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Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations
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promulgated the end-user exception final rule.21
In contrast to swaps that are eligible for the end-user exception, the Commissions regulations do not specifically exempt from the trade execution requirement swaps that are not subject to the swap clearing requirement based on other statutory authority provisions. Pursuant to its exemptive authority under CEA section 4c, the Commission promulgated additional exemptions from the clearing requirement for swaps between certain types of entities. Commission regulation 50.51 allows an exempt cooperative to elect a clearing exemption for swaps entered into in connection with loans to the cooperatives members.22
Commission regulation 50.52 provides a clearing exemption for swaps between eligible affiliate counterparties.23
At the time of the drafting of the Proposed Rule, the Commission was in the process of considering a proposal to codify certain exemptions from the 21 On May 12, 2020, the Commission proposed a non-substantive change to 50.50d. The Commission proposed to move the exception from the clearing requirement for small banks, loan associations, farm credit system institutions, and credit unions under 50.50d to a stand-alone regulation, namely 50.53. Swap Clearing Requirement Exemptions, 85 FR 27955, 2796263
May 12, 2020. The Commission adopted this proposal on November 2, 2020. See Swap Clearing Requirement Exemptions, 85 FR 76428 Nov. 30, 2020. Those regulations are now codified in Commission regulation 50.53.
22 17 CFR 50.51. The exemption permits a qualifying exempt cooperative to elect not to clear swaps that are executed in connection with originating a loan or loans for the members of the cooperative, or hedging or mitigating commercial risk related to member loans or arising from swaps related to originating loans for members. 17 CFR
50.51b12.
23 17 CFR 50.52. Counterparties have eligible affiliate counterparty status if: i One counterparty, directly or indirectly, holds a majority ownership interest in the other counterparty, and the counterparty that holds the majority interest in the other counterparty reports its financial statements on a consolidated basis under Generally Accepted Accounting Principles or International Financial Reporting Standards, and such consolidated financial statements include the financial results of the majority-owned counterparty; or ii a third party, directly or indirectly, holds a majority ownership interest in both counterparties, and the third party reports its financial statements on a consolidated basis under Generally Accepted Accounting Principles or International Financial Reporting Standards, and such consolidated financial statements include the financial results of both of the swap counterparties.
17 CFR 50.52a1iii. To elect the exemption, such counterparties must also meet additional conditions, including documentation requirements;
centralized risk management requirements;
reporting requirements; and a requirement to clear outward-facing swaps that are of a type identified in the Commissions clearing requirement subject to applicable exceptions, exemptions, and alternative compliance frameworks. 17 CFR
50.52bc.

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clearing requirement.24 The Proposed Rule applied the Commissions section 4c exemptive authority to create an explicit exemption from the trade execution requirement for any future exceptions to, or exemptions from, the clearing requirement under part 50.25
Proposed 36.1c established an exemption to the trade execution requirement for swap transactions for which an exception or exemption has been elected pursuant to part 50. The Proposed Rule also indicated that the trade execution requirement would not apply to swap transactions for which a future exemption has been adopted by the Commission under part 50.
Proposed 36.1e established a separate exemption from the trade execution requirement that may be elected by eligible affiliate counterparties to a swap submitted for clearing, notwithstanding the eligible affiliate counterparties option to elect a clearing exemption pursuant to 50.52.
Eligible affiliate counterparties may rely on this exemption from the trade execution requirement regardless of their decision not to elect the interaffiliate clearing exemption and instead clear the swap.
The Commission has determined that these two exemptions are consistent with the objectives of CEA section 4c.
The following sections address the exemptions in turn.
B. Trade Execution Requirement Exemption for Swaps Eligible for a Clearing Requirement Exception or Exemption Under Part 50
1. Summary of Comments The Commission received several comments on the proposed regulations to codify exemptions to the trade execution requirement for swaps that are not subject to the clearing requirement under part 50. JBA
expressed support for the proposed 24 E.g.,
Swap Clearing Requirement Exemptions, 85 FR 27955 May 12, 2020 proposing to exempt from the clearing requirement swaps entered into by central banks, sovereign entities, international financial institutions IFIs, bank holding companies, savings and loan holding companies, and community development financial institutions; Amendments to the Clearing Exemption for Swaps Entered into by Certain Bank Holding Companies, Savings and Loan Holding Companies, and Community Development Financial Institutions, 83 FR 44001 Aug. 29, 2018.
As noted above, the Commission adopted the May 12, 2020 proposal on November 2, 2020. Swap Clearing Requirement Exemptions, 85 FR 76428
Nov. 30, 2020. See also Proposed Rule at 62038
discussing the proposed exemption from the clearing requirement for swaps entered by eligible bank holding companies, savings and loan holding companies, and community development financial institutions.
25 Proposed Rule at 62038.

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exemption.26 Citadel also expressed support for the exemption for swap transactions that are currently subject to a clearing exception or exemption.
However, Citadel stated that the Commission should not preemptively grant a trade execution requirement exemption for swaps falling under future clearing exceptions or exemptions, but rather should consider additional future trade execution requirement exemptions on a case-bycase basis.27 In addition, Citadel recommended that participants be required to actually elect the clearing exemption in order to be eligible for the corresponding exemption from the trade execution requirement.
In addition to the proposed exemptions for swaps not subject to the clearing requirement, Blackrock, ISDA, SIFMA, and GFXD requested an exemption from the trade execution requirement that would apply in instances where a SEF outage or system disruption or limited hours of operation prevent participants from complying with the requirement.28 Some commenters also requested additional exemptions from the trade execution requirement for block trades and package transactions, such as package transactions that include a futures component.29 Mercaris separately requested exemptions from the trade execution requirement for swaps that are based on new agricultural assets or have a notional value not exceeding $5
billion, on the grounds that the Proposed Rule would have an adverse impact on small swaps broking entities due to its expansion of the types of swaps that are subject to the trade execution requirement to include all swaps that are required to be cleared as well as the types of entities that are required to register as SEFs to include trading platforms operated by swaps broking entities.30
2. Final Rule: CEA Section 4c Authority and Standards For the purposes of promoting responsible economic or financial 26 JBA

Letter at 4.
Letter at 4041.
28 See Comment Letter from Blackrock at 2 Mar.
15, 2019 Blackrock Letter; Comment Letter from International Swaps and Derivatives Association, Inc. at 11 Mar. 15, 2019 ISDA
Letter; SIFMA Letter at 14; Comment Letter from the Global Foreign Exchange Division of the Global Financial Markets Association at 5 Mar. 15, 2019
GFXD Letter.
29 See ISDA Letter at 11, Appendix at 5; SIFMA
Letter at 1314; GFXD Letter at 56; Tradeweb Letter at 6; FIA Letter at 15, Comment Letter from Vanguard at 2 Mar. 15, 2019.
30 Comment Letter from Mercaris at 12 Mar. 4, 2019 Mercaris Letter.
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