The Commodity Futures Trading Commission (CFTC) Tuesday voted out a final rule that will “democratize the markets” by broadening access to real-time central clearing, according to Chairman Gary Gensler. The rule is designed to bolster competition in the multi-trillion-dollar swaps market and help commercial customers by providing hedging opportunities with lower risk and volatility.

The rule, which is a package of four proposals initiated under the Dodd-Frank financial reform law, cleared the Commission by a 4-1 vote, with Commissioner Scott O’Malia the sole dissenter. The Commission action came as gasoline prices were spiraling upward to $4.00 and above, even before the summer driving season, amid cries that excessive commodities speculation was partly to blame.

“The commission sent a loud message to Wall Street: no more dark markets and no more predatory behavior,” said Dennis Kelleher, CEO of Better Markets, a market reform advocacy group. “This rule will enable many businesses to compete in clearing swaps, rather than just the five big banks that now control 96% of the derivatives business in the United States…and protect taxpayers again from picking up the tab on another financial crisis.”

The final rule addresses documentation between a customer and a futures commission merchant (FCM) — such as Goldman Sachs and JP Morgan — that clears on behalf of the customer; the timing of acceptance or rejection of trades for clearing by derivatives clearing organizations (DCO) and clearing members; and clearing members risk management for swap dealers (SD), major swap participants (MSP) and FCMs that are clearing members.

With respect to clearing documentation, the regulations prevent agreements that would:

The rule further would require an SD, MSP and FCM to submit swaps for clearing to a DCO “as soon as technologically practicable after execution but no later than the close of business on the day of execution.” This essentially calls for clearing to be done as close to real-time as possible.

Swaps that are not subject to mandatory clearing, such as those used by end-users to mitigate their commercial risk, “must be submitted for clearing to a DCO not later than the next business day after execution of the swap, or the agreement to clear, if later than execution,” the agency said.

“This rule will foster bilateral clearing arrangements between customers and their FCM. The rule will promote competition in the provision of clearing services and swap liquidity to the broad public by limiting one FCM or swap dealer from restricting a customer or counterparty access to other market participants,” Gensler said.

The staff recommendations will provide an “appropriate nudge to the market to embrace the change to clearing even more quickly than it has,” said Commissioner Mark Wetjen.

The market will be required to comply with the rule by Oct. 1, according to Gensler. However, compliance could be later for SDs and MSPs if the agency has not defined the entities by that date.

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