CFTC Delays Initial Margin (IM) Phase Five Compliance for One Year to September 1, 2021 as a Result of COVID-19 | Practical Law

CFTC Delays Initial Margin (IM) Phase Five Compliance for One Year to September 1, 2021 as a Result of COVID-19 | Practical Law

The CFTC adopted an interim final rule amending CFTC uncleared swap margin collection rules for swap dealers (SDs) and major swap participants (MSPs) in accordance with BCBS-IOSCO global initial margin (IM) implementation COVID-19-related timeline revisions. The amendment extends the Phase Five compliance date to September 1, 2021 for swap portfolios that are subject to the rules.

CFTC Delays Initial Margin (IM) Phase Five Compliance for One Year to September 1, 2021 as a Result of COVID-19

by Practical Law Finance
Published on 02 Jun 2020 • USA (National/Federal)
The CFTC adopted an interim final rule amending CFTC uncleared swap margin collection rules for swap dealers (SDs) and major swap participants (MSPs) in accordance with BCBS-IOSCO global initial margin (IM) implementation COVID-19-related timeline revisions. The amendment extends the Phase Five compliance date to September 1, 2021 for swap portfolios that are subject to the rules.
On May 28, 2020, the CFTC adopted an interim final rule (IFR) amending CFTC uncleared swap margin collection rules (CFTC margin rules) for swap dealers (SDs) and major swap participants (MSPs) for which there is no prudential regulator in accordance with BCBS-IOSCO global initial margin (IM) implementation COVID-19-related timeline revisions. The amendment extends the Phase Five compliance date for the CFTC margin rules to September 1, 2021 for covered swap entities (CSEs) with daily aggregate average notional amounts (AANA) of uncleared swaps, uncleared security-based swaps (SBS), foreign exchange (FX) forwards, and FX swaps (collectively, uncleared swaps) during March, April, and May 2021 outstanding of between $50 billion and $750 billion.
The extension follows recent Basel Committee on Banking Supervision and International Organization of Securities Commissions (collectively, BCBS/IOSCO) COVID-19-related global IM timeline revisions (see Legal Update, BCBS and IOSCO Extend Final Global Margin Implementation Deadline for Non-Centrally Cleared Derivatives to September 1, 2021).
The CFTC is issuing the IFR to address the impact of the COVID-19 pandemic on entities nearing the September 1, 2020 compliance deadline. The revised CFTC margin phase-in schedule now requires compliance with CFTC margin rules by September 1, 2021 for:
  • Phase Five CSEs where both (i) the CSE combined with all its affiliates and (ii) its counterparty combined with all its affiliates have an AANA of uncleared swaps outstanding during March, April, and May 2021 that exceeds $50 billion.
  • Phase Six, which covers all other remaining CSEs and covered counterparties, including financial end-user counterparties, that have material swaps exposure (MSE), which is equal to AANA of uncleared swaps outstanding exceeding $8 billion. (Note that CFTC Phase Six still refers to June, July, and August of 2020 for counting months.)
Under the IFR, the CFTC also indicated its intent to issue a notice of proposed rulemaking regarding the September 1, 2021 Phase Six compliance date in the near future to make the CFTC compliance dates consistent with the latest BCBS/IOSCO extension of Phase Six to September 22, 2022 (see Legal Update, BCBS and IOSCO Add One-Year Deferral to Global Initial Margin (IM) Phase-In Schedule in Response to COVID-19).
Note that the corollary prudential IM rules, for CSEs regulated US prudential bank regulators, have not yet been amended to accommodate the revised BCBS/IOSCO IM implementation schedule, though they have issued a proposal (see Legal Update, Prudential Banking Agencies Propose Modifications to Swap Prudential Margin Rules to Accommodate Revised Global Initial Margin (IM) Phase-In Timeline, Remove Inter-Affiliate IM Requirement, and Exempt Swaps Amended for LIBOR Replacement). The CFTC margin rules cover CSEs that are not regulated by a prudential regulator.
Public comment on the IFR must be received on or before September 8, 2020.
For details on the CFTC margin rules, see Practice Note, US Derivatives Regulation: Margin Collection and Exchange Requirements for Uncleared Swaps: Final CFTC Margin Rules.