemaking,\43\ on
August 24, 2022, the Commission published the Third Determination. The
Commission amended its interest rate swap clearing requirement,
finding, among other things, that LIBOR and certain other IBORs had
become unavailable,\44\ or would soon become unavailable; that
liquidity had shifted out of swaps referencing these IBORs and into
corresponding RFR OIS; and that these RFR OIS were already largely
voluntarily cleared. Specifically, the Commission amended its interest
rate swap clearing requirement as follows.
---------------------------------------------------------------------------
\42\ Swap Clearing Requirement To Account for the Transition
From LIBOR and Other IBORs to Alternative Reference Rates, 86 FR
66476 (Nov. 23, 2021).
\43\ Clearing Requirement Determination Under Section 2(h) of
the Commodity Exchange Act for Interest Rate Swaps To Account for
the Transition From LIBOR and Other IBORs to Alternative Reference
Rates, 87 FR 32898 (May 31, 2022).
\44\ For brevity, where this proposal refers to benchmark rates
that have become ``unavailable,'' ``unavailable'' may variously mean
that the rate has ceased publication, there has been a permanent
loss of representativeness in the underlying markets which will not
be restored, and/or the benchmark has been prohibited for use (e.g.,
by its home country regulator).
---------------------------------------------------------------------------
First, effective September 23, 2022, the Commission (i) removed the
requirement to clear swaps referencing GBP LIBOR, CHF LIBOR, and JPY
LIBOR, and EUR EONIA, in each of the fixed-to-floating swap, basis
swap, FRA, and OIS classes, as applicable; (ii) added a requirement to
clear OIS referencing CHF Swiss Average Rate Overnight (SARON) (with a
stated termination date range of seven days to 30 years), JPY Tokyo
Overnight Average Rate (TONA) (seven days to 30 years), and EUR Euro
Short-Term Rate ([euro]STR) (seven days to three years); and (iii)
extended the stated termination date range for GBP SONIA OIS required
to be cleared to include seven days to 50 years.
Second, effective October 31, 2022, the Commission added a
requirement to clear OIS referencing USD SOFR (seven days to 50 years)
and SGD Singapore Overnight Rate Average (SORA) (seven days to 10
years).\45\
---------------------------------------------------------------------------
\45\ This implementation date aligned with the timing for the
Bank of England's implementation of its USD SOFR interest rate swap
clearing requirement; the International Swaps and Derivatives
Association (ISDA) supported such timing, and no commenters opposed
the implementation date. Third Determination, 87 FR at 52190-52191,
52204-52205.
---------------------------------------------------------------------------
Third, effective July 1, 2023, the Commission removed the
requirement to clear interest rate swaps referencing USD LIBOR and SGD
SOR-VWAP in each of the fixed-to-floating swap, basis swap, and FRA
classes, as applicable.
In addition to the CFTC's third clearing requirement determination,
regulators in other jurisdictions, including the UK, European Union,
Australia, Japan, and Switzerland, also updated interest rate swap
clearing requirements to reflect the transition from LIBOR and other
IBORs to corresponding RFRs.\46\
---------------------------------------------------------------------------
\46\ Bank of England, Public Register for the Clearing
Obligation, Apr. 23, 2023, available at <a href="https://www.bankofengland.co.uk/-/media/boe/files/eu-withdrawal/clearing-obligation-public-register.pdf">https://www.bankofengland.co.uk/-/media/boe/files/eu-withdrawal/clearing-obligation-public-register.pdf</a>; European Securities and Markets
Authority, Public Register for the Clearing Obligation under EMIR,
June 4, 2024, available at <a href="https://www.esma.europa.eu/sites/default/files/library/public_register_for_the_clearing_obligation_under_emir.pdf">https://www.esma.europa.eu/sites/default/files/library/public_register_for_the_clearing_obligation_under_emir.pdf</a>;
Australian Government, Federal Register of Legislation, Australian
Securities and Investments Commission Derivative Transaction Rules
(Clearing) 2015, Mar. 19, 2024, available at <a href="https://www.legislation.gov.au/F2015L01960/latest/text">https://www.legislation.gov.au/F2015L01960/latest/text</a>; Japan Securities
Clearing Corporation, List of Clearing Products, available at
<a href="https://www.jpx.co.jp/jscc/en/cash/irs/product.html">https://www.jpx.co.jp/jscc/en/cash/irs/product.html</a> (the Japan
Financial Services Agency requires the clearing of products cleared
at the Japan Securities Clearing Corporation); Swiss Financial
Market Supervisory Authority, Verordnung der Eidgen[ouml]ssischen
Finanzmarktaufsicht [uuml]ber die Finanzmarktinfrastrukturen und das
Marktverhalten im Effekten-und Derivatehandel, Dec. 8, 2022,
available at https://www.finma.ch/en/~/media/finma/dokumente/
dokumentencenter/anhoerungen/abgeschlossene-anhoerungen/20220509-
finanzmarktinfrastrukturverordnung/
20221208_finfrav_finma_aenderungserlass.pdf?sc_lang=en&hash=6CB5337D2
F528B15DFA01FA1B0AD4B26.
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B. Global Progress on Benchmark Reform
While global benchmark reform efforts have focused on LIBOR,
certain other IBORs continue to be published, and swaps referencing
some such IBORs remain subject to the Commission's interest rate swap
clearing requirement, as well as clearing requirements in other
jurisdictions. In adopting the Third Determination, the Commission
noted that, in the future, it may consider further modifications to the
interest rate swap clearing requirement in regulation Sec. 50.4 to
address the cessation of additional IBORs and market adoption of
corresponding RFRs.\47\
---------------------------------------------------------------------------
\47\ Third Determination, 87 FR at 52192 n. 94.
---------------------------------------------------------------------------
Since the Commission adopted the Third Determination, two
benchmarks for which linked swaps are subject to the Commission's
interest rate swap
[[Page 25817]]
clearing requirement became unavailable. CAD CDOR ceased publication on
June 28, 2024.\48\ Banco de M[eacute]xico announced that 28-day MXN
TIIE was prohibited as a reference rate for new contracts entered into
by financial entities regulated by Banco de M[eacute]xico beginning on
January 1, 2025, subject to a waiver period that allowed for the
trading of new swaps referencing 28-day MXN TIIE until December 31,
2025, provided such swaps did not mature after that date.\49\ These
transitions, which are the subject of this proposed rulemaking, are
discussed in greater detail below.
---------------------------------------------------------------------------
\48\ See Canadian Alternative Reference Rate Working Group, CDOR
Transition FAQs, July 10, 2024, available at <a href="https://www.bankofcanada.ca/wp-content/uploads/2023/08/cdor-transition-faqs.pdf">https://www.bankofcanada.ca/wp-content/uploads/2023/08/cdor-transition-faqs.pdf</a> (CDOR Transition FAQs).
\49\ Banco de M[eacute]xico, ``Transition from TIIE with tenors
greater than one business day (28, 91 and 182 days) to the Overnight
TIIE Funding Rate (TIIE de Fondeo),'' Dec. 20, 2022, available at
<a href="https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7B2D6F5896-CF86-3F28-0C02-98D17B7542B9%7D.pdf">https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7B2D6F5896-CF86-3F28-0C02-98D17B7542B9%7D.pdf</a>
(discussing the transition from MXN TIIE to MXN F-TIIE); Banco de
M[eacute]xico, 10th Meeting of the Working Group on Alternative
Reference Rates in Mexico (GTTR), Dec. 6, 2023, at 10, available at
<a href="https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7B8AAAB86C-BAD5-AD0F-513C-B465BAFDE75E%7D.pdf">https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7B8AAAB86C-BAD5-AD0F-513C-B465BAFDE75E%7D.pdf</a>
(discussing the waiver period). As discussed below, Banco de
M[eacute]xico prohibited the use of 91- and 182-day MXN TIIE as
reference rates for new contracts entered by financial entities
regulated by Banco de M[eacute]xico as of January 1, 2024.
---------------------------------------------------------------------------
C. CAD and MXN Interest Rate Benchmark Transitions
CAD CDOR ceased publication on June 28, 2024, and 28-day MXN TIIE
became unavailable beginning on January 1, 2025, subject to Banco de
M[eacute]xico's waiver. With respect to both interest rate benchmark
transitions, as was the case with the transition away from LIBOR,
benchmark administrators and working groups established a transition
plan, with DCOs and market participants playing an important role in
the adoption of corresponding RFRs.
1. Transition From CAD CDOR to CAD CORRA
Prior to its cessation in June 2024, CAD CDOR had been the primary
wholesale interest rate benchmark in Canada, referenced in over $20
trillion of gross notional exposure as of 2021.\50\ Ninety-seven
percent of that exposure was related to derivatives; namely, cleared
interest rate swaps.\51\ CAD CDOR was developed in the 1980s as a
survey-based benchmark to determine the interest rate for bankers'
acceptance (BA)-related credit facilities.\52\ CAD CDOR measured the
average rate at which Canadian banks were willing to lend to corporate
borrowers with existing committed BA credit facilities.\53\ Refinitiv
Benchmark Services (UK) Limited (RBSL) administered CAD CDOR from
December 31, 2014 until CAD CDOR's cessation.\54\ Immediately prior to
its cessation, RBSL calculated CAD CDOR based on submissions from six
banks and published CAD CDOR for one-month, two-month, and three-month
tenors.\55\
---------------------------------------------------------------------------
\50\ Canadian Alternative Reference Rate Working Group, CARR's
Review of CDOR: Analysis and Recommendations, Dec. 18, 2021, at 8,
available at <a href="https://www.bankofcanada.ca/wp-content/uploads/2021/12/CARR-Review-CDOR-Analysis-Recommendations.pdf">https://www.bankofcanada.ca/wp-content/uploads/2021/12/CARR-Review-CDOR-Analysis-Recommendations.pdf</a> (CDOR White Paper).
\51\ Id. at 10.
\52\ A banker's acceptance is an instrument by which a bank
promises to make a requested future payment.
\53\ In this manner, CAD CDOR was distinct from LIBOR, which
measured the rate at which banks were able to borrow.
\54\ CDOR White Paper at 9. Thomson Reuters was appointed as
administrator of CAD CDOR (for which it was already calculation
agent and distributor) as well as of CAD CORRA following a tender
process announced by the Canadian Bankers Association and the
Investment Industry Association of Canada. Thomson Reuters,
``Thomson Reuters to administer two of Canada's fundamental
financial benchmarks,'' Jan. 6, 2015, available at <a href="https://www.thomsonreuters.com/en/press-releases/2015/january/thomson-reuters-to-administer-two-of-canadas-fundamental-financial-benchmarks.html">https://www.thomsonreuters.com/en/press-releases/2015/january/thomson-reuters-to-administer-two-of-canadas-fundamental-financial-benchmarks.html</a>; Investment Industry Association of Canada, CDOR/
CORRA Administrator Tender Notice, June 2, 2014, available at
<a href="https://iiac-accvm.ca/wp-content/uploads/CDOR-CORRA-Tender-Notice.pdf">https://iiac-accvm.ca/wp-content/uploads/CDOR-CORRA-Tender-Notice.pdf</a>. Thomson Reuters sold Refinitiv, its financial and risk
business which administered CAD CDOR, to the London Stock Exchange
Group in 2021. Thomson Reuters, Thomson Reuters Announces Closing of
Sale of Refinitiv to London Stock Exchange Group, Jan. 29, 2021,
available at <a href="https://www.thomsonreuters.com/en/press-releases/2021/january/thomson-reuters-announces-closing-of-sale-of-refinitiv-to-london-stock-exchange-group.html">https://www.thomsonreuters.com/en/press-releases/2021/january/thomson-reuters-announces-closing-of-sale-of-refinitiv-to-london-stock-exchange-group.html</a>.
\55\ CDOR White Paper at 9-10.
---------------------------------------------------------------------------
CAD CORRA, the interest rate benchmark that superseded CAD CDOR,
measures the cost of overnight general collateral funding in CAD using
Canadian treasury bills and bonds as collateral for repurchase (repo)
transactions.\56\ CAD CORRA is calculated based on overnight repo
transactions between unaffiliated counterparties that are
collateralized by Canadian treasury securities.\57\ The underlying
volume of daily transactions on which CAD CORRA is based has generally
been in the range of $15 billion to $20 billion.\58\
---------------------------------------------------------------------------
\56\ Bank of Canada, Canadian Overnight Repo Rate Average,
available at <a href="https://www.bankofcanada.ca/rates/interest-rates/corra/">https://www.bankofcanada.ca/rates/interest-rates/corra/</a>.
\57\ CDOR White Paper at 7.
\58\ CDOR Transition FAQs.
---------------------------------------------------------------------------
The Bank of Canada first published CAD CORRA in 1997.\59\ RBSL was
appointed as administrator of CAD CORRA in 2014.\60\ The Bank of Canada
assumed the role of CAD CORRA's administrator from RBSL in June 2020
and published the benchmark under an enhanced methodology since that
time.\61\
---------------------------------------------------------------------------
\59\ Bank of Canada, ``Bank of Canada to begin publishing
Canadian Overnight Repo Rate Average in June,'' Feb. 18, 2020,
available at <a href="https://www.bankofcanada.ca/2020/02/bank-canada-begin-publishing-canadian-overnight-repo-rate-average-june/">https://www.bankofcanada.ca/2020/02/bank-canada-begin-publishing-canadian-overnight-repo-rate-average-june/</a>.
\60\ Thomson Reuters, ``Thomson Reuters to administer two of
Canada's fundamental financial benchmarks,'' Jan. 6, 2015, available
at <a href="https://www.thomsonreuters.com/en/press-releases/2015/january/thomson-reuters-to-administer-two-of-canadas-fundamental-financial-benchmarks.html">https://www.thomsonreuters.com/en/press-releases/2015/january/thomson-reuters-to-administer-two-of-canadas-fundamental-financial-benchmarks.html</a>.
\61\ Id.; CDOR White Paper at 6-7. While CAD CDOR is a forward-
looking rate (i.e., the three-month CAD CDOR rate is the interest
rate that will apply for the next three months), CAD CORRA is an
overnight rate that reflects market activity on the previous day. To
derive a CAD CORRA rate that spans a tenor period, which would make
the rate easier to use in loans and floating rate notes, since April
2021, the Bank of Canada has published a CAD CORRA Compounded Index
that compounds CAD CORRA settings over the relevant interest period.
Id. at 8; Bank of Canada, Canadian Overnight Repo Rate Average,
available at <a href="https://www.bankofcanada.ca/rates/interest-rates/corra/">https://www.bankofcanada.ca/rates/interest-rates/corra/</a>. In September 2023, Candeal Benchmark Solutions and TMX
Datalinx launched one-month and three-month term CAD CORRA rates for
use in certain loans and derivatives used to hedge them. Bank of
Canada, ``Term CORRA to be launched on September 5, 2023,'' Aug. 10,
2023, available at <a href="https://www.bankofcanada.ca/2023/08/term-corra-to-be-launched-on-september-5-2023/">https://www.bankofcanada.ca/2023/08/term-corra-to-be-launched-on-september-5-2023/</a>; Canadian Alternative Reference
Rate Working Group, ``CARR's allowable use cases for Term CORRA--
Finalized,'' Aug. 29, 2023, available at <a href="https://www.bankofcanada.ca/wp-content/uploads/2023/01/carr-approved-use-cases-term-corra.pdf">https://www.bankofcanada.ca/wp-content/uploads/2023/01/carr-approved-use-cases-term-corra.pdf</a>.
---------------------------------------------------------------------------
In 2018, the Canadian Fixed-Income Forum (CFIF), a committee
established by the Bank of Canada to discuss developments, practices,
and policy issues in fixed-income markets, established the Canadian
Alternative Reference Rate Working Group (CARR) to help guide benchmark
reform efforts in Canada.\62\ In October 2020, CFIF, in consultation
with the CAD CDOR contributor banks, requested that CARR analyze the
effectiveness of CAD CDOR as a benchmark in Canada and make
recommendations regarding the future of CAD CDOR.\63\
---------------------------------------------------------------------------
\62\ CDOR White Paper at 5.
\63\ Id.
---------------------------------------------------------------------------
In December 2021, CARR published a white paper analyzing these
issues.\64\ CARR's findings, among others, included findings that the
determination of CAD CDOR was based predominantly on expert judgment
and that the BA lending model on which CAD CDOR was premised was no
longer seen as an effective way for banks to provide credit to
corporate clients.\65\ Additionally, CARR noted that the departure of
contributor banks could
[[Page 25818]]
further imperil CAD CDOR's robustness.\66\ These observations echoed
similar concerns raised with regard to LIBOR.\67\
---------------------------------------------------------------------------
\64\ See generally CDOR White Paper.
\65\ Id. at 22-25.
\66\ Id. at 25.
\67\ See Third Determination at 52219-52220.
---------------------------------------------------------------------------
CARR recommended that CAD CDOR should cease publication after June
30, 2024, and that markets should transition to CAD CORRA.\68\ CARR
further recommended that the cessation should occur in two stages. The
first stage would end on June 30, 2023, and would result in the
transition of all new derivatives and securities exposures to CAD
CORRA, with no new exposures after that date except for limited
exceptions, such as derivatives that hedge or reduce CAD CDOR exposures
of derivatives or securities transacted before June 30, 2024.\69\ The
second stage would end on June 30, 2024, after which there would be no
new use of CAD CDOR, CAD CDOR would no longer be published, and
applicable CAD CDOR fallbacks would come into effect for any remaining
CAD CDOR exposures.\70\ CARR intended this phased approach to provide
firms with additional time to transition loan agreements and manage
potential issues related to the repapering of legacy securities.\71\
---------------------------------------------------------------------------
\68\ CDOR White Paper at 28.
\69\ Id.
\70\ Id. at 3, 28. A fallback rate is the rate provided for use
in a contract if the benchmark that the contract uses becomes
unavailable. ISDA, Understanding IBOR Benchmark Fallbacks, June 2,
2020, available at <a href="https://www.isda.org/a/YZQTE/Understanding%20Benchmarks-Factsheet.pdf">https://www.isda.org/a/YZQTE/Understanding%20Benchmarks-Factsheet.pdf</a>. Under the ISDA 2020 IBOR
Fallbacks Protocol, the fallback rate for CAD CDOR is a spread-
adjusted version of CAD CORRA. See ISDA, ISDA 2020 IBOR Fallbacks
Protocol, Oct. 23, 2020, at 41-42, available at <a href="https://assets.isda.org/media/3062e7b4/08268161-pdf/">https://assets.isda.org/media/3062e7b4/08268161-pdf/</a>.
\71\ CDOR White Paper at 28.
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In May 2022, following a public consultation,\72\ RBSL announced
that the calculation and publication of all CAD CDOR tenors would
permanently cease after the June 28, 2024 publication.\73\ In August
2022, CARR published an overview of its transition roadmap for CAD
CDOR, confirming its proposed two-stage cessation and announcing two
``CORRA First'' initiatives,\74\ similar to ``RFR First'' plans
developed in other IBOR jurisdictions, such as SOFR First in the United
States.\75\ Under these initiatives, inter-dealer linear derivatives
trading in CAD interest rate swaps moved from CAD CDOR to CAD CORRA on
January 9, 2023, and inter-dealer non-linear derivatives (in CAD
swaptions) and inter-dealer cross-currency swaps moved from CAD CDOR to
CAD CORRA on March 27, 2023.\76\ As CAD CDOR transition dates
approached, CARR published guidance to help market participants
facilitate the transition of derivatives and cash market products to
CAD CORRA.\77\
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\72\ RBSL, Canadian Dollar Offered Rate (CDOR): Consultation on
Potential Cessation of CDOR, Jan. 31, 2022, available at <a href="https://www.lseg.com/content/dam/ftse-russell/en_us/documents/consultation/future-of-cdor-consultation.pdf">https://www.lseg.com/content/dam/ftse-russell/en_us/documents/consultation/future-of-cdor-consultation.pdf</a>.
\73\ RBSL, Canadian Dollar Offered Rate (CDOR) Announcement of
Cessation of CDOR in June 2024, May 16, 2022, available at <a href="https://www.lseg.com/content/dam/ftse-russell/en_us/documents/announcement/cdor-cessation-notice.pdf">https://www.lseg.com/content/dam/ftse-russell/en_us/documents/announcement/cdor-cessation-notice.pdf</a>.
\74\ CARR, Overview of CARR's Transition Roadmap, Aug. 2022, at
10, 17, available at <a href="https://www.bankofcanada.ca/wp-content/uploads/2022/06/transition-plan-roadmap.pdf">https://www.bankofcanada.ca/wp-content/uploads/2022/06/transition-plan-roadmap.pdf</a>.
\75\ See, e.g., CFTC, SOFR First, July 13, 2021, available at
<a href="https://www.cftc.gov/media/6176/MRAC_SOFRFirstSubcommitteeRecommendation071321/download">https://www.cftc.gov/media/6176/MRAC_SOFRFirstSubcommitteeRecommendation071321/download</a>.
\76\ CARR, ``CARR's CORRA-first initiatives for derivatives to
begin on January 9--update,'' Dec. 15, 2022, available at <a href="https://www.bankofcanada.ca/2022/12/carrs-corra-first-initiatives-derivatives-begin-january-9/">https://www.bankofcanada.ca/2022/12/carrs-corra-first-initiatives-derivatives-begin-january-9/</a>.
\77\ CARR, Key Documents, available at <a href="https://www.bankofcanada.ca/markets/canadian-alternative-reference-rate-working-group/canadian-alternative-reference-rate-working-group-key-documents/">https://www.bankofcanada.ca/markets/canadian-alternative-reference-rate-working-group/canadian-alternative-reference-rate-working-group-key-documents/</a>.
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DCOs also played a role in the transition from CAD CDOR to CAD
CORRA, much as they did in the transition from LIBOR to corresponding
RFRs. Prior to the cessation of CAD CDOR, Chicago Mercantile Exchange,
Inc. (CME) and LCH Limited (LCH) cleared CAD CDOR fixed-to-floating
swaps with maximum termination dates of, respectively, 31 years and 41
years.\78\ LCH also cleared CAD CDOR-CAD CDOR and CAD CDOR-CAD CORRA
basis swaps, both with a maximum termination date of 41 years.\79\ CME
and LCH currently clear CAD CORRA OIS with maximum termination dates,
respectively, of 31 years and 41 years.\80\
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\78\ CME, Cleared OTC Interest Rate Swaps, Download Product
Scope, available at <a href="https://www.cmegroup.com/trading/interest-rates/cleared-otc.html">https://www.cmegroup.com/trading/interest-rates/cleared-otc.html</a>; LCH, LCH Limited Self-Certification: Tenor
Extensions, Jan. 25, 2022, available at <a href="https://www.lseg.com/content/dam/post-trade/en_us/documents/lch/proposed-rule-changes/lch-ltd/lch-self-cert-hkd-nok-cad-extensions-20220125-final.pdf">https://www.lseg.com/content/dam/post-trade/en_us/documents/lch/proposed-rule-changes/lch-ltd/lch-self-cert-hkd-nok-cad-extensions-20220125-final.pdf</a>.
\79\ LCH, LCH Limited Self-Certification: Tenor Extensions, Jan.
25, 2022, available at <a href="https://www.lseg.com/content/dam/post-trade/en_us/documents/lch/proposed-rule-changes/lch-ltd/lch-self-cert-hkd-nok-cad-extensions-20220125-final.pdf">https://www.lseg.com/content/dam/post-trade/en_us/documents/lch/proposed-rule-changes/lch-ltd/lch-self-cert-hkd-nok-cad-extensions-20220125-final.pdf</a>.
\80\ CME, Cleared OTC Interest Rate Swaps, Download Product
Scope, available at <a href="https://www.cmegroup.com/trading/interest-rates/cleared-otc.html">https://www.cmegroup.com/trading/interest-rates/cleared-otc.html</a>; LCH, Product Specific Contract Terms and
Eligibility Criteria Manual, Nov. 2024, available at <a href="https://www.lseg.com/content/dam/post-trade/en_us/documents/lch/rulebooks/lch-ltd/lch-product-specific-contract-terms-eligiblity-for-zar-zaronia-ois-compound-241104.pdf">https://www.lseg.com/content/dam/post-trade/en_us/documents/lch/rulebooks/lch-ltd/lch-product-specific-contract-terms-eligiblity-for-zar-zaronia-ois-compound-241104.pdf</a>.
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CME and LCH converted CAD CDOR swaps to CAD CORRA OIS ahead of the
CAD CDOR cessation.\81\ CME conducted its conversion in two stages in
May 2024 and July 2024.\82\ CME converted each CAD CDOR swap into a
corresponding short-dated CAD CDOR swap for any representative CAD CDOR
fixings that settled following CME's primary conversion,\83\ and a
forward starting CAD CORRA OIS.\84\ Post-conversion, CME no longer
clears CAD CDOR swaps.\85\
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\81\ CME, Advisory Notice # 24-136, CAD CDOR to CORRA Primary
Swap Conversion--May 17, available at <a href="https://www.cmegroup.com/content/dam/cmegroup/notices/clearing/2024/05/Chadv24-136.pdf">https://www.cmegroup.com/content/dam/cmegroup/notices/clearing/2024/05/Chadv24-136.pdf</a>; CME,
CME Conversion for CAD CDOR Cleared Swaps, Jan. 2024, available at
<a href="https://www.cmegroup.com/content/dam/cmegroup/trading/interest-rates/files/cme-conversion-for-cad-cdor-cleared-swaps.pdf">https://www.cmegroup.com/content/dam/cmegroup/trading/interest-rates/files/cme-conversion-for-cad-cdor-cleared-swaps.pdf</a> (CME CAD
CDOR Conversion Presentation); London Stock Exchange Group, LCH
SwapClear CAD CDOR Conversion Quick Guide, Feb. 21, 2024, available
at <a href="https://www.lch.com/system/files/?file=media_root/swapclear-cad-cdor-quickquide-021624-03.pdf">https://www.lch.com/system/files/?file=media_root/swapclear-cad-cdor-quickquide-021624-03.pdf</a> (LCH CAD CDOR Conversion Guide).
\82\ CME conducted a two-staged conversion featuring a primary
conversion on May 17, 2024 for all cleared CAD CDOR swaps with
fixings beyond June 28, 2024, and a secondary conversion on July 2,
2024 for all new CAD CDOR swaps cleared following the primary
conversion and that contained fixings beyond July 28, 2024. CME CAD
CDOR Conversion Presentation at 6.
\83\ Such swaps maintained CAD CDOR coupons associated with
fixings prior to July 2, 2024 (the ISDA ``Index Cessation Effective
Date'' on which CAD-denominated OTC interest rate swaps fell back to
spread-adjusted CAD CORRA). The coupons were settled at the end of
the last representative compounding period. Id. at 20.
\84\ Id. at 6. The resulting CAD CDOR swap was created to settle
all remaining fixings before the cessation date, and the resulting
CAD CORRA swap was created to settle all remaining cash flows and
the cash compensation fee. Id. at 15. The effective date for the
forward starting CAD CORRA OIS was the next compound period start
date immediately following the Index Cessation Event Date. Id. at
20. ISDA's fallback spread adjustment for CAD CORRA applied to the
floating leg of the OIS; additionally, key economics of the swap
being replaced were duplicated in the replacement swaps. Id. at 6.
ISDA fallback spread adjustments are adjustments (calculated and
distributed by Bloomberg) to account for structural differences
between the overnight RFR and term IBOR rates, and the historical
spread differences between IBORs and their term equivalent RFR
compounded rates. ISDA employs a five-year median comparison
calculation between the compounded in arrears RFR (i.e., calculated
using daily rates published during the relevant interest period
rather than over a period prior to the start of the interest period)
and the IBOR. ISDA, IBOR Fallback Rate Adjustments: Frequently Asked
Questions, Aug. 2024, at 7, available at <a href="https://www.isda.org/a/fp8gE/Fallbacks_FAQ_V13_August-2024.pdf">https://www.isda.org/a/fp8gE/Fallbacks_FAQ_V13_August-2024.pdf</a>; see also, e.g., FRBNY, SOFR
``in Arrears'' Conventions for Syndicated Business Loans, 2020, at
1, available at <a href="https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC_SOFR_Synd_Loan_Conventions.pdf">https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC_SOFR_Synd_Loan_Conventions.pdf</a>. CME applied
cash compensation as an upfront fee on the CAD CORRA replacement
swap. CME CAD CDOR Conversion Presentation at 6. Cash compensation
is intended to account for any differences in value between the CAD
CDOR swap being converted and the corresponding replacement swaps.
\85\ CME, Cleared OTC Interest Rate Swaps, available at <a href="https://www.cmegroup.com/trading/interest-rates/cleared-otc.html">https://www.cmegroup.com/trading/interest-rates/cleared-otc.html</a> (noting,
``Clearing support will be limited to spot and forward trades for
swap products where an index cessation or modification effective
date has occurred. Any IBOR indexed swaps submitted for clearing
will be converted to a corresponding risk free rate (RFR) swap.'').
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[[Page 25819]]
LCH conducted its conversion of CAD CDOR fixed-to-floating swaps
into market standard CAD CORRA OIS on June 8, 2024.\86\ LCH's
conversion entailed replacement of CAD CDOR swaps with CAD CORRA
swaps,\87\ with overlay CAD CDOR bookings to preserve coupons
associated with CAD CDOR fixings before the CAD CDOR cessation
date.\88\ Post-conversion, LCH also no longer clears CAD CDOR
swaps.\89\
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\86\ LCH CAD CDOR Conversion Guide at 3.
\87\ Carrying over key terms, including effective date and
maturity date.
\88\ Id. at 5. The overlay booking inherited the periodicity and
fixed-leg day count fraction, as well as the effective date, of the
original CAD CDOR swap, and matured when the last representative CAD
CDOR period prior to cessation settled. Additionally, the CAD CDOR
leg of the overlay booking replicated the CAD CDOR leg of the
original CAD CDOR swap, except with a shorter maturity. Id. LCH's
conversion process entailed CAD CDOR-CAD CORRA basis swap overlay
bookings for house accounts, and pairs of CAD CDOR versus fixed and
CAD CORRA versus fixed swaps for client accounts. Id.; LCH,
``SwapClear consultation: CAD CDOR contract conversion,'' Aug. 2023,
at 10, available at <a href="https://www.lch.com/system/files/media_root/lch-cad-cdor-conversion-consultation.pdf">https://www.lch.com/system/files/media_root/lch-cad-cdor-conversion-consultation.pdf</a>. LCH applied ISDA's spread
adjustment to the floating leg of the CAD CDOR OIS. LCH CAD CDOR
Conversion Guide at 3-4. LCH also delivered cash compensation as an
upfront fee on a new 1 CAD notional CAD CORRA OIS with a minimum
remaining term to maturity. Id. at 6. For basis swaps, LCH made
available to market participants a Unilateral Basis Splitting Tool
to voluntarily split CAD CDOR basis swaps into separate CAD CDOR
fixed-to-floating swaps and CAD CORRA OIS. Id. (CME did not support
clearing of CAD CDOR basis swaps at the time of its CAD CDOR
conversion. CME CAD CDOR Conversion Presentation at 8.) LCH
mandatorily split any in-scope CAD CDOR basis swaps outstanding at
the time of the conversion. LCH CAD CDOR Conversion Guide at 3.
LCH's conversion also encompassed the CAD CDOR swaps that resulted
from basis swap splitting.
\89\ See generally LCH, What We Clear, available at <a href="https://www.lseg.com/en/post-trade/clearing/lch-services/swapclear/what-we-clear">https://www.lseg.com/en/post-trade/clearing/lch-services/swapclear/what-we-clear</a>.
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2. Transition From MXN TIIE to MXN F-TIIE
Banco de M[eacute]xico began administering and publishing MXN TIIE
in 1995 as a more accurate reflection of the cost of funding in the
Mexican banking market than the existing Average Interbank Interest
Rate (la Tasa Inter[eacute]s Interbancaria Promedio, or TIIP by its
Spanish acronym).\90\ Historically, each bank business day, Banco de
M[eacute]xico published 28-, 91-, and 182-day MXN TIIE rates calculated
based on quotations submitted by a panel of commercial banks.\91\
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\90\ Banco de Mexico, Informe Anual, 1995, at 130, available at
<a href="https://www.banxico.org.mx/publicaciones-y-prensa/informes-anuales/%7B04840DAE-89CE-942C-ADC0-7F8D6DD0971D%7D.pdf">https://www.banxico.org.mx/publicaciones-y-prensa/informes-anuales/%7B04840DAE-89CE-942C-ADC0-7F8D6DD0971D%7D.pdf</a>. MXN TIIP was first
published in 1993 and ceased publication in 2001. Banco de
M[eacute]xico, Economic Information System, Securities Prices and
Interest Rates, Interbank Interest Rates (CF111), n.3, available at
<a href="https://www.banxico.org.mx/Sieinternet/consultarDirectoriointernetAction.do?accion=consultarCuadro&idCuadro=CF111§or=18&locale=en">https://www.banxico.org.mx/Sieinternet/consultarDirectoriointernetAction.do?accion=consultarCuadro&idCuadro=CF111§or=18&locale=en</a>. While both MXN TIIP and MXN TIIE were
designed to serve as survey-based indicators of the cost of funds in
the Mexican banking market, MXN TIIE accounts for the supply and
demand curve for such loans. See generally FSB, Progress in
Reforming Major Interest Rate Benchmarks, July 9, 2015, at 15,
available at <a href="https://www.fsb.org/uploads/OSSG-interest-rate-benchmarks-progress-report-July-2015.pdf">https://www.fsb.org/uploads/OSSG-interest-rate-benchmarks-progress-report-July-2015.pdf</a>.
\91\ Banco de M[eacute]xico, Economic Information System,
Securities Prices and Interest Rates, Representative Interest Rates
(CA51), n.3, available at <a href="https://www.banxico.org.mx/Sieinternet/consultarDirectoriointernetAction.do?sector=18&accion=consultarCuadroAnalitico&idCuadro=CA51&locale=en">https://www.banxico.org.mx/Sieinternet/consultarDirectoriointernetAction.do?sector=18&accion=consultarCuadroAnalitico&idCuadro=CA51&locale=en</a>. The 28-, 91-, and 182-day MXN
TIIE rates refer to the tenor of the interbank transactions that MXN
TIIE is intended to measure.
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In order to foster the sound development of the financial system
and abide by the recommendations of international standard-setting
bodies with respect to benchmark methodology, in January 2020, Banco de
M[eacute]xico began administering and publishing MXN F-TIIE as an
alternative to MXN TIIE.\92\ MXN F-TIIE is calculated based on a
volume-weighted median of daily observed MXN-denominated wholesale
overnight repurchase agreement transactions settled by banks and
brokerage firms and secured by debt instruments issued by the Mexican
government, the Mexican Bank Savings Protection Institute (Instituto
para la Protecci[oacute]n al Ahorro Bancario, or IPAB by its Spanish
acronym), Banco de M[eacute]xico.\93\ Banco de M[eacute]xico also
announced enhancements to governance, accountability, and quality
requirements with respect to MXN TIIE rates with maturities of greater
than overnight, and a Code of Conduct for institutions that participate
in determining MXN TIIE rates.\94\
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\92\ Banco de M[eacute]xico, ``Publication of the overnight TIIE
funding rate and improvement of TIIE rates with longer than
overnight maturities,'' Jan. 15, 2020, available at <a href="https://www.banxico.org.mx/publications-and-press/other-announcements/%7BA3CFC638-5913-1C42-1843-360A95F89A92%7D.pdf">https://www.banxico.org.mx/publications-and-press/other-announcements/%7BA3CFC638-5913-1C42-1843-360A95F89A92%7D.pdf</a>.
\93\ Id. Daily average turnover in the Mexican repo market is
approximately MXN 2.4 trillion (approximately $117 billion).
International Monetary Fund, Mexico: Financial Sector Assessment
Program-Technical Note on Systemic Liquidity Management, Nov. 10,
2022, at 8, available at <a href="https://www.elibrary.imf.org/downloadpdf/view/journals/002/2022/338/article-A001-en.pdf">https://www.elibrary.imf.org/downloadpdf/view/journals/002/2022/338/article-A001-en.pdf</a>.
\94\ Id. The enhancements are reflected in Banco de
M[eacute]xico Circular 3/2012, available at <a href="https://www.banxico.org.mx/marco-normativo/normativa-emitida-por-el-banco-de-mexico/circular-3-2012/%7B4E0281A4-7AD8-1462-BC79-7F2925F3171D%7D.pdf">https://www.banxico.org.mx/marco-normativo/normativa-emitida-por-el-banco-de-mexico/circular-3-2012/%7B4E0281A4-7AD8-1462-BC79-7F2925F3171D%7D.pdf</a>.
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In December 2022, Banco de M[eacute]xico announced that, after
careful analysis conducted with the support of financial market
participants in Mexico, Banco de M[eacute]xico deemed it necessary to
prohibit the use of MXN TIIE rates with tenors greater than one
business day as reference rates for new contracts.\95\ Accordingly,
Banco de M[eacute]xico determined the following: (1) use of 91- and
182-day tenor MXN TIIE as reference rates would be prohibited for new
contracts entered into by financial entities regulated by Banco de
M[eacute]xico beginning on January 1, 2024; (2) use of the 28-day MXN
TIIE rate as a reference rate for new contracts entered into by the
financial entities regulated by Banco de M[eacute]xico would be
prohibited beginning January 1, 2025; and (3) Banco de M[eacute]xico
would modify the methodology for calculation of MXN TIIE with tenors
greater than one business day so that contracts tied to MXN TIIE with
tenors greater than one business day that are still active as of the
transition dates would not require adjustment through legal
amendment.\96\ The new methodology was based on the overnight MXN TIIE
rate on the day prior to the reference day being determined, compounded
by the number of days of the corresponding term, with a fixed
historical spread adjustment based on the historical
[[Page 25820]]
median of the daily differences between MXN TIIE with tenors greater
than one business day and MXN F-TIIE from November 2017 to October
2022, compounded by the number of days of the respective term.\97\
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\95\ Banco de M[eacute]xico, ``Transition from TIIE with tenors
greater than one business day (28, 91, and 182 days) to the
Overnight TIIE Funding Rate (TIIE de Fondeo),'' Dec. 20, 2022,
available at <a href="https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7B2D6F5896-CF86-3F28-0C02-98D17B7542B9%7D.pdf">https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7B2D6F5896-CF86-3F28-0C02-98D17B7542B9%7D.pdf</a>. Spanish-language versions of the consultation,
draft provisions, comments, and comment summary are available at
<a href="https://www.banxico.org.mx/ConsultaRegulacionWeb/">https://www.banxico.org.mx/ConsultaRegulacionWeb/</a> (see, under
``Hist[oacute]ricas,'' ``PROYECTO DE DISPOSICIONES PARA MODIFICAR LA
CIRCULAR 3/2012, CON OBJETO DE ESTABLECER LAS FECHAS A PARTIR DE LAS
CUALES SE RESTRINGIR[Aacute] EL USO DE LAS TIIE A PLAZOS MAYORES A
UN D[Iacute]A H[Aacute]BIL BANCARIO, AS[Iacute] COMO MODIFICAR LA
METODOLOG[Iacute]A PARA SU C[Aacute]LCULO''). See also generally
Banco de M[eacute]xico, 7th Meeting of the Working Group on
Alternative Reference Rates in Mexico (GTTR), Mar. 2023, at 6-8,
available at <a href="https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7BA0239E58-6DE1-A4BC-D0DE-88E94841D16F%7D.pdf">https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7BA0239E58-6DE1-A4BC-D0DE-88E94841D16F%7D.pdf</a> (summarizing comments on the consultation).
Consistency with international efforts and best practices to move
interest rate swap markets from survey-based IBORs to transaction-
based RFRs was a significant consideration in Banco de
M[eacute]xico's decision. Banco de M[eacute]xico, 4th Meeting of the
Working Group on Alternative Reference Rates in Mexico (GTTR), Nov.
30, 2021, at 8, available at <a href="https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7B53572077-823D-FEA5-6B89-5D4584C21981%7D.pdf">https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7B53572077-823D-FEA5-6B89-5D4584C21981%7D.pdf</a>.
\96\ Banco de M[eacute]xico, ``Transition from TIIE with tenors
greater than one business day (28, 91, and 182 days) to the
Overnight TIIE Funding Rate (TIIE de Fondeo),'' Dec. 20, 2022,
available at <a href="https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7B2D6F5896-CF86-3F28-0C02-98D17B7542B9%7D.pdf">https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7B2D6F5896-CF86-3F28-0C02-98D17B7542B9%7D.pdf</a>.
\97\ Id. The changes are reflected in Circular 3/2012 (new
methodology for calculating MXN TIIE with tenors greater than one
business day) and Circular 14/2007 (changes regarding restrictions
on the use of MXN TIIE).
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On December 6, 2023, Banco de M[eacute]xico announced that it would
grant a waiver to permit trading in new swaps referencing the legacy
MXN TIIE 28-day rate until December 31, 2025, provided the maturity of
the transaction did not extend beyond that date.\98\
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\98\ Banco de M[eacute]xico, 10th Meeting of the Working Group
on Alternative Reference Rates in Mexico (GTTR), Dec. 6, 2023, at
10, available at <a href="https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7B8AAAB86C-BAD5-AD0F-513C-B465BAFDE75E%7D.pdf">https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7B8AAAB86C-BAD5-AD0F-513C-B465BAFDE75E%7D.pdf</a>.
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Banco de M[eacute]xico's decision to provide the waiver reflected a
process that incorporated the views of affected market participants and
the public in general. In September 2020, Banco de M[eacute]xico
established the Working Group on Alternative Reference Rates in Mexico
(Grupo de Trabajo de Tasas de Referencia en M[eacute]xico, or GTTR by
its Spanish acronym), a private-public working group comprised of
banks, brokerage houses, interdealer electronic and voice brokers,
stock exchanges, financial authorities, non-banking financial entities,
corporates, and others, to encourage the adoption of more robust
interest rates in Mexican financial markets.\99\ In the fall of 2023,
concerns emerged among GTTR members that a basis mismatch could surface
as MXN TIIE swaps were converted to MXN F-TIIE OIS.\100\ Specifically,
some market participants raised concerns that, if a market participant
has a bilateral 28-day MXN TIIE interest rate swap contract with a
corporate client that does not settle through a clearinghouse, and the
risk of that contract is covered with a contract that settles through a
clearinghouse, then following a conversion of MXN TIIE swaps to MXN F-
TIIE OIS at the clearinghouse, a basis would be generated between the
uncleared MXN TIIE swap and the cleared MXN F-TIIE OIS resulting from
the conversion of the cleared MXN TIIE swap.\101\
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\99\ Banco de M[eacute]xico, ``Establishment of the Working
Group on Alternative Reference Rates in Mexico,'' Sept. 30, 2020,
available at <a href="https://www.banxico.org.mx/publications-and-press/other-announcements/%7B24C11AC6-7368-9BC4-DCE7-6FAD5103ADAA%7D.pdf">https://www.banxico.org.mx/publications-and-press/other-announcements/%7B24C11AC6-7368-9BC4-DCE7-6FAD5103ADAA%7D.pdf</a>.
\100\ Banco de M[eacute]xico, 6th Meeting of the Working
Subgroup on Derivative Instruments Referenced to the Funding TIIE of
the GTTR, Oct. 30, 2023, at 3, available at <a href="https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7B77DD82E8-D6CC-D5B4-345B-CEDFE130EEC5%7D.pdf">https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7B77DD82E8-D6CC-D5B4-345B-CEDFE130EEC5%7D.pdf</a>.
\101\ Id.
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The GTTR engaged in consultations to identify solutions to mitigate
the impact of such basis risk.\102\ The GTTR found that 44% of the
institutions that participated in the consultations indicated that they
would be affected by such basis risk following an MXN TIIE swap
conversion.\103\ The GTTR subsequently identified granting a waiver
until the end of 2025 to trade MXN TIIE swaps expiring before that time
as a means to address the issue of basis risk (i.e., by providing
market participants with additional time to cover their basis
risk).\104\ On March 5, 2024, Banco de M[eacute]xico published a
consultation on a proposal to amend its MXN TIIE to MXN F-TIIE
transition timeline by granting a waiver for certain limited usage of
MXN TIIE through 2025.\105\ On June 7, 2024, Banco de M[eacute]xico
finalized amendments to its transition timeline to account for the
waiver period.\106\
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\102\ Id. at 10-13.
\103\ Banco de M[eacute]xico, 10th Meeting of the Working Group
on Alternative Reference Rates in Mexico (GTTR), Dec. 6, 2023, at 3,
5, available at <a href="https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7B8AAAB86C-BAD5-AD0F-513C-B465BAFDE75E%7D.pdf">https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7B8AAAB86C-BAD5-AD0F-513C-B465BAFDE75E%7D.pdf</a>.
\104\ Banco de M[eacute]xico, 11th Meeting of the Working
Subgroup on Derivative Instruments Referenced to the Funding TIIE of
the GTTR, Feb. 1, 2024, at 5, available at <a href="https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7BA5419A19-1C19-9ED4-F429-8518FF28516E%7D.pdf">https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7BA5419A19-1C19-9ED4-F429-8518FF28516E%7D.pdf</a>.
\105\ Banco de M[eacute]xico, ``Exceptions to the restrictions
on the use of the 28-day TIIE as an underlying in swaps held during
2025,'' Mar. 5, 2024, available at <a href="https://www.banxico.org.mx/publicaciones-y-prensa/miscelaneos/%7B4098A198-7A37-2F61-B2E4-B23BB099DC35%7D.pdf">https://www.banxico.org.mx/publicaciones-y-prensa/miscelaneos/%7B4098A198-7A37-2F61-B2E4-B23BB099DC35%7D.pdf</a> (title translated from original Spanish).
\106\ Banco de M[eacute]xico, Circular 9/2024, June 7, 2024,
available at <a href="https://www.banxico.org.mx/marco-normativo/normativa-emitida-por-el-banco-de-mexico/circular-4-2012/%7B416701BC-FBE2-A422-6224-9D9E666ABA6A%7D.pdf">https://www.banxico.org.mx/marco-normativo/normativa-emitida-por-el-banco-de-mexico/circular-4-2012/%7B416701BC-FBE2-A422-6224-9D9E666ABA6A%7D.pdf</a>.
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Until the end of 2025, two registered DCOs cleared MXN TIIE swaps
and MXN F-TIIE OIS. CME and LCH cleared fixed-to-floating interest rate
swaps that reference 28-day MXN TIIE for a maximum stated termination
date of, respectively, 31 years and 21 years.\107\ Both DCOs no longer
offer fixed-to-floating interest rate swaps that reference 28-day MXN
TIIE for clearing. Now CME and LCH clear OIS that reference MXN F-TIIE
for a maximum stated termination date of, respectively, 31 years and 21
years.\108\
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\107\ CME, Cleared OTC Interest Rate Swaps, Download Product
Scope, available at <a href="https://www.cmegroup.com/trading/interest-rates/cleared-otc.html">https://www.cmegroup.com/trading/interest-rates/cleared-otc.html</a>; LCH, Product Specific Contract Terms and
Eligibility Criteria Manual, Nov. 2024, available at <a href="https://www.lseg.com/content/dam/post-trade/en_us/documents/lch/rulebooks/lch-ltd/lch-product-specific-contract-terms-eligiblity-for-zar-zaronia-ois-compound-241104.pdf">https://www.lseg.com/content/dam/post-trade/en_us/documents/lch/rulebooks/lch-ltd/lch-product-specific-contract-terms-eligiblity-for-zar-zaronia-ois-compound-241104.pdf</a>.
\108\ CME, Cleared OTC Interest Rate Swaps, Download Product
Scope, available at <a href="https://www.cmegroup.com/trading/interest-rates/cleared-otc.html">https://www.cmegroup.com/trading/interest-rates/cleared-otc.html</a>; LCH, Product Specific Contract Terms and
Eligibility Criteria Manual, Nov. 2024, available at <a href="https://www.lseg.com/content/dam/post-trade/en_us/documents/lch/rulebooks/lch-ltd/lch-product-specific-contract-terms-eligiblity-for-zar-zaronia-ois-compound-241104.pdf">https://www.lseg.com/content/dam/post-trade/en_us/documents/lch/rulebooks/lch-ltd/lch-product-specific-contract-terms-eligiblity-for-zar-zaronia-ois-compound-241104.pdf</a>.
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Additionally, Asigna, a Mexican clearinghouse that is currently
neither a registered DCO nor an exempt DCO, clears MXN F-TIIE OIS with
a maximum stated termination date range of 30 years.\109\
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\109\ MexDer, Terms and Conditions for the Nominal Fixed
Interest Rates and Nominal Variable 28-Day Interbank Equilibrium
Interest Rates (TIIE28) Swap Contract, available at <a href="http://www.mexder.com.mx/wb3/wb/MEX/MEX_Repositorio/_vtp/MEX/2052_swaps_contracts/_rid/21/_mto/3/20241115ENGLISHCGCS_CONTRATO_SWAP_TIIE28.pdf?repfop=view&reptp=2052_swaps_contracts&repfiddoc=8723&repinline=true">http://www.mexder.com.mx/wb3/wb/MEX/MEX_Repositorio/_vtp/MEX/2052_swaps_contracts/_rid/21/_mto/3/20241115ENGLISHCGCS_CONTRATO_SWAP_TIIE28.pdf?repfop=view&reptp=2052_swaps_contracts&repfiddoc=8723&repinline=true</a>; MexDer, Terms and
Conditions for the Nominal Fixed Interest Rates and the Nominal
Variable Interest Rates (TIIE de Fondeo) Swap Contract, available at
<a href="http://www.mexder.com.mx/wb3/wb/MEX/MEX_Repositorio/_vtp/MEX/2052_swaps_contracts/_rid/21/_mto/3/20241115CGCs_Swaps_de_TIIE_de_Fondeo_EN.pdf?repfop=view&reptp=2052_swaps_contracts&repfiddoc=8722&repinline=true">http://www.mexder.com.mx/wb3/wb/MEX/MEX_Repositorio/_vtp/MEX/2052_swaps_contracts/_rid/21/_mto/3/20241115CGCs_Swaps_de_TIIE_de_Fondeo_EN.pdf?repfop=view&reptp=2052_swaps_contracts&repfiddoc=8722&repinline=true</a>;.
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In November 2024, CME and LCH launched programs to convert cleared
MXN TIIE swaps into market standard MXN TIIE OIS, as did Asigna.\110\
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\110\ Asigna, ``AVISO A SOCIOS LIQUIDADORES, PLATAFORMAS DE
NEGOCIACI[Oacute]N, OPERADORES Y P[Uacute]BLICO EN GENERAL,'' Dec.
20, 2024, available at <a href="http://www.asigna.com.mx/wb3/wb/ASG/ASG_repositorio/_vtp/ASG/11a0_2024/_rid/124/_mto/3/20241220_Segunda_Conversion.pdf?repfop=view&reptp=11a0_2024&repfiddoc=21973&repinline=true">http://www.asigna.com.mx/wb3/wb/ASG/ASG_repositorio/_vtp/ASG/11a0_2024/_rid/124/_mto/3/20241220_Segunda_Conversion.pdf?repfop=view&reptp=11a0_2024&repfiddoc=21973&repinline=true</a>; see also Asigna, Funding TIIE Swap and Rate
Conversion, available at <a href="https://bmv.com.mx/docs-pub/ASSETS/TIIE_Fondeo_Ingles_V5.pdf">https://bmv.com.mx/docs-pub/ASSETS/TIIE_Fondeo_Ingles_V5.pdf</a>; Asigna, ``AVISO A SOCIOS LIQUIDADORES,
PLATAFORMAS DE NEGOCIACI[Oacute]N, OPERADORES Y P[Uacute]BLICO EN
GENERAL,'' Oct. 16, 2024, available at <a href="http://www.asigna.com.mx/wb3/wb/ASG/ASG_repositorio/_vtp/ASG/2469_banners/_rid/124/_mto/3/TIIE_Fondeo_Espanol_difusion.pdf?repfop=view&reptp=2469_banners&repfiddoc=20752&repinline=true">http://www.asigna.com.mx/wb3/wb/ASG/ASG_repositorio/_vtp/ASG/2469_banners/_rid/124/_mto/3/TIIE_Fondeo_Espanol_difusion.pdf?repfop=view&reptp=2469_banners&repfiddoc=20752&repinline=true</a>. Post-conversion, Asigna clears only MXN
TIIE swaps that will mature before the end of Banco de
M[eacute]xico's waiver period. Asigna, ``AVISO A SOCIOS
LIQUIDADORES, PLATAFORMAS DE NEGOCIACI[Oacute]N, OPERADORES Y
P[Uacute]BLICO EN GENERAL,'' Oct. 16, 2024, at 3, available at
<a href="http://www.asigna.com.mx/wb3/wb/ASG/ASG_repositorio/_vtp/ASG/2469_banners/_rid/124/_mto/3/TIIE_Fondeo_Espanol_difusion.pdf?repfop=view&reptp=2469_banners&repfiddoc=20752&repinline=true">http://www.asigna.com.mx/wb3/wb/ASG/ASG_repositorio/_vtp/ASG/2469_banners/_rid/124/_mto/3/TIIE_Fondeo_Espanol_difusion.pdf?repfop=view&reptp=2469_banners&repfiddoc=20752&repinline=true</a>.
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CME ran a primary conversion event on November 22, 2024, converting
28-day MXN TIIE swaps with scheduled fixings on or after December 3,
2025.\111\
[[Page 25821]]
In light of Banco de M[eacute]xico's waiver, CME continued to clear 28-
day MXN TIIE swaps that did not contain fixings on or after December 3,
2025.\112\ CME then converted as part of daily conversion cycles new
28-day MXN TIIE swaps submitted to clearing after the primary
conversion and that contained fixings on or after December 3,
2025.\113\ In publicly available conversion planning materials, CME
noted that after its primary conversion, MXN F-TIIE was expected to
become the primary pool of liquidity for MXN-denominated interest rate
swaps, and trading in new 28-day MXN TIIE swaps would be limited.\114\
The methodology and structure of CME's MXN TIIE swap conversion was
similar to those of other CME conversions.\115\ CME's conversion plan
entailed the end of support for MXN TIIE swap clearing services as of
the end of 2025.\116\
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\111\ CME, Conversion Plan: CME Cleared MXN TIIE Interest Rate
Swaps, Mar. 2024, at 2, available at <a href="https://www.cmegroup.com/articles/files/2024/proposal-for-cme-cleared-mxn-tiie-interest-rate-swaps-2024-03.pdf">https://www.cmegroup.com/articles/files/2024/proposal-for-cme-cleared-mxn-tiie-interest-rate-swaps-2024-03.pdf</a>. CME noted that, due to market conventions for 28-
day MXN TIIE fixings, 28-day MXN TIIE swaps with fixings including
and after December 3, 2025, would not be covered by Banco de
M[eacute]xico's waiver. Id. at 1.
\112\ Id. at 2.
\113\ Id.
\114\ Id.
\115\ CME replaced the MXN TIIE swap being converted with a
short-dated MXN TIIE replacement swap and a forward-starting MXN F-
TIIE OIS, applying a fixed spread adjustment calculated by Banco de
M[eacute]xico to the MXN F-TIIE OIS, and applying cash compensation
as an upfront fee on the MXN F-TIIE OIS. Id.
\116\ Id. See also CME, Product Delisting Summary--MXN 28D TIIE
Swap Clearing--Effective January 02, 2026, Jan. 2, 2026, available
at <a href="https://www.cmegroup.com/notices/clearing/2026/01/26-001.html">https://www.cmegroup.com/notices/clearing/2026/01/26-001.html</a>
(noting CME was discontinuing clearing support as of January 2,
2026).
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On November 23, 2024, LCH converted in-scope 28-day MXN TIIE swaps
to MXN F-TIIE OIS equivalents, with overlay bookings to capture periods
on the original trade that rely on a fixing that occurred after
December 2, 2025, similar to LCH's process for converting CAD CDOR
swaps to CAD CORRA OIS.\117\ To account for Banco de M[eacute]xico's
waiver, any MXN TIIE trades that were fully fixed on or before December
2, 2025, were not subject to conversion.\118\ Such swaps remained
eligible for clearing at LCH; however, LCH, like CME, removed clearing
support for MXN TIIE swaps as of the end of 2025.\119\
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\117\ LCH, LCH Consultation on Conversion of Outstanding Cleared
MXN 28D-TIIE Contracts, Dec. 20, 2023, available at <a href="https://www.lch.com/membership/ltd-membership/ltd-member-updates/lch-consultation-conversion-outstanding-cleared-mxn-0">https://www.lch.com/membership/ltd-membership/ltd-member-updates/lch-consultation-conversion-outstanding-cleared-mxn-0</a>.
\118\ LCH, LCH Conversion of Outstanding Cleared MXN 28D-TIIE
Contracts, Feb. 16, 2024, available at https://www.lch.com/
membership/ltd-membership/ltd-member-updates/lch-conversion-
outstanding-cleared-mxn-28d-tiie#:~:text=MXN%2028D-
TIIE%20trades%20relying%20on%20fixings%20occurring%20after,2025%20wil
l%20not%20be%20subject%20to%20LCH%20conversion. October 10, 2024,
LCH announced that, considering the limited uptake of MXN F-TIIE OIS
and continued robust liquidity in MXN TIIE swaps, it would adjust
its methodology for calculating cash compensation to incorporate
projected MXN F-TIIE rates derived from projected 28-day MXN TIIE
rates (as opposed to relying on MXN F-TIIE market data alone). See
LCH, MXN 28D-TIIE Conversion Update, Oct. 10, 2024, available at
<a href="https://www.lch.com/membership/ltd-membership/ltd-member-updates/mxn-28d-tiie-conversion-update">https://www.lch.com/membership/ltd-membership/ltd-member-updates/mxn-28d-tiie-conversion-update</a>.
\119\ See LCH, ``LCH Limited Self-Certification: Removal of
eligibility of MXN TIIE SwapClear transactions,'' Nov. 28, 2025,
available at <a href="https://www.lseg.com/content/dam/post-trade/en_us/documents/lch/proposed-rule-changes/lch-ltd/lch-ltd-self-certification-removal-of-eligibility-of-mxn-tiie-swapclear-transactions.pdf">https://www.lseg.com/content/dam/post-trade/en_us/documents/lch/proposed-rule-changes/lch-ltd/lch-ltd-self-certification-removal-of-eligibility-of-mxn-tiie-swapclear-transactions.pdf</a> (noting LCH was discontinuing clearing support as
of January 1, 2025).
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II. Domestic and International Coordination and Outreach
The transitions from CAD CDOR to CAD CORRA and MXN TIIE to MXN F-
TIIE are further milestones, following the transition away from LIBOR,
in a continuing effort by international standard-setting bodies such as
International Organization of Securities Commissions (IOSCO) and the
FSB, regulators, cross-jurisdictional working groups, market
infrastructure providers, market participants, and others, to move
global swap markets toward reliance on more sustainable benchmarks. Due
to the cross-border nature of this effort and the size of the affected
markets, it is a priority for the Commission to engage with domestic
and international regulators as it considers changes to the clearing
requirement.
A. Domestic Coordination Efforts
The Commission is committed to working with the FRB, the FRBNY, the
Securities and Exchange Commission (SEC), and other domestic
authorities to ensure transparency in its efforts and, to the greatest
extent possible, consistency in the transition from IBORs to RFRs. To
this end, the Commission consults with domestic authorities including
the SEC, the FRB, and the FRBNY as part of this rulemaking process.
B. International Coordination Efforts
Section 752(a) of the Dodd-Frank Act directs the Commission to
consult and coordinate with foreign regulatory authorities on the
establishment of consistent international standards for the regulation
of swaps.\120\ The Commission accomplished this with respect to the
Second Determination by considering the ways in which it could
harmonize its clearing requirement with clearing requirements in other
jurisdictions.\121\ The Commission has long recognized the
interconnectedness of the interest rate swap market, and the importance
of consulting and coordinating with its counterparts in other
jurisdictions in the adoption of clearing requirements in order to
promote regulatory consistency and certainty, and to prevent the
evasion of clearing requirements.\122\
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\120\ Section 752 is not codified in the CEA.
\121\ Second Determination, 81 FR at 71203.
\122\ E.g., Third Determination, 87 FR at 52189 (discussing
comments on the Commission's third proposed clearing requirement
determination supporting the Commission's goal of harmonizing its
clearing requirement with those of non-U.S. jurisdictions); Second
Determination, 81 FR at 71223 (noting that ``the interest rate swaps
market is global and market participants are interconnected'');
First Determination, 77 FR at 74287 (``The Commission is mindful of
the benefits of harmonizing its regulatory framework with that of
its counterparts in foreign countries. The Commission has therefore
monitored global advisory, legislative, and regulatory proposals,
and has consulted with foreign regulators in developing the final
regulations.'').
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As part of this rulemaking process, and consistent with the Third
Determination, the Commission is working with its counterparts overseas
to ensure a coordinated approach to required clearing of interest rate
swaps during the move from use of swaps referencing IBORs to swaps
referencing RFRs. As part of the ongoing regulatory dialogue among
authorities, Commission staff consulted with counterparts, including
those at Banco de M[eacute]xico and the Canadian Securities
Administrators (CSA). This type of dialogue reflects an effort to
ensure consistency in interest rate swap clearing requirements across
jurisdictions.
C. Clearing Requirements in Other Jurisdictions
In developing this proposal, the Commission considered relevant
changes to clearing requirements in other jurisdictions, ensuring that
any changes the Commission proposes are harmonized to the greatest
extent possible with those adopted by its international counterparts.
This goal is consistent with the Commission's approach in the Second
Determination and in the Third Determination.
Both the United States and Canada require clearing of CAD-
denominated, CAD CDOR-referenced fixed-to-floating swaps with a stated
termination date range of 28 days to 30 years, and CAD-denominated, CAD
CORRA-referenced OIS with a stated termination date range of 7 days to
2 years.\123\ No other
[[Page 25822]]
jurisdiction has a CAD-denominated interest rate swap clearing
requirement.
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\123\ 17 CFR 50.4(a); CSA, CSA Notice of Publication--Amendments
to National Instrument 94-101 Mandatory Central Counterparty
Clearing of Derivatives and Changes to Companion Policy 94-101
Mandatory Central Counterparty Clearing of Derivatives, Jan. 27,
2022, available at <a href="https://www.osc.ca/sites/default/files/2022-01/csa_20220127_94-101_mandatory-central-counterparty.pdf">https://www.osc.ca/sites/default/files/2022-01/csa_20220127_94-101_mandatory-central-counterparty.pdf</a>.
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On September 19, 2024, the CSA published for public comment
proposed amendments to Canada's interest rate swap clearing
requirement.\124\ Citing the decrease (or cessation) of use of certain
swaps referencing IBORs, and the adoption of RFRs and the corresponding
increase in the liquidity of RFR swaps and in the systemic importance
of RFRs, the CSA proposed to remove certain categories of swaps from
Canada's interest rate swap clearing requirement, and add certain other
categories of swaps. Specifically, the CSA proposed to remove its
clearing requirement in each of the fixed-to-floating, basis swap, OIS,
and FRA classes, as applicable, with respect to swaps referencing CAD
CDOR, USD LIBOR, GBP LIBOR, and EUR EONIA.\125\ The CSA additionally
proposed to add a clearing requirement for OIS referencing USD SOFR (7
days to 50 years) and EUR [euro]STR (7 days to 3 years) and to modify
the clearing requirement for OIS referencing GBP SONIA to include
maturities of 7 days to 50 years.\126\ The CSA also proposed to modify
its requirement to clear CAD CORRA OIS to include CAD CORRA OIS to
include maturities of 7 days to 30 years.\127\
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\124\ CSA, B.6.1 CSA Notice of Consultation--Proposed Amendments
to National Instrument 94-101 Mandatory Central Counterparty
Clearing of Derivatives, Sept. 19, 2024, available at <a href="https://www.osc.ca/sites/default/files/2024-09/csa_20240919_notice-consultation-amendments-94-101.pdf">https://www.osc.ca/sites/default/files/2024-09/csa_20240919_notice-consultation-amendments-94-101.pdf</a>. The comment period for the
consultation closed on December 19, 2024.
\125\ Id.
\126\ The CSA's proposed removal of the clearing requirement
with respect to certain CAD CDOR, USD LIBOR, GBP LIBOR, and EUR
EONIA swaps, addition of a clearing requirement with respect to
certain USD SOFR and EUR [euro]STR OIS, and modification of its GBP
SONIA OIS clearing requirement, would be consistent with the
Commission's own interest rate swap clearing requirement with
respect to the same categories of swaps. See 17 CFR 50.4(a).
\127\ CSA, B.6.1 CSA Notice of Consultation--Proposed Amendments
to National Instrument 94-101 Mandatory Central Counterparty
Clearing of Derivatives, Sept. 19, 2024, available at <a href="https://www.osc.ca/sites/default/files/2024-09/csa_20240919_notice-consultation-amendments-94-101.pdf">https://www.osc.ca/sites/default/files/2024-09/csa_20240919_notice-consultation-amendments-94-101.pdf</a>. In addition, the CSA proposed to
require clearing for fixed-to-float interest rate swaps referencing
the Australian dollar (AUD) Bank Bill Swap Rate (BBSW) (28 days to
30 years), and three credit default swap indexes: CDX.NA.IG with
tenors of five and ten years (Series 46 and all subsequent Series),
CDX.NA.HY with a tenor of 5 years (Series 46 and all subsequent
Series), and iTraxx Europe with a tenor of 5 years (Series 45 and
all subsequent Series). These proposed modifications are consistent
with the Commission's own interest rate swap and credit default swap
clearing requirement. See 17 CFR 50.4.
---------------------------------------------------------------------------
In proposing modifications to its interest rate swap clearing
requirement, the CSA reviewed the suitability of adding certain swaps
to its clearing requirement. It considered factors including: (i) the
availability of the derivative to be cleared by a regulated clearing
agency; (ii) the level of standardization of the derivative; (iii) the
effect of central clearing of the derivative on the mitigation of
systemic risk, taking into account the size of the market for the
derivative and the available resources of the regulated clearing agency
to clear the derivative; (iv) whether mandating the derivative or class
of derivatives to be cleared would bring undue risk to regulated
clearing agencies; (v) the current liquidity in the market for the
derivative or class of derivatives; (vi) the existence of capacity,
operational expertise, and resources, with respect to a regulated
clearing agency; and (vii) international harmonization.\128\ The CSA
noted that, in developing its proposal, it analyzed data reported by
market participants to designated or recognized trade repositories in
accordance with applicable regulations, and held discussions with
recognized central counterparties.\129\ On September 25, 2025, the CSA
finalized these amendments.\130\
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\128\ CSA, B.6.1 CSA Notice of Consultation--Proposed Amendments
to National Instrument 94-101 Mandatory Central Counterparty
Clearing of Derivatives, Sept. 19, 2024, available at <a href="https://www.osc.ca/sites/default/files/2024-09/csa_20240919_notice-consultation-amendments-94-101.pdf">https://www.osc.ca/sites/default/files/2024-09/csa_20240919_notice-consultation-amendments-94-101.pdf</a>.
\129\ The CSA noted that as part of its analysis, for a review
period of April 2023 to September 2023, and using data reported by
market participants, the CSA analyzed monthly volume by assessing
the number of transactions and the gross notional amount outstanding
for certain OTC derivatives, including the gross notional by
maturity, and the percentage of outstanding notional cleared each
month of the reference period. Id.
\130\ CSA, ``CSA adopts amendments to mandatory central
counterparty clearing of derivatives,'' Sept. 25, 2025, available at
<a href="https://www.securities-administrators.ca/news/csa-adopts-amendments-to-mandatory-central-counterparty-clearing-of-derivatives/">https://www.securities-administrators.ca/news/csa-adopts-amendments-to-mandatory-central-counterparty-clearing-of-derivatives/</a>; see also
Ontario Securities Commission, National Instrument 94-101, available
at <a href="https://www.osc.ca/sites/default/files/2026-01/ni_20260119_94-101_unofficial-consolidation.pdf">https://www.osc.ca/sites/default/files/2026-01/ni_20260119_94-101_unofficial-consolidation.pdf</a> (unofficial consolidation).
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Only the U.S. and Mexico required MXN TIIE swaps to be cleared.
Regulation Sec. 50.4 requires clearing of fixed-to-floating swaps
denominated in MXN that reference TIIE-BANXICO, for a stated
termination date range of 28 days to 21 years.\131\ Following a
consultation launched on June 2, 2023, Banco de M[eacute]xico amended
its rules for the execution of derivatives transactions to replace its
requirement to clear MXN TIIE fixed-to-floating swaps with a stated
termination date range of 56 days to 30 years with a requirement to
clear MXN F-TIIE OIS with a stated termination date range of 28 days to
30 years, with the modifications entering into force on January 1,
2025.\132\ In amending its clearing requirement, Banco de M[eacute]xico
considered: (i) the degree of standardization of the terms and
conditions of the derivatives transactions; (ii) the liquidity, depth,
traded volume, and size of the derivatives transactions in the Mexican
market; (iii) the number and type of entities that can trade and clear
the derivatives transactions; (iv) the availability of pricing sources
that are reasonable, reliable, and generally accepted; (v) the systemic
risk associated with the execution of the derivatives transactions, and
its impact on the stability of the Mexican financial system; (vi) the
existence of companies that manage systems to facilitate trading of the
products authorized by the National Banking and Securities Commission
(Comisi[oacute]n Nacional Bancaria y de Valores or CNBV by its Spanish
acronym), or foreign institutions that perform functions similar to
those carried out by such companies that are recognized by the CNBV on
which the derivatives transactions are traded; (vii) the existence of a
clearinghouse or foreign institution that acts as a central
counterparty, recognized by Banco de M[eacute]xico, at which the
derivatives transactions are cleared and settled; and (viii) the effect
on competition, considering the fees associated with trading and
clearing.\133\
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\131\ 17 CFR 50.4(a).
\132\ Spanish-language versions of the consultation, draft
provisions, comments, and comment summary are available at <a href="https://www.banxico.org.mx/ConsultaRegulacionWeb/">https://www.banxico.org.mx/ConsultaRegulacionWeb/</a> (see, under
``Hist[oacute]ricas,'' ``PROYECTO DE DISPOSICIONES PARA MODIFICAR LA
CIRCULAR 4/2012 DEL BANCO DE M[Eacute]XICO, CON OBJETO DE ESTABLECER
LAS FECHAS A PARTIR DE LAS CUALES SE RESTRINGIR[Aacute] EL USO DE
LAS TIIE A PLAZOS MAYORES A UN D[Iacute]A H[Aacute]BIL BANCARIO COMO
REFERENCIA PARA NUEVAS OPERACIONES''). The modifications are
reflected in Banco de M[eacute]xico Circular 7/2023, Sept. 8, 2023,
available at <a href="https://www.banxico.org.mx/marco-normativo/normativa-emitida-por-el-banco-de-mexico/circular-4-2012/%7B7D759428-892F-AD66-CF4F-B3D768ABD59A%7D.pdf">https://www.banxico.org.mx/marco-normativo/normativa-emitida-por-el-banco-de-mexico/circular-4-2012/%7B7D759428-892F-AD66-CF4F-B3D768ABD59A%7D.pdf</a> and in Banco de M[eacute]xico Circular
4/2012, available at <a href="https://www.banxico.org.mx/marco-normativo/normativa-emitida-por-el-banco-de-mexico/circular-4-2012/%7B97C62974-1C94-19AE-AB5A-D0D949A36247%7D.pdf">https://www.banxico.org.mx/marco-normativo/normativa-emitida-por-el-banco-de-mexico/circular-4-2012/%7B97C62974-1C94-19AE-AB5A-D0D949A36247%7D.pdf</a>. See also Banco de
M[eacute]xico, 9th Meeting of the Working Group on Alternative
Reference Rates in Mexico (GTTR), Aug. 15, 2023, at 4-6, available
at <a href="https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7B0048779F-A14D-C07F-90F7-24E5E604E1D4%7D.pdf">https://www.banxico.org.mx/markets/mexican-alternative-reference-rates-working-group/d/%7B0048779F-A14D-C07F-90F7-24E5E604E1D4%7D.pdf</a>
(summarizing the consultation and results).
\133\ Banco de M[eacute]xico Circular 7/2023, Sept. 8, 2023,
available at <a href="https://www.banxico.org.mx/marco-normativo/normativa-emitida-por-el-banco-de-mexico/circular-4-2012/%7B7D759428-892F-AD66-CF4F-B3D768ABD59A%7D.pdf">https://www.banxico.org.mx/marco-normativo/normativa-emitida-por-el-banco-de-mexico/circular-4-2012/%7B7D759428-892F-AD66-CF4F-B3D768ABD59A%7D.pdf</a>.
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[[Page 25823]]
III. Proposed Amendments to Regulation Sec. 50.4(a)
As described above, the global swap marketplace has made tremendous
progress in transitioning from reliance on swaps that reference IBORs
to clearing and trading swaps that reference RFRs. Although this
transition has occurred with respect to LIBOR and certain other IBORs,
it is ongoing with respect to other benchmarks. The Commission intends
to facilitate the transition from IBORs to RFRs further by modifying
its interest rate swap clearing requirement to reflect the
unavailability of CAD CDOR and MXN TIIE and the market adoption of CAD
CORRA and MXN F-TIIE.
A. Overview of the Proposed Regulation
The Commission is proposing to amend regulation Sec. 50.4(a) to
(i) modify its CAD CORRA OIS clearing requirement; (ii) add a
requirement to clear MXN F-TIIE OIS; and (iii) remove its requirement
to clear CAD CDOR and MXN TIIE fixed-to-floating interest rate
swaps.\134\
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\134\ The Commission does not require clearing of basis swaps or
FRAs that reference CAD CDOR or MXN TIIE.
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Consistent with the Third Determination, in many respects, this
proposal is an update rather than expansion of the existing clearing
requirement, as it reflects the market transition away from the use of
IBOR interest rate benchmarks to RFR interest rate benchmarks in the
interest rate swaps market. With respect to the transition from CAD
CDOR to CAD CORRA, the Commission's proposal would expand the stated
termination date range for CAD CORRA OIS subject to the clearing
requirement and remove the requirement to clear fixed-to-floating swaps
referencing CAD CDOR to reflect that CAD CDOR has ceased publication
and liquidity has shifted into corresponding CAD CORRA OIS. With
respect to the transition from MXN TIIE to MXN F-TIIE, the Commission's
proposal would add a requirement to clear MXN F-TIIE OIS and remove the
requirement to clear fixed-to-floating swaps referencing MXN TIIE.
As discussed further below, the Commission is proposing that these
amendments to part 50 to require clearing for CAD CORRA and MXN F-TIIE
OIS become effective 30 days after publication of the final rule in the
Federal Register.
Specifically, the Commission is proposing to amend regulation Sec.
50.4(a) as follows:
1. Effective 30 days after publication of the final rule in the
Federal Register:
a. Change the stated termination date range for swaps denominated
in CAD that reference CAD CORRA as a floating rate index in the OIS
class to be seven days to 30 years.
b. Add to the OIS class swaps denominated in MXN that reference MXN
F-TIIE as a floating rate index with a stated termination date range of
28 days to 21 years.
c. Remove swaps denominated in CAD that reference CAD CDOR as a
floating rate index from the fixed-to-floating swap class.
d. Remove swaps denominated in MXN that reference MXN TIIE as a
floating rate index from the fixed-to-floating swap class.
Request for Comment
The Commission requests comment on the proposed modifications to
regulation Sec. 50.4(a). In particular, the Commission requests
comment on whether it should adopt a clearing requirement determination
for MXN F-TIIE OIS that includes OIS with maturities beyond 21 years.
B. Modifications to the Clearing Requirement
In addition to modifying the clearing requirement for CAD CORRA OIS
and adding a clearing requirement for MXN F-TIIE OIS, this proposal
would modify the existing clearing requirement to reflect the
unavailability of CAD CDOR and MXN TIIE. CAD CDOR ceased publication,
and MXN TIIE was prohibited for use in new swaps effective January 1,
2025. As explained above, CME and LCH converted cleared CAD CDOR swaps
into CAD CORRA OIS, and CAD CDOR swaps are no longer offered for
clearing. The Commission has preliminarily determined to update the
clearing requirement for CAD-denominated interest rate swaps, where CAD
CDOR swaps are no longer offered for clearing and have been replaced by
CAD CORRA OIS. The Commission also has preliminarily determined to
update the clearing requirement for MXN-denominated interest rate swaps
where MXN TIIE is generally unavailable as a benchmark interest rate
for use in new swaps, DCOs clearing MXN TIIE swaps have converted those
swaps to MXN F-TIIE OIS, and liquidity in MXN TIIE swaps has shifted
into MXN F-TIIE OIS. Both CME and LCH ceased offering clearing services
for MXN TIIE swaps by January 1, 2025.
Request for Comment
The Commission requests comment regarding implementing changes to
the existing interest rate swap clearing requirement, including any
concern about the removal of the MXN TIIE interest rate swap clearing
requirement.
IV. Proposed Determination Analysis For CAD CORRA and MXN F-TIIE OIS
The Commission is proposing to modify its interest rate swap
clearing requirement to include additional OIS referencing CAD CORRA
and OIS referencing MXN F-TIIE by adopting a new clearing requirement
determination. The Commission completed a review of the current CAD
CORRA and MXN F-TIIE OIS offered for clearing in order to consider the
specific statutory factors required to make a preliminary clearing
requirement determination.
A. General Description of Information Considered
CME and LCH provided the Commission with submissions pursuant to
regulation Sec. 39.5(b) relating to CAD CORRA and MXN F-TIIE OIS.\135\
In addition to CME's and LCH's submissions, the Commission considers
the ability of each DCO to clear CAD CORRA and MXN F-TIIE OIS, DCO swap
data, swap data repository (SDR) data, publicly available data, and the
rule frameworks and risk management policies of each DCO.
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\135\ Regulation Sec. 39.5(b) submissions from DCOs are
available on the Commission's website, <a href="http://www.cftc.gov">www.cftc.gov</a>, under DCO Swaps
Submissions.
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As with the Third Determination, this proposed clearing requirement
determination responds to public and private sector, consensus-driven
market events that have resulted, or are expected to result, in
liquidity shifting to alternative reference rates from rates that have
become, or will soon become, unavailable. Accordingly, because markets
for RFR OIS, such as CAD CORRA and MXN F-TIIE OIS, rely on benchmark
rates that are less susceptible to manipulation, central clearing in
these markets may offer unique benefits that prior interest rate swap
market clearing did not.\136\ As a result of this, and in light of the
actual market adoption of CAD CORRA and MXN F-TIIE OIS and DCOs'
willingness to provide clearing for these, among other, RFR swaps, the
Commission preliminarily finds that the CAD CORRA and MXN F-TIIE swap
markets
[[Page 25824]]
should be prepared for this proposed clearing requirement
determination.
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\136\ A discussion of the costs and benefits of this proposed
rulemaking appears below.
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B. Consistency With DCO Core Principles
Section 2(h)(2)(D)(i) of the CEA requires the Commission to
determine, with respect to reviews initiated by public submissions,
whether the submission is consistent with core principles for DCOs set
forth in section 5b(c)(2) of the CEA.\137\ CME and LCH are registered
DCOs, and currently clear CAD CORRA and MXN F-TIIE OIS. CME and LCH are
required to comply with the DCO core principles and applicable
Commission regulations with respect to CAD CORRA and MXN F-TIIE OIS and
are subject to the Commission's DCO examination and risk surveillance
programs.
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\137\ 7 U.S.C. 2(h)(2)(D)(i). The core principles address
numerous issues, including financial resources, participant and
product eligibility, risk management, settlement procedures, default
management, system safeguards, reporting, recordkeeping, public
information, and legal risk, among other subjects. 7 U.S.C. 7a-
1(c)(2). The Commission implemented the core principles through
regulations that are applicable to registered DCOs. 17 CFR part 39.
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CME and LCH should be able to maintain compliance with the DCO core
principles and applicable Commission regulations if the Commission
adopts a clearing requirement determination for CAD CORRA and MXN F-
TIIE OIS. For the reasons discussed below, the Commission has
preliminarily determined that subjecting MXN F-TIIE OIS and additional
CAD CORRA OIS to a clearing requirement is unlikely to impair CME's and
LCH's ability to comply with the DCO core principles, along with
applicable Commission regulations.
Request for Comment
The Commission requests comment as to whether the proposed
determination would adversely affect any DCO's ability to comply with
the DCO core principles.
C. Consideration of the Five Statutory Factors
Set forth below is the Commission's consideration of the five
factors set forth in section 2(h)(2)(D)(ii) of the CEA as they relate
to OIS (i) denominated in CAD and referencing CAD CORRA and (ii)
denominated in MXN and referencing MXN F-TIIE.\138\
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\138\ The Commission is conducting this analysis only with
respect to the swaps that would be added to the clearing requirement
under this proposed determination. Modifications to the clearing
requirement, such as removing swaps that are no longer offered for
clearing from regulation Sec. 50.4, are not considered in this
analysis.
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1. Factor (I)--Outstanding Notional Exposures and Trading Liquidity
The first of the five factors under section 2(h)(2)(D)(ii) of the
CEA requires the Commission to consider ``the existence of significant
outstanding notional exposures, trading liquidity, and adequate pricing
data'' related to ``a submission made [by a DCO].'' \139\ The
Commission reviewed data from multiple sources, including, but not
limited to, data from SDRs, data from DCOs, and other, publicly
available data. For purposes of this proposed rulemaking, the
Commission principally presents notional exposure and trading liquidity
information based on the Commission's own collected data, as described
below.
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\139\ 7 U.S.C. 2(h)(2)(D)(ii).
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a. Outstanding Notional Exposures and Trading Liquidity
In assessing outstanding notional exposures and trading liquidity
for a swap, the Commission reviews data to determine whether there is
an active market for the swap, including whether there is a measurable
amount of notional exposure and whether the swap is traded regularly as
reflected by trade count, such that a DCO can adequately risk manage
the swap. With respect to CAD CORRA and MXN F-TIIE OIS, the data
indicates that there is sufficient outstanding notional exposure and
trading liquidity to support a clearing requirement determination.
Specifically, the data presented below generally demonstrates that
there is significant and steady activity in new CAD CORRA and MXN F-
TIIE OIS trading, with little to no notional still being transacted in
CAD CDOR and MXN TIIE fixed-to-floating swaps.\140\ The Commission
compiled the data used in tables 1-4 below from transaction data
collected under part 45 of the Commission's regulations.\141\
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\140\ See Clearing Requirement Determination Under Section 2(h)
of the Commodity Exchange Act for Interest Rate Swaps To Account for
the Transition From LIBOR and Other IBORs to Alternative Reference
Rates, 87 FR 32898, 32917 (May 31, 2022). In proposing a clearing
requirement determination for USD SOFR OIS, the Commission noted
that, while the transition of liquidity from USD LIBOR fixed-to-
floating swaps to USD SOFR OIS was well underway, it was not yet
complete, with the amount of notional transacted in January 2022 in
USD SOFR OIS still less than half that of the amount of notional
transacted during the same month in USD LIBOR fixed-to-floating
swaps.
\141\ The data presented in these tables is the same as the data
used to create the Commission's Weekly Swaps Report. This data
represents only those swaps that are reported to the CFTC's
registered SDRs by swap market participants. The Commission's weekly
swaps report currently incorporates data from three SDRs (CME Group
SDR, DTCC Data Repository, and ICE Trade Vault). The raw SDR data
has been filtered to represent, as accurately as possible, the
market-facing trades that occur and excludes certain inter-affiliate
transactions. For more information about the data components in the
weekly swaps report, please visit the CFTC's web page available at:
<a href="https://www.cftc.gov/MarketReports/SwapsReports/index.htm">https://www.cftc.gov/MarketReports/SwapsReports/index.htm</a>.
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In Table 1 below, the Commission provides estimates of notional
amounts transacted by month for CAD CORRA and MXN F-TIIE OIS and CAD
CDOR and MXN TIIE fixed-to-floating swaps, for the period beginning
January 1, 2026 and ending March 31, 2026.
---------------------------------------------------------------------------
\142\ The data in Table 1 is based on the Commission's weekly
swaps report data. In this table, a notional figure of $0 billion
indicates that the notional transacted during a given period was
less than $1 billion. Additionally, in this table, notional figures
are rounded to the nearest whole billion.
Table 1--Estimated Notional Transacted
[USD billions] \142\
----------------------------------------------------------------------------------------------------------------
Product January 2026 February 2026 March 2026
----------------------------------------------------------------------------------------------------------------
CAD CDOR Fixed-to-Floating Swaps....................... $0 $0 $0
CAD CORRA OIS.......................................... 2,735 1,520 1,666
MXN TIIE Fixed-to-Floating Swaps....................... 0 0 0
MXN F-TIIE OIS......................................... 428 620 1,004
----------------------------------------------------------------------------------------------------------------
Table 2 below provides estimates of trade counts for the same
categories of swaps during the same three-month period. The data in
Table 2 indicates that, with respect to CAD CORRA OIS, monthly trade
count was relatively consistent between January 2026 and March 2026.
Conversely, trade counts for CAD CDOR fixed-to-floating swaps stand at
zero. With respect to MXN-denominated interest rate swaps, from January
2026 through March 2026, there
[[Page 25825]]
was a significant number of transactions in MXN F-TIIE OIS alongside
comparatively few transactions in MXN TIIE fixed-to-floating swaps.
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\143\ The data in Table 2 is based on the Commission's weekly
swaps report data.
Table 2--Estimated Trade Count \143\
----------------------------------------------------------------------------------------------------------------
Product January 2026 February 2026 March 2026
----------------------------------------------------------------------------------------------------------------
CAD CDOR Fixed-to-Floating Swaps....................... 0 0 0
CAD CORRA OIS.......................................... 8,475 5,584 8,879
MXN TIIE Fixed-to-Floating Swaps....................... 3 14 5
MXN F-TIIE OIS......................................... 7,246 8,051 15,206
----------------------------------------------------------------------------------------------------------------
Table 3 below presents estimates of the percentage of notional
cleared for CAD CORRA and MXN F-TIIE OIS, based on notional transacted
by month during the period beginning January 1, 2026 and ending March
31, 2026. The data in Table 3 illustrates that, with respect to both
CAD CORRA and MXN F-TIIE OIS, a majority of the notional traded month-
to-month is already being cleared voluntarily.
---------------------------------------------------------------------------
\144\ The data in Table 3 is based on the Commission's weekly
swaps report data. The estimated percentages of notional cleared in
this table are rounded to the nearest whole percentage. Thus, a
clearing rate of 100 percent indicates a clearing rate of 99.5
percent or greater.
Table 3--Estimated Percentage of Notional Cleared
[Based on notional transacted by month] \144\
----------------------------------------------------------------------------------------------------------------
Percentage notional Percentage notional Percentage notional
OIS cleared--January cleared--February cleared--March 2026
2026 (%) 2026 (%) (%)
----------------------------------------------------------------------------------------------------------------
CAD CORRA........................................ 99 96 98
MXN F-TIIE....................................... 87 90 90
----------------------------------------------------------------------------------------------------------------
Table 4 below presents a breakdown of notional transacted and trade
count for the period beginning March 1, 2026 and ending March 31, 2026,
by tenor, for cleared CAD CORRA and MXN F-TIIE OIS. With respect to CAD
CORRA and MXN F-TIIE OIS, Table 4 illustrates that these OIS are being
cleared across a wide range of maturities, with most clearing activity
by notional and trade count occurring in CAD CORRA and MXN F-TIIE OIS
dated 15 years or shorter. Table 4 illustrates that there is a more
limited amount of activity in CAD CORRA and MXN F-TIIE OIS dated longer
than 15 years, with greater activity in CAD CORRA OIS dated longer than
15 years than in MXN F-TIIE OIS dated longer than 15 years. The
Commission anticipates that the allocation of activity across tenors
may change as the markets for these swaps evolve.
---------------------------------------------------------------------------
\145\ The data in Table 4 is based on the Commission's weekly
swaps report data. Tenor length is approximate. In Table 4, a
notional figure of $0 billion USD indicates that the notional
transacted during a given period was less than $1 billion.
Additionally, in this table, notional figures are rounded to the
nearest whole billion.
Table 4--Estimated Cleared Notional and Trade Count by Tenor
[March 2026 transaction data] \145\
----------------------------------------------------------------------------------------------------------------
Notional cleared
OIS Tenor (USD billions) Trade count
----------------------------------------------------------------------------------------------------------------
CAD CORRA............................... 7 days-3 months........... $922 510
3-6 months................ 26 49
6 months-1 year........... 118 690
1-5 years................. 463 4,772
5-15 years................ 103 2,360
>15 years................. 12 494
MXN F-TIIE.............................. 7 days-3 months........... 205 571
3-6 months................ 148 793
6 months-1 year........... 332 3,094
1-5 years................. 294 8,262
5-15 years................ 26 2,475
>15 years................. 0 11
----------------------------------------------------------------------------------------------------------------
In addition to this transaction-level data, Table 5 below presents
open swaps data illustrating outstanding notional in CAD CORRA and MXN
F-TIIE OIS.
[[Page 25826]]
Table 5--Outstanding Notional as of April 24, 2026 146
------------------------------------------------------------------------
Outstanding notional
OIS (USD billions)
------------------------------------------------------------------------
CAD CORRA......................................... $24,824
MXN F-TIIE........................................ 7,603
------------------------------------------------------------------------
Request for Comment
The Commission requests comment and any relevant market analysis
regarding the sufficiency of outstanding notional exposures and trading
liquidity in CAD CORRA and MXN F-TIIE OIS, including for the proposed
stated termination date ranges, to support a clearing requirement.
---------------------------------------------------------------------------
\146\ The data in Table 5 represents swaps that have been
cleared at CME and LCH and reported to the CFTC under part 39 of the
Commission's regulations. The data includes payer/receiver values
and as well as outstanding notional associated with swaps generated
from conversion processes.
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The Commission invites commenters to submit additional data from
any available data sources. In particular, the Commission invites
commenters to provide any additional information or data regarding the
expiration of Banco de M[eacute]xico's waiver for the trading of
certain new MXN TIIE swaps.
b. Pricing Data
The Commission regularly reviews pricing data for the RFR OIS
subject to this proposed determination and has found that these OIS are
capable of being priced from deep and liquid markets. Commission staff
regularly receives and reviews margin model information from DCOs that
includes particular procedures that they follow to ensure that market
liquidity exists in order to close out a position in a stressed market,
including the time required to determine a price.\147\ Because of the
stability of access to pricing data from these markets, the pricing
data for the OIS that are the subject of this proposed determination is
generally viewed as being reliable. Based on this information, the
Commission has preliminarily determined that there is adequate pricing
data to support required clearing of MXN F-TIIE OIS and additional CAD
CORRA OIS.
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\147\ As discussed further below, Commission staff receives and
reviews margin model information from the registered DCOs that clear
these swaps, including information regarding how those DCOs would
ensure that liquidity exists to exit a position in a stressed
market. For purposes of the first statutory factor, the Commission
considers possible periods of market stress, particularly when
assessing whether there is sufficient liquidity and pricing data.
Second Determination, 81 FR at 71210 (noting that the Commission
considered ``the effect a new clearing mandate will have on a DCO's
ability to withstand stressed market conditions'' as part of its
analysis in connection with the Second Determination).
---------------------------------------------------------------------------
In addition, based on DCO regulation Sec. 39.5(b) submissions, the
Commission preliminarily finds that there exists adequate pricing data
to justify a clearing requirement determination, including information
regarding transaction volumes and how the DCOs consider pricing
information in determining eligibility of a swap for clearing.\148\
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\148\ For instance, CME's Sec. 39.5(b) submission addressed
both cleared volumes and valuation curve methodologies for CAD CORRA
OIS and MXN F-TIIE OIS. LCH's Sec. 39.5(b) submissions related to
CAD CORRA OIS how LCH considers pricing information in determining
swap eligibility for clearing, and LCH's submission for MXN F-TIIE
OIS noted that LCH has several brokers to serve as pricing sources
for MXN F-TIIE OIS.
---------------------------------------------------------------------------
Request for Comment
The Commission requests comment and any relevant market analysis
regarding whether there is adequate pricing data for DCO risk and
default management of the products subject to this proposal, including
regarding the proposed stated termination date ranges.
The Commission also requests comment regarding whether DCOs
offering clearing for CAD CORRA and MXN F-TIIE OIS markets would be
able to risk manage these products during stressed market conditions.
2. Factor (II)--Availability of Rule Framework, Capacity, Operational
Expertise and Resources, and Credit Support Infrastructure
Section 2(h)(2)(D)(ii)(II) of the CEA requires the Commission to
take into account the availability of rule framework, capacity,
operational expertise and resources, and credit support infrastructure
to clear the proposed classes of swaps on terms that are consistent
with the material terms and trading conventions on which they are now
traded. Based on their regulation Sec. 39.5(b) submissions, as well as
ongoing oversight, the Commission preliminarily finds that each of the
registered DCOs has developed rule frameworks, capacity, operational
expertise and resources, and credit support infrastructure to clear the
interest rate swaps they currently clear, including CAD CORRA and MXN
F-TIIE OIS subject to this proposal, on terms that are consistent with
the material terms and trading conventions on which those swaps are
being traded.\149\ The Commission subjects each of the registered DCOs
to ongoing review, risk surveillance, and examination to ensure
compliance with the CEA's core principles and Commission regulations,
including with respect to the submitted swaps.\150\
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\149\ With respect to the DCOs that clear CAD CORRA and MXN F-
TIIE OIS, DCO rules governing the DCOs' risk management of other
cleared products apply equally with respect to cleared CAD CORRA and
MXN F-TIIE OIS.
\150\ In order to be registered with the Commission, a DCO must
comply with the DCO core principles under section 5b of the CEA and
applicable Commission regulations. Once a DCO is registered with the
Commission, Commission staff periodically examine each DCO to
determine whether the DCO is maintaining compliance with the CEA and
Commission regulations. In addition, Commission staff monitors the
risks posed to and by DCOs, clearing members, and market
participants, and conducts independent stress testing.
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Each of the registered DCOs has procedures pursuant to which they
regularly review their clearing of CAD CORRA and MXN F-TIIE OIS to
confirm or adjust margin and other risk management tools. When
reviewing each of the registered DCOs' risk management tools, the
Commission considers whether the DCO can manage risk during stressed
market conditions to be one of the most significant considerations.
Each of the registered DCOs has developed detailed risk management
practices, including a description of risk factors considered when
establishing margin levels.\151\ The Commission reviews and oversees
each
[[Page 25827]]
of the registered DCOs' risk management practices and development of
margin models. Margin models are further refined by stress testing and
daily back testing. The Commission also considers stress testing and
back testing when assessing whether each of the registered DCOs can
clear swaps safely during stressed market conditions.
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\151\ E.g., historical volatility, intraday volatility, seasonal
volatility, liquidity, open interest, market concentration, and
potential moves to default. For additional information, each of CME
and LCH has published a document outlining its compliance with the
Principles for Financial Market Infrastructures published by the
Committee on Payments and Market Infrastructures (CPMI; formerly,
CPSS) and IOSCO. CPSS-IOSCO Principles for Financial Market
Infrastructure (PFMI), Apr. 16, 2012, available at <a href="https://www.bis.org/cpmi/publ/d101.htm">https://www.bis.org/cpmi/publ/d101.htm</a>. See CME, CME Clearing: Principles
for Financial Market Infrastructures Disclosure, Nov. 1, 2023,
available at <a href="https://www.cmegroup.com/clearing/risk-management/files/cme-clearing-principles-for-financial-market-infrastructures-disclosure.pdf">https://www.cmegroup.com/clearing/risk-management/files/cme-clearing-principles-for-financial-market-infrastructures-disclosure.pdf</a>; LCH, CPMI-IOSCO Self-Assessment 2022, available at
<a href="https://www.lch.com/system/files/media_root/LCH%20LTD%20-%20CPMI%20IOSCO%20Self%20Qualitative%20Assessment%20PFMI%20of%20LCH%20LTD%20Q32022.pdf">https://www.lch.com/system/files/media_root/LCH%20LTD%20-%20CPMI%20IOSCO%20Self%20Qualitative%20Assessment%20PFMI%20of%20LCH%20LTD%20Q32022.pdf</a>.
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The registered DCOs clearing CAD CORRA and MXN F-TIIE OIS design
and conduct stress tests, and Commission staff monitors development of
these stress tests. Each of the registered DCOs also conducts reverse
stress tests to ensure that their default funds are sized appropriately
and to ascertain whether any changes to their financial resources or
margin models are necessary.\152\ Commission staff monitors markets in
real-time and performs stress tests against the DCOs' margin models and
may recommend changes to a margin model. The registered DCOs conduct
back testing daily to ensure that the margin models capture market
movements for member portfolios.\153\
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\152\ Reverse stress testing uses plausible market movements
that could deplete guaranty funds and cause large losses for top
clearing members. For example, CME and LCH may use scenarios for
stress testing and reverse stress testing that capture, among other
things, historical price volatilities, shifts in price determinants
and yield curves, multiple defaults over various time horizons, and
simultaneous pressures in funding and asset markets.
\153\ Back testing tests margin models to determine whether they
are performing as intended, and checks whether margin models produce
margin coverage levels that meet the DCO's established standards.
Back testing helps CME and LCH determine whether their clearing
members satisfy the required margin coverage levels and liquidation
timeframe.
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Before offering a new product for clearing, each of the DCOs
considers stress tests and back testing results in determining whether
it has sufficient financial resources to offer new clearing services.
The Commission also reviews initial margin models and default resources
to ensure that the DCOs can risk manage their portfolio of products
offered for clearing. This combination of stress testing and back
testing in anticipation of offering new products for clearing provides
the registered DCOs with greater certainty that new product offerings
will be risk-managed appropriately. The process of stress testing and
back testing also gives the DCOs practice incorporating the new product
into their models. In addition to the Commission's surveillance and
oversight, each of the registered DCOs continues to monitor and test
their margin models over time so that they can operate effectively in
stressed and non-stressed market environments. Registered DCOs review
and validate their margin models regularly.\154\
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\154\ For the avoidance of doubt, exempt DCOs are subject to
oversight by their home country regulators, along with regulations
regarding risk management.
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Each registered DCO monitors and manages credit risk exposure by
asset class, clearing member, account, or individual customer. DCOs
manage credit risk by establishing position and concentration limits
based on product type or counterparty. These limits reduce potential
market risks so that DCOs are better able to withstand stressed market
conditions. Each of the registered DCOs monitors exposure
concentrations and may require additional margin deposits for clearing
members with weak credit scores, with large or concentrated positions,
with positions that are illiquid or exhibit correlation with the member
itself, and/or where the member has particularly large exposures under
stress scenarios. Registered DCOs also can call for additional margin,
on top of collecting initial and variation margin, to meet the current
DCO exposure and protect against stressed market conditions.\155\
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\155\ As a general matter, any DCO offering CAD CORRA and MXN F-
TIIE OIS for clearing, including exempt DCOs, would follow this risk
management approach regarding offering these products for clearing.
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In support of its ability to clear CAD CORRA and MXN F-TIIE OIS,
CME's regulation Sec. 39.5(b) submissions cite to its rulebook to
demonstrate the availability of rule framework, capacity, operational
expertise and resources, and credit support infrastructure to clear
interest rate swap contracts on terms that are consistent with the
material terms and trading conventions on which the contracts are
traded. LCH's submissions state that LCH's clearing model allows
bilaterally traded interest rate swaps to be cleared on identical terms
and that LCH has developed sophisticated operational models, controls,
and risk algorithms to ensure that LCH can process trades rapidly,
safely, and with an understanding of the risk to clearing members and
customers. LCH's submissions provide, among other information, data
regarding the portion of the interest rate swap market cleared by LCH,
LCH's portfolio compression capacity, and daily clearing volumes.
For all these reasons, the Commission preliminarily has determined
that the application of DCO risk management practices to CAD CORRA and
MXN F-TIIE OIS should ensure that the swaps subject to this proposal
can be cleared safely, even during times of market stress. For
additional information related to this factor, please see public
disclosures made CME and LCH.\156\
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\156\ CME, CME Clearing: Principles for Financial Market
Infrastructures Disclosure, Nov. 1, 2023, available at <a href="https://www.cmegroup.com/clearing/risk-management/files/cme-clearing-principles-for-financial-market-infrastructures-disclosure.pdf">https://www.cmegroup.com/clearing/risk-management/files/cme-clearing-principles-for-financial-market-infrastructures-disclosure.pdf</a>; LCH,
CPMI-IOSCO PFMI Self-Assessment 2024, available at <a href="https://www.lseg.com/content/dam/post-trade/en_us/documents/lch/ccp-disclosures/cpmi-iosco-qualitative-assessment-of-lch-limited.pdf">https://www.lseg.com/content/dam/post-trade/en_us/documents/lch/ccp-disclosures/cpmi-iosco-qualitative-assessment-of-lch-limited.pdf</a>.
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Request for Comment
The Commission requests comments concerning all aspects of this
factor, including whether commenters agree that CME and LCH can satisfy
the factor's requirements.
3. Factor (III)--Effect on the Mitigation of Systemic Risk
Section 2(h)(2)(D)(ii)(III) of the CEA requires the Commission to
consider the effect of the clearing requirement on the mitigation of
systemic risk, taking into account the size of the market for such
contract and the resources of the DCO available to clear the contract.
As presented in the data and discussion above, the Commission has
preliminarily determined that the market for CAD CORRA OIS is
significant, and the market for MXN F-TIIE OIS is growing as the shift
away from MXN TIIE swaps progresses. Mitigating counterparty credit
risk through clearing likely would reduce systemic risk in the interest
rate swap market generally and, while not every individual RFR OIS
market has large outstanding notional exposures, these markets are
globally important, and continuity of clearing with respect to RFR OIS
serves to reduce systemic risk as liquidity shifts from IBOR swaps to
RFR OIS.
In its regulation Sec. 39.5(b) submissions, CME explains the
benefits of centralized clearing, including freer counterparty credit
lines, enhanced risk management, operational efficiencies, and ease of
offsetting risk exposures. LCH's submissions note that clearing avoids
complex bilateral relationships that lead to systemic risk, and that
requiring swaps to be cleared leads to a less disparate marketplace
from a systemic risk perspective with respect to that swap.
Centrally clearing MXN F-TIIE OIS and additional CAD CORRA OIS
through a registered or exempt DCO should reduce systemic risk by
providing counterparties with daily mark-to-market valuations upon
which to exchange variation margin pursuant to the DCO's risk
management framework and requiring posting of initial margin to cover
potential future
[[Page 25828]]
exposures in the event of a default. In addition, swaps transacted
through a DCO are secured by the DCO's guaranty fund and other
available financial resources, which are intended to cover
extraordinary losses that would not be covered by initial margin.
Central clearing was developed and designed to handle significant
concentration of risk. Each of the DCOs that clears CAD CORRA and MXN
F-TIIE OIS has a procedure for closing out and/or transferring a
defaulting clearing member's positions and collateral.\157\
Transferring customer positions to solvent clearing members in the
event of a default is critical to reducing systemic risk. DCOs are
designed to withstand defaulting positions and to prevent a defaulting
clearing member's loss from spreading further and triggering additional
defaults. To the extent that updating a clearing requirement with
respect to MXN F-TIIE OIS and additional CAD CORRA OIS increases the
number of clearing members and market participants in the interest rate
swap market, then DCOs may find it easier to transfer positions from
defaulting clearing members if there is a larger pool of potential
clearing members to receive the positions.\158\
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\157\ For further discussion of treatment of customer and swap
counterparty positions, funds, and property in the event of the
insolvency of a DCO or one or more of its clearing members, please
see Factor (V)--Legal certainty in the event of insolvency, section
IV.C.5 below.
\158\ The Commission recognizes that with high rates of
voluntary clearing CAD CORRA and MXN F-TIIE OIS at this time, the
prospect of adding additional clearing members and market
participants in these swaps may be limited.
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CME and LCH have experience risk managing interest rate swaps and,
based on the DCOs' submissions and the Commission's ongoing
supervision, these DCOs should have the necessary financial resources
available to clear MXN F-TIIE OIS and additional CAD CORRA OIS.
Accordingly, the Commission preliminarily finds that these DCOs would
be able to manage the risk posed by clearing MXN F-TIIE OIS and
additional CAD CORRA OIS.
In addition, the central clearing of MXN F-TIIE OIS and additional
CAD CORRA OIS should serve to mitigate counterparty credit risk,
thereby potentially reducing systemic risk. Having considered the
likely effect on the mitigation of systemic risk, the Commission is
proposing to add MXN F-TIIE OIS and additional CAD CORRA OIS to the
clearing requirement.
Request for Comment
The Commission requests comments concerning the proposal to add MXN
F-TIIE OIS and additional CAD CORRA OIS to the clearing requirement,
regarding the possible reduction of systemic risk.
4. Factor (IV)--Effect on Competition
Section 2(h)(2)(D)(ii)(IV) of the CEA requires the Commission to
take into account the effect on competition, including appropriate fees
and charges applied to clearing. Of particular concern to the
Commission is whether this proposed determination would harm
competition by creating, enhancing, or entrenching market power in an
affected product or service market, or facilitating the exercise of
market power.\159\ Market power is viewed as the ability to raise
prices, including clearing fees and charges, reduce output, diminish
innovation, or otherwise harm customers as a result of diminished
competitive constraints or incentives.\160\
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\159\ First Determination, 77 FR at 74313; Second Determination,
81 FR at 71220; Third Determination, 87 FR at 52201.
\160\ First Determination, 77 FR at 74313 (discussing market
power as described under U.S. Department of Justice guidelines). See
generally U.S. Department of Justice and the Federal Trade
Commission, Horizontal Merger Guidelines (Horizontal Merger
Guidelines) at section 1 (Aug. 19, 2010), available at <a href="https://www.justice.gov/sites/default/files/atr/legacy/2010/08/19/hmg-2010.pdf">https://www.justice.gov/sites/default/files/atr/legacy/2010/08/19/hmg-2010.pdf</a>.
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The Commission has identified one putative service market as
potentially affected by this proposed clearing requirement
determination: a DCO service market encompassing those clearinghouses
that currently clear CAD CORRA and MXN F-TIIE OIS.\161\ The Commission
recognizes that this proposed clearing requirement potentially could
impact competition within the affected market. Of particular importance
to whether any such impact is positive or negative, is: (1) whether the
demand for these clearing services and swaps is sufficiently elastic
that a small but significant price increase above competitive levels
would prove unprofitable because users of the interest rate swap
products and DCO clearing services would substitute other clearing
services coexisting in the same market(s); and (2) the potential for
new entry into this market. The availability of substitute clearing
services to compete with those encompassed by this proposed
determination, and the likelihood of timely, sufficient new entry in
the event prices do increase above competitive levels, each operate
independently to constrain anticompetitive behavior.
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\161\ First Determination, 77 FR at 74298; Second Determination,
81 FR at 71220; Third Determination, 87 FR at 52201. The DCO service
market includes the registered DCOs that currently offer CAD CORRA
and MXN F-TIIE OIS for clearing. To the extent an exempt DCO decides
to offer for clearing the RFR OIS subject to this proposed
determination, such exempt DCO would also be part of the DCO service
market. No exempt DCOs currently offer CAD CORRA and MXN F-TIIE OIS
for clearing.
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Any competitive import likely would stem from the fact that the
proposed determination and regulations would remove the alternative of
not clearing for the CAD CORRA and MXN F-TIIE OIS subject to the
proposed determination. The proposed determination would not specify
which DCO may or may not compete to provide clearing services for CAD
CORRA and MXN F-TIIE OIS, as well as those not required to be cleared.
Removing the choice to enter a swap without submitting it for
clearing under this proposed rulemaking is not determinative of
negative competitive impact. Other factors, including the availability
of other substitutes within the market or potential for new entry into
the market, may constrain market power. The Commission does not foresee
that the proposed determination constructs barriers that would deter or
impede new entry into a clearing services market,\162\ and the
Commission anticipates that a determination to modify the clearing
requirement for interest rate swaps could foster an environment
conducive to new entry. For example, the proposed clearing requirement
determination is likely to reinforce, if not encourage, growth in
demand for clearing services. Demand growth, in turn, can enhance the
sales opportunity, a condition hospitable to new entry.\163\ Moreover,
to the extent that there are high rates of voluntary clearing in the
CAD CORRA and MXN F-TIIE OIS subject to this proposed determination
already, a regulatory requirement to clear such swaps would provide
additional certainty that those high rates of clearing would remain
constant.
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\162\ That said, the Commission recognizes that (1) to the
extent the clearing services market for the interest rate swaps
identified in this proposal, after foreclosing uncleared swaps,
would be limited to a concentrated few participants with highly
aligned incentives, and (2) the clearing services market is
insulated from new competitive entry through barriers (e.g., high
sunk capital cost requirements, high switching costs to transition
from embedded incumbents, and access restrictions), the proposed
determination could have a negative competitive impact by increasing
market concentration.
\163\ See, e.g., Horizontal Merger Guidelines, section 9.2
(entry likely if it would be profitable which is in part a function
of ``the output level the entrant is likely to obtain'').
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Request for Comment
The Commission requests comment on the extent to which: (1) entry
barriers currently do or do not exist with respect to a clearing
services market for CAD CORRA and MXN F-TIIE OIS; (2) the
[[Page 25829]]
proposed determination may lessen or increase these barriers; and (3)
the proposed determination otherwise may encourage, discourage,
facilitate, and/or dampen new entry into the market. In addition to
what is noted above, the Commission requests comment, and quantifiable
data, on whether the required clearing of either of MXN F-TIIE OIS or
additional CAD CORRA OIS will generate conditions that create,
increase, or facilitate an exercise of: (1) clearing services market
power in CME, LCH, and/or any other clearing service market
participant, including conditions that would dampen competition for
clearing services and/or increase the cost of clearing services, and/or
(2) market power in any product markets for interest rate swaps,
including conditions that would dampen competition for these product
markets and/or increase the cost of CAD CORRA and MXN F-TIIE OIS. The
Commission seeks comment, and quantifiable data, on the likely cost
increases associated with clearing, particularly those fees and charges
imposed by DCOs, and the effects of such increases on counterparties
currently participating in the market.
The Commission also requests comment regarding whether commenters
have any concerns regarding access to clearing services in the markets
for CAD CORRA or MXN F-TIIE OIS.
5. Factor (V)--Legal Certainty in the Event of Insolvency
Section 2(h)(2)(D)(ii)(V) of the CEA requires the Commission to
take into account the existence of reasonable legal certainty in the
event of the insolvency of the relevant DCO or one or more of its
clearing members with regard to the treatment of customer and swap
counterparty positions, funds, and property. The Commission is
proposing this clearing requirement determination based on its
preliminary finding that there is reasonable legal certainty with
regard to the treatment of customer and swap counterparty positions,
funds, and property in connection with cleared swaps, including CAD
CORRA and MXN F-TIIE OIS, in the event of the insolvency of the
relevant DCO or one or more of the DCO's clearing members.
In the case of a clearing member insolvency at CME, where the
clearing member is the subject of a proceeding under the U.S.
Bankruptcy Code, subchapter IV of Chapter 7 of the U.S. Bankruptcy Code
(11 U.S.C. 761-767) along with parts 22 and 190 of the Commission's
regulations would govern the treatment of customer positions.\164\
Pursuant to section 4d(f) of the CEA, 7 U.S.C. 4d(f), a clearing member
accepting funds from a customer to margin a cleared swap must be a
registered futures commission merchant (FCM). Pursuant to 11 U.S.C.
761-767 and part 190 of the Commission's regulations, the customer's
interest rate swap positions, carried by an insolvent FCM, would be
deemed ``commodity contracts.'' \165\ As a result, neither a clearing
member's bankruptcy nor any order of a bankruptcy court could prevent
CME from closing out/liquidating such positions. However, customers of
clearing members would have priority over all other claimants with
respect to customer funds that had been held by the defaulting clearing
member to margin swaps, such as the RFR OIS subject to this
proposal.\166\ Thus, customer claims would have priority over
proprietary claims and general creditor claims. Customer funds would be
distributed to swap customers, including interest rate swap customers,
in accordance with Commission regulations and section 766(h) of the
Bankruptcy Code. Moreover, the Bankruptcy Code and the Commission's
rules thereunder (in particular 11 U.S.C. 764(b) and 17 CFR 190.07)
permit the transfer of customer positions and collateral to solvent
clearing members.
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\164\ An FCM or DCO also may be subject to resolution under
Title II of the Dodd-Frank Act to the extent it would qualify as a
covered financial company (as defined in section 201(a)(8) of the
Dodd-Frank Act). Under Title II, different rules would apply to the
resolution of an FCM or DCO. Discussion in this section relating to
what might occur in the event an FCM or DCO defaults or becomes
insolvent describes procedures and powers that exist in the absence
of a Title II receivership.
\165\ If an FCM is registered as a broker-dealer, certain issues
related to its insolvency proceeding would be governed by the
Securities Investor Protection Act, as well.
\166\ Claims seeking payment for the administration of customer
property would share this priority.
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Similarly, 11 U.S.C. 761-767 and part 190 would govern the
bankruptcy of CME since the DCO would be the subject of a proceeding
under the U.S. Bankruptcy Code, in conjunction with the DCO rules
providing for the termination of outstanding contracts and/or return of
remaining clearing member and customer property to clearing members.
With regard to LCH, in general, the default of an LCH clearing
member would be addressed by LCH's rules, and LCH would be permitted to
close out and/or transfer positions of a defaulting clearing member.
Further, under applicable law, LCH's rules governing a clearing member
default would supersede insolvency laws in the clearing member's
jurisdiction. For an FCM based in the United States and clearing at
LCH, the applicable law as a general matter, would be the U.S.
Bankruptcy Code and part 190 of the Commission's regulations. According
to LCH's regulation Sec. 39.5(b) submissions, the insolvency of LCH
itself would be governed by English insolvency law, which protects the
enforceability of the default-related provisions of LCH's rulebook,
including in respect of compliance with applicable provisions of the
U.S. Bankruptcy Code and part 190 of the Commission's regulations. LCH
has obtained, and made available to the Commission, legal opinions that
support the existence of such legal certainty in relation to the
protection of customer and swap counterparty positions, funds, and
property in the event of the insolvency of one or more of its clearing
members.\167\
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\167\ Letters of counsel on file with the Commission.
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Request for Comment
The Commission requests comment regarding all aspects of this
factor, including whether there is reasonable legal certainty, in the
event of an insolvency of CME or LCH, or one or more of any of these
DCOs' clearing members, with regard to the treatment of customer and
swap counterparty positions, funds, and property.
The Commission requests comment on whether U.S. swap counterparties
have concerns about the applicability of any non-U.S. jurisdiction's
law to U.S. persons clearing swaps at DCOs located outside of the
United States.
V. Proposed Implementation Schedule and Compliance Dates
The Commission phased in compliance with respect to the First
Determination according to the schedule contained in regulation Sec.
50.25.\168\ Under this schedule, compliance was phased in by the type
of market participant entering a swap subject to the First
Determination. The phase-in occurred over a 270-day period following
publication of the final rule in the Federal Register.
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\168\ Swap Transaction Compliance and Implementation Schedule:
Clearing Requirement Under Section 2(h) of the CEA, 77 FR 44441
(July 30, 2012).
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The Commission also phased in compliance with respect to the Second
Determination according to the schedule contained in regulation Sec.
50.26. However, the Commission decided to adopt one compliance date for
all market participant types, because many market participants were
already clearing the products subject to the
[[Page 25830]]
determination and the Commission had already adopted a clearing
requirement determination for the interest rate swap class.\169\ The
Commission decided to tie the compliance date for each product to the
first compliance date for a market participant in a non-U.S.
jurisdiction.\170\
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\169\ Second Determination, 81 FR at 71227.
\170\ Id. at 71227-71228.
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With respect to the Third Determination, the Commission adopted two
implementation dates: October 31, 2022, for the requirement to clear
OIS referencing USD SOFR and SGD SORA; and September 23, 2022 (30 days
after publication of the final rulemaking in the Federal Register) for
the requirement to clear the other RFR OIS that were the subject of the
Third Determination.\171\ The Commission also adopted two dates for the
removal of the requirement to clear certain IBOR swaps: July 1, 2023
with respect to the requirement to clear USD LIBOR and SGD SOR-VWAP
swaps (with respect to which the reference indexes would not become
fully unavailable until the end of June 2023), and September 23, 2022
for all other IBOR swaps for which the Commission determined to remove
the clearing requirement.\172\ The Commission also adopted technical
amendments to remove from regulation Sec. 50.26 those IBOR swaps for
which the Commission determined to remove the clearing
requirement.\173\
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\171\ Third Determination, 87 FR at 52204-52205.
\172\ Id. at 52205-52206.
\173\ Id. at 52206. The Commission also adopted technical
revisions related to the formatting of the table of compliance dates
for required clearing of credit default swaps in regulation Sec.
50.26. Id.
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In arriving at an implementation schedule, the Commission
considered, among other factors, that EUR EONIA and non-USD LIBOR rates
had become unavailable, DCOs had largely completed IBOR swap
conversions, and many market participants were already clearing the
vast majority of RFR OIS subject to the rulemaking.\174\ The Commission
also considered the fact that USD LIBOR and SGD SOR-VWAP would not
become entirely unavailable until the end of June 2023 and there
remained activity in markets for swaps referencing these benchmarks.
The Commission additionally considered input from commenters suggesting
that the Commission align its implementation date for required clearing
of USD SOFR and SGD SORA OIS with the Bank of England's proposed
implementation date for mandatory clearing of USD SOFR OIS under UK
law.\175\
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\174\ Id. at 52204.
\175\ The Bank of England adopted as proposed the implementation
date of October 31, 2022 for required clearing of USD SOFR OIS. Bank
of England, ``Derivatives clearing obligation--modifications to
reflect USD interest rate benchmark reform: Amendment to BTS 2015/
2205,'' Aug. 24, 2022, available at <a href="https://www.bankofengland.co.uk/paper/2022/derivatives-clearing-obligation-modifications-to-reflect-usd-interest-rate-benchmark-reform">https://www.bankofengland.co.uk/paper/2022/derivatives-clearing-obligation-modifications-to-reflect-usd-interest-rate-benchmark-reform</a>.
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With respect to its proposal to add a clearing requirement for MXN
F-TIIE OIS and additional CAD CORRA OIS, the Commission proposes to
adopt one compliance date for all market participants and amend
regulation Sec. 50.26 to reflect that the compliance date shall be 30
days after publication of the final rule in the Federal Register. If
the clearing requirement compliance date falls on a Saturday, Sunday,
or U.S. federal public holiday, the compliance date will be the next
available business day. No compliance date will be set on a day when
markets are not open in the United States.
In proposing compliance dates with respect to this proposed
clearing requirement determination, the Commission observes that,
generally, the disposition of markets with respect to both CAD CORRA
and MXN F-TIIE OIS is similar to that of markets with respect to the
RFR OIS that were the subject of the Third Determination, at the time
the Commission proposed that determination. DCOs have undertaken
conversions of CAD CDOR and MXN TIIE swaps to, respectively, CAD CORRA
OIS and MXN F-TIIE OIS. Market participants are now clearing CAD CORRA
and MXN F-TIIE OIS. Additionally, Banco de M[eacute]xico updated its
clearing requirement for MXN-denominated interest rate swaps to account
for the transition from MXN TIIE to MXN F-TIIE, and the CSA issued
amendments to Canada's clearing requirement to, among other changes,
address the transition from CAD CDOR to CAD CORRA.
As a technical amendment, because the Commission is proposing to
remove CAD CDOR and MXN TIIE swaps from regulation Sec. 50.4, it is
also proposing to remove those same swaps from regulation Sec. 50.26.
The Commission is proposing this change for consistency with regulation
Sec. 50.4(a) and the Third Determination, and to eliminate any
confusion that might arise if different swap products are included in
50.4 and 50.26. Consistent with the proposed timeline for the removal
of the clearing requirement for CAD CDOR and MXN TIIE swaps from
regulation Sec. 50.4, the Commission proposes to remove these swaps
from regulation Sec. 50.26, 30 days after publication of the final
rule in the Federal Register.
Request for Comment
The Commission requests comment on whether setting a compliance
date 30 days after publication of the final rule in the Federal
Register provides market participants with sufficient notice and
opportunity to comply with this proposed determination.
VI. Cost Benefit Considerations
A. Statutory and Regulatory Background
Proposed revised regulation Sec. 50.4(a) identifies certain swaps
that would be required to be cleared under section 2(h)(1)(A) of the
CEA in addition to those currently required to be cleared by existing
regulations Sec. Sec. 50.2 and 50.4(a), and removes certain other
swaps currently required to be cleared from the clearing requirement.
The proposed clearing requirement amendments are designed to update the
Commission's regulations to address the transition from CAD CDOR to CAD
CORRA as a benchmark reference rate for CAD-denominated interest rate
swaps, and the transition from MXN TIIE to MXN F-TIIE as a benchmark
reference rate for MXN-denominated interest rate swaps. Currently, most
CAD CORRA and MXN F-TIIE OIS are being cleared voluntarily.
Accordingly, the proposed regulation largely serves to ensure that the
swap market under the Commission's jurisdiction continues to clear the
CAD CORRA and MXN F-TIIE OIS subject to this proposal. The continued
central clearing of these OIS may limit the counterparty risk
associated with such swaps, thereby mitigating the possibility of such
risks having a systemic impact, which might cause or exacerbate
instability in the financial system. In addition, required clearing of
MXN F-TIIE OIS and additional CAD CORRA OIS would reflect the global
effort to rely on benchmark rates that are less susceptible to
manipulation.
The Commission preliminarily finds that this proposal is consistent
with the principle that the use of central clearing can reduce systemic
risk, which was one of the fundamental premises of the Dodd-Frank Act
and the 2009 commitments by the G20 nations. The following discussion
is a consideration of the costs and benefits of the Commission's
proposed actions pursuant to the regulatory requirements discussed
above.
B. Overview of Swap Clearing
1. How Clearing Reduces Risk
When a bilateral swap is cleared, the DCO becomes the counterparty
to each original swap counterparty. This
[[Page 25831]]
arrangement mitigates counterparty risk to the extent that the DCO may
be a more creditworthy counterparty than the original swap
counterparties. Central clearing reduces the interconnectedness of
market participants' swap positions because the DCO, an independent
third party that takes no market risk, guarantees the collateralization
of swap counterparties' exposures. DCOs have demonstrated resilience in
the face of past market stress.\176\
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\176\ Umar Faruqui, et al., ``Clearing risks in OTC derivatives
markets: the CCP-bank nexus,'' at 75 (2018), available at <a href="https://www.bis.org/publ/qtrpdf/r_qt1812h.pdf">https://www.bis.org/publ/qtrpdf/r_qt1812h.pdf</a> (Clearing risks in OTC
derivatives markets: the CCP-bank nexus) (noting that central
counterparties ``proved resilient during the [2008 financial]
crisis, continuing to clear contracts even when bilateral markets
dried up'').
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The Commission anticipates that DCOs will continue to be some of
the most creditworthy swap counterparties because, among other things,
they are able to monitor and manage counterparty risk effectively
through (1) collection of initial and variation margin associated with
outstanding swap positions; (2) marking positions to market regularly,
usually multiple times per day, and issuing margin calls when the
margin in a customer's account has dropped below predetermined levels
that the DCO sets; (3) adjusting the amount of margin that is required
to be held against swap positions in light of changing market
circumstances, such as increased volatility in the underlying product;
and (4) closing out swap positions if margin calls are not met within a
specified period of time.
2. The Clearing Requirement and Role of the Commission
With the passage of the Dodd-Frank Act, Congress gave the
Commission the responsibility for determining which swaps would be
required to be cleared pursuant to section 2(h)(1)(A) of the CEA. Since
2012, there is ample evidence that the interest rate swap market has
been moving toward increased use of central clearing in response to
both market incentives and clearing requirements.\177\ Now with the
transition from CAD CDOR to CAD CORRA and from MXN TIIE to MXN F-TIIE
effectively complete, and with most CAD CORRA and MXN F-TIIE OIS
already being voluntarily cleared, as discussed further below, it is
possible that the effect of this proposal will be limited to ensuring
that market participants continue to clear the CAD CORRA and MXN F-TIIE
OIS subject to the proposal.\178\ The Commission has preliminarily
determined that the costs and benefits related to the required clearing
of the CAD CORRA and MXN F-TIIE OIS to be added under this proposal are
attributable, in part to (1) Congress's stated goal of reducing
systemic risk by, among other things, requiring clearing of swaps; and
(2) the Commission's exercise of its discretion in selecting swaps or
classes of swaps to achieve those ends.
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\177\ Third Determination, 87 FR at 52206 & n.76; OTC
derivatives statistics at end-June 2024, at 8 & Graph A.8 (showing
that, as of the end of June 2024, nearly 80% (as a percentage of
notional amounts outstanding against all counterparties) of interest
rate swaps are cleared).
\178\ It is possible that some market participants would respond
to the requirement that the CAD CDOR and MXN F-TIIE OIS subject to
this proposal be cleared by decreasing their use of such swaps,
particularly if the cost of clearing increases in the future
relative to the cost of not clearing. Thus, there is some
uncertainty regarding how the proposed rule will affect the quantity
of swaps that are cleared.
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C. Consideration of the Costs and Benefits of the Commission's Action
1. CEA Section 15(a)
Section 15(a) of the CEA requires the Commission to ``consider the
costs and benefits'' of its actions before promulgating a regulation
under the CEA or issuing certain orders.\179\ Section 15(a) further
specifies that the costs and benefits shall be evaluated in light of
five broad areas of market and public concern: (1) protection of market
participants and the public; (2) efficiency, competitiveness and
financial integrity; (3) price discovery; (4) sound risk management
practices; and (5) other public interest considerations (collectively
referred to herein as the Section 15(a) Factors). Accordingly, the
Commission considers the costs and benefits associated with the
proposed determination in light of the Section 15(a) Factors. In the
sections that follow, the Commission considers: (1) The costs and
benefits of required clearing for the CAD CORRA and MXN F-TIIE OIS to
be added under this proposed rule as well as the costs and benefits of
removing certain CAD CDOR and MXN TIIE swaps from required clearing;
(2) the alternatives contemplated by the Commission and their costs and
benefits; and (3) the impact of required clearing for the proposed
swaps on the Section 15(a) Factors.
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\179\ 7 U.S.C. 19(a).
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The Commission is considering these costs and benefits against a
baseline of the current set of interest rates swaps subject to the
clearing requirement adopted under regulation Sec. 50.4. This proposed
determination would add certain CAD CORRA and MXN F-TIIE OIS to the
clearing requirement, and it would remove certain swaps referencing CAD
CDOR and MXN TIIE from the clearing requirement. As seen in Table 3
above, most transactions in interest rate swaps that would be subject
to the proposed clearing requirement are cleared voluntarily, so that
the percentage of such swaps that would be cleared following
implementation of the rule is unlikely to increase materially. The
Commission's analysis below compares amendments in this proposed
determination to the clearing requirement in effect. The costs
discussed recognize the current industry practice of high levels of CAD
CORRA and MXN F-TIIE OIS clearing.
The swap market functions internationally with (i) transactions
that involve U.S. firms and DCOs occurring across different
international jurisdictions; (ii) some entities organized outside of
the United States that are, or may become, Commission registrants or
registered entities; and (iii) some entities that typically operate
both within and outside the United States and that follow substantially
similar business practices wherever located. Where the Commission does
not specifically refer to matters of location, this discussion of costs
and benefits refers to the effects of the proposed regulations on all
relevant swaps activity, whether based on their actual occurrence in
the United States or on their connection with activities in, or effect
on, commerce of the United States, pursuant to section 2(i) of the
CEA.\180\
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\180\ Pursuant to section 2(i) of the CEA, activities outside of
the United States are not subject to the swap provisions of the CEA,
including any rules prescribed or regulations promulgated
thereunder, unless those activities either ``have a direct and
significant connection with activities in, or effect on, commerce of
the United States''; or contravene any rule or regulation
established to prevent evasion of a CEA provision enacted under the
Dodd-Frank Act. 7 U.S.C. 2(i).
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2. Costs and Benefits of Required Clearing Under the Proposed
Determination.
Market participants may incur certain costs to clear the CAD CORRA
and MXN F-TIIE OIS to be added to the clearing requirement in the
proposed rule. For example, to the extent that there are market
participants entering into CAD CORRA and MXN F-TIIE OIS that are not
already clearing interest rate swaps voluntarily or pursuant to the
Commission's prior clearing requirement determinations, such market
participants may incur certain startup and ongoing costs related to
developing technology and infrastructure, updating or creating new
legal agreements, service provider fees,
[[Page 25832]]
and collateralization of the cleared positions.\181\ The costs of
collateralization, on the other hand, are likely to vary depending on
whether an entity is subject to the margin requirements for uncleared
swaps \182\ and capital requirements, and the differential between the
cost of capital for the assets they use as collateral and the returns
realized on those assets.
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\181\ These per-entity costs would vary widely depending on the
needs of such market participants. Costs likely would be lower for
market participants that already clear interest rate swaps covered
by the Commission's prior clearing requirement determinations. The
opposite would be true for market participants that start clearing
because of the proposed determination. However, given the high rates
of voluntary clearing, there are likely to be few, if any, new
participants.
\182\ The Commission's margin requirements for uncleared swaps
are codified in subpart E of part 23 of the Commission's
regulations, 17 CFR 23.
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As noted in Table 3 above, most CAD CORRA and MXN F-TIIE OIS
subject to this proposed determination are already cleared voluntarily,
and market participants currently clearing these OIS already realize
the benefits of clearing. Adoption of the proposed determination would
ensure that the percentage of CAD CORRA and MXN F-TIIE OIS that are
cleared would remain high in the future and that these benefits would
continue to be realized. These benefits include reduced and
standardized counterparty credit risk, increased transparency, and
easier swap market access for market participants that are required to
clear. Together, these benefits contribute significantly to the
stability and efficiency of the financial system, but they are
difficult to quantify with any degree of precision.
While there may be a benefit to removing certain swaps from
required clearing, such as fewer costs to market participants that no
longer have to submit such swaps to clearinghouses, in this instance,
the reason the Commission is removing certain swaps referencing CAD
CDOR and MXN TIIE from the clearing requirement is because they are (or
will be, at the time they are proposed to be removed) no longer offered
for clearing. As discussed above, CAD CDOR is no longer available for
use in swaps by market participants, and MXN TIIE is generally
unavailable as well. Therefore, the Commission preliminarily finds that
removing from the clearing requirement interest rate swaps referencing
CAD CDOR and MXN TIIE should not impose additional costs on market
participants and would result in the benefit of market and regulatory
certainty. There may be no meaningful benefit to market participants
from this removal because market participants cannot clear CAD CDOR
swaps and are now unable to clear MXN TIIE swaps following the
expiration of Banco de M[eacute]xico's waiver period. However, there
may be benefits associated with the effort to reach broad consensus
around the transition away from CAD CDOR and MXN TIIE, as has occurred
with respect to LIBOR; specifically, providing certainty and finality
with respect to the transition to more robust and transaction-based
benchmark interest rates by amending the Commission's interest rate
swap clearing requirement to reflect current market realities.\183\
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\183\ See, e.g., CFTC, Opening Statement of Commissioner Brian
D. Quintenz before the CFTC Market Risk Advisory Committee Meeting,
July 12, 2018, available at <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatement071218">https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatement071218</a> (``[G]iven the decline in
activity in the unsecured bank funding market, and the absence of an
FCA mandate for LIBOR submissions post-2021, firms should seriously
consider the long-term sustainability of solely relying on LIBOR. .
. . [I]f participation continues to decline, questions may arise as
to whether the rate continues to accurately reflect market
conditions. The development of alternative RFRs that are based on
actual transactional data from robust, underlying markets will
provide a transparent, viable alternative to LIBOR for market
participants.''); CFTC, Concurring Statement of Commissioner
Caroline D. Pham Regarding LIBOR Transition Clearing Requirement
Determination for Certain Interest Rate Swaps, Aug. 12, 2022,
available at <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement081222">https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement081222</a> (``[The Third Determination] updates [the] set
of interest rate swaps required to be cleared in light of the global
transition from reliance on certain interbank offered rates . . . to
alternative reference rates . . . . This rulemaking is an essential
part of that transition.''); CFTC, Statement of Commissioner Christy
Goldsmith Romero Regarding the Clearing Requirement for Swaps
Referencing Rates Less Susceptible to Manipulation Than LIBOR, Aug.
12, 2022, available at <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/romerostatement081222">https://www.cftc.gov/PressRoom/SpeechesTestimony/romerostatement081222</a> (``[The Third Determination]
. . . amends the CFTC's swap clearing requirement to account for the
continuing shift in liquidity to . . . more reliable rates. . . . We
aim to bolster and accelerate this shift and ensure the risk-
mitigating benefits of clearing continue to be realized in the
evolving interest-rate swaps markets.''); CFTC, Statement of
Commissioner Kristin N. Johnson Regarding the Final Rule to Modify
Interest Rate Swap Clearing Requirements for the Transition from
LIBOR and Other IBORs to Alternative Reference Rates, Aug. 12, 2022,
available at <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/johsonstatement081222b">https://www.cftc.gov/PressRoom/SpeechesTestimony/johsonstatement081222b</a> (``[The Third Determination] represents the
culmination of years of work by the Commission as well as its
counterparts across the globe to ensure a more reliable, more
transparent set of interest rate benchmarks. In collaboration with
our international colleagues' efforts in jurisdictions around the
world, the Commission's efforts to adopt and implement this final
rule serves to preserve the stability and integrity of our markets
and to reduce the systemic risks that precipitated the financial
crisis.''); CFTC, Statement of Chairman Heath P. Tarbert Regarding
the Transition Away from IBORs, Nov. 24, 2020, available at <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/tarbertstatement112420">https://www.cftc.gov/PressRoom/SpeechesTestimony/tarbertstatement112420</a>
(discussing the importance of a timely and orderly transition away
from LIBOR, including steps taken by the Commission to support the
transition); CFTC, Statement of CFTC Chairman J. Christopher
Giancarlo Regarding the Financial Stability Board Industry
Roundtable on Reforming Major Interest Rate Benchmarks, Washington,
DC, Apr. 10, 2019, available at <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/giancarlostatement041019">https://www.cftc.gov/PressRoom/SpeechesTestimony/giancarlostatement041019</a> (``At the end of the day,
markets exist to serve the need of end users. . . . These users are
exposed to the greatest risk if we do not fix this market
vulnerability--reliance on an index which has clearly outlived its
economic relevance as a benchmark.''); Gov. Jerome H. Powell,
Reforming U.S. Dollar LIBOR: The Path Forward, Sept. 4, 2014,
available at <a href="https://www.federalreserve.gov/newsevents/speech/powell20140904a.htm">https://www.federalreserve.gov/newsevents/speech/powell20140904a.htm</a> (discussing the importance of the development
and adoption of alternative reference rates to LIBOR).
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Any potential costs associated with the proposed determination
should be viewed in light of the fact that each new swap that would be
required to be cleared would effectively stand in the place of a swap
that is already subject to required clearing and that a significant
majority of these swaps are cleared voluntarily. Liquidity tied to CAD
CDOR has shifted to CAD CORRA and liquidity tied to MXN TIIE has
largely shifted into MXN F-TIIE.\184\ That shift has occurred with
respect to CAD-denominated interest rate swaps and continues to occur
with respect to MXN-denominated interest rate swaps, as a result of
numerous market events, including DCO conversions, the cessation of CAD
CDOR and prohibition on use with respect to MXN TIIE, the operation of
contractual fallbacks, and new use of RFRs in parallel with declining
liquidity in IBOR swaps. The CAD CORRA and MXN F-TIIE OIS subject to
this proposal are already widely cleared so that the costs associated
with clearing these swaps are already being incurred.\185\ Accordingly,
the Commission anticipates that the additional cost of compliance for
market participants would be de minimis.
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\184\ See Tables 1-2 above.
\185\ See section IV.C.1 above.
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Request for Comment
The Commission requests comment concerning the costs of clearing
described above for various market participants.
a. Technology, Infrastructure, and Legal Costs
Market participants already clearing swaps may incur costs in
making necessary changes to technology systems to support the clearing
required by the proposed rule if they are not yet clearing CAD CORRA or
MXN F-TIIE OIS. To the extent that there are market participants that
are not currently clearing CAD CORRA or MXN F-TIIE OIS, such market
participants may incur costs if they need to implement technology to
connect to FCMs that will clear their transactions. The costs are
likely to depend on the specific business needs of each entity and
[[Page 25833]]
therefore would vary widely among market participants. As a general
matter, because most market participants already will have undertaken
the steps necessary to move away from the use of CAD CDOR and/or MXN
TIIE swaps in the cleared interest rate swap market, the burden
associated with required clearing of CAD CORRA and MXN F-TIIE OIS
should be minimal.
Market participants that do not currently have established clearing
relationships with an FCM will have to establish and maintain such a
relationship to clear swaps that are required to be cleared. Market
participants that transact a limited number of swaps per year likely
will be required to pay monthly or annual fees that FCMs charge to
maintain both the relationship and outstanding swap positions belonging
to the customer. In addition, the FCM is likely to pass along fees
charged by the DCO for establishing and maintaining open positions. It
is likely that most market participants alrea
[…truncated; see source link]Indexed from Federal Register on May 12, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.