CFTC Staff Clarifies Applicability Of Clearing Requirements On Default Management Transactions

In a CFTC interpretive letter to the Chicago Mercantile Exchange (the "CME"), the Division of Clearing and Risk and the Division of Market Oversight (collectively, the "Divisions") considered the applicability of certain clearing and trade execution requirements to default management transactions.

In its request for the interpretation, the CME stated that, because such transactions might include swap classes that are subject to mandatory clearing under CFTC Rule 50.4, the transactions may potentially implicate the mandatory central clearing and trade execution requirements under Sections 2(h)(7) and 2(h)(8) of the CEA. The Divisions concluded that they "do not interpret Sections 2(h)(1) and 2(h)(8) of the CEA as subjecting Default Management Transactions to the Clearing and Trade Execution Requirements."