CFTC Finalizes Amendments to Margin Requirements for Uncleared Swaps

In January 2016, CFTC had adopted Regulations 23.150 through 23.161, namely the CFTC Margin Rule, to implement section 4s(e) of the Commodity Exchange Act, which requires swap dealers and major swap participants for which there is no a prudential regulator (covered swap entity) to meet minimum initial margin and variation margin requirements adopted by CFTC by rule or regulation. Then, in September 2020, CFTC proposed to amend the above stated aspects of the margin rule and received six comment letters, all of which expressed support for the proposal. Respondents generally noted that the proposed amendments represent practical solutions that ease the operational burden of compliance with the CFTC Margin Rule without materially increasing systemic risk. Two respondents also noted that, while consistent approaches to derivatives regulation are desirable, CFTC should adopt the proposed amendments even if the prudential regulators do not adopt similar changes. Several respondents highlighted the importance of regulatory certainty that the adoption of regulations consistent with the existing no-action relief would bring. The comments confirmed the rationale articulated for the proposal. As such, CFTC is adopting the amendments as proposed, including the following:

• CFTC is adopting the proposed amendment to the definition of minimum transfer amount in Regulation 23.151 to allow a covered swap entity to apply minimum transfer amount of up to USD 50,000 to each separately managed account owned by a counterparty with whom the covered swap entity enters into uncleared swaps.
• CFTC is revising the margin documentation requirements outlined in Regulation 23.158(a) to recognize that a covered swap entity can apply separate minimum transfer amounts for initial margin and variation margin with each counterparty in determining whether initial or variation margin or both must be posted or collected with a counterparty under Regulations 23.152 or 23.153.
• Consistent with the amendment to the definition of minimum transfer amount in Regulation 23.151, CFTC is adopting conforming changes to Regulations 23.152(b)(3) and 23.153(c) by replacing “USD 500,000” with “the minimum transfer amount, as the term is defined in 23.151.”

Related Link: Federal Register Notice

Effective Date: February 24, 2021

Keywords: Americas, US, Banking, Securities, Margin Requirements, Initial Margin, Variation Margin, Swaps, Derivatives, Margin Rule, CFTC