July 9, 2019

CFTC Staff Issues Advisory Clarifying $50 Million Initial Margin Threshold and Documentation Requirements

Washington, DC — The Commodity Futures Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight (DSIO) today issued a Staff Advisory noting that CFTC’s uncleared swap margin rules do not require documentation governing the posting, collection and custody of initial margin until the initial margin threshold amount exceeds $50 million.  The Advisory is issued in furtherance of the March 2019 statement by the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) concerning initial margin implementation.

“This Advisory makes clear to CFTC registrants that documentation requirements will not apply until the firms exceed the $50 million initial margin threshold,” said DSIO Director Matthew Kulkin.  “The documentation requirements may impose a heavy burden on Phase 5 entities coming into scope in September 2020, and we believe the CFTC staff clarification is appropriate in light of the BCBS-IOSCO March 2019 statement.”

The Advisory also clarifies that while no specific initial margin documentation is required prior to reaching the $50 million threshold, DSIO expects that CFTC-regulated swap dealers will have appropriate risk management systems in place to calculate and monitor initial margin amounts and will act diligently as the amounts approach the $50 million threshold to ensure compliance with the documentation requirements.