The CFTC approved amendments to rules requiring notification to counterparties of their right to elect to segregate initial margin in transactions with swap dealers. The amendments are intended to alleviate burdens placed on registrants and market participants by simplifying the notification requirement and other aspects of the rules.
The CFTC adopted modifications to CFTC Rules 23.700, 23.701, 23.702, 23.703, and 23.704 as proposed. Among other things, the amendments: (i) provide that notice is not required for counterparties subject to IM segregation under relevant margin requirements; (ii) remove a requirement that notice be provided annually; (iii) remove a requirement that notice be given to particular personnel of the counterparty; (iv) subject parties that elect to segregate to limited specified requirements other than that the agreement be in writing and the custodian be independent and (v) provide that quarterly reports for parties that do not elect segregation need not be provided specifically by the swap dealer's chief compliance officer.
CFTC Chair J. Christopher Giancarlo said that the amendments will remove burdensome conditions for providing notice to counterparties of their right to segregate initial margin for uncleared swaps. CFTC Commissioner Dan Berkovitz noted that the amendments also give the parties more flexibility to negotiate "mutually beneficial terms for the segregation arrangements" based on the needs of the counterparties. CFTC Commissioner Rostin Behnam voted affirmatively, but voiced disappointment that the CFTC chose not to (i) specify what the beginning of the first swap transaction entails or (ii) specify when trading may commence following notification.
The amendments will become effective 30 days following publication in the Federal Register.
A comparison of the adopted rules against the current rules is available here.
Commentary / Nihal Patel
The existing requirements under subpart L of Part 23 are perhaps the most unnecessarily burdensome requirements in the CFTC rulebook, and, as the CFTC noted, resulted in the segregation election being made by an extremely small number of swap dealer customers. While the changes still impose a number of compliance requirements on swap dealers, they are significantly more limited and flexible within the confines of the statutory directives under CEA Section 4s(l).
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