Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants

Following the notification by the US Commodity Futures Trading Commission (CFTC) in July this year (please see EventID #22513), the Commission has now published in the Federal Register its proposed rule to amend Statutory Instrument 17 CFR Part 23 to change the margin requirements for uncleared swaps, specifically those pertaining to swap dealers (SDs) and major swap participants (MSPs) not under the oversight of a prudential regulator.
The CFTC particularly proposes to:
– relief certain collective investment vehicles that obtain their initial capital, either in full or in part, from a sponsor entity (referred to as seeded funds) from initial margin requirements;
– as a result, the swap dealers and/or major swap participants would be exempt from collecting initial margin with the seeded funds for three years from the inception of trading;
– broaden the range of assets that meet the criteria for eligible collateral by deleting a provision under which securities issued by money market and similar funds that transfer their assets through securities lending, securities borrowing, repurchase agreements, reverse repurchase agreements, and similar arrangements are not eligible as IM collateral; and
– amend the current haircut schedule by adding a footnote that was not included in the original published rule.