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Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations
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Commission has been using to grant exemptions from DCO registration, with some modifications. To the extent that exemptions from DCO registration were already available to non-U.S. clearing organizations pursuant to these conditions and procedures, the actual costs and benefits of this rulemaking will likely be lower than the costs and benefits relative to the baseline.
The Commission notes that this consideration is based on its understanding that the swaps market functions internationally with 1
transactions that involve U.S. firms occurring across different international jurisdictions; 2 some entities organized outside of the United States that are prospective Commission registrants; and 3 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, the discussion of costs and benefits below refers to the effects of the final rule on all relevant swaps activity, whether based on their actual occurrence in the United States or on their connection with activities in, or effect on, U.S. commerce pursuant to section 2i of the CEA.52
The Commission recognizes that the final rule may impose costs. The Commission has endeavored to assess the expected costs and benefits of the final rule in quantitative terms, including PRA-related costs, where possible. In situations where the Commission is unable to quantify the costs and benefits, the Commission identifies and considers the costs and benefits of the applicable regulations in qualitative terms. The lack of data and information to estimate those costs is attributable in part to the nature of these final regulations. Additionally, the initial and recurring compliance costs for any particular exempt DCO will depend on the size, existing infrastructure, level of clearing activity, practices, and cost structure of the DCO.
Finally, the costs and benefits of this final rule may be affected by the Alternative Compliance framework 53
52 Pursuant to section 2i 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, Public Law 111203, 124 Stat.
1376. 7 U.S.C. 2i.
53 Registration with Alternative Compliance for Non-U.S. Derivatives Clearing Organizations, 85 FR
67160 Oct. 21, 2020.

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under which a non-U.S. clearing organization or an already registered non-U.S. DCO would have the option of applying for registration with alternative compliance, which would allow the DCO to comply with the DCO Core Principles through its home country regulatory regime. The Commission has compared these costs and benefits below.
2. Amendments to Part 39
a. Summary Section 5bh of the CEA permits the Commission to exempt a non-U.S.
clearing organization from DCO
registration for the clearing of swaps to the extent that the Commission determines that such clearing organization is subject to comparable, comprehensive supervision by appropriate government authorities in the clearing organizations home country. Pursuant to this authority, the Commission has exempted four nonU.S. clearing organizations from DCO
registration. The final rule generally codifies the policies and procedures that the Commission has followed with respect to granting exemptions from DCO registration. Specifically, these regulations set forth the process by which a non-U.S. clearing organization may obtain an exemption from DCO
registration for the clearing of proprietary swaps for U.S. persons provided that it meets the specified eligibility standards and can meet the conditions of an exemption.
b. Benefits and Costs With the Commissions adoption of this final rule, non-U.S. clearing organizations seeking to clear swaps for U.S. persons on a proprietary basis will have a choice between seeking an exemption from DCO registration and registering as a DCO, either under the Commissions original framework or the recently adopted Alternative Compliance framework. The Commission expects exemption from registration to be the least costly of the three options. The Commission estimates that it would take about 421
hours to prepare a traditional application for DCO registration 54 and 100 hours to prepare an application under the alternative procedures, as compared to 40 hours to prepare an application for an exemption.55 The daily, quarterly, and event-specific 54 See Derivatives Clearing Organization General Provisions and Core Principles, 85 FR 4800, 4829
Jan. 27, 2020.
55 To the extent that current procedures for seeking an exemption from DCO registration are similar to the procedures adopted in this release, these costs are currently being incurred.

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reporting requirements are estimated to impose the same hourly burden for both registered and exempt DCOs with the exception of swap data reporting under part 45. Registered DCOs subject to Alternative Compliance will be subject to the same part 45 reporting requirements as other registered DCOs, while exempt DCOs will only have to report data regarding the two swaps resulting from the novation of an original swap previously reported to an SDR. In the PRA section for this release, the Commission estimates that the part 45 reporting burden for an exempt DCO
would be about one fifth as much as the burden on a registered DCO. Both exempt DCOs and registered DCOs subject to Alternative Compliance are primarily subject to their home country regulatory regimes, but registered DCOs subject to Alternative Compliance will also be held to certain requirements set forth in the CEA and Commission regulations, including, for example, subpart A of part 39 and 39.15. The extent to which these additional requirements will increase costs on registered DCOs subject to Alternative Compliance relative to the costs to exempt DCOs will depend on the extent to which these requirements exceed the legal requirements of their home countries and whether registered DCOs subject to Alternative Compliance have to change their practices more than they would if they had sought an exemption instead.
Given the lower costs of an exemption as compared to registration, and the greater clarity and regulatory certainty resulting from codification of the CFTCs existing procedures, the final regulation may promote competition among registered and exempt DCOs by encouraging more clearing organizations to seek an exemption. Lower costs and competition may, in turn, result in clearing members incurring lower costs to clear through exempt DCOs. In addition, access to more clearing organizations may also encourage voluntary clearing of swaps that are not required to be cleared, as certain swaps may not be cleared by any registered DCOs. This may, in turn, serve to diversify the potential risk of cleared swaps, because any such risk would become less concentrated if a larger number of registered and exempt DCOs were clearing swaps for U.S. persons, and the volume of those swaps could become more evenly distributed among those registered and exempt DCOs.
While an exemption from DCO
registration would be less costly to obtain than any form of DCO
registration, registration provides benefits that are not available to exempt
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