CFTC Extends No-Action Relief to Shanghai Clearing House Until 2018

The US Commodity Futures Trading Commission’s (CFTC) Division of Clearing and Risk has issued a time-limited, no-action letter stating that it will not recommend that the CFTC take enforcement action against Shanghai Clearing House Clearing House A clearing house is defined as an intermediary between two parties, a buyer and seller, which helps facilitate the overall process from trade inception to settlement. Clearing houses streamline the exchange of payments, securities, or derivatives transactions.The clearing house is situated between two clearing firms who also helps reduce the risk of either member firm failing to honor their respective trade settlement obligations.Buyers and sellers enter into legally binding agreements for the e A clearing house is defined as an intermediary between two parties, a buyer and seller, which helps facilitate the overall process from trade inception to settlement. Clearing houses streamline the exchange of payments, securities, or derivatives transactions.The clearing house is situated between two clearing firms who also helps reduce the risk of either member firm failing to honor their respective trade settlement obligations.Buyers and sellers enter into legally binding agreements for the e Read this Term (SHCH) for failing to register as a derivatives clearing organisation, as laid out in the Commodity Exchange Act.

The new letter effectively extends the relief provided earlier last year to the SHCH which expires on November 30, 2017. The extension will last until February 28, 2018, by which time the Shanghai Clearing House will be allowed to temporarily clear certain Swaps Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Read this Term that are subject to mandatory clearing in China. This relief is intended as an interim measure, as Shanghai Clearing House intends to seek a permanent order exempting it from registration with respect to such swap clearing.

Today’s announcement marks an important step towards strengthening the CFTC’s relationship with Chinese regulators.

The no-action relief applies to swaps accepted for clearing by SHCH and is subject to mandatory clearing by the People’s Bank of China, including certain interest rate swaps denominated in renminbi.

In requesting the relief, Shanghai Clearing House maintained that it complies with the Principles for Financial Market Infrastructures and has committed to petitioning the CFTC for a permanent exemption from the registration requirement.