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    CFTC Proposes to Amend Margin Requirements for Uncleared Swaps

    October 24, 2019

    CFTC is seeking comment on a proposed amendment to the margin requirements for uncleared swaps for swap dealers and major swap participants for which there is no prudential regulator (CFTC Margin Rule). As adopted in 2016, the CFTC Margin Rule, which mandates the collection and posting of variation margin and initial margin, takes effect under a phased compliance schedule extending from September 01, 2016 to September 01, 2020. The proposed amendment would extend the compliance schedule to September 01, 2021, for entities with smaller average daily aggregate notional amounts of swaps and certain other financial products. By extending the compliance schedule, the proposed amendment would mitigate the potential market disruption that could result from such a large number of entities coming into the scope of the initial margin requirements on September 01, 2020. Comments must be received on or before December 23, 2019.

    BCBS and IOSCO revised their framework to extend the schedule for compliance with the initial margin requirements and provide an additional phase-in period for smaller counterparties. CFTC believes it is appropriate to amend the CFTC Margin Rule consistent with the revision in the BCBS and IOSCO framework. The proposal represents the CFTC effort to undertake coordinated action with international counterparts to achieve regulatory harmonization with respect to uncleared swaps margin. In proposing the change in the phase 5 compliance date, CFTC considered the relatively small amount of swap activity of the financial end-users that would be subject to the one-year extension. Given the relatively small amount of swap activity of the financial end-users in the extended compliance date group, CFTC believes the proposed compliance date extension will have a muted impact on the systemic risk, mitigating effects of the initial margin requirements during the extension period.

    Accordingly, CFTC proposes to amend Commission § 23.161(a), which sets forth the schedule for compliance with the CFTC Margin Rule, to add a sixth phase of compliance for certain smaller entities that are currently subject to phase 5. The proposed amendment would require compliance by September 01, 2020, for covered swap entities and covered counterparties with an average daily aggregate notional amounts (AANA) ranging from USD 50 billion up to USD 750 billion. The compliance date for all other remaining covered swap entities and covered counterparties, including financial end-user counterparties exceeding an material swap exposure of USD 8 billion in AANA, would be extended to September 01, 2021. In addition, CFTC is proposing non-substantive, conforming technical changes to Commission § 23.161(a). The proposed change will conform the CFTC Margin Rule to the rule text of the Margin Rule of Prudential Regulators, promoting further harmonization between both rules.

     

    Related Link: Federal Register Notice

    Comment Due Date: December 23, 2019

    Keywords: International, Americas, US, Banking, Securities, Margin Requirements, Implementation Timeline, Initial Margin, OTC Derivatives, Swaps, BCBS, IOSCO, CFTC

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