CFTC Proposes to Amend Margin Requirements for Uncleared Swaps
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
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Trevor Howes
IFRS 17 technical advisor; AXIS actuarial modeling system expert; extensive experience in life insurance and life reinsurance, with focus on modeling, valuation, and financial reporting
Previous Article
BCBS Workshop Examines Supervisory Issues on Artificial IntelligenceRelated Articles
PRA Finalizes Approach to Supervision of International Banks
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
FCA Issues PS21/9 on Implementation of Investment Firms Regime
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
EBA Proposes Regulatory Standards to Identify Shadow Banking Entities
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
IOSCO Proposes Recommendations on ESG Ratings and Data Providers
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
EC to Defer Application of SFDR Standards Till July 2022
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
EIOPA Consults on Reporting and Disclosures Under Solvency II
The European Insurance and Occupational Pensions Authority (EIOPA) proposed to amend the supervisory statement on supervision of run-off undertakings that are subject to Solvency II regulation.
BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
EBA Seeks Views on Proportionality Assessment Methodology
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
US Agencies Propose Changes to Call Reports and Instructions
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
PRA Finalizes Rulebook Definition of Higher Paid Material Risk-Taker
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
