CFTC Proposed Rule: Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, May 2011
|RE-PROPOSED RULE: This page refers to the CFTC's originally proposed rulemaking on Margin and Capital Requirements Regulation. For a summary of the re-proposed rule, September 2014, click here.|
|Original Proposal||Re-proposal Approved||Final Rule Approved|
|May 12, 2011||September 17, 2014||December 16, 2015|
On April 12, 2011, the Commodity Futures Trading Commission (CFTC) held its thirteenth in the series of open meetings to consider the issuance of proposed rulemakings under the Dodd-Frank Act. One of the agenda items was a proposed rule regarding margin requirements for uncleared swaps.<ref>Open Meeting on Thirteenth Series of Proposed Rules under the Dodd-Frank Act. CFTC. Retrieved on April 15, 2011.</ref>
The Dodd-Frank Act includes a mandate for the CFTC to create specific rules for swap dealers and major swap participants, including the setting of policies for margin requirements for uncleared swaps. These rules would only apply to swap dealers (SDs) and major swap participants (MSPs) not subject to oversight by prudential regulators, such as the U.S. Department of the Treasury, the FDIC and the Federal Reserve. Margin and capital rules for SDs and MSPs subject to such oversight by prudential regulators can be found in a separate proposal from April 12, 2011.
Under the CFTC Proposal, margin requirements will vary depending upon the counterparty of the SD/MSP:
- The rules would not impose margin requirements on commercial end users, defined under the proposed rules as non-financial entities.
- For trades between two SD/MSPs, each party must collect and pay initial and variation margin.
- For trades between a SD/MSP and a financial entity, the SD/MSP must collect, but not pay, margin.
- For trades with a non-financial entity ("commercial end-user"), no margin is required, but rather a counterparty credit agreement must be arranged and abided by.
- Calculation of margin would entail the use of a margin model from a derivatives clearing organization (DCO), prudential regulator, or other model approved by the commission.
- Margin must be posted in the form of an approved asset class, and would be required to be held at a third-party custodian.
Related Documents: Fact Sheet, Q&A, Federal Register Entry