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    CFTC Adopts Amendments to Margin Requirements for Uncleared Swaps

    April 09, 2020

    CFTC is adopting amendments to the margin requirements for uncleared swaps for swap dealers and major swap participants, for which there is no prudential regulator (CFTC Margin Rule). It is adopting an amendment, along with certain conforming technical changes, to extend the compliance schedule for posting and collection of initial margin under the CFTC Margin Rule to September 01, 2021. This is being done for entities with smaller average daily aggregate notional amounts of swaps and certain other financial products. The compliance schedule currently extends from September 01, 2016 to September 01, 2020. The revised compliance schedule mitigates the potential of a market disruption, which could be triggered by the large number of entities that would come into scope of the initial margin requirements at the end of the current compliance schedule on September 01, 2020. The final rule will be effective from May 11, 2020.

    In July 2019, BCBS and IOSCO revised their framework to extend the implementation schedule for compliance with initial margin requirements to September 01, 2021. CFTC is adopting the final rule to help ensure continued access to the swaps markets for certain entities with relatively smaller levels of swap trading activities and in light of the recent revision to the implementation schedule set forth in the BCBS-IOSCO framework. CFTC received nine comment letters expressing support for proposal to extend the CFTC compliance schedule for initial margin requirements.

    CFTC is adopting the final rule to extend the compliance schedule for initial margin requirements to mitigate the potential for a market disruption that could be brought on by phase 5 at the end of the current compliance schedule. In adopting the final rule, CFTC has 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 that the final rule will have a relatively minor impact on the systemic-risk-mitigating effects of the initial margin requirements during the extension period.

    As proposed, the final rule amends Commission regulation 23.161(a) by adding a sixth phase of compliance for certain smaller entities that are currently subject to phase 5. The final rule requires 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 a material swap exposure of USD 8 billion in AANA, is extended to September 01, 2021. In addition, CFTC is adopting non-substantive, conforming technical changes to Commission regulation 23.161(a). This change conforms the CFTC Margin Rule to the rule text of the Prudential Regulators' Margin Rule, promoting harmonization between both regulators. 

    The prudential banking regulators in the United States have adopted a margin rule deadline extension proposal that is substantively the same as the CFTC final rule. At this time, there is no reason to believe the prudential regulators will not adopt their proposal. Finally, the current financial market turmoil resulting from the global coronavirus pandemic makes issuance of this relief to these smaller financial end-users particularly timely.


    Related Link: Federal Register Notice

    Effective Date: May 11, 2020

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

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