CFTC Open Meeting, April 12, 2011
|Original Proposal||Re-proposal Approved||Final Rule Approved|
|May 12, 2011||September 17, 2014||December 16, 2015|
|Final Rule Issue||Effective Date||Compliance Date|
|June 12, 2012||August 13, 2012||April 10, 2013|
Open Meeting on Thirteenth Series of Proposed Rules under the Dodd-Frank Act
Link to archive webcast:
The Commodity Futures Trading Commission (CFTC) public meeting focused on the issuance of proposed rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act on the following topic:
- Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants,
- Proposed rule on pre-enactment swap data recordkeeping was approved in seriatim, rather than during the open meeting, and will be submitted to the Federal Register without a vote. This rule is a clarification and follow-up to a prior rule proposal on post-enactment swap data recordkeeping and reporting requirements.
- Proposed rulemaking relating to conforming amendments to current CFTC regulations, originally planned for this meeting, was tabled until the April 27, 2011 open meeting.
Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants proposal passed 4-1, with Commissioner O'Malia voting against. The deadline for comments will be extended beyond the typical 60-day period, to coordinate the comment period with subsequent related rulemaking.
Margin for Uncleared Swaps Proposal
Pre-enactment and Transition Swap Data Recordkeeping and Reporting Requirements
Chairman Gary Gensler; whose statements include:
- "The prudential regulators today are proposing margin rules for the dealers that they regulate. For trades between swap dealers (or major swap participants), the rules would require paying and collecting initial and variation margin for each trade. For trades between swap dealers (or major swap participants) and financial entities, the rules would require the dealer (or major swap participant) to collect, but not pay, initial and variation margin for each trade, subject in certain circumstances to permissible thresholds."
- "The proposed rule would not require margin to be paid or collected on transactions involving non-financial end-users hedging or mitigating commercial risk."
- "CFTC staff worked very closely with prudential regulators to establish initial and variation margin requirements that are comparable to the maximum extent practicable."
Commissioner Michael V. Dunn, whose statements include:
- The story of DCO’s, who met all of their financial obligations, and AIG, who needed a massive government bailout to survive, illustrates the importance of margin in the cleared and uncleared world. In my opinion, companies like AIG simply cannot be allowed to amass swap positions so large without posting the necessary levels of initial and variation margin. Without margin requirements, positions of such magnitude will again threaten to destabilize the entire financial system."
Commissioner Bart Chilton, whose statements included:
- Although this proposal was one in which the commission "could have overreached" its authority, Chilton believes this proposal "struck a good balance."
- Harmonization is an issue with this proposal, as there are differences between it and those of prudential regulators and those of the European Union regulators. The commission must be increasingly mindful of harmonization as it approached the final rulemaking period.
Commissioner Jill Sommers; whose statements include:
- In reference to the difference between rule proposals by the CFTC versus the European Market Infrastructure Regulation (EMIR), "While I am supportive of today’s proposal on margin requirements for uncleared swaps for swap dealers and major swap participants, I believe we must continue to work to harmonize our rules internationally."
- Recognition that, although the CFTC proposal is similar to that of the prudential regulators, "there are some important differences, particularly with respect to commercial end-users."
Commissioner Scott O’Malia; whose statements include:
- "Despite endless attempts to conform the rules, the treatment of end-users couldn’t be further apart. The rules proposed by the prudential regulators will require that end-users pay initial and variation margin to banks. Alternatively, the Commission’s rule requires transactions between a swap dealer and an end-user to simply include a credit support agreement and nothing more. Unfortunately, this isn’t the only inconsistency between the rulemakings."
- Regarding lack of a cost-benefit analysis of the proposal: "What are the costs associated with the segregation of collateral at a custodian bank? It certainly is not free. What are the costs associated with posting margin and what benefit do we gain from allowing margin requirements to be imposed on commercial end-users that pose little, if any, systemic risk to the financial system?"
- Citing dissatisfaction with the lack of harmonization in rulemaking, O'Malia planned to vote against the proposal.
- Open Meeting on Thirteenth Series of Proposed Rules under the Dodd-Frank Act. CFTC. Retrieved on April 14, 2011.