1 Background
1.1 Singapore Exchange Derivatives Clearing Limited ("SGX-DC") refers to certain provisions of the U.S. Commodity Exchange Act ("CEA"), introduced in accordance with the Dodd-Frank Act, which came into effect on 12 October 2012 ("New U.S. Laws"). This included the definition of the term "swap".
1.2 Section 5b(a) of the CEA makes it unlawful for any clearing organisation to clear swaps for a U.S. person if it is not registered (or otherwise exempt) as a derivatives clearing organisation ("DCO"). As a result of this, SGX-DC is required to comply with the DCO registration requirements under CEA Section 5b(a). SGX-DC will be registered as a DCO as at 31 December 2013.
1.3 Further, Clearing Members clearing through SGX-DC on behalf of U.S. persons would be required to comply with futures commission merchant ("FCM") registration requirements under CEA Section 4d(f)(1). CEA Section 4d(f)(1) provides that it is unlawful for any person to accept margins on behalf of a U.S. swaps customer to secure a swap cleared through a DCO unless that person is registered with the Commodity Futures Trading Commission (the "Commission") as an FCM.
1.4 SGX-DC currently clears OTC commodity contracts through its Clearing Members and for U.S. persons, some of which fall within the swap definition under the New U.S. Laws ("OTC Commodity Contracts").
2 No-Action Relief
2.1 On 21 December 2012, SGX-DC submitted a letter of request ("
Request Letter") to the Commission for no-action relief from, among other things, CEA Section 4d(f)(1) in respect of SGX-DC Clearing Members clearing OTC Commodity Contracts ("the
Relief"). A copy of SGX-DC's Request Letter is attached as
Appendix 1.
2.2 The Relief was initially granted by the Commission on 21 December 2012.
On 20 December 2013, the Commission extended the Relief until 31 March 2014. Copies of the Commission's
letters are attached as
Appendix 2 and Appendix 3.
2.3 On
28 March 2014, the Commission
further extended the Relief until the earlier
of (a) 30 April 2014 or (b) the date upon which all OTC Commodity Contracts positions of Affected U.S. Persons
1 and FCM customers have either been closed or transferred to an FCM Clearing Member. After such date, SGX-DC may not clear for Affected U.S. Persons or other U.S. customers unless such customers clear through an FCM Clearing Member. A copy of the Commission's
further extension letter is attached as
Appendix 4.
2.4 The Relief permits non-FCM Clearing Members to continue carrying existing positions in OTC Commodity Contracts for Affected U.S. Persons or on behalf of FCM customers clearing through an FCM omnibus customer account until the expiration of the Relief.
2.5 With respect to new positions in OTC Commodity Contracts, only positions entered into for the purpose of offsetting existing positions of Affected U.S. Persons or on behalf of FCM customers clearing through an FCM omnibus customer account may be cleared. It is noted that such offsetting transactions shall be cleared by SGX-DC in accordance with the straight-through processing requirements under the Commission's regulations2.
2.6 The Relief has been granted on the condition that Clearing Members issue to Affected U.S. Persons and any FCM that maintains an FCM omnibus customer account a disclosure statement as specified in section 3 below (the "Disclosure Statement").
3 Disclosure Statement Requirement
3.1 SGX-DC hereby directs Clearing Members who clear OTC Commodity Contracts for Affected U.S. Persons
or FCM customers to issue a Disclosure Statement to such customers
or to the FCM, as the case may be, that prominently states the following statements:
(a) accounts holding customer positions in OTC Commodity Contracts and related customer property are not subject to Section 4d(f) of the CEA;
(b) such positions and related property will not be subject to, and therefore will not receive the protections of, Subchapter IV of Chapter 7 of the U.S. Bankruptcy Code and Part 190 of the Commission's regulations;
(c) the treatment of the customer positions and related property in the event of an insolvency proceeding of SGX-DC or any of its Clearing Members will be subject to Singapore's laws; and
(d) the positions cleared by the Clearing Members on behalf of such customers are subject to the terms of the Relief, which is available for reference on SGX-DC's website as
Appendix 4 to Directive No. 1 in SGX-DC's Clearing Rules.
3.2 SGX-DC directs all Clearing Members clearing OTC Commodity Contracts for Affected U.S. Persons or FCM customers to issue the Disclosure Statement to the Affected U.S. Persons or the relevant FCM as soon as practicable.
1 "Affected U.S. Persons" refers to U.S. customers of Clearing Members, who hold open positions in OTC Commodity Contracts as at 20 December 2013.
2 Commission regulation 39.12(b)(7), read with the terms of the Relief, provides that SGX-DC shall accept or reject for clearing such offsetting transactions as quickly after submission as would be technologically practicable if fully automated systems were used.