On May 19, the Commodity Futures Trading Commission’s Global Markets Advisory Committee approved a report that contains several recommendations for action by the CFTC with respect to the implementation of its initial margin (IM) rules for uncleared swaps. The recommendations are focused on the unique challenges faced by small end users of swaps and entities that engage in swap activity through separate managed accounts (SMAs).
The report recommends that the CFTC take all of the following actions:
- issue Interpretive Guidance to confirm that a swap dealer can continue to trade with an SMA client in the case of an inadvertent breach of the $50M IM threshold;
- eliminate undue restrictions on collateral eligibility of Money Market Funds;
- provide exemption from consolidation of seeded funds with sponsors for purposes of aggregate average notional amount (AANA) calculation;
- remove barriers for small dealers to rely on the ISDA Standard Initial Margin Model (SIMM) Calculations of a larger counterparty dealer;
- provide a six‐month forbearance period for each dealer-small end user relationship commencing from the day the regulatory IM amount for the relationship exceeds the $50M IM Threshold;
- permit application of a separate IM threshold for each SMA of an SMA client;
- expand forbearance for SMAs;
- align the Margin Rules’ timing and calculation methodology for Material Swaps Exposure and Phase‐In Compliance Periods with International Standards;
- as an alternative to globally aligned Phase‐in Compliance Dates, confirm that the Initial Post Phase‐in Compliance Date is January 1, 2023, consistent with the EU and Switzerland;
- codify relief provided in CFTC Letters No. 17‐12 and 19‐25, which address practical challenges of applying Minimum Transfer Amounts to Collateral Settlement; and
- remove deliverable foreign exchange (FX) from AANA calculation.
The CFTC commissioners participated in the call approving the report.
The GMAC report on Initial margin is available here.