Reuters: Regulatory News: US CFTC proposes to exempt affiliate swaps from clearing

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US CFTC proposes to exempt affiliate swaps from clearing Aug 16th 2012, 17:35 By Alexandra Alper WASHINGTON | Thu Aug 16, 2012 1:35pm EDT WASHINGTON Aug 16 (Reuters) - Swaps between financial firms with a common parent would have no need to be cleared under a measure proposed by the U.S. derivatives regulator on Thursday. The Commodity Futures Trading Commission voted 3 to 2 to release the exemption, which gives the public 30 days to comment on whether swaps between affiliates are less risky than trades with third parties. The rule, if finalized, would give the derivatives industry welcome relief from the 2010 Dodd Frank law, which requires firms to route most of their swaps trades through clearinghouses. Clearinghouses stand in between counterparties and help protect them in the event that one defaults, but generally raise costs for traders. The law is aimed at boosting transparency and limiting risk in the $650 trillion over-the-counter swaps market. Industry players have argued, however, that swaps between affiliates only serve to reduce risk, by allowing firms to net their risk and hedge across businesses. Most firms that take advantage of the exemption would have to be located in the United States, or a country with "comparable and comprehensive" clearing rules. Those firms would also have to back their trades with variation margin, or collateral calls based on adverse price movements.

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