End-User Exception Election

For swaps subject to mandatory clearing, end users will be exempt if they qualify for the end user exception and provide justification. The end user exception must be elected on a per trade basis.

  • If an end user is facing a swap dealer, the exempt end user would provide the information to its swap dealer counterparty, or its financial entity counterparty. The dealer or financial entity would report this information to a “swap data repository” along with the specific trade details.
  • If two end users face each other, one of the end users would have to notify the CFTC, through reporting to the SDR, that the election to use the end-user exception to mandatory clearing.
  • The CFTC’s final rule would require any end user that wishes to be exempt from clearing to report additional information on an at-least annual basis. The information required to be reported includes:
  1. Basic legal entity information
  2. Whether the entity is hedging commercial risk
  3. Whether the end user posts margin or otherwise secured some or all of the swap exposure (e.g., through “cross-collateralization”)
  4. Whether a financial affiliate is acting as an agent and entering into the hedge on behalf of a non-financial end user
  5. If public (i.e., an “SEC filer”), the firm’s central index key
  6. If public, evidence of “board” approval

Impact on Non-Financial End Users