Rule2026-18212
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
September 8, 2026
Effective
October 8, 2026
Issuing agencies
Commodity Futures Trading Commission
Abstract
The Commodity Futures Trading Commission (Commission or CFTC) is amending its interest rate swap clearing requirement regulations 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 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 have become unavailable as benchmark reference rates and adopt alternative reference rates, which are predominantly overnight, nearly risk-free reference rates (RFRs). These amendments 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). The amendments modify the Commission's interest rate swap clearing requirement to reflect the market transitions from swaps referencing CAD CDOR and MXN TIIE to swaps referencing, respectively, CAD CORRA and MXN F-TIIE.
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[Federal Register Volume 91, Number 172 (Tuesday, September 8, 2026)]
[Rules and Regulations]
[Pages 57063-57088]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-18212]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
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under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 91, No. 172 / Tuesday, September 8, 2026 /
Rules and Regulations
[[Page 57063]]
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: Final rule.
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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)
is amending its interest rate swap clearing requirement regulations
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 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 have
become unavailable as benchmark reference rates and adopt alternative
reference rates, which are predominantly overnight, nearly risk-free
reference rates (RFRs). These amendments 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). The
amendments modify the Commission's interest rate swap clearing
requirement to reflect the market transitions from swaps referencing
CAD CDOR and MXN TIIE to swaps referencing, respectively, CAD CORRA and
MXN F-TIIE.
DATES: The amended rules are effective October 8, 2026.
FOR FURTHER INFORMATION CONTACT: Sarah E. Josephson, Deputy Director,
at 202-418-5684 or <a href="/cdn-cgi/l/email-protection#2251484d5147524a514d4c62414456410c454d54"><span class="__cf_email__" data-cfemail="e390898c9086938b908c8da380859780cd848c95">[email protected]</span></a>; Daniel O'Connell, Special
Counsel, at 202-418-5583 or <a href="/cdn-cgi/l/email-protection#ed89828e828383888181ad8e8b998ec38a829b"><span class="__cf_email__" data-cfemail="5e3a313d3130303b32321e3d382a3d70393128">[email protected]</span></a>; or Philip Tumminio,
Special Counsel, at 202-418-5910 or <a href="/cdn-cgi/l/email-protection#3545414058585c5b5c5a75565341561b525a43"><span class="__cf_email__" data-cfemail="2454505149494d4a4d4b64474250470a434b52">[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 Efforts
A. Domestic Coordination Efforts
B. International Coordination Efforts
C. Clearing Requirements in Other Jurisdictions
III. Overview of Comment Letters Received
IV. Final Amendments to Regulation Sec. 50.4(a)
V. Determination Analysis for RFR OIS
A. General Description of Information Considered
B. Consistency With DCO Core Principles Under Section 2(h) of
the CEA
C. Conclusions Regarding Consideration of Section 2(h)'s Five
Statutory Factors
VI. Implementation Schedule
VII. 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 Amendments as Compared to
Alternatives
E. Section 15(a) Factors
VIII. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Antitrust Laws
D. Executive Orders 12866, 13563, and 14192
E. Congressional Review Act
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 determination were
submitted by DCOs pursuant to CEA section 2(h)(2)(B)(i) and
regulation 39.5(b), 17 CFR 39.5(b). Pursuant to section 2(h)(2)(B)-
(C) of the CEA, 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.
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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
[[Page 57064]]
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 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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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. By way of background, an
interest rate swap is generally an agreement by counterparties to
exchange payments based on a series of cash flows over a specified
period of time, 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 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 these
swaps were already widely being cleared on a voluntary basis.\9\ As set
forth in regulation Sec. 50.4(a), the Commission required clearing for
four classes of interest rate swaps satisfying six 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.
\10\ 17 CFR 50.4(a).
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The Commission, in the First Determination, limited the interest
rate swaps required to be cleared to those denominated in four
currencies (U.S. dollar (USD), Euro (EUR), British pound (GBP), and
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 interbank offered rates (IBORs), including fixed-to-
floating swaps, basis swaps, and FRAs denominated in USD, GBP, JPY, and
EUR, referencing the then existing USD London Interbank Offered Rate
(LIBOR), GBP LIBOR, JPY LIBOR, and the Euro Interbank Offered Rate
(EURIBOR), respectively. The First Determination also included OIS
denominated in EUR referencing the Euro Overnight Index Average
(EONIA), as well as OIS denominated in USD referencing FedFunds and GBP
referencing the Sterling Overnight Index Average (SONIA). The
Commission observed that interest rate swaps referencing those rates
had significant outstanding notional amounts and trading liquidity.\12\
The First Determination was implemented throughout 2013 by type of
market participant pursuant to regulation Sec. 50.25, in subpart B of
part 50 of the Commission's regulations.
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\12\ Id. at 74309.
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The Commission adopted its second clearing requirement
determination for interest rate swaps (Second Determination) in
2016.\13\ The Second Determination covered interest rate swaps in nine
additional currencies: Australian dollar (AUD), Canadian dollar (CAD),
Hong Kong dollar (HKD), Mexican peso (MXN), Norwegian krone (NOK),
Polish zloty (PLN), Singapore dollar (SGD), Swedish krona (SEK), and
Swiss franc (CHF), and was implemented between December 2016 and
October 2018 in part based on the effective dates of analogous clearing
mandates adopted by authorities in non-U.S. jurisdictions.\14\ 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, interest rate swap clearing mandates.\15\ The Second
Determination also covered swaps that reference additional IBORs,
including fixed-to-floating swaps denominated in SGD referencing the
Singapore Swap Offer Rate (SOR-VWAP) and fixed-to-floating swaps
denominated in CHF referencing CHF LIBOR.\16\
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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 71202-71228.
\15\ Second Determination, 81 FR 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 into a swap with a swap dealer
located in the United States. Id. at 71203.
\16\ Id. at 71205.
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The Commission adopted its third clearing requirement determination
(Third Determination) in 2022.\17\ The Commission adopted the Third
Determination largely to address the global transition from IBORs to
RFRs in the context of the existing interest rate swap clearing
requirement without any expansion of the underlying requirement.
Specifically, the Commission adopted the Third Determination to account
for the transition from LIBOR to RFRs covering five currencies, along
with the transition from SGD Singapore Dollar Swap Offer Rate--Volume-
Weighted Average Price (SOR-VWAP) (which relied on USD LIBOR as an
input) and EUR EONIA (which ceased publication on January 3, 2022) to
corresponding RFRs.\18\
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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; European Money Markets Institute,
EONIA, available at <a href="https://www.emmi-benchmarks.eu/benchmarks/eonia/">https://www.emmi-benchmarks.eu/benchmarks/eonia/</a>. LIBOR was produced in five currencies: USD, GBP, EUR, CHF,
and JPY. LIBOR, ICE, available at <a href="https://www.ice.com/iba/libor">https://www.ice.com/iba/libor</a>.
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LIBOR 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. More than a decade ago, a decline
in the volume of interbank lending transactions that LIBOR was intended
to measure, as well as government investigations concerning LIBOR, gave
rise to concerns regarding the integrity and reliability of LIBOR and
other IBORs.
Although LIBOR was subject to significant reform efforts,
regulators and global standard-setting bodies did not view these
reforms as a long-term solution. The transition away from LIBOR, which
is described in detail in the Commission's Third Determination, was a
multiyear, coordinated process
[[Page 57065]]
involving the orderly cessation of LIBOR settings, market adoption of
corresponding RFRs, and supporting steps by market participants,
regulators, and others, including conversions of LIBOR swaps to RFR OIS
at DCOs.\19\ The transition 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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\19\ See 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, 91 FR 25812, 25814-
25816 (May 12, 2026) (NPRM); Third Determination, 87 FR at 52183-
52186.
\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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In the Third Determination, 30 days after the rule went into
effect, 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. Shortly thereafter, on 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).\21\ Lastly, when USD LIBOR and SGD SOR-VWAP ceased publication,
the Commission removed the clearing requirement applicable to swaps in
the fixed-to-floating swap, basis swap, and FRA classes referencing
those two rates.
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\21\ 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.
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In addition, regulators in other jurisdictions, including the UK,
European Union, Australia, Japan, and Switzerland, updated their own
interest rate swap clearing requirements to reflect the transition from
LIBOR and other IBORs to corresponding RFRs.\22\
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\22\ Bank of England, Public Register for the Clearing
Obligation, Dec. 30, 2025, 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) 2026, Mar. 17, 2026, available at <a href="https://www.legislation.gov.au/F2026L00262/latest/text">https://www.legislation.gov.au/F2026L00262/latest/text</a>; Japan Securities
Clearing Corporation (JSCC), 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 Federal
Authorities, FINMA Financial Market Infrastructure Ordinance,
FinMIO-FINMA, Feb. 1, 2023, available at <a href="https://www.fedlex.admin.ch/eli/cc/2015/855/en">https://www.fedlex.admin.ch/eli/cc/2015/855/en</a>.
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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
those rates 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 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.\23\
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\23\ Third Determination, 87 FR at 52192 n. 94.
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Since the Commission adopted the Third Determination, benchmarks
for certain CAD- and MXN-denominated swaps subject to the Commission's
interest rate swap clearing requirement became unavailable: CAD CDOR,
which ceased publication on June 28, 2024; \24\ and 28-day MXN TIIE,
which Banco de M[eacute]xico prohibited as a reference rate for new
contracts entered into by the financial entities it regulates 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.\25\
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\24\ 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).
\25\ 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.
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C. CAD and MXN Interest Rate Benchmark Transitions
With respect to both the CAD CDOR and MXN TIIE 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, CAD CDOR was the primary wholesale interest
rate benchmark in Canada.\26\ CAD CDOR was developed in the 1980s as a
survey-based benchmark to determine the interest rate for bankers'
acceptance (BA)-related credit facilities.\27\ It measured the average
rate at which Canadian banks were willing to lend to corporate
borrowers with existing committed BA credit facilities.\28\ Refinitiv
Benchmark Services (UK) Limited (RBSL) administered CAD CDOR from
December 31, 2014 until CAD CDOR's cessation.\29\ Immediately prior to
its cessation, RBSL calculated CAD CDOR based on submissions from
[[Page 57066]]
six banks and published CAD CDOR for one-month, two-month, and three-
month tenors.\30\
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\26\ As of 2021, CAD CDOR was referenced in over $20 trillion of
gross notional exposure, ninety-seven percent of which was related
to derivatives; namely, cleared interest rate swaps. Canadian
Alternative Reference Rate Working Group, CARR's Review of CDOR:
Analysis and Recommendations, Dec. 18, 2021, at 8, 10, 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).
\27\ Id. A banker's acceptance is an instrument by which a bank
promises to make a requested future payment.
\28\ In this manner, CAD CDOR was distinct from LIBOR, which
measured the rate at which banks were able to borrow.
\29\ 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>.
\30\ CDOR White Paper at 9-10.
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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.\31\ CAD CORRA is calculated based on overnight repo
transactions between unaffiliated counterparties that are
collateralized by Canadian treasury securities.\32\ The underlying
volume of daily transactions on which CAD CORRA is based has generally
been in the range of $15 billion to $20 billion.\33\
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\31\ 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>.
\32\ CDOR White Paper at 7.
\33\ CDOR Transition FAQs.
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The Bank of Canada first published CAD CORRA in 1997.\34\ RBSL was
appointed as administrator of CAD CORRA in 2014.\35\ The Bank of Canada
assumed the role of CAD CORRA's administrator from RBSL in June 2020
and has published the benchmark under an enhanced methodology since
that time.\36\
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\34\ 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>.
\35\ 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>.
\36\ 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>.
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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.\37\ In December 2021, CARR, in response to a
request from CFIF in consultation with the CAD CDOR contributor
banks,\38\ published a white paper analyzing the effectiveness of CAD
CDOR as a benchmark in Canada.\39\ CARR's findings included 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 viewed as an effective way for banks to provide credit to
corporate clients.\40\ CARR also noted the departure of contributor
banks could further imperil CAD CDOR's robustness.\41\ These
observations echoed concerns raised about LIBOR.\42\
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\37\ CDOR White Paper at 5.
\38\ Id.
\39\ See generally CDOR White Paper.
\40\ Id. at 22-25.
\41\ Id. at 25.
\42\ See Third Determination, 87 FR at 52219-52220.
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CARR recommended that CAD CDOR should cease publication after June
30, 2024, and that markets should transition to CAD CORRA,\43\ in a
two-stage process: (1) by June 30, 2023, a transition of all new
derivatives and securities exposures to CAD CORRA, with no new
exposures subject to limited exceptions; \44\ and (2) by June 30, 2024,
CAD CDOR would no longer be published, there would be no new use of CAD
CDOR, and applicable CAD CDOR fallbacks would come into effect for any
remaining CAD CDOR exposures.\45\
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\43\ CDOR White Paper at 28.
\44\ Id.
\45\ 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>. 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. CDOR White Paper at 28.
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Following a public consultation and announcement, among other
steps, RBSL ceased calculation and publication of CAD CDOR after the
June 28, 2024 publication.\46\ DCOs supported the transition from CAD
CDOR to CAD CORRA, 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.\47\ LCH also cleared CAD CDOR-CAD
CDOR and CAD CDOR-CAD CORRA basis swaps, both with a maximum
termination date of 41 years.\48\ CME and LCH currently clear CAD CORRA
OIS with maximum termination dates, respectively, of 31 years and 41
years.\49\ CME and LCH converted CAD CDOR swaps to CAD CORRA OIS ahead
of the CAD CDOR cessation \50\ and, post-conversion, neither DCO clears
CAD CDOR swaps.\51\
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\46\ 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>; 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>.
\47\ 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-ceort-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-ceort-hkd-nok-cad-extensions-20220125-final.pdf</a>.
\48\ 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>.
\49\ 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>.
\50\ 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).
\51\ 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.'');
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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[[Page 57067]]
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).\52\ 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.\53\
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\52\ Banco de M[eacute]xico, 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>.
\53\ 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.\54\ 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.\55\ 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.\56\
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\54\ 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>.
\55\ 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>.
\56\ 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, after conducting an analysis supported by
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.\57\
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\57\ 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>. See also 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>; 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>; 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>.
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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.\58\ On December 6, 2023, to address feedback
from market participants related to implementation concerns,
particularly management of basis risk, 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.\59\ On
June 7, 2024, Banco de M[eacute]xico finalized amendments to its
transition timeline to account for the waiver period.\60\
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\58\ 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>. 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 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. 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).
\59\ 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>.
\60\ 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,
[[Page 57068]]
respectively, 31 years and 21 years.\61\ Additionally, Asigna, a
Mexican clearinghouse that is currently neither a registered DCO nor an
exempt DCO, cleared fixed-to-floating interest rate swaps that
reference 28-day MXN TIIE for a maximum stated termination date of 30
years.
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\61\ 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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In November 2024, CME and LCH converted cleared MXN TIIE swaps into
market standard MXN F-TIIE OIS, as did Asigna.\62\ CME and LCH, and
Asigna, 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.\63\ Asigna clears MXN F-TIIE OIS
with a maximum stated termination date range of 30 years.\64\
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\62\ 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>; 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, 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>; 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>; 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>.
\63\ 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>.
\64\ 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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II. Domestic and International Coordination Efforts
The transitions from CAD CDOR to CAD CORRA and from MXN TIIE to MXN
F-TIIE are further steps 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 consulted 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.\65\ The Commission accomplished this with respect to the
Second Determination and Third Determination by considering the ways in
which it could harmonize its clearing requirement with clearing
requirements in other jurisdictions.\66\ 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.\67\
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\65\ Section 752 is not codified in the CEA.
\66\ Second Determination, 81 FR at 71203; Third Determination,
87 FR at 52186-52189.
\67\ 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 the 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 final rule, the Commission considered relevant
changes to clearing requirements in other jurisdictions, ensuring that
any changes are harmonized, to the greatest extent possible, with those
adopted by international counterparts. This goal is consistent with the
Commission's approach in prior actions.
1. Canada
The United States currently requires 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.\68\ Canada required
[[Page 57069]]
the same set of CAD CDOR-referenced swaps to be cleared prior to, and
for a period after, the cessation of CAD CDOR, but has updated its
clearing requirement, as discussed below. No other jurisdiction has a
CAD-denominated interest rate swap clearing requirement.
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\68\ 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 25, 2025, the CSA published amendments to Canada's
interest rate swap clearing requirement.\69\ Considering 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 removed certain
categories of swaps from Canada's interest rate swap clearing
requirement, and added certain other categories of swaps. Specifically,
the CSA removed 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. The
CSA additionally added a clearing requirement for OIS referencing USD
SOFR (7 days to 50 years) and EUR [euro]STR (7 days to 3 years) and
modified the clearing requirement for OIS referencing GBP SONIA to
include maturities of 7 days to 50 years. The CSA also modified its
requirement to clear CAD CORRA OIS to include CAD CORRA OIS to include
maturities of 7 days to 30 years.
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\69\ 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); 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.
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In modifying its interest rate swap clearing requirement, the CSA
reviewed the suitability of adding certain swaps to its clearing
requirement using a multifactor analysis,\70\ analyzed data reported by
market participants to designated or recognized trade repositories in
accordance with applicable regulations, and held discussions with
recognized central counterparties.\71\
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\70\ The CSA 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. 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>.
\71\ 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.
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2. Mexico
Only the U.S. and Mexico required MXN TIIE swaps to be cleared.
Regulation Sec. 50.4 had required 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.\72\ 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 effective on January 1, 2025.\73\ Like
the CSA, Banco de M[eacute]xico amended its clearing requirement in
consideration of a multifactor analysis.\74\
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\72\ 17 CFR 50.4(a).
\73\ 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).
\74\ 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. 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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III. Overview of Comment Letters Received
On May 12, 2026, the Commission published a notice of proposed
rulemaking (NPRM) seeking public input regarding how it should amend
the interest rate swap clearing requirement to address the cessation or
loss of representativeness of IBORs that have been used as benchmark
reference rates in CAD- and MXN-denominated interest rate swaps and the
market adoption of swaps that reference corresponding RFRs.
The proposal would amend regulation Sec. 50.4(a) by: (1) removing
from the clearing requirement interest rate swaps referencing CAD CDOR
and MXN TIIE; (2) modifying the clearing requirement applicable to CAD-
denominated OIS that reference CAD CORRA to include a maximum stated
termination date of 30 years; and (3) adding a clearing requirement
applicable to MXN-denominated OIS that reference MXN F-TIIE, with a
maximum stated termination date of 21 years. The NPRM proposed an
implementation date of 30 days after publication of final rules in the
Federal Register.
The Commission received two comments on its NPRM: a comment from
the International Swaps and Derivatives Association (ISDA) and a
comment from an individual commenter. Both comment letters are
available at <a href="http://www.regulations.gov">www.regulations.gov</a>.
[[Page 57070]]
ISDA's comment letter supported the NPRM and welcomed the
Commission's alignment with other jurisdictions. However, ISDA
recommended the Commission adopt an implementation period longer than
the 30 days the Commission proposed.\75\ The individual commenter
commented on several different aspects of the NPRM. The Commission
addresses both comments below.
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\75\ ISDA Comment Letter. ISDA additionally requested the
Commission consider an exemption from the clearing requirement for
transactions arising from post-trade risk reduction exercises, such
as multilateral compression, portfolio rebalancing, and optimization
exercises. This matter is beyond the scope of this rulemaking.
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IV. Final Amendments to Regulation Sec. 50.4(a)
The Commission is finalizing amendments to regulation Sec. 50.4(a)
in ways parallel to that of the proposal: (1) removing its CAD CDOR and
MXN TIIE interest rate swap clearing requirements given that those
swaps are no longer offered for clearing; (2) modifying its CAD CDOR
OIS clearing requirement to account for the shift in the CAD interest
rate swap market; and (3) adding a requirement to clear MXN F-TIIE OIS
to account for the shift in MXN interest rate swap market.
The amendments update the existing clearing requirement, in effect
replacing the requirement to clear certain IBOR swaps with a
requirement to clear corresponding RFR OIS because the IBOR swaps have
become unavailable and liquidity has shifted into RFR OIS. Accordingly,
pursuant to this final rulemaking, the Commission will no longer
require swaps denominated in CAD that reference CAD CDOR and swaps
denominated in MXN that reference MXN TIIE, as floating rate indexes in
the fixed-to-floating swap class, to be cleared. Indeed, neither CME
nor LCH, nor any other clearinghouse, currently offer these swaps for
clearing.
To account for the transition to RFRs, the Commission is amending
the OIS class of interest rate swaps under regulation Sec. 50.4(a)
that are required to be cleared to include the following:
<bullet> Swaps denominated in CAD that reference CAD CORRA as a
floating rate index with a stated termination date range of seven days
to 30 years; and
<bullet> 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.\76\
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\76\ The amendments to regulation Sec. 50.4(a) will express the
relevant index as ``MXN-TIIE ON-OIS Compound,'' as described in
CME's and LCH's regulation 39.5(b) submissions, rather than as ``F-
TIIE.'' For the avoidance of doubt, the Commission observes that
``MXN-TIIE ON-OIS Compound'' and ``F-TIIE'' refer to the same rate.
This approach is consistent with the approach taken in designating
the floating rate index with respect to the Commission's clearing
requirement for MXN-denominated fixed-to-floating swaps in
regulation Sec. 50.4(a). See Second Determination, 81 FR 71226 &
n.165.
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These amendments are legally effective 30 days after publication of
the final rule in the Federal Register and they will be implemented at
that time. Further discussion of implementation appears below.\77\
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\77\ Specific implementation timing is set forth in section VI.
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V. Determination Analysis for RFR OIS
The Commission is amending its interest rate swap clearing
requirement to include OIS referencing MXN F-TIIE and additional OIS
referencing CAD CORRA 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 and considered the five
specific statutory factors required to make a new clearing requirement
determination.
A. General Description of Information Considered
CME and LCH provided the Commission with regulation Sec. 39.5(b)
submissions relating to CAD CORRA and MXN F-TIIE OIS.\78\ In addition
to the DCOs' submissions, the Commission looks to the ability of each
DCO to clear MXN F-TIIE OIS and additional CAD CORRA OIS, DCO swap
data, swap data repository (SDR) data, publicly available data, the
rule frameworks and risk management policies of each DCO, and
information provided through public comment.
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\78\ 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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This clearing requirement determination is similar to the
Commission's Third Determination because it follows a consensus-driven
market event that was announced in advance and features liquidity
shifting to new benchmark rates from rates that have become
unavailable. Notably, though, prior market adoption in Canada and
Mexico and significant voluntary clearing in the United States means
that this clearing requirement determination will have limited, if any,
market effect.
B. Consistency With DCO Core Principles Under Section 2(h) of the CEA
Section 2(h)(2)(D)(i) of the CEA requires the Commission to
determine whether a clearing requirement determination is consistent
with core principles for DCOs set forth in section 5b(c)(2) of the
CEA.\79\ CME and LCH are registered DCOs that clear the RFR OIS subject
to this rulemaking.\80\ CME and LCH are required to comply with the DCO
core principles and applicable Commission regulations, and these DCOs
are subject to the Commission's examination and risk surveillance
programs.
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\79\ 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.
\80\ No exempt DCOs offer CAD CORRA or MXN F-TIIE OIS for
clearing.
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The Commission notes the importance of its ongoing examination and
risk surveillance programs for all registered DCOs, as well as its
ability to work with fellow authorities to ensure DCOs located outside
the United States remain in compliance with the highest standards. In
2016, the Commission explained the rigor of the DCO registration and
exemption processes, along with subsequent examination and risk
surveillance scrutiny that DCOs receive. These processes remain in
place and have been enhanced over the intervening years.\81\
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\81\ Second Determination, 81 FR at 71207-08. In particular,
Commission staff monitors the risks posed to and by DCOs, clearing
members, and market participants, including market risk, liquidity
risk, credit risk, and concentration risk with the objective (1) to
identify positions in cleared products subject to the Commission's
jurisdiction that pose significant financial risk; and (2) to
confirm that these risks are being appropriately managed.
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The Commission believes that CME and LCH will be able to maintain
compliance with the DCO core principles and applicable Commission
regulations following adoption of this clearing requirement
determination. For the reasons discussed below, the Commission has
determined that subjecting MXN F-TIIE OIS or additional CAD CORRA OIS
to required clearing is unlikely to impair CME's or LCH's ability to
comply with the DCO core principles, along with applicable Commission
regulations.
Clearing the RFR OIS swaps subject to this determination does not
pose financial or legal risks that are materially distinguishable from
those posed by the IBOR interest rate swaps and OIS that the Commission
required to be cleared in 2012 and 2016, or the OIS that the Commission
required to be cleared in 2022. For additional information regarding
the ability of DCOs to clear these swaps, see the
[[Page 57071]]
discussion of Factor II in the Commission's determination analysis
below.
C. Conclusions Regarding Consideration of Section 2(h)'s 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 the specific OIS being added to the interest rate swap clearing
requirement, which includes OIS (i) denominated in CAD and referencing
CORRA (added as a function of modifying the maximum termination date
range for CAD CORRA OIS required to be cleared) and (ii) denominated in
MXN and referencing F-TIIE.\82\
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\82\ The Commission is conducting this analysis only with
respect to the swaps that are being added to the clearing
requirement under this determination. As was the case in 2022, the
decision to remove swaps that are no longer offered for clearing
from Commission regulation Sec. 50.4 is not considered in this
analysis.
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1. Factor (I)--Outstanding Notional Exposures and Trading Liquidity
Liquidity has shifted from swaps referencing CAD CDOR and MXN TIIE
to, respectively swaps referencing CAD CORRA and MXN F-TIIE. 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].'' \83\ In issuing past
clearing requirement determinations, the Commission reviewed data from
multiple sources, including data from SDRs and DCOs and other publicly
available data, principally concerning notional exposures and counts of
transactions in the relevant swaps.\84\ For purposes of this
rulemaking, the Commission similarly considered data from multiple such
sources and principally considered notional exposures and trading
liquidity based on the Commission's own collected data.
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\83\ 7 U.S.C. 2(h)(2)(D)(ii).
\84\ See First Determination, 77 FR at 74306-74307; Second
Determination, 81 FR at 71211-71216; Third Determination, 87 FR at
52195-52199.
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a. Outstanding Notional Exposures and Trading Liquidity
The Commission reviewed 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. The data presented in the NPRM and below
indicate that there is sufficient outstanding notional exposure and
trading liquidity in RFR OIS to support a clearing requirement
determination.\85\
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\85\ Data considered includes all material presented in the NPRM
along with updated additional information presented in this final
rule.
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Specifically, the data generally demonstrates that there is
significant and steady activity in new CAD CORRA and MXN F-TIIE OIS,
with little to no notional outstanding in CAD CDOR and MXN TIIE fixed-
to-floating swaps. The Commission compiled the data used in tables 1-4
below from transaction data collected under part 45 of the Commission's
regulations.\86\ This analysis also supports a DCO's ability to
adequately risk manage the swap. In this final rulemaking, for tables
1-4 below, the Commission presents additional months of data beyond the
January 2026 through March 2026 data presented in the NPRM.\87\ The
Commission believes this data demonstrates relatively consistent
activity in the relevant OIS across six months. The additional three
months of data also confirm there is effectively no activity in the
case of CAD CDOR and only limited activity in MXN TIIE fixed-to-
floating swaps.
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\86\ 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>.
\87\ NPRM, 91 FR at 25824-25826.
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In Table 1 below, the Commission provides estimates of notional
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 June 30, 2026.
---------------------------------------------------------------------------
\88\ 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 time period
was less than $1 billion.
Table 1--Estimated Notional Transacted
[USD billions] \88\
----------------------------------------------------------------------------------------------------------------
January February
Product 2026 2026 March 2026 April 2026 May 2026 June 2026
----------------------------------------------------------------------------------------------------------------
CAD CDOR Fixed-to-Floating Swaps........ $0 $0 $0 0 0 0
CAD CORRA OIS........................... 2,735 1,520 1,666 1,105 1,978 1,029
MXN TIIE Fixed-to-Floating Swaps........ 0 0 0 0 0 0
MXN F-TIIE OIS.......................... 428 620 1,004 605 578 607
----------------------------------------------------------------------------------------------------------------
Table 2 below provides estimates of trade counts for the same
categories of RFR and IBOR swaps during the same six-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 June
2026, while trade counts for CAD CDOR fixed-to-floating swaps stood at
zero. With respect to MXN-denominated interest rate swaps, from January
2026 through June 2026, there was a significant number of transactions
in MXN F-TIIE OIS alongside comparatively few transactions in MXN TIIE
fixed-to-floating swaps.
---------------------------------------------------------------------------
\89\ The data in Table 2 is based on the Commission's weekly
swaps report data.
Table 2--Estimated Trade Count \89\
----------------------------------------------------------------------------------------------------------------
January February
Product 2026 2026 March 2026 April 2026 May 2026 June 2026
----------------------------------------------------------------------------------------------------------------
CAD CDOR Fixed-to-Floating Swaps........ 0 0 0 0 0 0
[[Page 57072]]
CAD CORRA OIS........................... 8,745 5,584 8,879 6,005 5,914 6,658
MXN TIIE Fixed-to-Floating Swaps........ 3 14 5 6 18 10
MXN F-TIIE OIS.......................... 7,246 8,051 15,206 9,912 8,947 9,772
----------------------------------------------------------------------------------------------------------------
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 June
30, 2026. The data in Table 3 illustrate that, with respect to CAD
CORRA and MXN F-TIIE OIS, a majority of the notional traded month-to-
month is already cleared voluntarily and, perhaps, due to changes in
Canadian and Mexican law, as discussed in section II.C above.\90\
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\90\ While, as the estimates below demonstrate, there are
variations in the proportion of notional cleared month-to-month,
these percentages are generally consistent with the clearing rates
observed for the RFR swaps that were the subject of the Third
Determination and are higher than the clearing rates observed for
many of the swaps subject to the Second Determination. See Third
Determination, 87 FR at 52196, table 4; Second Determination, 81 FR
at 71234.
\91\ The data in Table 3 is based on the Commission's weekly
swaps report data.
Table 3--Estimated Percentage of Notional Cleared
[Based on notional transacted by month] \91\
----------------------------------------------------------------------------------------------------------------
Percentage Percentage Percentage Percentage Percentage Percentage
notional notional notional notional notional notional
OIS cleared-- cleared-- cleared-- cleared-- cleared-- cleared--
January 2026 February 2026 March 2026 April 2026 May 2026 June 2026
(%) (%) (%) (%) (%) (%)
----------------------------------------------------------------------------------------------------------------
CAD CORRA................... 99 96 98 97 97 99
MXN F-TIIE.................. 87 90 90 87 86 85
----------------------------------------------------------------------------------------------------------------
Table 4 below presents a breakdown of notional transacted and trade
count by tenor for the period beginning March 1, 2026 and ending March
31, 2026, which was presented in the NPRM. This chart also includes
updated data by tenor for the period beginning June 1, 2026 and ending
June 30, 2026, 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.
---------------------------------------------------------------------------
\92\ 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 time period was less than $1 billion.
Table 4--Estimated Cleared Notional and Trade Count by Tenor \92\
----------------------------------------------------------------------------------------------------------------
March 2026 transaction data June 2026 transaction data
----------------------------------------------------------------
OIS Tenor Notional Notional
cleared (USD Trade count cleared (USD Trade count
billions) billions)
----------------------------------------------------------------------------------------------------------------
CAD CORRA.................... 7 days-3 months. $922 510 $511 344
3-6 months...... 26 49 20 32
6 months-1 year. 118 690 79 328
1-5 years....... 463 4,772 311 3,490
5-15 years...... 103 2,360 99 1,978
>15 years....... 12 494 10 486
MXN F-TIIE................... 7 days-3 months. 205 571 161 237
3-6 months...... 148 793 48 250
6 months-1 year. 332 3,094 180 1,736
1-5 years....... 294 8,262 196 5,948
5-15 years...... 26 2,475 22 1,592
>15 years....... 0 11 0 9
----------------------------------------------------------------------------------------------------------------
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. The Commission notes that the data is consistent over the
additional three-month period.
---------------------------------------------------------------------------
\93\ The data in Table 6 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 outstanding notional associated with swaps generated from
conversion processes.
[[Page 57073]]
Table 5--Outstanding Notional
[USD billions] \93\
----------------------------------------------------------------------------------------------------------------
Outstanding notional (as Outstanding notional (as
OIS of April 24, 2026) of July 14, 2026)
----------------------------------------------------------------------------------------------------------------
CAD CORRA.................................................. $24,824 $25,547
MXN F-TIIE................................................. 7,603 7,314
----------------------------------------------------------------------------------------------------------------
The Commission requested 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. The individual commenter made several
observations about the sufficiency of the data and the Commission's
conclusions based on it. The commenter suggested that the Commission
take a more tailored approach to assessing the tenor distributions in
establishing the scope of its clearing requirement. The commenter also
noted that the Commission provided only three months of data in its
NPRM.
The Commission offered the three-month data period to demonstrate
the transition of open interest and trade count in both the CAD- and
MXN- interest rate swap market from IBOR interest rate swaps to the new
RFR interest rate swaps. Both the part 45 and the part 39 data
discussed in this final rule reflect this market move and support the
Commission's proposed rule change. Were the Commission to expand the
existing interest rate swap clearing requirement or issue a new swap
clearing requirement in another asset class, the commenter's points
about insufficient data across tenors and a limited observation period
might raise more substantive concerns. However, this rulemaking
essentially reflects an update to existing regulatory requirements
resulting from independent market moves in the CAD and MXN interest
rate swap markets, updates that aim to better reflect current market
realities. The data presented above reflects the CAD- and MXN-
denominated swap markets following the transition to RFRs. That
transition included the conversion of existing cleared IBOR swaps at
DCOs to corresponding RFR OIS, the end of clearing support for CAD CDOR
and MXN TIIE swaps, the conclusion of Banco de M[eacute]xico's waiver
period for continued MXN F-TIIE activity, and the movement of liquidity
from IBOR swaps to RFR OIS.
b. Pricing Data
The Commission regularly reviews pricing data for CAD CORRA and MXN
F-TIIE OIS subject to this determination and finds 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 the procedures they follow to ensure market liquidity exists
to close out a position in a stressed market, including the time
required to determine prices for all or parts of the given
position.\94\ Because of the stability of access to pricing data from
these markets, the pricing data for CAD CORRA and MXN F-TIIE OIS is
generally viewed as being reliable. Based on this information, the
Commission determines that there is adequate pricing data to support
required clearing of MXN F-TIIE OIS and additional CAD CORRA OIS.
---------------------------------------------------------------------------
\94\ 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 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.\95\ No commenter
presented any comment or market analysis regarding whether there is
adequate pricing data for DCO risk and default management of the
products subject to this rulemaking, including regarding the stated
termination date ranges and during periods of stressed market
conditions.
---------------------------------------------------------------------------
\95\ 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.
---------------------------------------------------------------------------
Based on the data presented and analyzed above, the Commission
determines there are sufficient outstanding notional exposures, trading
liquidity, and pricing information for CAD CORRA and MXN F-TIIE OIS to
support a clearing requirement determination.
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
consider 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
conventions on which they are now traded. Based on their regulation
Sec. 39.5(b) submissions, as well as ongoing oversight, the Commission
determines that CME and LCH have 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, on terms that are consistent with the
material terms and trading conventions on which those swaps are being
traded. The Commission subjects CME and LCH 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.\96\
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\96\ 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.
---------------------------------------------------------------------------
CME and LCH have procedures pursuant to which they regularly review
their RFR OIS clearing in order to confirm or adjust margin and other
risk management tools. When reviewing CME's and LCH's risk management
tools, the Commission considers the ability of a DCO to manage risk
during stressed market conditions to be one of the most significant
considerations, considering the role central clearing
[[Page 57074]]
plays in reducing counterparty credit risk and in lowering the
likelihood of defaults that could spread from one counterparty to
others.\97\ CME and LCH have developed detailed risk management
practices, including a description of risk factors considered when
establishing margin levels and other resource pools, like the default
fund.\98\ The Commission reviews and oversees CME's and LCH's 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 CME and LCH can clear swaps safely during stressed
market conditions.
---------------------------------------------------------------------------
\97\ See, e.g., ISDA, Evolution of OTC Derivatives Markets Since
the Financial Crisis, at 13 (Jan. 2021), available at <a href="https://www.isda.org/a/8jjTE/Evolution-of-OTC-Derivatives-Markets-Since-the-Financial-Crisis.pdf">https://www.isda.org/a/8jjTE/Evolution-of-OTC-Derivatives-Markets-Since-the-Financial-Crisis.pdf</a>.
\98\ E.g., historical volatility, intraday volatility, seasonal
volatility, liquidity, open interest, market concentration, and
potential moves to default. For additional information, CME and LCH
published documents outlining their respective compliance with the
Principles for Financial Market Infrastructures (PFMI) 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, Dec. 12, 2025,
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 Ltd., CPMI--IOSCO Self-Assessment 2024, Mar. 31,
2024, available at <a href="https://www.lch.com/system/files/media_root/CPMI%20IOSCO%20Self%20Qualitative%20Assessment%20of%20LCH%20LTD_1.pdf">https://www.lch.com/system/files/media_root/CPMI%20IOSCO%20Self%20Qualitative%20Assessment%20of%20LCH%20LTD_1.pdf</a>
.
---------------------------------------------------------------------------
CME and LCH design and conduct stress tests, and Commission staff
monitors development of these stress tests. These stress tests, in
part, are used to ensure that their default funds are sized
appropriately and to ascertain whether any changes to their financial
resources or margin models are necessary for continued robust risk
management.\99\ In addition, Commission staff monitors markets on both
an end-of-day and real-time basis and performs stress tests against the
DCOs' margin models. Depending on the result of this analysis, the
Commission may recommend changes to a margin model. Finally, CME and
LCH conduct daily back testing to ensure that the margin models capture
market movements for member portfolios.\100\
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\99\ 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.
\100\ 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.
---------------------------------------------------------------------------
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 swaps for clearing provides CME and
LCH with greater certainty that their offerings will be risk-managed
appropriately. The process of stress testing and back testing also
gives DCOs practice incorporating new swaps into their models. In
addition to the Commission's surveillance and oversight, CME and LCH
continue 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.\101\
---------------------------------------------------------------------------
\101\ For the avoidance of doubt, exempt DCOs are subject to
oversight by their home country regulators, along with regulations
regarding risk management.
---------------------------------------------------------------------------
Each DCO monitors and manages credit risk exposure by asset class,
clearing member, account, or individual customer. They 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 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. DCOs also may call
for additional margin, on top of collecting initial and variation
margin, to meet unique risk exposures and protect against stressed
market conditions.\102\
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\102\ As a general matter, any DCO offering RFR OIS for
clearing, including exempt DCOs, would follow this risk management
approach when offering these swaps for clearing.
---------------------------------------------------------------------------
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.
The individual commenter stated that the NPRM failed to address
``the fact that the number of active [futures commission merchants
(FCMs)] has declined significantly over the past decade'' and the issue
of ``whether smaller or occasional users may face onboarding delays or
minimum fee hurdles.'' In the commenter's view, this omission
constitutes a direct gap in the analysis required under section
2(h)(2)(D)(ii)(II) (Factor II) of the CEA, which mandates that the
Commission fully account for the availability of operational expertise,
clearing capacity, resources, and downstream credit support
infrastructure across all market participants. No other commenter
raised this concern.
The question in the individual commenter's discussion relates to
market participants and their clearing members. However, Factor II
focuses on the clearinghouse and its swap offering, namely on the
availability of frameworks, expertise, and resources to clear swaps on
terms that are consistent with how the contract is traded. Thus, the
individual commenter's statements about access to clearing by smaller
market participants is distinguishable from this factor.
The Commission determines there are available rule frameworks,
capacity, operational expertise and resources, and credit support
infrastructures, consistent with material terms and trading
conventions, to support the required clearing of MXN F-TIIE OIS and
additional CAD CORRA OIS. The application of DCO risk management
practices to CAD CORRA and MXN F-TIIE OIS should ensure the swaps
subject to this rulemaking can be
[[Page 57075]]
cleared safely, even during times of market stress.\103\
---------------------------------------------------------------------------
\103\ For additional information related to this factor, please
see the public disclosures made by CME and LCH. CME, CME Clearing:
Principles for Financial Market Infrastructures Disclosure, Dec. 12,
2025, 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 Ltd., CPMI--IOSCO Self-
Assessment 2024, Mar. 31, 2024, available at <a href="https://www.lch.com/system/files/media_root/CPMI%20IOSCO%20Self%20Qualitative%20Assessment%20of%20LCH%20LTD_1.pdf">https://www.lch.com/system/files/media_root/CPMI%20IOSCO%20Self%20Qualitative%20Assessment%20of%20LCH%20LTD_1.pdf</a>
.
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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, considering 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 concluded that the
mitigation of systemic risk through continued clearing in the market
for CAD CORRA and MXN F-TIIE OIS is meaningful. Mitigating counterparty
credit risk through clearing will likely reduce systemic risk in the
interest rate swap market generally and, while not every individual RFR
OIS market has large outstanding notional exposures, each such market
is important, and continuity of clearing for RFR OIS serves to reduce
systemic risk.
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 CAD CORRA and MXN F-TIIE OIS through a 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 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. CME and LCH have procedures for closing out and/
or transferring a defaulting clearing member's positions and
collateral.\104\ 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 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. However, the
Commission recognizes that with the existing high rates of voluntary
clearing of CAD CORRA and MXN F-TIIE OIS, the likelihood of adding
additional clearing members and market participants in these markets is
limited.
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\104\ 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 below.
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CME and LCH have experience risk managing interest rate swaps and,
based on CME's and LCH's submissions and the Commission's ongoing
supervision, CME and LCH should have the necessary financial resources
available to clear MXN F-TIIE OIS and additional CAD CORRA OIS.
Accordingly, the Commission finds that CME and LCH will be able to
manage the risk posed by clearing MXN F-TIIE OIS and additional CAD
CORRA OIS. In addition, the application of DCO risk management
practices to CAD CORRA and MXN F-TIIE OIS should ensure these swaps can
continue to be cleared safely.
The CAD CORRA and MXN F-TIIE OIS data presented in this rulemaking
indicates varying levels of activity, measured by outstanding notional
amounts and trade counts. The Commission acknowledges that the data
comes from limited periods of time that do not explicitly include
periods of market stress. However, the Commission concludes the data
demonstrates sufficient regular trading activity and outstanding
notional exposures in CAD CORRA and MXN F-TIIE OIS to provide the
liquidity necessary for DCOs to successfully risk-manage these products
and to support the adoption of a clearing requirement.
Accordingly, the Commission determines CME and LCH will be able to
manage the risk posed by clearing MXN F-TIIE OIS and additional CAD
CORRA OIS required to be cleared pursuant to this determination. In
addition, the central clearing of the MXN F-TIIE and additional CAD
CORRA OIS added under this rulemaking serves to mitigate counterparty
credit risk, thereby potentially reducing systemic risk. No comments
were submitted on this factor. Having considered the likely effect on
the mitigation of systemic risk, the Commission is issuing this
determination to add MXN F-TIIE OIS and additional CAD CORRA OIS to the
clearing requirement.
4. Factor (IV)--Effect on Competition
Section 2(h)(2)(D)(ii)(IV) of the CEA requires the Commission to
consider the effect on competition, including appropriate fees and
charges applied to clearing. Of particular concern to the Commission is
whether this 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.\105\
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.\106\
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\105\ First Determination, 77 FR at 74313; Second Determination,
81 FR at 71220; Third Determination, 87 FR at 52201-52202.
\106\ 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 4.1 (Dec. 18, 2023), available at <a href="https://www.justice.gov/d9/2023-12/2023%20Merger%20Guidelines.pdf">https://www.justice.gov/d9/2023-12/2023%20Merger%20Guidelines.pdf</a>.
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The Commission has identified one putative service market as
potentially affected by this clearing determination: a DCO service
market encompassing those clearinghouses that currently clear CAD CORRA
and MXN F-TIIE OIS.\107\ This 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
[[Page 57076]]
clearing services would substitute other clearing services coexisting
in the same market(s); and (2) the potential for new entry into this
market.\108\ The availability of substitute clearing services to
compete with those encompassed by this determination, and the
likelihood of timely, sufficient new entry in the event prices do
increase above competitive levels, each operate independently to
constrain anti-competitive behavior.
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\107\ First Determination, 77 FR at 74298; Second Determination,
81 FR at 71220. The DCO service market includes the registered and
exempt DCOs that currently offer RFR OIS for clearing.
\108\ See Horizontal Merger Guidelines, section 4.3.A.
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Any competitive effect likely would stem from the fact that the
determination and associated regulations would remove the alternative
of not clearing for the CAD CORRA and MXN F-TIIE OIS subject to this
rulemaking. The determination does not specify who 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 into a swap without submitting it for
clearing under this 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 determination constructs barriers that would deter or impede
new entry into a clearing services market,\109\ and the Commission
anticipates this determination might foster an environment conducive to
new entry. For example, the clearing determination may 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.\110\ Moreover, to the extent that there are high rates of
voluntary clearing in CAD CORRA and MXN F-TIIE OIS already, a
regulatory requirement to clear such swaps provides additional
certainty that those high rates of clearing remain constant.
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\109\ However, the Commission recognizes that (1) to the extent
the clearing services market for the interest rate swaps identified
in this rulemaking, 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 determination could have a
negative competitive impact by increasing market concentration.
\110\ See, e.g., Horizontal Merger Guidelines, section 2.4.A
Evidence for reasonable probability of entry can include, for
example, evidence that the firm has an incentive to enter or
evidence that industry participants recognize the company as a
potential entrant, in addition to evidence that the firm has
sufficient size and resources to enter; evidence of any advantages
that would make the firm well-situated to enter; or evidence that
the firm has successfully expanded into similarly situated markets
in the past or already participates in adjacent or related markets.
See id.
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The individual commenter questions whether the Commission provided
sufficient data to support its conclusions under Factor IV. In the
commenter's view, empirical metrics are needed to support the finding
that a mandate will have no adverse competitive impacts on venue-level
clearing fees. In the commenter's view, the analytical standard
intended by CEA section 2(h)(2)(D)(ii)(IV) (Factor IV) requires an
explicit assessment of the effect on competition, including appropriate
fees and charges. Both CME and LCH offer clearing services based on
fees and charges that are well known to market participants.\111\ Both
clearinghouses maintain relationships with multiple FCM and non-FCM
clearing members that offer their services to market participants in
the United States and elsewhere in the global swaps markets. As noted
above, one non-DCO clearinghouse, Asigna, offers clearing services for
MXN F-TIIE OIS in Mexico. Other clearinghouses in both Canada and
Mexico also may choose to enter the market for providing clearing
services for the OIS subject to this rulemaking.
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\111\ See CME, Cleared OTC IRS Client Fee Schedules, available
at <a href="https://www.cmegroup.com/markets/cleared-swaps/cleared-otc-irs-client-fee-schedules.html">https://www.cmegroup.com/markets/cleared-swaps/cleared-otc-irs-client-fee-schedules.html</a>; LCH, SwapClear Client Clearing Fees,
available at <a href="https://www.lseg.com/en/post-trade/clearing/lch-services/swapclear/fees/client-clearing-fees">https://www.lseg.com/en/post-trade/clearing/lch-services/swapclear/fees/client-clearing-fees</a>.
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No commenter provided any comment, or quantifiable data, on 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. Similarly, no commenter
submitted a comment regarding how the Commission's action would or
could 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.
For these reasons, entry barriers currently do not exist with
respect to a clearing services market for CAD CORRA and MXN F-TIIE OIS,
and it is possible that this determination may encourage or facilitate
new entry into the market. The Commission concludes that it has
considered the effect of the updated clearing requirement on
competition and found that, even in an unlikely case where competition
is affected in these markets, anticompetitive behavior is likely to be
constrained in size and breadth of effect. Demand for clearing services
in this market is likely to remain unchanged. Accordingly, the
Commission reaffirms its conclusion that competitiveness is sufficient
to modify the existing interest rate swap clearing requirement to
include MXN F-TIIE and additional CAD CORRA 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
consider the existence of reasonable legal certainty in the event of
the insolvency of the relevant DCO or one or more of its clearing
members regarding the treatment of customer and swap counterparty
positions, funds, and property. The Commission is issuing this clearing
requirement determination based on its view that there is reasonable
legal certainty regarding the treatment of customer and 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.\112\
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
[[Page 57077]]
FCM, would be deemed ``commodity contracts.'' \113\ 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 CAD CORRA
and MXN F-TIIE OIS subject to this determination.\114\ 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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\112\ 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.
\113\ 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.
\114\ 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 a DCO where the DCO is the subject of a proceeding under
the U.S. Bankruptcy Code, in conjunction with 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, the Commission understands that in general the
default of an LCH clearing member would be governed 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.\115\
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\115\ Letters of counsel on file with the Commission.
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The individual commenter questioned whether there was sufficient
explanation of U.K. insolvency proceedings' treatment of U.S. persons
clearing swaps at LCH. This comment does not account for the discussion
in the proposal or the fact that LCH has expanded its FCM clearing
model in recent years.\116\ Much of the commenter's request for
additional information is available on the relevant clearinghouses'
websites.
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\116\ See LCH, SwapClear, Resources, available at <a href="https://www.lseg.com/en/post-trade/clearing/lch-services/swapclear/resources">https://www.lseg.com/en/post-trade/clearing/lch-services/swapclear/resources</a>.
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For the reasons described above, and despite the comment received,
the Commission reaffirms its conclusion stated in the NPRM that
reasonable legal certainty exists in the event of the insolvency of
each of the relevant DCOs or one or more of their clearing members with
regard to the treatment of customer and swap counterparty positions,
funds, and property to modify the interest rate swap clearing
requirement to include the CAD CORRA and MXN F-TIIE OIS subject to this
rulemaking.
VI. Implementation Schedule
With respect to its proposal to add a clearing requirement for MXN
F-TIIE OIS and additional CAD CORRA OIS, the Commission proposed
adopting one compliance date for all market participants and amending
regulation Sec. 50.26 to reflect that the compliance date would be 30
days after publication of the final rule in the Federal Register. The
Commission is finalizing this implementation date as proposed for the
reasons discussed below.
As a technical amendment, because the Commission is removing CAD
CDOR and MXN TIIE swaps from regulation Sec. 50.4, it is also removing
those same swaps from regulation Sec. 50.26. The Commission is making
this change to eliminate any confusion that might arise if different
swaps are included in 50.4 and 50.26. The Commission also will remove
these swaps from regulation Sec. 50.26, 30 days after publication of
the final rule in the Federal Register.
CME and LCH have completed their conversion plans for all cleared
CAD CDOR and MXN TIIE swaps into, respectively, CAD CORRA and MXN F-
TIIE OIS. Moreover, CME and LCH no longer offer CAD CDOR or MXN TIIE
interest rate swaps for clearing. CAD CDOR and MXN TIIE have ceased
publication or become otherwise generally unavailable for use by market
participants. As the data above supports, swap liquidity associated
with these benchmarks has shifted into, respectively, CAD CDOR and MXN
F-TIIE OIS. Canada and Mexico have updated their clearing requirements
to reflect the transitions in benchmark interest rates for interest
rate swaps denominated in their respective currencies. There has been
an overwhelming amount of voluntary clearing of CAD CDOR and MXN F-TIIE
OIS, reflected in the volume of the outstanding notional for these OIS.
In its comment letter, ISDA disagrees with the NPRM's proposed
effective date of 30 days after publication of the Final Rule in the
Federal Register. In ISDA's view, the proposed effective date would not
support efficient implementation.\117\ ISDA states that establishing a
framework that enables firms to comply with the amended scope of the
clearing requirement requires additional market preparations, such as
adapting systems, creating and running internal trainings, issuing
client communications, developing and implementing control frameworks,
addressing internal governance matters, and addressing unique
jurisdictional requirements.\118\ ISDA also notes that, to meet a
shorter deadline, ISDA members may have to adopt tactical solutions and
place an unnecessary strain on resources.\119\
---------------------------------------------------------------------------
\117\ ISDA Comment Letter.
\118\ Id.
\119\ Id.
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Additionally, the individual commenter recommended the Commission
adopt a longer implementation timeline for its MXN F-TIIE OIS and
modified CAD CORRA OIS clearing requirement. The commenter explains
that the Commission should not treat the CAD and MXN transitions as if
they are at the same stage of market maturity. In his view, the CAD
CORRA IRS market is ``fully established with deep liquidity, while MXN
F-TIIE is still in an active transition period, with a waiver in place
through the end of 2025 and uneven liquidity across tenors.'' \120\ The
commenter's recommendation is the Commission should establish ``a
separate, phased implementation schedule that grants market
participants a longer compliance runway for MXN F-TIIE products, rather
than imposing a uniform effective date that ignores the stark
[[Page 57078]]
developmental delta between these two markets.'' \121\
---------------------------------------------------------------------------
\120\ Individual Commenter Letter.
\121\ Id.
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The Commission is rejecting the positions advocated by both ISDA
and the individual commenter. In commenting on the NPRM preceding the
Third Determination, which proposed implementation of an RFR OIS
clearing requirement 30 days after the date of publication of the final
rule in the Federal Register, ISDA similarly requested a compliance
date be set a minimum of 90 days after the publication of the final
rule.\122\ Making virtually the same points, ISDA noted that compliance
with new clearing requirements requires ISDA members to adapt systems,
create and run internal training, issue client communications, and
develop and implement control frameworks, address internal governance
matters, and address jurisdictional requirements.\123\ ISDA similarly
contended that, to meet a shorter deadline, ISDA members may have to
adopt tactical solutions and place an unnecessary strain on their
resources.\124\
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\122\ ISDA Comment Letter, June 30, 2022, available at <a href="https://comments.cftc.gov/PublicComments/ReleasesWithComments.aspx">https://comments.cftc.gov/PublicComments/ReleasesWithComments.aspx</a>.
\123\ Id.
\124\ Id.
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Although the Commission modified the 30-day implementation period
for the USD SOFR OIS clearing requirement to align with the UK's timing
to implement its USD SOFR OIS clearing requirement, the Commission
noted most commenters favored the Commission's proposed approach of
implementing its RFR OIS clearing requirement 30 days after publication
of the final rule in the Federal Register, and adopted that
implementation date for the clearing requirement for nearly all the
other RFR OIS subject to the Third Determination.\125\ The Commission
is not aware that there were any problems with the 30-day
implementation period with respect to those products.
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\125\ Third Determination, 87 FR at 52190. Commenters supported
this approach, variously, because: (1) the market has already
gravitated toward central clearing of RFR OIS (including USD SOFR
OIS) to a significant degree, 30 days would provide market
participants with sufficient time to comply with the new
determination, and the new determination would not lead to a
material change in operations for a majority of market participants
(CCP12); (2) the proposed 30-day compliance date is appropriate
because almost all USD SOFR OIS transactions were being cleared
voluntarily (Citadel and the Managed Funds Association); see also
comment letters from the Alternative Investment Management
Association (suggesting the Commission should expedite its
consideration of a final rule, consistent with the proposed rule,
and update the clearing requirement as quickly as possible), and CME
and JSCC (agreeing with the Commission's proposal to adopt a single
compliance date that would be 30 days after the publication of the
final rule in the Federal Register). Id. The one exception was SGD
SORA, which relied on USD LIBOR as a calculation input, and the
implementation date for which was tied to USD LIBOR.
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As discussed above and in the NPRM, the unavailability of CAD CDOR
and MXN TIIE and recommended use of CAD CORRA and MXN F-TIIE as
alternative benchmarks were announced well in advance of CAD CORRA and
MXN TIIE becoming unavailable. The transitions occurred with support
and input from regulators, clearinghouses, market participants, and
others. Both CAD and MXN OIS transitions are now effectively complete,
with Canada and Mexico having updated their respective clearing
requirements to reflect the transition.
The data presented in the NPRM, and supplemented here with
additional months of data, indicates liquidity has already moved from
CAD CDOR to CAD CORRA and from MXN TIIE to MXN F-TIIE, with high rates
of clearing in both OIS. The additional three months of data provided
above demonstrates activity in CAD CORRA and MXN F-TIIE OIS was largely
consistent with the data in the NPRM. There is no change that would be
material to the Commission's conclusion. Accordingly, the points made
by the two commenters are not persuasive. In response to the individual
commenter, while the CAD and MXN interest rate swap markets may once
have been at different stages of their respective transitions to RFRs,
this is no longer the case. Likewise, in making its case, ISDA has not
provided specific fact-based details or examples of the challenges
market participants would face with respect to implementing this
determination with the time proposed, that would be distinguishable
from challenges faced during the transition away from LIBOR. This is
even more so the case given that the transition for both markets is
largely complete.
The Commission believes clearinghouses and swap markets, which have
had experience clearing MXN TIIE swaps subject to the Commission's
existing clearing requirement, and have transitioned to use of MXN F-
TIIE OIS, which are cleared at high rates, are prepared to implement
the clearing requirement applicable to MXN F-TIIE OIS, and the modified
clearing requirement applicable to CAD CORRA OIS, within 30 days after
the date of publication of this final rule in the Federal Register. If
the clearing requirement compliance date falls on a Saturday, Sunday,
or U.S. federal public holiday, then 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 addition to adding MXN F-TIIE and additional CAD CORRA OIS to
the clearing requirement, these amendments modify the existing clearing
requirement to reflect the cessation or loss of representativeness of
CAD CDOR and MXN TIIE. For purposes of this rulemaking, CAD CDOR and
MXN TIIE, have ceased publication or become nonrepresentative.
As discussed above, DCOs no longer offer to clear swaps that
reference these benchmarks. Throughout the transitions from IBORs to
RFRs, regulators in the United States and other jurisdictions have
called on market participants to transfer their swap positions from
IBORs to RFRs, with corresponding liquidity shifting, and continuing to
shift to the new RFR swaps. No commenter raised concerns regarding
removing the requirement to clear swaps referencing CAD CDOR or MXN
TIIE.
For these reasons, the Commission will implement the rules removing
all interest rate swaps referencing CAD CDOR and MXN TIIE as proposed.
Accordingly, the implementation date for the removal of these swaps
from regulation Sec. 50.4 shall be 30 days after publication of the
final rule in the Federal Register. If this date falls on a Saturday,
Sunday, or U.S. Federal public holiday, the date will be the next
available business day when markets are open in the United States.
VII. Cost Benefit Considerations
A. Statutory and Regulatory Background
Amended regulation Sec. 50.4(a) identifies certain swaps that are
required to be cleared under section 2(h)(1)(A) of the CEA in addition
to those required to be cleared by existing regulations Sec. Sec. 50.2
and 50.4(a) and removes certain other swaps from the clearing
requirement. The current clearing requirement amendments are designed
to update the Commission's regulations considering the interest rate
swap market's move away from use of CAD CDOR and MXN TIIE and toward
use of, respectively, CAD CORRA and MXN F-TIIE, as benchmark interest
rates. In mid-2026, most CAD CORRA and MXN F-TIIE OIS are being cleared
voluntarily or subject to Canadian or Mexican law, so the amended
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
[[Page 57079]]
this clearing requirement determination. The continued central clearing
of these RFR 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 and
additional CAD CORRA OIS would reflect the global effort to rely on
benchmark rates that are less susceptible to manipulation.
The following discussion is a consideration of the costs and
benefits of the Commission's action in this rulemaking, 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 arrangement mitigates
counterparty risk to the extent that the DCO may be a more creditworthy
counterparty than the original swap counterparties and/or may be able
to rely on a more extensive risk management procedure relative to
individual institutions. Central clearing also can simplify the
interconnectedness of market participants' swap positions because the
DCO, an independent third party that takes no market risk, becomes the
single, centralized entity holding the collateral for swap
counterparties' exposures. The DCO also oversees any associated default
and risk management processes. DCOs have demonstrated significant
resilience in the face of past market stresses.\126\
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\126\ For example, DCOs clearing futures withstood financial
turmoil during the Global Financial Crisis. More recently, DCOs have
withstood financial market disruptions, such as the early Covid
period.
---------------------------------------------------------------------------
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) the 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
Congress afforded the Commission the responsibility for determining
which swaps are 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.\127\ Now
with the IBOR transition completed for most LIBOR rates and with most
RFR OIS already being cleared, as discussed further below, it is
possible that the effect of this rulemaking will be limited to ensuring
that market participants continue to clear the RFR OIS that are subject
to this clearing requirement determination.\128\ The Commission has
determined that the costs and benefits related to the required clearing
of the RFR OIS to be added under this determination 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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\127\ NPRM, 91 FR at 25831 & n.177.
\128\ It is possible that some market participants might respond
to the requirement that RFR OIS 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. Typically, it is more
costly to collateralize uncleared swaps as those swaps are subject
to a ten-day margin period of risk whereas cleared swaps are subject
to a five-day margin period of risk. Thus, there is some uncertainty
regarding how the determination 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.\129\ 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
clearing requirement 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 determination as well as the costs and
benefits of removing 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
swaps subject to this determination and listed in amended regulation
Sec. 50.4(a) in light of the Section 15(a) Factors. The Commission
quantifies costs and benefits where possible; where it is unable to do
so, it discusses costs and benefits in qualified terms.
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\129\ 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
determination adds specified CAD CORRA and MXN F-TIIE OIS to the
clearing requirement and it removes swaps referencing CAD CDOR and MXN
TIIE from the clearing requirement.
In the case of each pair of CAD- and MXN-denominated interest rate
swaps, this will be a simultaneous exchange: as MXN TIIE and CAD CDOR
swaps are removed from the clearing requirement, MXN F-TIIE and
additional CAD CORRA OIS are added.
As explained above, almost all RFR OIS that are subject to this
determination are cleared voluntarily or, otherwise, are cleared under
Canadian and Mexican law today, so the percentage of such swaps that
would be cleared following implementation of this rulemaking is
unlikely to increase materially. The Commission's analysis below
compares amendments in this rulemaking to the clearing requirement in
effect today. The costs and benefits discussed below are, for the most
part, already accounted for in the market through 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 determination on all relevant
swaps activity, whether based on their actual occurrence in the
[[Page 57080]]
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.\130\
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\130\ 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 Final Rule
Market participants may incur certain costs to clear the CAD CORRA
and MXN F-TIIE OIS included in this determination. 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, and
collateralization of the cleared positions.\131\ The costs of
collateralization, on the other hand, are likely to vary depending on
whether an entity is subject to capital and margin requirements for
uncleared swaps,\132\ 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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\131\ These per-entity costs would vary widely depending on the
needs of such market participants. Costs likely would be lower for
market participants who 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 determination. However, given the high rates of
voluntary clearing, there are likely to be few, if any, new
participants. In addition, these market participants may have
otherwise incurred costs associated with margining their uncleared
swaps with bilateral counterparties, as well as incurring other
costs associated with bilateral uncleared swaps, such as startup or
ongoing costs related to developing technology and infrastructure,
and updating or creating new legal agreements related to their
uncleared swap positions. Moreover, operational costs for these
market participants would increase based on the number of different
counterparties with whom they enter into uncleared swaps.
\132\ The Commission's capital and margin requirements for
uncleared swaps are codified in subpart E of part 23 of the
Commission's regulations.
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As noted above, almost all the CAD CORRA and MXN F-TIIE OIS subject
to this determination are already cleared, and market participants
currently clearing these RFR OIS already realize the benefits of
clearing (as well as any associated costs). This determination is
designed to ensure that the percentage of CAD CORRA and MXN F-TIIE OIS
that are cleared remains high in the future and that these benefits
continue to be realized. These benefits include reduced and
standardized counterparty credit risk, increased transparency, and more
streamlined swap market access for market participants who 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.
There may be a benefit to removing certain swaps from required
clearing, such as fewer costs to market participants who no longer have
to submit such swaps to clearinghouses. In this instance, however, the
reason the Commission is removing swaps referencing CAD CDOR and MXN
TIIE from the clearing requirement is because they are no longer
offered for clearing. CAD CDOR is no longer available for use in swaps
by market participants, and MXN TIIE is generally unavailable as well.
Swaps that reference these benchmarks are no longer actively traded,
and liquidity has moved to swaps benchmarked to corresponding RFRs now
accepted for clearing. Therefore, removing these swaps from the
clearing requirement will not impose additional costs on market
participants and will result in the, admittedly somewhat minor, benefit
of market and regulatory certainty. There may be no meaningful benefit
to market participants from this removal because they generally cannot
clear these swaps today. 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 at least medium-term 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.
Any potential costs associated with this determination are limited
because each new RFR OIS that is required to be cleared is already
widely cleared and stands in the place of an IBOR swap that is already
subject to required clearing and is being removed from required
clearing under this rulemaking.
Liquidity tied to CAD CDOR and MXN TIIE has shifted into,
respectively, CAD CORRA and MXN F-TIIE.\133\ That shift occurred as a
result of numerous market events, including DCO conversions, the
unavailability of CAD CDOR and MXN TIIE, the operation of contractual
fallbacks, and new use of CAD CORRA and MXN F-TIIE in parallel with
declining liquidity in CAD CDOR and MXN TIIE swaps. In general, the CAD
CORRA and MXN F-TIIE OIS subject to this determination are already
widely cleared so that the costs associated with clearing these swaps
are already being incurred.\134\ In the NPRM, the Commission stated
that the additional cost of compliance for market participants would be
de minimis and invited comment on all aspects of the costs and benefits
associated with this rulemaking, including the extent to which such
costs are already being incurred.
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\133\ See Tables 1-2 above.
\134\ See section V.C.1 above.
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No commenter provided specific information related to increased
costs. The individual commenter alluded to cost increases generally but
did not provide any examples for consideration.
a. Technology, Infrastructure, and Legal Costs
Market participants already clearing swaps may incur costs to make
necessary changes to technology systems if they are not yet clearing
CAD CORRA or MXN F-TIIE OIS (or, more generally, if they are not yet
actively clearing interest rate swaps). Such market participants may
incur costs if they need to implement technology to connect to FCMs
that will clear their transactions.\135\ Market participants who do not
currently have established clearing relationships with an FCM will have
to set up and maintain such a relationship to clear swaps that are
required to be cleared. Market participants who 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.
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\135\ As stated in the NPRM, the Commission does not have the
information necessary to determine either the costs associated with
entities that need to establish relationships with one or more FCMs
or the costs associated with entities that already have
relationships with one or more FCMs but need to revise their
agreements. The Commission requested commenters provide the
necessary data where available. No commenter provided data in
response to this request.
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As a general matter, it is likely that most market participants
already complied with prior clearing requirements and that the
incremental burdens associated with clearing MXN F-TIIE or additional
CAD CORRA OIS will be minimal, especially given that these products are
intended to replace
[[Page 57081]]
already widely cleared swaps, and most market participants already will
have undertaken the steps necessary to move away from the use of IBOR
swaps in the cleared interest rate swap market. Any new costs,
including legal costs, are likely to depend on the specific business
needs of each entity and therefore would vary widely among market
participants.
As discussed above, the Commission is aware that costs related to
establishing new relationships with FCMs, or significantly upgrading
those relationships based on the inclusion of these new products in the
clearing requirement may be an issue. However, the Commission has never
been provided with any factual basis for supporting such a conclusion.
In the NPRM, the Commission estimated the range of costs for
smaller financial institutions to review and negotiate legal agreements
to establish a new business relationship with an FCM to be between
$3,433 and $34,325. With respect to this determination, the Commission
is providing inflation-adjusted values relative to the its 2012
estimates.\136\
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\136\ These estimates are derived by multiplying the 2012
estimates by 1.373 to account for the 37.3% change in the Consumer
Price Index for Urban Wage Earners and Clerical Workers between May
2012 (when Chatham Financial and Webster Bank submitted the
referenced comment letters) and January 2025 (226.600 to 311.172)
and rounding to the nearest whole number. BLS, CPI for Urban Wage
Earners and Clerical Workers (CPI-W), U.S. City Average, All Items--
CWUR0000SA0, available at <a href="https://www.bls.gov/data/#prices">https://www.bls.gov/data/#prices</a>.
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In proposing and adopting the First Determination, the Commission
noted that it had been estimated that it would cost smaller financial
institutions between $2,500 and $25,000 to review and negotiate legal
agreements to establish a new business relationship with an FCM.\137\
The Commission based those estimates on comment letters from Chatham
Financial and Webster Bank, submitted to the Commission in 2012 in
response to the Commission's request for comment concerning the cost
benefit analysis regarding a potential clearing exception for certain
small financial institutions under the end-user exception.\138\ The
Commission also discussed these estimates in proposing and adopting the
Second Determination.\139\ With respect to the First Determination and
the Second Determination, the Commission sought but did not receive new
information from commenters regarding the costs of establishing a
clearing relationship.\140\
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\137\ Clearing Requirement Determination Under Section 2(h) of
the CEA, 77 FR 47170, 47211 (Aug. 7, 2012) (First Determination
Proposal); First Determination, 77 FR at 74324.
\138\ The comment letter from Chatham Financial is available at
<a href="http://comments.cftc.gov/PublicComments/ViewComment.aspx?id=58077">http://comments.cftc.gov/PublicComments/ViewComment.aspx?id=58077</a>
and the comment letter from Webster Bank is available at <a href="http://comments.cftc.gov/PublicComments/ViewComment.aspx?id=58076">http://comments.cftc.gov/PublicComments/ViewComment.aspx?id=58076</a>.
\139\ Clearing Requirement Determination Under Section 2(h) of
the CEA for Interest Rate Swaps, 81 FR 39506, 39529 n.118 (June 16,
2016) (Second Determination Proposal); Second Determination, 81 FR
71232 n.184.
\140\ First Determination, 77 FR at 74324; Second Determination,
81 FR 71232 n.184.
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In adopting the First Determination, the Commission noted that
commenters did not provide data that would enable the Commission to
determine to what degree its estimates would apply to larger entities
establishing a relationship with an FCM or to determine costs
associated with entities that already have established relationships
with one or more FCMs but need to revise those agreements.\141\ The
Commission further noted that, even accepting the data provided for
smaller financial institutions, the Commission lacked sufficient data
to calculate a reasonable estimate of the potential costs that are
likely to depend significantly on the specific business needs of each
entity and therefore are expected to vary widely among market
participants.\142\ Additionally, with respect to the inflation-adjusted
estimates above, the Commission notes that increases in the costs to
establish a new business relationship with an FCM may not track
inflation directly. Because the Commission does not have current
information regarding the costs associated with entities that need to
establish relationships with one or more FCMs and the costs associated
with entities that already have relationships with one or more FCMs but
need to revise their agreements, the Commission sought comment,
including quantitative information, regarding such costs.
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\141\ First Determination, 77 FR at 74324.
\142\ Id.
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b. Ongoing Costs Related to FCMs and Other Service Providers
In addition to costs associated with technological and legal
infrastructures, market participants transacting in the CAD CORRA and
MXN F-TIIE OIS subject to the determination face ongoing costs
associated with fees charged by FCMs. DCOs typically charge FCMs an
initial transaction fee for each cleared interest rate swap its
customers enter, as well as an annual maintenance fee for each open
position. The Commission understands that customers that occasionally
transact in swaps are typically required to pay a monthly or annual fee
to each FCM.\143\ Because most CAD CORRA and MXN F-TIIE OIS are already
cleared these costs are largely already being incurred by market
participants.
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\143\ As stated in the NPRM, the Commission does not have
current information regarding such fees and requested that
commenters provide the necessary data where available. No commenter
provided such data. The Commission provided inflation-adjusted cost
estimates in its discussion of Factor IV.
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In the NPRM, the Commission estimated the range of costs for
monthly or annual fees paid to each FCM by FCM customers that transact
in swaps only occasionally to be between $102,975 and $171,625. In
proposing and adopting the First Determination, the Commission noted
that it had been estimated that FCM customers that transact in swaps
only occasionally are typically required to pay a monthly or annual fee
to each FCM that ranges from $75,000 to $125,000 per year.\144\ These
estimates are based on the comment letters, discussed above, from
Chatham Financial and Webster Bank.\145\ The Commission also discussed
these estimates in proposing and adopting the Second
Determination.\146\ With respect to the First Determination and the
Second Determination, the Commission sought but did not receive new
information from commenters regarding these clearing fees.\147\ With
respect to this proposed determination, the Commission has adjusted its
2012 estimates for inflation.\148\
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\144\ First Determination Proposal, 77 FR at 47212; First
Determination, 77 FR at 74325.
\145\ The comment letter from Chatham Financial is available at
<a href="http://comments.cftc.gov/PublicComments/ViewComment.aspx?id=58077">http://comments.cftc.gov/PublicComments/ViewComment.aspx?id=58077</a>
and the comment letter from Webster Bank is available at <a href="http://comments.cftc.gov/PublicComments/ViewComment.aspx?id=58076">http://comments.cftc.gov/PublicComments/ViewComment.aspx?id=58076</a>.
\146\ Second Determination Proposal, 81 FR at 39529 n.119;
Second Determination, 81 FR 71233 n.189.
\147\ First Determination, 77 FR at 74325; Second Determination,
81 FR 71233 n.189.
\148\ These estimates are derived by multiplying the 2012
estimates by 1.373 to account for the 37.3% change in the Consumer
Price Index for Urban Wage Earners and Clerical Workers between May
2012 (when Chatham Financial and Webster Bank submitted the
referenced comment letters) and January 2025 (226.600 to 311.172)
and rounding to the nearest whole number. BLS, CPI for Urban Wage
Earners and Clerical Workers (CPI-W), U.S. City Average, All Items--
CWUR0000SA0, available at <a href="https://www.bls.gov/data/#prices">https://www.bls.gov/data/#prices</a>.
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In adopting the First Determination, the Commission noted that
while it expected that some market participants that previously did not
use clearing would be subject to the requirements of the First
Determination, it is difficult to predict precisely how many FCM
customers would be subject to such fees based on the clearing
requirement
[[Page 57082]]
adopted in the First Determination.\149\ Furthermore, as noted above,
with respect to the inflation-adjusted estimates included in the NPRM,
the Commission noted that increases in the costs related to occasional
swap transactions may not track inflation directly.
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\149\ First Determination, 77 FR at 74325.
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No commenter provided current information regarding fees paid to
FCMs in relation to occasional swap transactions. It is difficult to
predict precisely how the requirement to clear MXN F-TIIE and
additional CAD CORRA OIS will promote the use of swap clearing, as
compared to the use of clearing that would occur in the absence of the
requirement. However, as presented by the data above, voluntary
clearing rates are so high that the percentage of swaps that would be
cleared pursuant to the rule is unlikely to increase materially. Some
CAD CORRA and MXN F-TIIE OIS will continue to be uncleared pursuant the
exceptions and exemptions set out in subpart C of part 50 of the
Commission's regulations.\150\
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\150\ Subpart C of part 50 contains four principal exceptions
and exemptions from the swap clearing requirement, available to
certain non-financial end-users, cooperatives, affiliated entities,
and banks, savings associations, farm credit system institutions,
and credit unions. Commission regulation 50.50-50.53, 17 CFR 50.50-
50.53.
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Any increase in the use of clearing due to this determination would
lead in most cases to an incremental increase in the transaction costs
noted above. However, because most market participants have already
undertaken the steps necessary to accommodate the clearing of swaps
subject to required clearing, the Commission anticipates that the
burden associated with clearing the CAD CORRA and MXN F-TIIE OIS
subject to this determination should be minimal.
c. Costs Related to Collateralization of Cleared Swap Positions
Market participants that enter the CAD CORRA and MXN F-TIIE OIS
subject to the amended rule will be required to post initial margin at
a DCO. The CAD CORRA and MXN F-TIIE OIS subject to this clearing
requirement determination are already being widely cleared, and so any
additional amounts of initial margin that market participants would be
required to post to a DCO as a result of this determination likely
would be relatively small. In reaching this view, the Commission
considered situations where (1) uncleared CAD CORRA or MXN F-TIIE OIS
may be otherwise collateralized; \151\ (2) uncleared CAD CORRA or MXN
F-TIIE OIS between certain swap dealers and ``financial end-users''
are, or will be, subject to initial and variation margin requirements
under the Commission's margin regulations for uncleared swaps; \152\
(3) the pricing of certain uncleared swaps may account for implicit
contingent liabilities and counterparty risk; (4) not all CAD CORRA and
MXN F-TIIE OIS will necessarily be eligible for clearing if they have
terms that prevent them from being cleared; \153\ and (5) certain
entities may elect an exception or exemption from the clearing
requirement.\154\
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\151\ E.g., under the terms of a credit support annex.
\152\ Margin Requirements for Uncleared Swaps for Swap Dealers
and Major Swap Participants, 81 FR 636 (Jan. 6, 2016); Margin
Requirements for Uncleared Swaps for Swap Dealers and Major Swap
Participants, 85 FR 71246 (Nov. 9, 2020). Swap dealers that are
banks are subject to capital and margin rules promulgated by U.S.
prudential authorities.
\153\ For example, if such swaps do not meet the specifications
set forth in revised regulation Sec. 50.4(a).
\154\ See subpart C of part 50 (Exceptions and Exemptions to the
Clearing Requirement).
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Market participants that are not clearing voluntarily and not
otherwise required to post margin or collateral may incur costs related
to funding collateral once they are required to clear. The greater the
funding cost relative to the rate of return on the asset used as
initial margin, the greater the cost of procuring collateral.\155\
Quantifying this cost with any precision is challenging because
different entities may have different funding costs and may choose
assets with different rates of return.
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\155\ Certain entities, such as pension funds and asset
managers, may use as initial margin assets that they already own. In
such cases, market participants would not incur funding costs to
post initial margin.
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As explained in prior clearing requirement determinations, the CEA
directs the Commission to consider whether swaps should be required to
be cleared. In 2012 and 2016, the Commission issued rules requiring the
clearing of certain interest rate swaps. Additionally, in issuing its
2016 clearing requirement determination, the Commission noted specific
benefits offered by central clearing over bilateral margining in terms
of mitigation of systemic risk for swaps that are sufficiently
standardized and meet the Commission's suitability requirements,
including applicability to a wider set of counterparties and the
security offered by a DCO's guaranty fund and other resources.\156\ In
this rulemaking, as in the Commission's Third Determination, the
Commission is updating its 2012 and 2016 rules to account for changes
in benchmark interest rates.\157\
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\156\ See Second Determination, 81 FR at 71219.
\157\ In the NPRM, the Commission also requested comment on
funding costs that market participants may face due to interest
rates on bonds issued by a sovereign nation that also issues the
currency in which the RFR OIS subject to the proposed determination
is denominated. By way of background, CME and LCH accept as initial
margin bonds issued by several sovereigns, and market participants
may post such bonds as initial margin. No commenter addressed this
issue.
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Further, any new initial margin amounts required to be posted to
DCOs for cleared CAD CORRA and MXN F-TIIE OIS will, for entities
required to post initial margin under the uncleared swap margin
regulations, replace the initial margin amount that has been, or will
be, required to be posted to their swap counterparties, pursuant to the
uncleared swap margin regulations. The uncleared swap margin
regulations require swap dealers and certain ``financial end-users'' to
post and collect initial and variation margin for uncleared swaps,
subject to various conditions and limitations.\158\
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\158\ See generally subpart E of part 23 of the Commission's
regulations. The swap clearing requirement under part 50 of the
Commission's regulations applies to a broader scope of market
participants than the uncleared swap margin regulations. For
example, under subpart E of part 23, a ``financial end-user'' that
does not have ``material swaps exposure'' (as defined by regulation
Sec. 23.151) is not required to post initial margin, but such an
entity may be subject to the swap clearing requirement. 17 CFR
23.151.
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The Commission anticipates that the initial margin that would be
required to be posted for a cleared swap to be added under this
determination typically will be less than the initial margin that would
be required to be posted for uncleared swaps pursuant to the uncleared
swap margin regulations. Whereas the initial margin requirement for
cleared swaps must be established according to a margin period of risk
of at least five days,\159\ under the uncleared swap margin
regulations, the minimum initial margin requirement is set with a
margin period of risk of 10 days or, under certain circumstances, less
or no initial margin for inter-affiliate transactions.\160\
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\159\ Commission regulation Sec. 39.13(g)(2)(ii)(c), 17 CFR
39.13(g)(2)(ii)(c).
\160\ Commission regulations Sec. Sec. 23.154(b)(2)(i) and
23.159. See generally Margin and Capital Requirements for Covered
Swap Entities, 80 FR 74840 (Nov. 30, 2015).
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With respect to swaps added to the clearing requirement under this
determination, but not subject to the uncleared swap margin
regulations, the Commission believes that the new initial margin
amounts to be deposited will displace costs that are currently embedded
in the prices and fees for transacting the swaps on an uncleared
[[Page 57083]]
and uncollateralized basis, rather than add a new cost. Entering a swap
is costly for any market participant because of the default risk posed
by its counterparty. When a market participant faces a DCO, the DCO
accounts for that counterparty credit risk by requiring the market
participant to post collateral, and the cost of capital for the
collateral is part of the cost that is necessary to maintain the swap
position.
When a market participant faces a swap dealer or other counterparty
in an uncleared swap, however, the uncleared swap contains an implicit
line of credit upon which the market participant effectively draws when
its swap position is out of the money. Typically, counterparties charge
for this implicit line of credit in the spread they offer on
uncollateralized, uncleared swaps.\161\ Additionally, because the
counterparty credit risk that the implicit line of credit creates is
the same as the counterparty risk that would result from an explicit
line of credit provided to the same market participant, to a first
order approximation, the charge for each should be the same as
well.\162\ This means that the cost of capital for additional
collateral posted as a consequence of requiring uncollateralized swaps
to be cleared takes a cost that is implicit in an uncleared,
uncollateralized swap and makes it explicit.\163\ This observation
applies to capital costs associated with both initial margin and
variation margin.
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\161\ It has been argued that the cash flows of an
uncollateralized swap (i.e., a swap with an implicit line of credit)
are over time substantially equivalent to the cash flows of a
collateralized swap with an explicit line of credit. See generally
Antonio S. Mello & John E. Parsons, Margins, Liquidity, and the Cost
of Hedging, MIT Center for Energy and Environmental Policy Research,
May 2012, available at <a href="http://dspace.mit.edu/bitstream/handle/1721.1/70896/2012-005.pdf?sequence=1">http://dspace.mit.edu/bitstream/handle/1721.1/70896/2012-005.pdf?sequence=1</a>.
\162\ Id. Mello and Parsons state, ``[h]edging is costly. But
the real source of the cost is not the margin posted, but the
underlying credit risk that motivates counterparties to demand that
margin be posted.'' Id. at 12. They also note that, ``[t]o a first
approximation, the cost charged for the non-margined swap must be
equal to the cost of funding the margin account. This follows from
the fact that the non-margined swap just includes funding of the
margin account as an embedded feature of the package.'' Id. at 15-
16.
\163\ But note that the cost may be greater for uncleared swaps
as the initial margin is computed on a counterparty by counterparty
basis, whereas in the clearing context, there is most likely greater
opportunity for netting exposures at the DCO.
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The amended rule also may result in added operational costs for
those few market participants who are not already clearing these swaps
voluntarily. With uncleared swaps, under some circumstances,
counterparties may agree not to collect variation margin until certain
thresholds are reached, thereby reducing or eliminating the need to
exchange daily variation margin.\164\ By contrast, DCOs collect and pay
variation margin daily and sometimes more frequently. Increased
required clearing therefore may increase certain operational costs
associated with paying variation margin to the DCO.\165\
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\164\ However, part 23 regulations require the mandatory
exchange of variation margin under certain circumstances. 17 CFR
23.151 and 23.153.
\165\ However, exchange of variation margin will lower the
build-up of current exposure.
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The amended rule may result in slight additional costs for clearing
members in the form of guaranty fund contributions that are held by the
DCO. However, it also could decrease guaranty fund contributions for
certain clearing members, such as in certain cases where additional
cleared swaps offset those that are already cleared. In addition, once
the determination takes effect, there may be market participants who
currently trade swaps bilaterally who would have to either become
clearing members of a DCO or submit such swaps for clearing through an
existing clearing member. A market participant who becomes a direct
clearing member must make a guaranty fund contribution, while a market
participant who clears its swaps through a clearing member may pay
higher fees if the clearing member passes the costs of the guaranty
fund contribution to its customers. While the addition of new clearing
members and new customers for existing clearing members may result in
an increase in guaranty fund requirements, it should be noted that if
(1) new clearing members are not among the two clearing members used to
calculate the guaranty fund and (2) any new customers trading through a
clearing member do not increase the size of uncollateralized risks at
either of the two clearing members used to calculate the guaranty fund,
all else held constant, existing clearing members may experience a
decrease in their guaranty fund requirement.
As discussed above, the individual commenter noted certain issues
related to the cost and the effects of required clearing on financial
institutions and the costs and benefits associated with
collateralization of uncleared versus cleared swaps. Notably, that
commenter did not provide details or supply quantifiable data and
analysis regarding these subjects.
d. Benefits of Clearing
As noted above, there are significant benefits to the central
clearing of swaps. These benefits include reducing and standardizing
counterparty credit risk, improving market transparency, and promoting
access to clearing services. Specifically, there are important risk
mitigation benefits of clearing RFR OIS that replace IBOR swaps (which
in the case of CAD CDOR and MXN TIIE fixed-to-floating swaps will be
removed from the clearing requirement under this determination). In
addition, requiring the central clearing of RFR OIS promotes regulatory
continuity and cross-border harmonization of clearing requirements.
The Commission believes that while the requirement to margin
uncleared swaps mitigates counterparty credit risk, such risk is
mitigated further for swaps that are cleared through a central
counterparty. Moreover, the determination applies to a larger set of
market participants than the uncleared swaps margin requirements. Thus,
to the extent that the determination to add certain CAD CORRA and MXN
F-TIIE OIS to the clearing requirement leads to increased clearing
overall, these benefits are likely to result. As is the case for the
costs noted above, it is likely that the use of clearing will not
increase materially because of the amended rule, but implementing a
clearing requirement helps ensure the benefits of the rule continue to
be realized as market participants continue to clear CAD CORRA and MXN
F-TIIE OIS.
The amended rule's requirement that certain swaps be cleared is
intended to ensure that market participants face a DCO, and therefore,
face a highly creditworthy counterparty. As discussed above, DCOs are
some of the most creditworthy counterparties in the swap market because
of the risk management tools they have available. The beneficial value
of adding MXN F-TIIE and additional CAD CORRA OIS to the clearing
requirement may be lessened, in part, because the swap volumes that
will be subject to a new clearing requirement are expected to be
shifting from one set of swaps to another rather than a straightforward
addition of new swap products to the clearing requirement.\166\
Moreover, as noted, these benefits are already being realized for the
large majority of these swaps that are cleared voluntarily.
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\166\ As discussed in section IV above.
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Lastly, regarding the benefits of clearing, the current high rates
of voluntary clearing for the CAD CORRA and MXN F-TIIE OIS subject to
this rulemaking reflect the high value that market participants place
on central clearing. Amending the interest rate swap clearing
requirement to remove MXN TIIE and CAD CDOR swaps and add MXN F-TIIE
and additional CAD
[[Page 57084]]
CORRA OIS will ensure the continuation of these benefits, including by
shifting market activity into RFR OIS markets and away from IBOR swap
markets.
No commenter expressed a view on the benefits offered by required
central clearing of the swaps subject to this rulemaking.
D. Costs and Benefits of the Amendments as Compared to Alternatives
The final rule accounts for the market importance of CAD CORRA and
MXN F-TIIE OIS and the fact that these swaps already are widely
cleared. These interest rate swaps should be required to be cleared
because they are widely cleared, subject to existing clearing
requirements in Canada and Mexico, and the infrastructure for clearing
and risk management of these swaps already exists.
Considering the Commission's prior clearing requirement
determinations, and the widespread use of clearing for the CAD CORRA
and MXN F-TIIE OIS to be added under this determination, DCOs, FCMs,
and market participants already have experience clearing these swaps.
MXN F-TIIE and additional CAD CORRA OIS should be added to the swap
clearing requirement after analyzing the factors under section
2(h)(2)(D) of the CEA, in order to promote consistency with its
regulatory counterparts in other jurisdictions and to ensure that the
benefits of required clearing accrue to the CAD CORRA and MXN F-TIIE
OIS that replace CAD CDOR and MXN TIIE swaps no longer offered for
clearing.
The Commission considered alternative implementation scenarios for
the CAD CORRA and MXN F-TIIE OIS clearing requirement that it proposed.
For instance, the Commission might have required that a broader set of
MXN F-TIIE OIS be required to be cleared. CME offers clearing on these
OIS with a tenor out to 30 years. However, LCH offers clearing on MXN
F-TIIE OIS only out to 21 years. In order to ensure that market
participants have the option of clearing their OIS at one of two DCOs
and not incur any competitive costs associated with having to use one
specific DCO, the clearing requirement is limited to MXN F-TIIE OIS
with tenors of 21 years or less.
The Commission also considered an alternative scenario in which it
did not adopt any new clearing requirement for CAD CORRA or MXN F-TIIE
OIS. Under this alternative, the cost to the market would be an
increased risk of uncleared swaps (and the associated financial
stability risks) should market participants decide to clear less in the
future. This cost may be measurable because of the potential effect on
the market-wide effort to replace IBOR swaps, including in cleared swap
markets, with RFR swaps. On the other hand, any such effect would be
mitigated given the current high level of clearing. The benefit of not
adopting any new clearing requirements would be savings experienced by
market participants that would not be required to clear new CAD CDOR or
MXN F-TIIE OIS and that would not otherwise find it beneficial to do
so. However, given the high rate of voluntary clearing, any cost
savings in the aggregate would be de minimis. It is likely that many,
if not most, market participants entering the CAD CORRA and MXN F-TIIE
OIS subject to this determination already find it beneficial to clear
such swaps. Considering this, and in the absence of significant change
in the interest rate swap markets, the Commission decided not to pursue
this alternative.
E. Section 15(a) Factors
The Commission anticipates that the amend
[…truncated; see source link]Indexed from Federal Register on September 8, 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.