The Central Counterparties (Equivalence) (United States of America) (Commodity Futures Trading Commission) Regulations 2023

The Central Counterparties (Equivalence) (United States of America) (Commodity Futures Trading Commission) Regulations 2023 have recently been published in the official journal of the UK at legislation.gov.uk. The regulations are a major step in ensuring that U.S. central counterparties (CCPs) registered with the U.S. Commodity and Futures Trading Commission (CFTC) can provide clearing services to UK firms following the implementation of the temporary recognition regime subsequent to the UK leaving the European Union.
Specifically, the new regulations generally deem the rules and regulations of the CFTC for supervising CCPs equivalent to those of the UK. This equivalence, however, only applies to CCPs that have adopted policies and procedures to
– address and limit procyclical changes in margins for all derivative contracts;
– adopt a two-day liquidation period for non-OTC derivative positions which failed to be cleared by a clearing member; and
– hold sufficient capital to cover the default of at least two clearing members.
Also, certain derivative contracts are exempt from the noted policies and procedure requirements as the HM Treasury expects these contracts to be primarily traded in the U.S. and thus issues concerning such contracts would have no significant impact on the UK financial market. Such derivatives are those meeting certain requirements, including – among others – the requirement to be traded on a U.S. contract market, the requirement that they involve sugar, soybean oil, soybean meal, cocoa, coffee, or lumber, or the requirement that the physical location of the underlying is NOT in the UK.
Finally, the regulations deem the following two CCPs as equivalent provided that they meet the above noted conditions – as quoted:
1. Chicago Mercantile Exchange Inc, the company registered with the Securities and Exchange Commission of the United States of America, with Central Index Key 0001103945.
2. ICE Clear Credit LLC, the company registered with the Securities and Exchange Commission of the United States of America, with Central Index Key 0001559962.
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To conclude, the regulations stipulate that where a CCP is dually regulated by the CFTC and the U.S. Securities and Exchange Commission, the equivalence decision only applies to clearing activities authorized by the CFTC.