Published a comparability determination under which it recognizes certain EU margin requirements for uncleared swaps as equivalent to the CFTC's uncleared margin framework for swap dealers (SDs) and major swap participants (MSPs) (see CFTC Equivalence Determination on EU Uncleared Swap Margin Rules).

Announced an agreement (trading venues agreement) with the European Commission (EC) regarding a common approach to the treatment of derivatives trading venues that are authorized in both the EU and the US (see Common Approach on Trading Venues).

The treatment of inter-affiliate (or intragroup) transactions. Both the CFTC and EC rules include anti-evasion measures in their inter-affiliate transaction rules. A primary concern the CFTC had in the analysis was the potential for an SD/MSP to import risk through an inter-affiliate trade where the affiliate is in a jurisdiction that had less stringent margin protection rules. The CFTC, however, noted that EC margin rules apply to inter-affiliate trades involving an affiliate located in a non-EU jurisdiction, unless a waiver is specifically granted by the EC.

Initial (IM) and variation margin (VM) calculation methodologies. The CFTC found that methods for calculating IM and VM are comparable under both regulatory regimes. The CFTC's analysis considered margin models and standardized margin schedules used to calculate IM, the use of historical data in margin models, eligibility for netting, and other aspects.

Timing of IM and VM calculations. As explained in the comparability determination, there are differences in the timing of IM calculations between CFTC and EC regulations (CFTC rules require IM calculations each business day whereas EC rules require IM calculation after certain events such as changes to the netting set). The comparability determination explains that the counterparties subject to EC regulations that actively manage their uncleared derivatives experience events that require IM recalculation on a daily basis anyway, effectively mimicking the CFTC rule that IM be recalculated on a daily basis.

Timing of IM and VM collections. Another key difference is the timing of posting/collecting margin, which is within one business day under CFTC rules and within two business days of the calculation date provided certain conditions are met under EC rules. Where the transfer timing extends to two days under EC rules, margin is recalculated to account for the extra time, ensuring a comparable outcome with CFTC rules.

The processes and standards for approving margin models. While the processes and standards are similar between the US and EU under the BCBS/IOSCO framework, which both the CFTC and EC used to formulate their regulations, there are some important differences in regulatory approach. Notable is the EC requirement that regulated parties keep margin model documentation open for regulatory review, which differs from the CFTC requirements that regulated parties obtain specific margin model pre-approval from a regulator. Under the EC system, however, authorities within the member states enforce appropriate regulations and controls that will result in a comparable outcome with CFTC rules.

Margin threshold levels or amounts. The CFTC acknowledged that the fluctuation of exchange rates could impact threshold levels, but considered the outcome of the EC rules comparable to those of the CFTC.

Risk-management controls for calculating IM and VM. Both CFTC and EC rules require the establishment of a unit that promotes controls and testing procedures to manage the entity's IM model.

Eligible collateral for IM and VM. The CFTC explains in the comparability determination that some differences in collateral rules exist, such as the CFTC requirement that VM be posted or collected in immediately available US denominated cash funds, compared to the EC's more liberal VM requirements. However, SDs and MSPs subject to EC rules would likely exchange funds in immediately available cash funds anyway, thus ensuring a comparable outcome between the two sets of rules.

Custodial arrangements, segregation, and rehypothecation. The CFTC notes that EC margin requirements in this area are less stringent than comparable CFTC requirements. Under the CFTC rules, IM must be held by one or more custodians that are not the SD/MSP, the counterparty, or a margin affiliate of either party. The EC rules do not include this restriction but do require that IM be protected from default or insolvency of the collecting counterparty and favor third-party custodians for non-cash collateral. The CFTC found this, plus other rules, offer adequate assurance of a comparable outcome between the two sets of rules.

Requirements for margin documentation. Both CFTC and EC rules require SDs/MSPs to document their relationship with each counterparty in a manner that establishes the method for calculating and exchanging IM and VM. In most cases this will be an ISDA Credit Support Annexes (CSA), as is already customary (see Practice Notes, The New ISDA® Credit Support Annexes and Global Margin Compliance for Uncleared Swaps and The ISDA Master Agreement: Negotiating the ISDA Credit Support Annex (CSA).

Cross-border application of margin regulations. The CFTC notes that the cross-border application of EC rules is substantially similar to that under CFTC rules. Similarities include the treatment of transactions subject to the laws of non-netting jurisdictions or jurisdictions that cannot ensure collateral protection. Under these circumstances, the EC rules state that margin must be either collected on a gross basis or the regulated party must limit their transactions with counterparties in that jurisdiction to 2.5% of the regulated party's portfolio. While not identical to CFTC rules, the CFTC found the protections under EC rules adequate and comparable in outcome.

Equivalence. In a two-part approach, the EU will propose that the EC adopt an equivalence decision that covers CFTC-registered SEFs and DCMs, while the CFTC will adopt an exemption from SEF registration requirements to trading venues that are authorized in accordance with the Markets in Financial Instruments Regulation (MiFIR) and markets in Financial Instruments Directive (MiFID II).

Applicable standards. The EC will assess CFTC-registered SEFs and DCMs under MiFIR Article 28, while the CFTC will assess EC trading venues under CEA Section 5h(g).