Concurring Statement of Commissioner Dan M. Berkovitz on Final Rule Extending Uncleared Swap Margin Deadline for Financial Entities with Small Swap Portfolios

March 18, 2020

I concur with issuing the final rule to extend by one year the initial swap margin compliance deadline for financial entities with smaller swap portfolios.

As I noted in my statement when this rule was proposed, generally I am not sympathetic to requests to extend compliance deadlines when a long lead-in period has been provided.  The compliance date for swap margin rule compliance was set more than four years ago.  However, this deadline extension will benefit hundreds of entities with smaller swap portfolios while having only a limited impact on the systemic risk mitigation benefits of the initial margin requirements.

Importantly, the final rule does not change variation margin requirements that are already effective.  The extension in the final rule only applies to the initial margin requirement, which covers estimated potential future exposures.

Furthermore, the final rule only extends the deadline for financial end users that have average daily aggregate notional amounts (“AANA”) less than $50 billion.  A CFTC Office of the Chief Economist (“OCE”) analysis indicates that around 700 entities with 7,000 swap arrangements that need to be modified would be included in this group.  The final rule provides more time to these smaller users of swaps, which will help maintain the hedging capabilities of these market participants while they negotiate and establish the necessary margining agreements.

The OCE analysis also provides data on the muted impact of the final rule on systemic risk mitigation.  The total estimated AANA for entities that can use the extension is approximately three percent of the total AANA of entities subject to the margin rules.  In my view, this data is critical to supporting a one year extension as it indicates the likely effect on systemic risk mitigation will be quite limited.

Also, other United States and foreign regulators are adopting similar extensions.  The prudential banking regulators in the United States have adopted a margin rule deadline extension proposal that is substantively the same as the CFTC final rule.  At this time there is no reason to believe the prudential regulators will not adopt their proposal.

Finally, the current financial market turmoil resulting from the global coronavirus pandemic makes issuance of this relief to these smaller financial end users particularly timely. 

Accordingly, I concur in adopting the final rule.