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LCH Given Six-Month Extension to Meet Swap Acceptance Time Rule

LCH.Clearnet Group Ltd., the largest interest-rate swap clearinghouse, has been given an extra six months by the main U.S. derivatives regulator to meet a requirement to accept trades in less than a minute.

“LCH has represented that it will use the extension period to install, and to perform full regression and performance testing of” its systems “to accept or reject trades within 60 seconds after submission,” the Commodity Futures Trading Commission said in a Nov. 21 letter granting the extension to London-based LCH.Clearnet. The letter was obtained by Bloomberg News. Rules passed in March required clearinghouses to have the systems in place by Oct. 1.

Companies in the $639 trillion swaps market including CME Group Inc. and Intercontinental Exchange Inc. have asked for and received grace periods to comply with rules that the CFTC is now implementing under the 2010 Dodd-Frank Act. Last month, CFTC Commissioner Scott O’Malia said the agency would issue 18 no-action letters and other guidelines granting temporary relief from regulations as the industry and the CFTC couldn’t meet the target dates.

Nina Truman, a spokeswoman for LCH.Clearnet, confirmed that the company had been given until March 31 to meet the clearing-time requirement.

Regulation Overhaul

The CFTC is among several agencies writing and implementing rules mandated by Dodd Frank, which overhauled U.S. financial regulation in the wake of the 2008 financial crisis. The act required U.S. regulators to oversee the over-the-counter swaps market for the first time.

The rule passed in March for how much time clearinghouses had to accept or reject swaps said only that transactions had to be completed as soon as technologically possible if fully automated systems were used, leaving regulators confused and market participants struggling to comply. Ananda Radhakrishnan, director of the division of clearing and risk, said in an Aug. 31 e-mail to clearinghouse executives that they had one minute to accept or reject trades.

Earlier this month, CME Group and Intercontinental Exchange and other swaps clearinghouses received an extra two months to implement new collateral rules required by the CFTC to give the industry more time to resolve technology problems, according to a Nov. 1 letter from Radhakrishnan. Clearinghouses sought an extension from the CFTC in a letter on Oct. 30.

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