The Commodities Futures Trading Commission (CFTC) is giving a break to swap dealers on a margin rule which was set to take effect on February 4.
“The U.S. Commodity Futures Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight (DSIO) today issued a time-limited no-action letter stating that, from February 4, 2017 to May 8, 2017, it will not recommend an enforcement action against a swap dealer (SD) that is subject to, and in compliance with, the margin requirements for non-centrally cleared OTC derivatives in the European Union (EMIR RTS) for failure to comply with the CFTC’s final margin rule (Final Margin Rule).” The CFTC stated in a press release.
The regulation is pursuant to section 4s(e) of the Commodities Exchange Act (CEA), according to a letter released by the CFTC.
The moratorium comes because the European Union has issued its own set of margin rules for swap dealers, and taken together, the CFTC felt implementation, for swap dealers also subject to EU rules, would be too burdensome.
“September 1, 2016 was the first compliance date for the Final Margin Rule” The CFTC letter states. “The counterparties where the SD (combined with all of its affiliates) and its counterparty (combined with all of its affiliates) had an average daily notional amount of covered swaps for March, April, and May of 2016 that exceeds $3 trillion.
“In November of 2016, the European Commission (“EC”) submitted a request that the Commission determine that the EMIR RTS provide a sufficient basis for an affirmative finding of comparability with respect to the Final Margin Rule. Commission staff has been diligently analyzing and comparing the EMIR RTS to the Final Margin Rule, but has not yet completed its work in this regard. Through close cooperation with the EC, it is the understanding of DSIO that the EC has likewise been diligently pursuing an equivalence determination with respect to the Commission’s Final Margin Rule, but has not yet completed its work in this regard.”
“Nevertheless, without a comparability determination by the CFTC with respect to the EMIR RTS (or an equivalence determination from the EU regulatory authorities with respect to the Final Margin Rule), starting February 4, 2017 many SDs operating in the EU will be required to comply with both the Final Margin Rule and the EMIR RTS. Thus, DSIO believes this relief is necessary to give SDs certainty about their regulatory obligations while the CFTC undertakes its substituted compliance determination and the EC its equivalence decision,” the CFTC press release stated.