CFTC Clarifies Initial Margin Threshold and Documentation Requirements

The DSIO Director Matthew Kulkin said, “The documentation requirements may impose a heavy burden on Phase 5 entities coming into scope in September 2020, and we believe the CFTC staff clarification is appropriate in light of the BCBS-IOSCO March 2019 statement.” The Advisory also clarifies that while no specific initial margin documentation is required prior to reaching the USD 50 million threshold, DSIO expects that CFTC-regulated swap dealers will have appropriate risk management systems in place to calculate and monitor initial margin amounts and will act diligently as the amounts approach the USD 50 million threshold to ensure compliance with the documentation requirements. The CFTC Margin Rule does not require counterparties to the covered swap entities, other than other the covered swap entities, to establish custodial services, document margin relationships, or operationalize the exchange of initial margin. Therefore, this advisory is not applicable to non-swap-dealer counterparties and does not address any obligation of such counterparties or suggest any such obligations.

Keywords: Americas, US, Banking, Securities, Swaps, Swap Dealers, Initial Margin, Phase 5 Entities, Margin Requirements, CFTC