June 26, 2019

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CFTC’s Office of the Chief Economist Issues Report on Initial Margin Phase 5

On October 31, the Commodity Futures Trading Commission’s Office of the Chief Economist issued a report on “Phase 5” of the uncleared margin rules (UMR). The purpose of the report is to provide a guide to regulators in their responses to requests for relief from various industry representatives.

The UMR mandate that registered swap dealers exchange initial margin (IM) on trades with other swap dealers and financial end-users. The rules have been phased in, beginning with those entities having the highest aggregate daily average of notional amount swaps (AANA) over June, July and August of the previous year. With the exception of swaps with commercial end-users, all swaps are counted towards AANA, including swaps that are exempt from IM. The last two phases, “Phase 4” and “Phase 5,” are scheduled to take effect September 1 of 2019 and 2020, respectively. Phase 5 will capture entities with AANA between $8 billion and $750 billion.

Although Phases 1 through 4 are anticipated to capture just over 40 entities, Phase 5 could bring an additional 700 entities into the scope of the UMR. In light of the strain that this large increase in covered entities would place on their resources, industry representatives have requested various forms of relief from the regulators, noting, among other things, that in light of the comparatively small size of their swaps positions, the Phase 5 entities would pose little systemic risk. One of these requests, from a group of trade associations, has been sent to several regulators and seeks to have the Phase 5 threshold increased from $8 billion to $100 billion.

The report provides regulators with empirical data to guide their decision making, while reviewing these requests for relief, but makes no recommendations based upon its findings.

The Report is available here.

The request for relief is available here.

©2019 Katten Muchin Rosenman LLP


About this Author

Kevin M. Foley, Finance Lawyer, Katten Llaw Firm

Kevin M. Foley has extensive experience in commodities law and advises a wide range of clients, both in the United States and abroad, on compliance with the Commodity Exchange Act and the rules of the Commodity Futures Trading Commission (CFTC) affecting traditional exchange-traded products, as well as the over-the-counter markets involving swaps and other derivative instruments. His clients include futures commission merchants, derivatives clearing organizations, designated contract markets, foreign boards of trade and an industry trade association.


Timothy Nolan, Katten Law Firm, Chicago, Corporate Law Attorney

Timothy Nolan concentrates his practice on transactional, corporate and regulatory aspects of financial services matters. Timothy is able to provide legal services to a wide variety of clients, including proprietary trading firms, hedge funds, broker-dealers, registered investment advisers, commodity trading advisers, financial institutions and general corporate clients.

Prior to joining Katten, Timothy served as the CEO and the president of the board of directors of a small commercial real estate company and spent 10 years in the scrap recycling industry, including several years as general manager of a mid-sized company. In his time in the scrap recycling industry, Timothy worked with traders, brokers, importers and exporters, and other industry professionals around the world relating to ferrous, non-ferrous and precious metal recycling, together with paper and plastic recycling.