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Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations
need access to foreign markets, products, and a choice of liquidity pools. I hope the Commission will continue to consider the best way to expand the exempt DCO
framework to allow for U.S. customer clearing.

Appendix 4Concurring Statement of Commissioner Rostin Behnam I respectfully concur with the Commodity Futures Trading Commissions final rule regarding policies and procedures that it will follow with respect to granting exemptions from derivatives clearing organization DCO
registration pursuant to authority under section 5bh of the Commodity Exchange Act CEA 1 the Final Rule. The Final Rule, with limited exceptions, codifies the policies and procedures followed by the Commission in issuing the four exempt DCO
orders which currently limit clearing organizations organized outside of the United States to clearing only proprietary swap positions of U.S. persons and futures commission merchants, and not customer positions exempt DCOs. Critical to my vote today, the Final Rule prohibits the clearing of U.S. customer positions at an exempt DCO.2
I supported the Commissions 2018 notice of proposed rulemaking 3 as a means to promote transparency and accountability as well as a positive step towards increased cross-border cooperation and deference to our foreign regulatory counterparts. However, I was unable to support the Commissions 2019 supplement to the 2018 Proposal,4
which proposed permitting exempt DCOs to clear swaps for U.S. customers through foreign intermediaries that would be wholly outside the Commissions direct regulation and oversight. As articulated more fully in my dissent,5 the 2019 Supplemental Proposal was not the product of internal consensus and its brief history and questionable timeline signaled a lack of appropriate scrutiny and evaluation of the critical financial, market, consumer protection, and systemic risk issues raised by diverging from the customer protection model provided by the CEA and U.S. Bankruptcy Code. It was and remains my view that if the Commission believes it is appropriate to provide U.S.
customers with greater access to non-U.S.
swap markets, then we can and should engage in a more careful analysis of options, assessment of alternatives, and evaluation of consequences consistent with the Administrative Procedure Act.6 As the Commission is declining to adopt the 2019
Supplemental Proposal at this time, I am comfortable with supporting the Final Rule.
One area in which I will remain vigilant is with regard to the Commissions reliance on 17

U.S.C. 7a1a.
Final Rule at II.B.2.a. and 39.6b1.
3 Exemption from Derivatives Clearing Organization Registration, 83 FR 39923 proposed Aug. 13, 2018 the 2018 Proposal.
4 Exemption from Derivatives Clearing Organization Registration, 84 FR 35456 proposed July 23, 2019 the 2019 Supplemental Proposal.
5 See Appendix 4Dissenting Statement of Commissioner Rostin Behnam, Supplemental Proposal, 84 FR at 3547635478.
6 Id. at 35476.

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the Principles for Financial Market Infrastructures PFMI framework as the benchmark for making the comparability determination with respect to a foreign jurisdictions supervisory and regulatory scheme required by CEA section 5bh. I
believe that the Commissions reliance on the PFMIs as providing a comprehensive framework for DCO supervision that is comparable to the statutory and regulatory requirements applicable to registered DCOs, with a particular focus on the DCO Core Principles,7 is within its discretion under CEA section 5bh. However, I am concerned that the Commissions decision to limit its reference to the PFMIs as they existed in 2012 may lead to untenable divergence in the future should the Commission determine to incorporate subsequent amendments or revisions to the PFMIs or related interpretations and guidance into its own regulatory and supervisory DCO oversight.
Alternatively, I am concerned that maintaining a static definition of the PFMIs to provide exempt DCOs with greater regulatory certainty with regard to their ongoing eligibility for the exemption could negatively impact the Commissions consideration regarding whether to adopt or incorporate future changes to the PFMIs or related interpretations and guidance into its regulatory regime. However, I am reassured that the Commission explicitly reserves the ability to incorporate future amendments to the PFMIs into the Final Rules PFMI
definition in 39.2. As well, because the Commission also maintains broad discretion to condition an exemption on any facts and circumstances it deems relevant under new 39.6b8, I believe the Commission has clear discretion and authority to make appropriate changes with regard to its consideration of exempt DCO eligibility criteria and ongoing compliance to maintain comprehensive application of and adherence to comparable regulatory and supervisory standards.
My decision to support the Final Rule is largely based on the Commissions determination to move forward with the 2018
Proposal without adopting the 2019
Supplemental Proposal. However, I remain supportive of the Commissions endeavor to explore ways to adapt andif appropriate seek to adjust the current intermediary structure established under the CEA and Commission regulations to better accommodate both U.S. customer demand for increased access to clearing in foreign jurisdictions and evolving global swaps market structures. I remain open and look forward to the possibility of further discussing the regulatory and policy issues raised during this rulemaking.

Appendix 5Statement of Commissioner Dan M. Berkovitz I am voting for the final rule establishing procedures for granting registration exemptions to foreign derivatives clearing organizations Exempt DCOs to clear swaps for certain U.S. persons Final Rule.
The Final Rule exercises the exemptive authority provided by Congress in the 7 See
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CEA section 5bc2, 7 U.S.C. 7a1c2.

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Commodity Exchange Act CEA 1 in a limited, pragmatic manner that will provide U.S. financial services firms that operate globally with access to foreign clearinghouses and cleared swaps in order to more effectively manage the risks arising from their global operations.
In July of last year, I dissented from the proposed exempt DCO rule, because it also would have permitted Exempt DCOs to clear for U.S. customers, but only through foreign intermediaries. In doing so, the proposed rule would have subjected U.S. customer accounts to foreign bankruptcy and other regulations, promoted the use of foreign intermediaries at the expense of U.S. firms, and exceeded this agencys limited exemptive authority.2 Enabling U.S.
customers to clear swaps and amass large positions in non-U.S. markets in this manner would not only pose risks to those customers, but also could have presented systemic risks to the U.S. financial system.
In response to commenters who expressed similar objections, the Final Rule does not contain the concerning provisions. Neither registered FCMs nor their foreign intermediary counterparts can clear for U.S.
person customers. With respect to clearing for U.S. persons, the Final Rule restricts clearing by an Exempt DCO to only U.S.
firms that become clearing members of the Exempt DCO along with certain of their affiliates and persons associated with those firms in the manner identified in the definition of proprietary account in section 1.3 of our regulations. In addition, registered FCMs, including U.S. firms, can also clear at exempt DCOs, but only for themselves and persons associated with the FCMs in the manner provided in the definition of proprietary account. These sophisticated market participants are well equipped to assess the risks of clearing swaps under the foreign regime. Furthermore, by requiring that they be members of the Exempt DCO or clear through an affiliate that is a member, the Commission assures that such entities have taken affirmative actions to assess and accept those risks. The margin funds and related obligations of these persons must also be segregated from customer funds held by registered FCMs thereby minimizing any impact on U.S. customers of the cleared positions at Exempt DCOs. These limitations are a reasonable, practical approach to implementing the authority provided to the Commission to exempt certain foreign DCOs without adding uncertain risk into our system of fully registered DCOs and FCMs.
1 Commodity
Exchange Act section 5bh.
Dissenting Statement of Commissioner Berkovitz, 84 FR 35456 at 35479 July 23, 2019. As discussed in my prior statement, in addition to my substantive concerns, the proposed rule would have relied on CEA Section 4c exemptive authority to exempt non-U.S. intermediaries that provide customer clearing at Exempt DCOs from the FCM
registration requirement and the regulations applicable to registered FCMs. This reliance would have exceeded the clearly limited authority granted under Section 4c. With the elimination of customer clearing in the Final Rule, the Commission no longer needs to resort to an overly expansive reading of Section 4c authority to adopt the Final Rule.
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