February 23, 2011
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On February 22, NCSHA asked the Commodity Futures Trading Commission (CFTC) to verify that HFAs are eligible for the end-user exception from the mandatory swap clearing requirements under Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). 

The Dodd-Frank Act prohibits entering into a swap that is required to be cleared unless it is submitted to a designated clearing organization with full daily collateral posting for clearing, unless the swap qualifies for the end-user exception.  According to the Dodd-Frank Act, the end-user exception applies when a counterparty is not a financial entity, uses the swap(s) to hedge or mitigate commercial risk, and notifies the CFTC of how it is able to meet its financial obligations associated with the uncleared swaps.

In December, the CFTC published a proposed rule that would implement the Dodd-Frank Act’s end-user exception and impose substantial reporting requirements on entities taking advantage of the exception.

NCSHA’s comment on the proposed rule urges the CFTC to provide state and local governmental entities, specifically HFAs, an explicit exclusion from the definition of a “financial entity” as defined in Section 2(h)(7) of CEA.  NCSHA also asked the CFTC to verify that swaps used by HFAs qualify as swaps that “hedge or mitigate commercial risk,” as required by CEA.  In addition, NCSHA recommended that the CFTC eliminate the proposed rule’s trade-by-trade notification and reporting requirements and asked how the notification and reporting requirements will affect the end-user exception approval process.

Additional comments on the proposed rule are available on the CFTC’s website.