CFTC Rule on Segregating Assets Held as Collateral in Uncleared Swaps
CFTC approved amendments to Regulations 23.700 through 23.704, which govern the segregation of assets held as collateral in uncleared swap transactions. The amendments will become effective from May 03, 2019.
The final amendments require that a swap dealer’s (SD) or major swap participant’s (MSP) counterparty be notified of its right to require segregation at the beginning of the swap trading relationship rather than prior to each swap transaction or no less than annually. The final amendments also permit the notification to be provided to an appropriate person at the counterparty who can evaluate and act on it instead of specifying the job title of the person. Additionally, the final amendments allow the parties to negotiate and agree to the terms pursuant to which margin will be segregated and to negotiate and agree as to the types of investments permitted for segregated margin. Finally, the final amendments eliminate the requirement to identify in advance the custodian who will hold segregated margin and permitting the parties to make that selection if the counterparty elects to segregate.
The final rule originated as proposal from the Project KISS initiative, which is intended to simplify and reduce burden by revisiting the rules based on implementation experience and public comment. By reducing the unnecessary complexity and prescriptiveness of these rules, CFTC is providing additional flexibility for market participants, without reducing the effectiveness of its rules.
Related Link: Federal Register Notice
Effective Date: May 03, 2019
Keywords: Americas, US, Banking, Securities, Uncleared Swaps, Major Swap Participant, Swap Dealer, Project KISS, CFTC
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