Variation margin requirements deadline looms

Variation margin requirements deadline looms

Certain margin requirements are due to be implemented by 1 September 2017. Dr Sharon Brown-Hruska, PRIME Finance Expert and former Chairman and Commissioner, Commodity Futures Trading Commission (CFTC) discusses the implementation of these margin requirements and how the market has prepared itself to comply with them.

What are the margin requirements that are set to be implemented by September 2017?

United States Prudential Regulators and the United States CFTC published final rules in the Federal Register regarding initial and variation margin requirements applicable to uncleared swap and security-based swap transactions in late 2015 (see 80 FR 74839, 30 November 2015) and early 2016 (see 81 FR 635, 6 January 2016) respectively.

These rules called for the gradual implementation of initial margin requirements, with swap entities with more than $3tn in swaps notional value required to post or collect initial margin in connection with new transactions with covered swap entities and financial end-users with material swaps exposure as of 1 September 2016. The threshold falls to $2.25tn in notional value on 1 September 2017, falls to $1.5tn on 1 September 2018, falls to $750bn on 1 September 2019, and falls to $8bn on 1 September 2020.

Swap entities with notional values greater than $3tn were subject to variation margin requirements with all uncleared swap counter-parties that were either swap entities or financial end-users as of 1 September 2016. All other swap entities were required to comply with variation margin requirements as of 1 March 2017.

However, the CFTC published a no-action letter, CFTC Letter No. 17-11 on 13 February 2017, that granted no-action relief on variation margin requirements until 1 September 2017, provided that a swap entity was not complying with variation margin requirements ‘solely because [the swap entity] has not, despite good faith efforts, completed necessary credit support documentation (including custodial segregation documentation, if any)’ or the swap entity ‘requires additional time to

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About the author:

Meet Emma:

1.Banking and finance lawyer with experience in derivatives, debt capital markets, securitisation and structured finance in London and Paris

2.Likes ballet, playing the harp and holidays

3.Thinks the law is always changing!

Emma trained and qualified at Allen & Overy LLP and worked in their derivatives and structured finance teams in London and Paris.  She then joined the foreign exchange prime brokerage legal team at Deutsche Bank before spending 4 ½ years with Crédit Agricole CIB advising the fixed income and derivatives desk.