On February 13, 2017, the CFTC issued No-Action Letter 17-11 (No-Action 17-11), delaying the upcoming March 1, 2017 deadline for compliance with its Dodd-Frank variation margin (VM) rules for uncleared swaps entered into by swap dealers (SDs) until September 1, 2017. Note that this relief applies only to entities subject to CFTC margin rules. The analogous deadline for entities subject to the US prudential margin rules has not been extended as of this time. The CFTC rules apply primarily to non-bank SDs, such as broker-dealers, and cover about half the market.

The CFTC's VM rules are subject to a two-part phase-in schedule (see Practice Note, The Dodd-Frank Act: Margin Posting and Collection Rules for Uncleared Swaps: Variation Margin Under the Final CFTC Rules). The first phase covered all uncleared swap transactions between SDs and their SD, MSP, or financial end-user counterparties in which the combined average aggregate notional amount of non-centrally cleared derivative transactions between the parties and their affiliates exceeds $3 trillion. Parties were required to begin posting and collecting VM for these transactions on September 1, 2016. The second phase requires parties to begin posting and collecting VM for the remaining SD uncleared swaps that were not covered under the first phase. The second phase was set to begin on March 1 (March 1 VM requirements).

In an effort to preserve the CFTC's commitment to the implementation schedule, the March 1 deadline remains technically in effect during the no-action period. In addition, all swaps entered into on or after March 1, 2017 will be subject to the March 1 VM requirements by September 1, 2017.

No-Action 17-11 offers relief to SDs under the following conditions:

SDs relying on No-Action 17-11 will be expected to make "continual, consistent, and quantifiable" progress towards compliance with the March 1 VM requirements on a rolling basis during the no-action period.

Because of these new margin rules, SDs must amend their existing ISDA credit support annexes (CSAs) or enter into new CSAs with their counterparties that reflect the VM requirements. ISDA has developed global margin compliance documentation, as well as other important compliance tools to assist market participants with this process (for details, see Practice Note, The New ISDA® Credit Support Annexes and Global Margin Compliance for Uncleared Swaps).

The March 1, 2017 deadline aligned with VM deadlines under the US prudential margin rules and rules in other jurisdictions. However, with market participants scrambling to renegotiate their CSAs to conform their collateral arrangements to the new rules ahead of the upcoming deadline, industry groups including ISDA and SIFMA requested that both US and non-US regulators provide additional time for the market to come into compliance. Reports have suggested that at present only around 5% of the required documentation has been renegotiated.

The relief provided under No-Action 17-11 throws global margin deadlines even further out of alignment (the EU already has different deadlines). Even within the US itself, where some SDs are subject to the CFTC rules and others are subject to analogous rules issued by US prudential bank regulators (prudential rules), there are differing deadlines. US prudential regulators have yet to issue similar relief from the March 1, 2017 deadline for prudential VM requirements.

Acting CFTC Chairman Giancarlo hinted last month that the CFTC would take steps to "ease" the looming March 1 deadline in response to concerns that smaller firms, including US pension and retirement funds, would be unable to meet the March 1 deadline and would therefore be required to stop hedging their portfolios as of that date (see Legal Update, CFTC To Delay March 1 Swap Variation Margin Deadline).