February 13, 2017

CFTC’s Division of Swap Dealer and Intermediary Oversight Issues Time-Limited No-Action Transition for March 1, 2017 Compliance Date for Variation Margin and No-Action Relief from Minimum Transfer Amount Provisions

Time-limited no-action letter allows for a transition period to comply with new variation margin requirements

Washington, DC — The U.S. Commodity Futures Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight (DSIO) today issued a time-limited no-action letter stating that, from March 1, 2017 to September 1, 2017, DSIO will not recommend an enforcement action against a swap dealer (SD) for failure to comply with the variation margin requirements for swaps that are subject to a March 1, 2017 compliance date. The DSIO no-action letter does not postpone the March 1, 2017 compliance date for variation margin, rather it allows market participants a grace period to come into compliance. Without a proper transition, DSIO believes there could be a significant impact on the ability to hedge positions for pension funds, asset managers, and insurance companies that manage Americans’ retirement savings and financial security. This sort of phased compliance has been used many times in the implementation of the swaps rules contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Specifically, today’s letter provides transitional relief from CFTC Regulation 23.153 (March 1 VM Requirements) where:

(1) the SD does not comply with the March 1 VM Requirements with respect to a particular counterparty solely because it has not completed necessary credit support documentation (including custodial segregation documentation, if any) with such counterparty or, acting in good faith, requires additional time to implement operational processes to settle variation margin in accordance with the March 1 VM Requirements with such counterparty;

(2) the SD uses its best efforts to comply with the March 1 VM Requirements with each counterparty as soon as possible following March 1, 2017;

(3) to the extent the SD has existing variation margin arrangements with a counterparty, it must continue to post and collect variation margin with such counterparty in accordance with such arrangements until such time as the SD is able to comply with the March 1 VM Requirements with respect to that counterparty; and

(4) no later than September 1, 2017, the SD complies with the March 1 VM Requirements with respect to all swaps to which the March 1 VM Requirements are applicable entered on or after March 1, 2017.

DSIO also today issued a no-action letter stating that DSIO will not recommend an enforcement action against an SD, subject to certain conditions, that does not comply with the minimum transfer amount (MTA) requirements of CFTC Regulations 23.152(b)(3) or 23.153(c) with respect to one or more swaps with any legal entity that is the owner of more than one separately managed account (SMA). DSIO is providing this relief to allow SDs entering into swaps with SMAs to treat each account as a separate counterparty, subject to certain limits, for purposes of applying the MTA, despite that such accounts are owned by the same legal entity.

Last Updated: February 13, 2017