June 29, 2015

CFTC Issues Proposed Rule on Cross-Border Margin

Washington, DC — The U.S. Commodity Futures Trading Commission (Commission) today voted unanimously to propose a rule that would apply the Commission’s margin requirements for uncleared swaps in the context of cross-border transactions (Proposed Rule). The Proposed Rule would apply to Commission-registered swap dealers and major swap participants that are not subject to the margin requirements of other prudential regulators, such as the Federal Reserve Board, Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (collectively, covered swap entities). The comment period ends 60 days after the publication in the Federal Register.

The Dodd-Frank Wall Street Reform and Consumer Protection Act mandated that the Commission adopt margin rules for swaps of covered swap entities that are not centrally cleared. Because swaps that are not centrally cleared are an important part of the swaps market, margin requirements for uncleared swaps are critical to ensuring the safety and soundness of swap dealers and major swap participants and the stability of the U.S. financial system. In October 2014, the Commission proposed margin rules for uncleared swaps of covered swap entities and sought comment on three alternative approaches to the application of its margin rules in the context of cross-border transactions.

Under the Proposed Rule issued today, covered swap entities would be required to comply with the Commission’s margin rules for all uncleared swaps in cross-border transactions, with a limited exclusion. In addition, the Proposed Rule would allow covered swap entities to comply with comparable margin requirements in a foreign jurisdiction as an alternative means of complying with the Commission’s margin rules for uncleared swaps (substituted compliance). The Proposed Rule would work as follows:

• U.S. covered swap entities would be required to comply with the Commission’s margin rules for all uncleared swaps but would be eligible for substituted compliance with respect to margin that they post (but not that they collect) for swaps with certain non-U.S. counterparties.
  
  
• Uncleared swaps of non-U.S. covered swap entities whose obligations under the relevant swap are guaranteed by a U.S. person would be treated the same as uncleared swaps of U.S. covered swap entities.
  
  
• Uncleared swaps of non-U.S. covered swap entities whose obligations under the relevant swap are not guaranteed by a U.S. person would be eligible for substituted compliance unless the counterparty to the swap is a U.S. covered swap entity or a non-U.S. covered swap entity whose obligations under the swap are guaranteed by a U.S. person.
  
  
• Uncleared swaps between a non-U.S. covered swap entity and a non-U.S. counterparty would be excluded from the margin rules, if neither party’s obligations under the relevant swap are guaranteed by a U.S. person and neither party is a U.S. branch of a non-U.S. covered swap entity nor consolidated in the financial statements of a U.S. person.

With regard to substituted compliance, the Proposed Rule sets forth proposed procedures for requests for comparability determinations, including eligibility and submission requirements, as well as the standard of review that would apply to Commission determinations.

For more information, please see the Fact Sheet under Related Links.

Last Updated: June 29, 2015