CFTC approves proposals to amend margin requirements for uncleared swaps

The Commodity Futures Trading Commission (CFTC) announced on Friday 14th August 2020, that the approval for two proposals amending the margin requirements for uncleared swaps for Swap Dealers (SDs) and Major Swap Participants (MSPs) will proceed as planned.

The first proposal as stated under the CFTC’s amendments (CFTC Margin Rule) would be to align more closely with the Basel Committee on Banking Supervision and Board of the International Organization of Securities Commissions’ (BSBS/IOSCO) Framework for the margin requirements for non-centrally cleared derivatives (known as the “BCBS/IOSCO Framework”).

As a result, the CFTC has also proposed to allow SDs and MSPs subject to the CFTC Margin Rule, to use risk-based model calculations of the Initial Margin (IM) of a counterparty which is a: “CFTC-registered SD or MSP to determine the amount of IM to be collected from the counterparty and to determine whether the IM threshold amount for the exchange of IM has been exceeded such that documentation concerning the collection, posting, and custody of IM would be required.”

The second proposal amends the CFTC Margin Rule in relation to the “minimum IM and Variation Margin (VM) transfer amounts”. The application of a minimum transfer amount of USD 50,000 for separately managed accounts would be permitted in order to address the challenges that some market participants have encountered.

Commissioner Dan M. Berkovitz and Commissioner Dawn D. Stump issued a public statement following the announcement, mentioning that the margin rule is of critical importance to ensure that risks are mitigated in the financial system and to help promote liquidity.

Commissioner Dawn D. Stump concludes in her public statement:  “[…] the proposals reflect a thoughtful refinement of our rules to align them with the rest of the international regulatory community, and to take account of specific circumstances in which they impose substantial operational challenges (i.e., they are not workable) when applied to other market participants that are coming within the scope of their mandates.  I look forward to receiving public input on any improvements that can be made to the proposals to further enhance compliance with the Commission’s uncleared margin requirements.”

As a significant number of market participants approach the final phase of the CFTC Margin Rules scheduled to begin on September 2021 (delayed as a result of the coronavirus disease 2019 (COVID-19) pandemic), the CFTC has implemented these rule amendments as a responsibility to those end-users to ensure they are fit for purpose.


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