The Commodity Futures Trading Commission’s (“CFTC” or “Commission”) Division of Swap Dealer and Intermediary Oversight (“DSIO”) recently issued relief to CFTC-registered swap dealers (“SDs”) from compliance with certain CFTC uncleared swaps margin requirements under two No-Action letters (“NALs”).
The relief under these two NALs extends only to those SDs that are obliged to comply with the CFTC’s regulations on margin for uncleared swaps. This excludes SDs who are obliged to comply with the uncleared swaps margin rules of their respective U.S. Prudential Regulator.
Below is an overview of both NALs.
I. March First Variation Margin Requirements Compliance Delayed Until September First
Through a No-Action letter dated February 13, 2017 (“February 13 NAL”) DSIO provided relief to a SD from complying with the variation margin requirements for swaps under CFTC Regulation 23.153 (17 CFR §23.153) that are subject to a March 1, 2017 compliance date (“March 1 VM Requirements”). The no-action relief extends until August 31, 2017.
The relief is subject to the following conditions:
- The SD does not comply with the March 1 VM requirements with respect to a particular counterparty solely because it has not, despite good faith efforts, completed necessary credit support documentation (including custodial segregation documentation, if any) with such counterparty or, acting in good faith, requires additional time to implement operational processes to settle variation margin in accordance with the March 1 VM requirements with such counterparty;
- The SD uses its best efforts to continue to implement compliance with the March 1 VM Requirements without delay with each counterparty following March 1, 2017;
- If an SD has existing variation margin arrangements with a counterparty, it must continue to post and collect variation margin with such counterparty until such time as the SD is able to comply with the March 1 VM Requirements; and
- The SD complies with the March 1 VM Requirements no later than September 1st with respect to all swaps entered on or after March 1, 2017.
DSIO states that it “intends to monitor the progress of SDs who rely on this [no-action] letter.” In addition, in his statement accompanying the NAL, Acting Chairman J. Christopher Giancarlo stated that the CFTC remains committed to the March 1 VM deadline. The no-action relief, however, recognizes that “as much as ninety percent of those [financial] end-users [subject to the deadline] are not ready to meet the new requirements despite their best efforts to do so.”
Despite this relief, it should be noted that as of February 17, 2017, neither the U.S. Prudential Regulators nor the European regulators have announced a similar delay in their respective March 1st compliance deadline for variation margin requirements.
II. Relief for Swap Dealers Complying with European Union Margin Requirements
Through a No-Action letter dated February 1, 2017 (February 1, 2017 NAL), DSIO provided relief to a SD that is subject to, and in compliance with, the European margin requirements that came into effect on February 4, 2017 (“EU EMIR RTS”) from complying with the CFTC’s regulations on margin for uncleared swaps. The no-action relief will be in effect from February 4, 2017 and ends on May 7, 2017.
Under the relief, any SD that is subject to, and is in compliance with the EU EMIR RTS need not comply with the CFTC’s regulations on margin for uncleared swaps.
 The “Prudential Regulators” refers to the Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation, the Department of the Treasury (the Office of the Comptroller of the Currency), The Farm Credit Administration and the Federal Housing Finance Agency.