On May 17, the Commodity Futures Trading Commission released a proposed rule to amend the CFTC’s margin requirements for uncleared swaps for swap dealers and major swap participants. The proposed rule amendments are intended to make the same changes to the CFTC margin requirements that federal banking regulators recently proposed for the margin rules for swap dealers that are subject to prudential regulation (for more information, please see the Corporate & Financial Weekly Digest edition of February 12, 2018). The proposed rule will ensure that master netting agreements of firms subject to the CFTC margin requirements are not excluded from the definition of “eligible master netting agreement” merely because they comply with recent regulatory changes to the treatment of qualified financial contracts executed with banks (“QFC Rules”).

The definition of “eligible master netting agreement” does not currently allow an agreement to contain certain restrictions on the exercise of a covered swap entity’s cross-default rights, which are required under the QFC Rules. The proposed rule would amend the definition of “eligible master netting agreement” to allow such restrictions. The proposed rule also makes clear that a swap would not lose its legacy treatment under the CFTC margin requirements (causing it to become a covered swap and causing any netting portfolio in that it is included to be subject to the CFTC margin requirements) by virtue of the swap being amended solely to conform to the QFC Rules.

In the press release accompanying the proposed rule, the CFTC indicated that the proposed rule was designed to reduce regulatory burdens in the derivatives market and eliminate red tape that hinders job creation.

The proposed rule is available here.