October 31, 2014

CFTC Staff Issues Interpretation Regarding Notification and Reporting Requirements Applicable with Respect to Uncleared Swap Transactions

Washington, DC — The U.S. Commodity Futures Trading Commission’s (Commission) Division of Swap Dealer and Intermediary Oversight (DSIO) issued an interpretation that provides guidance as to the applicability of certain provisions of Commission Regulations 23.701 and 23.704. These regulations, among other things, impose certain notification and reporting requirements on swap dealers (SDs) and major swap participants (MSPs) with respect to margin posted by their counterparties in uncleared swap transactions.

The interpretation responds to several inquiries received by the Division regarding the applicability of these regulations under certain situations.

In general, the interpretation clarifies to SDs and MSPs that:

• The requirement that an SD or MSP must provide annual notification to each counterparty to an uncleared swap transaction of such counterparty’s right to elect to require segregation of initial margin continues to apply in any calendar year in which the SD or MSP enters into a new uncleared swap transaction with the counterparty. The SD or MSP is required to provide the annual notification whether or not the counterparty previously made an election to require the SD or MSP to segregate initial margin;
  
  
• The annual notification and quarterly reporting requirements set forth in Regulations 23.701 and 23.704 are not applicable if no initial margin is required to be posted by a counterparty or collected by an SD or MSP either by contract or regulation; and
  
  
• Under certain conditions an SD or MSP is not prohibited from relying on negative consent in complying with its obligations to obtain from its counterparty: (a) confirmation of the counterparty’s receipt of the annual notice provided by the SD or MSP under Regulation 23.701, and (b) the counterparty’s election to require or not require segregation.

Last Updated: October 31, 2014