Featured Product

    CFTC Adopts Interim Rule on Margin Requirements for Uncleared Swaps

    April 01, 2019

    CFTC is adopting, and invites comments on, an interim final rule amending (in the context of a no-deal Brexit) the margin requirements for uncleared swaps for swap dealers and major swap participants for which there is no prudential regulator (CFTC margin rule). Although the interim final rule will be effective on April 01, 2019, CFTC will be accepting comments on the rule until May 31, 2019. CFTC also proposed to revise information collection titled "Confirmation, Portfolio Reconciliation, Portfolio Compression, and Swap Trading Relationship Documentation Requirements for Swap Dealers and Major Swap Participants" (OMB control number 3038-0088), for which the comments must be submitted on or before May 01, 2019.

    The interim final rule amends CFTC regulation 23.161 to provide that in a no-deal Brexit, subject to certain conditions, a legacy swap may be transferred and amended without revising the date (swap date) used for determining whether such uncleared swap was entered into prior to the applicable compliance date under the CFTC margin rule. The interim final rule is designed to allow an uncleared swap to retain its legacy status under CFTC margin rule or Prudential Margin Rule when so transferred.

    To be effective, CFTC believes the interim final rule must cover all the scenarios that would trigger the need for a covered swap entity or its counterparty to participate in amending an uncleared swap to relocate the swap in preparation for, or in response to, a no-deal Brexit. However, to benefit from the treatment of this amendment, the financial entity must arrange to make the amendments to the uncleared swap solely for transferring the uncleared swap to an Eligible Transferee once UK has withdrawn from EU. This purpose test also contains a requirement that the transfer be made in connection with the entity's planning for the possibility of a no-deal Brexit or the entity's response to such event.

    The interim final rule is designed to permit only such amendments as financial entities find necessary to relocate uncleared swap portfolios under the purpose test. These changes may be carried out using any of the methods typically employed for effecting uncleared swap transfers, including industry protocols, contractual amendments, or contractual tear-up and replacement. However, CFTC does not believe the relief being provided for relocation purposes should be expansively applied to encompass economic changes to a legacy swap. Accordingly, the benefits of this interim final rule are unavailable if the amendments to an uncleared swap modify the payment amount calculation methods, the maturity date, or the notional amount of the uncleared swap.

    CFTC also seeks to establish a reasonable period of time for the necessary work to achieve the transfers to be performed. The interim final rule permits transfers for a period of one year after UK withdrawal. The one-year period commences when the law of EU ceases to apply in UK, pursuant to Article 50(3) of the Treaty on EU, without conclusion of a Withdrawal Agreement between the UK and EU. If the present withdrawal date is extended and withdrawal later occurs at the end of that extension without a Withdrawal Agreement, the interim final rule's one-year period would begin at that time. CFTC contemplates that, if the withdrawal date is extended, financial entities may negotiate and document their desired transfers during the intervening period, under terms that delay consummation of any transfer until withdrawal takes place without an agreement and the interim final rule's substantive provisions are thereby triggered.

     

    Related Links 

    Comment Due Date: May 01, 2019 (Information Collection); May 31, 2019 (Interim Final Rule)

    Effective Date: April 01, 2019

    Keywords: Americas, Europe, UK, EU, US, Banking, Securities, Legacy Swaps, No-Deal Brexit, Margin Requirements, Brexit, Swap Margin Rule, CFTC

    Featured Experts
    Related Articles
    News

    APRA Finalizes Reporting Standard for Operational Risk Requirements

    APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.

    March 03, 2021 WebPage Regulatory News
    News

    ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting

    ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting

    March 01, 2021 WebPage Regulatory News
    News

    EBA Consults on Pillar 3 Disclosure Standards for ESG Risks Under CRR

    EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR).

    March 01, 2021 WebPage Regulatory News
    News

    EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package

    EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.

    February 26, 2021 WebPage Regulatory News
    News

    EBA Publishes Single Rulebook Q&A Updates in February 2021

    The EBA Single Rulebook question and answer (Q&A) tool updates for this month include answers to ten questions.

    February 26, 2021 WebPage Regulatory News
    News

    ESMA Releases Schema and Instructions for Securitization Reporting

    ESMA updated the set of questions and answers (Q&A), along with the reporting instructions and an XML schema for the templates set out in the technical standards on disclosure requirements, under the Securitization Regulation.

    February 26, 2021 WebPage Regulatory News
    News

    EU Rule Amends Requirement for European Single Electronic Format

    EU published Regulation 2021/337, which amends the Transparency Directive (2004/109/EC), regarding the use of the single electronic reporting format for annual financial reports.

    February 26, 2021 WebPage Regulatory News
    News

    EU Committee Recommends Systemic Risk Buffer of 4.5% in Norway

    The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.

    February 25, 2021 WebPage Regulatory News
    News

    PRA Clarifies Approach to Onshoring of Credit Risk Rules for UK Banks

    In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.

    February 25, 2021 WebPage Regulatory News
    News

    FSB Sets Out Work Priorities for 2021

    In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.

    February 25, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6637