Linklaters LLP offers a summary of what it believes to be the core aspects of the US margin rules for non-cleared swaps
In the past few months, the U.S. bank regulators (the “Prudential Regulators”) and the U.S. Commodity Futures Trading Commission (the “CFTC”, and together with the Prudential Regulators, the “Agencies”) have finalized their respective versions of the margin requirements (the “U.S. Margin Rules”) for swaps and security-based swaps not cleared through a clearinghouse (“Non-Cleared Swaps”). The U.S. Margin Rules establish (i) minimum required amounts of initial and variation margin for Non-Cleared Swaps, (ii) types of eligible collateral and (iii) requirements related to margin segregation, documentation and netting arrangements. These requirements will largely impact a financial entity (including pensions, brokers, ABS issuers and investment funds) executing Non-Cleared Swaps with a registered swap/security-based swap dealer or major swap/security-based swap participant. Market participants looking to confirm they are not captured by the new requirements will either need to confirm they are not a financial entity, or that an exemption is available to them.
The U.S. Margin Rules are effective April 1, 2016, with phased-in compliance dates starting September 2016. Market participants subject to the U.S. Margin Rules may have to amend existing or implement new swap documentation, credit support annexes and custodial agreements, prior to the applicable compliance date, along with making other changes to internal operations to ensure on-going compliance. This note from LinkLaters LLP summarizes what we consider to be the core aspects of the U.S. Margin Rules. See PDF below.
***This is an updated Client Note to our March 2, 2016 Client Note. Included in this update are the CFTC’s final cross-border rules, expanded discussions regarding minimum transfer amounts, the Legacy Swap Exemption, non-netting jurisdictions, non-segregation jurisdictions, the CFTC’s treatment of affiliate transactions and the Prudential Regulator’s cross-border rules, and an updated Conclusion to this Client Note.
