Assessing CFTC concerns over Shanghai Clearing House – Alton Drew’s The Interbank Market

Now, Commissioner Summer months K. Mersinger expressed fears around the Commodity Futures Investing Commission’s Division of Clearing and Risk’s selection to problem a no-action letter that recommends that the CFTC not take any enforcement action with regards to Shanghai Clearing House’s standing as a non-registered Derivatives Clearing Group (“DCO”).

A DCO acts as an trade or board of trade.  It enables every party to an settlement or futures agreement to substitute the credit score of the DCO for the credit score of the parties.  A DCO can also prepare netting of obligations among the events to a derivatives contract.  It can also supply clearing services that transfers credit danger involving parties to a derivatives contract.

Commissioner Mersinger is specially worried that for seven straight many years the CFTC has granted Shanghai Clearing Household extensions of reduction that grant the clearinghouse permission to distinct swaps for the proprietary accounts of Shanghai Clearing Dwelling customers that happen to be U.S. persons.

Shanghai Clearing Household describes by itself as the only central clearing institution in the interbank current market of China.  It presents registration, custody, clearing, settlement, shipping, margin management, and collateral management providers for immediate and indirect renminbi and overseas currency and derivative transactions.

7 USC 1b, in my feeling, seems to give Shanghai Clearing Dwelling an out really should the CFTC down the street choose to bring an enforcement motion.  Shanghai Clearing Dwelling could petition the Secretary of the Treasury to exempt overseas exchange swaps and foreign trade futures from the definition of “swaps”, but presented the geopolitical local weather stemming from a most likely more robust Russia-China economic alliance, I really don’t see Secretary Yellen likely to bat for an exemption.

Alton Drew

26 July 2022

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