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Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations Furthermore, the Commission has, on an ad hoc basis, previously granted registration exemptions to four foreign clearinghouses limited to proprietary swap positions with effectively the same conditions and limitations as provided in the Final Rule. The Final Rule will therefore maintain consistency with the existing exemptions.
The Final Rule also contains fairly detailed daily, quarterly, and annual reporting requirements, as well as special event notice requirements. These requirements allow the Commission to monitor U.S. person clearing activity at the Exempt DCO on a daily basis and keep the Commission informed of any material changes to the regulatory and financial status of the Exempt DCO in its home jurisdiction. While the Exempt DCOs will be able to operate under the compliance regime and oversight of its home country regulator, the CFTC can maintain limited, but up-to-date oversight of the activities that are relevant for U.S. market participants and that could have an impact on our financial system.
As noted above, the Final Rule does not permit registered FCMs to clear U.S.
customer swaps at Exempt DCOs. In the Commissions initial 2018 proposal to establish a framework for Exempt DCOs, the Commission proposed this prohibition. The Commission explained:
Section 4df1 of the CEA makes it unlawful for any person to accept money, securities, or property i.e., funds from a swaps customer to margin a swap cleared through a DCO unless the person is registered as an FCM. Any swaps customer funds held by a DCO are also subject to the segregation requirements of section 4df2 of the CEA, and in order for a customer to receive protection under this regime, particularly in an insolvency context, its funds must be carried by an FCM, and deposited with a registered DCO. Absent that chain of registration, the swaps customers funds may not be treated as customer property under the U.S. Bankruptcy Code and the Commissions regulations. Because of this, it has been the Commissions policy to allow exempt DCOs to clear only proprietary positions of U.S.
persons and FCMs.3
The Final Rule notes that the Commission may revisit the prohibition on U.S. customer clearing in the future. While I agree with the outcome in the Final Rule as to customer clearing given the Commissions interpretation of CEA Section 4df, if the above interpretation changes, whether by a change to the statute or by other appropriate means, I could support a further amendment of the Final Rule. Any such change should place U.S. FCMs on an equal footing with their foreign counterparts when competing for U.S. customer clearing at Exempt DCOs.
In addition, such a change should not create an advantage for unregistered Exempt DCOs over registered DCOs who comply with all of our regulations.
Finally, I note that CEA Section 5bh provides for the registration exemption if the foreign DCO is subject to comparable, 3 Exemption from Derivatives Clearing Organization Registration, 83 FR 39923, 39926
proposed Aug. 13, 2018.

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comprehensive supervision and home country regulation. Under the Final Rule, to demonstrate comparability, the DCO must be subject to home country regulations that are consistent with, and the DCO must observe in all material respects, the Principles for Financial Market Infrastructures 4 PFMIs applicable to central counterparties.
Several commenters objected to this approach to comparability determinations on a number of grounds. These commenters stated that the Commission should not substitute a commitment to adhere to the PFMIs for its own examination and assessment as to the comparability and comprehensiveness of the actual foreign regulations. As the PFMIs are only general principles, even when the PFMIs are implemented, material differences may exist between the PFMI-compliant regime and the Commissions DCO core principles and regulations. Commenters further argued that Congress intended for the Commission to analyze comparability only by direct comparison to the CTFCs laws and regulations.
Over the past two years, I have expressed concerns over the erosion of the Commissions standards and role in finding comparability for various CFTC regulations.
The Commissions approach has been increasingly deferential to other regulators, which has the potential to permit the importation of increased risks into the U.S.
financial system.
In this regard, I too have some concerns about the use of the PFMIs as a standard for comparability. However, for the purpose of granting DCO registration exemptions, I
believe the approach taken in the Final Rule is reasonable. I have consistently said that comparability determinations should involve a detailed examination of the other jurisdictions standards, but also should be outcomes based. Regulators around the world take substantively different approaches to regulating DCOs, but that does not mean any one approach is necessarily better or worse than another as to its expected outcome. The PFMIs tend to be more general in nature than the DCO core principles and regulations in the CEA and CFTC regulations. However, regarding the general outcome of DCO
regulation, the PFMIswhich the CFTC has contributed to and incorporated in regulation 5are consistent with our DCO
core principles. Furthermore, given the limited scope of the Final Rule in that it applies only to clearing of proprietary positions, using the PFMIs to find comparability is not unwarranted. Finally, the Final Rule allows for the Commission to assess the extent to which the home country regulations are consistent with the PFMIs and the extent to which the applying DCO is observing the PFMIs. As such, I believe the 4 See Committee on Payment and Settlement Systems and the Technical Committee of the International Organization of Securities Commissions, Principles for financial market infrastructures Apr. 2012, available at http
www.iosco.org/library/pubdocs/pdf/IOSCOPD377PFMI.pdf.
5 See 17 CFR 39.30, 39.40.

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approach taken in the Final Rule is reasonable.
In conclusion, the Final Rule creates a limited, practical set of policies and procedures for granting exemptions from registration for foreign DCOs. The Exempt DCOs can only clear swaps for U.S. persons who are proprietary traders and who are able to assess the specific risks of clearing at the Exempt DCO. The U.S. customer accounts at registered FCMs will not be commingled with accounts used for Exempt DCO clearing.
Finally, U.S. FCMs are not put at a competitive disadvantage to their foreign counterparts. For these reasons, I support the changes made to the proposed rule that result in an appropriate, codified approach to exempting foreign DCOs who meet appropriate standards.
FR Doc. 202026527 Filed 1621; 8:45 am BILLING CODE 635101P

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The Environmental Protection Agency EPA is finalizing a partial approval, partial disapproval, and partial conditional approval of revisions to the Maricopa County Air Quality Department MCAQD or County portion of the Arizona State Implementation Plan SIP. This action concerns the Countys demonstration regarding reasonably available control technology RACT requirements and negative declarations for the 2008 8hour ozone National Ambient Air Quality Standards NAAQS or standards in the portion of the Phoenix-Mesa ozone nonattainment area under the jurisdiction of the MCAQD.
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