On February 13, the Division of Swap Dealer and Intermediary Oversight (Division) of the Commodity Futures Trading Commission (CFTC) provided time-limited no-action relief for failure of a swap dealer (SD) that does not have a prudential regulator to comply with the CFTC’s variation margin requirements by the March 1 compliance date (March 1 Requirements). (There are now a total of 104 swap dealers registered with the CFTC, and 51 of these have a prudential regulator.) Under the CFTC margin rules, SDs must collect and post variation margin with each counterparty that is an SD, major swap participant or financial end user starting March 1. SDs now have a grace period expiring September 1 to come into compliance if:
- the SD uses best efforts to comply with the March 1 Requirements as soon as possible after March 1;
- failure to comply is solely caused by an inability to finalize necessary documentation and to implement operational processes despite good faith efforts;
- in situations where the SD already exchanges variation margin with a counterparty, it continues to do so until the SD can comply with the March 1 Requirements; and
- the SD complies with the March 1 Requirements for every swap entered after March 1.
The no-action letter has no effect on the initial and variation margin requirements subject to the earlier September 1, 2016 deadline. More details are available in Letter 17-11.
Additionally on February 13, the Division granted no-action relief relating to the minimum transfer amount (MTA) requirements. Under CFTC Regulations 23.152(b)(3) or 23.153(c), SDs may apply an MTA of up to $500,000 to transfers of initial and variation margin to reduce the burdens associated with de minimis margin transfers. The no action relief permits SDs entering swaps with separately managed accounts to treat each account as a separate counterparty for purposes of applying the MTA, even if the separately managed accounts are owned by the same counterparty.
Letter 17-12 addressing the minimum transfer amount requirements is available here.