September 20, 2021

Volume XI, Number 263

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September 20, 2021

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CFTC Final Rules Related to Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants & Related to SEFs and Withdraws Comprehensive Proposals

CFTC Unanimously Approves Final Rules Related to Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants

On December 8, the Commodity Futures Trading Commission (CFTC) unanimously approved two final rules related to margin requirements for uncleared swaps for swap dealers (SD) and major swap participants (MSP).

The CFTC approved a final rule that amends the margin requirements for uncleared swaps for SDs and MSPs for which there is no prudential regulator (CFTC Margin Rule). The final rule permits the application of a minimum transfer amount (MTA) up to $50,000 for each separately managed account of a legal entity that is a counterparty to an SD or MSP in an uncleared swap transaction and allows the application of separate MTAs for initial margin and variation margin.

Additionally, the CFTC approved a final rule amending the CFTC Margin Rule’s definition of material swaps exposure (MSE) by revising the method for calculating the average aggregate notional amount of uncleared swaps and other financial products (AANA) for determining MSE. Specifically, the final rule changes the period for calculating AANA from June, July and August of the prior year, to March, April and May of the current year, requiring the averaging of month-end AANA instead of daily AANA over the three-month calculation period. The final rule also establishes September 1 of each year as the date for determining MSE after the end of the phased compliance schedule for initial margin.

Each rule is effective 30 days after publication in the Federal Register.

The final rules are available here.


CFTC Unanimously Approves Final Rules Related to SEFs and Withdraws Comprehensive Proposals

On December 8, the Commodity Futures Trading Commission (CFTC) approved a final rule amending Part 37 of the CFTC Regulations addressing operational issues facing swap execution facilities (SEF) and their market participants in connection with the CFTC’s regulatory requirements for a SEF’s audit trail data, financial resources, and chief compliance officer (CCO). Specifically, the Final Rule (1) eliminates the requirement for a SEF to capture and retain post-execution allocation information in its audit trail data, (2) applies the existing Core Principle 13 financial resources requirements to SEF operations in a less burdensome manner, and (3) streamlines requirements for the CCO position and allows SEF management to exercise greater discretion in CCO oversight.

Additionally, the CFTC approved a final rule establishing two exemptions from the requirement to execute certain types of swaps on a SEF or a designated contract market. The first such exemption applies to a swap that meets the requirements of any exception or exemption under part 50 of the CFTC regulations. The second trade execution exemption codifies relief provided under CFTC Letter No. 17-67 and other staff letters, and applies to a swap that is entered into by eligible affiliate counterparties and cleared, regardless of the affiliates’ ability to claim the inter-affiliate clearing exemption under CFTC Regulation Part 50.52.

The CFTC also withdrew more comprehensive proposals to overhaul the SEF regulatory framework.

The press release and access to the final rules are available here.

©2021 Katten Muchin Rosenman LLPNational Law Review, Volume X, Number 346
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About this Author

Christian B. Hennion, Finance Attorney, Katten Muchin Law Firm
Associate

Christian B. Hennion concentrates his practice in financial services and asset management matters, including counseling fund managers, registered investment advisers and commodity trading advisors on both transactional and regulatory matters. Chris has advised a wide range of US and international managers, from start-ups to large institutions, regarding a variety of matters, including private fund launches and reorganizations, advisory engagements, Investment Advisers Act and Commodity Exchange Act compliance obligations, Securities and Exchange Commission (SEC) and Commodity Futures...

312-902-5521
Jack West Financial Attorney Katten
Associate

Jack West is an associate in the Financial Markets and Funds practice.

312-902-5463
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