CFTC & OPEN comment Alert! Notice requesting Approval for Collection 3038-0117, Exemption from Derivatives Clearing Organization Registration.

IF collected, the information allows CFTC "to conduct its oversight of U.S. persons and the swaps that are cleared by U.S. persons through the exempt DCO."

https://public-inspection.federalregister.gov/2023-11423.pdf

Highlights:

• The Commodity Futures Trading Commission (“CFTC” or “Commission”) is announcing an opportunity for public comment on a proposed information collection by the agency.
• Under the Paperwork Reduction Act (“PRA”), Federal agencies are required to publish notice in the Federal Register concerning each proposed collection of information and to allow 60 days for public comment.
• This notice announces the intention of the Commission to request approval for Collection 3038-0117, Exemption from Derivatives Clearing Organization Registration.
• This information collection is associated with CFTC regulations codifying the policies and procedures that the Commission follows with respect to granting exemptions from registration as a DCO for the clearing of proprietary swaps for U.S. persons and futures commission merchants (“FCMs”).
• The rules include reporting requirements that are collections of information requiring approval under the Paperwork Reduction Act (PRA).
• The information that is collected under these regulations is necessary for the Commission to determine whether a clearing organization qualifies for exemption from DCO registration, to evaluate the continued eligibility of the exempt DCO for exemption from registration, to review compliance by the exempt DCO with any conditions of such exemption, or to conduct its oversight of U.S. persons and the swaps that are cleared by U.S. persons through the exempt DCO.

Specifically, section 39.6 of the Commission’s regulations specifies the conditions and procedures under which a clearing organization may apply for exemption from registration as a DCO, the information that must be provided to the Commission to obtain and maintain such exemption, and procedures for termination of an exemption. See 17 CFR 39.

• Timeout--let's go find this reference!

Digging into the exemptions of 17 CFR 39, we see:

How I believe Section 39.6 outlines the conditions for exemption from Derivatives Clearing Organization (DCO) registration for non-U.S. organizations:

1. The non-U.S. DCO can apply for exemption if it's subject to comparable supervision in its home country and has a satisfactory agreement between the Commission and its home regulator.
2. The exemption conditions may include limiting swap clearing services for U.S. entities and ensuring non-discriminatory clearing and offsetting of swaps.
3. The exempt DCO must consent to U.S. jurisdiction, appoint a U.S. agent for legal process, comply with exemption conditions, and allow Commission access to records.
4. The DCO must annually confirm observance of the Principles for Financial Market Infrastructures and good regulatory standing.
5. The Commission can impose additional conditions as deemed necessary.
6. The exempt DCO must provide certain reports, such as daily margin requirements, quarterly aggregate clearing volume, and any changes in home country regulations, among other things.
7. If the exempt DCO clears a swap reported to a Swap Data Repository, it must report data about the resulting swaps and termination of the original swap. It must also prohibit duplicate reporting by the original swap's counterparties.

With respect to the collection of information, the CFTC invites comments on:

• Whether the proposed collection of information is necessary for the proper performance of the functions of the CFTC, including whether the information will have a practical use;
• The accuracy of the CFTC’s estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Ways to enhance the quality, usefulness, and clarity of the information to be collected;
• Ways to minimize the burden of collection of information on those who are to respond, including through the use of appropriate automated electronic, mechanical, or other technological collection techniques or other forms of information technology; e.g., permitting electronic submission of responses.

How to comment:

You may submit comments, identified by “Notice of Intent to Request for Approval for Collection 3038-0117, Exemption from Derivatives Clearing Organization Registration,” by any of the following methods:

• COMMENTS DUE within 60 days of 5/30/23

The Agency’s web site, at https://comments.cftc.gov/.

Follow the instructions for submitting comments through the web site.

• Note: the comment section for this might not go live until this is officially published in the Federal Register--which is 5/30/23.
• Mail: Christopher J. Kirkpatrick, Secretary of the Commission, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581.
• Hand Delivery/Courier: Same as Mail above.
• Please submit your comments using only one method.
• All comments must be submitted in English, or if not, accompanied by an English translation.
• Comments will be posted as received to https://www.cftc.gov
• COMMENTS DUE within 60 days of 5/30/23
• You should submit only information that you wish to make available publicly.
• The CFTC reserves the right, but shall have no obligation, to review, pre-screen, filter, redact, refuse or remove any or all of your submission from https://www.cftc.gov that it may deem to be inappropriate for publication, such as obscene language.
• All submissions that have been redacted or removed that contain comments on the merits of the Information Collection Request will be retained in the public comment file and will be considered as required under the Administrative Procedure Act and other applicable laws, and may be accessible under FOIA.

What can you draw attention to in your comment?

As a retail investor, if there are any concerns about entities potentially abusing the exemption from Derivatives Clearing Organization registration, I would like to see CFTC consider the following measures to detect such behaviors:

Regular audits and compliance checks: Regular checks and audits on the operations of the entities could help identify any discrepancies or violations.

• The focus could be on operations that are directly relevant to the exemption conditions.
• This data should be made available for PUBLIC review, not hidden away like swap data is today.

Analyzing reporting data: Entities are required to submit various reports.

• Analyzing this data in depth could help spot abnormal patterns, such as unusual trading volumes, margin requirements, or clearing activities.

Collaboration with foreign regulators: Since the exemption applies to organizations outside of the U.S., collaboration and information sharing with foreign regulators can be critical.

• If these entities are not in good standing in their home countries, it may indicate potential problems.

Looking for evidence of selective clearing: The entities must not discriminate in clearing a swap.

• If there is evidence that they are selectively clearing swaps, this may suggest misuse of the exemption.
• Monitoring the market: Observing general market trends, trading behaviors, and the responses of other market participants can provide indirect signs of potential abuse.

Checking for changes in their home country regulatory regime: Entities must provide prompt notice regarding any material changes in their home country regulations.

• If such changes are not reported accurately or timely, this could signal potential abuse.

The SEC's proposed updates to Form PF offer some interesting items for consideration, namely more-timely reports—within 72 hours from large hedge fund advisers & quarterly from private equity fund advisers—will inform financial regulators on certain events that may indicate significant stress or otherwise signal for systemic risk & investor harm.

• It would be FANTASTIC from a household investor's perspective to see this level of care shown by CFTC.

With the above, if evidence of abuse is found, the CFTC could then undertake enforcement actions, which might include revoking the exemption, issuing fines, or referring the matter for criminal prosecution. Regardless, households across the country would be better protected by their regulator.

TLDRS:

The Commodity Futures Trading Commission (CFTC) is proposing an information collection process related to exemptions from Derivatives Clearing Organization (DCO) Registration and is inviting PUBLIC COMMENTS on the proposal.

• The invitation is part of a regulatory requirement under the Paperwork Reduction Act (PRA) that mandates Federal agencies to allow 60 days of public comment on each proposed collection of information.
• The collection is associated with CFTC regulations outlining policies and procedures for granting registration exemptions for the clearing of proprietary swaps for U.S. entities and futures commission merchants (FCMs).
• The regulations include reporting requirements under the PRA, detailing the conditions, procedures, and information needed for a clearing organization to apply for, maintain, and terminate registration exemption.
• The collected information will aid the Commission in determining a clearing organization's qualification for exemption, evaluating continued eligibility, reviewing compliance with any exemption conditions, and overseeing U.S. entities and the swaps they clear through the exempt DCO.
• COMMENTS DUE within 60 days of 5/30/23

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