The CFTC Division of Swap Dealer and Intermediary Oversight ("DSIO") extended time-limited no-action relief to swap dealers ("SDs") that are subject to both U.S. and European margin requirements for uncleared swaps. The relief provided in CFTC Letter 17-05 was extended from May 8, 2017 until November 7, 2017 by CFTC Letter 17-22.
The new letter extends relief, pending the Commission's substituted compliance determination, to SDs that must comply with uncleared swap margin requirements under EMIR from compliance with analogous CFTC requirements that are eligible for substituted compliance under the CFTC final margin cross-border rule.
The DSIO explained that the extension was necessary in order to provide certainty about regulatory obligations, and noted that "compliance with both sets of rules would be operationally burdensome, potentially requiring recoding of trading systems only to have to again recode when the Commission and/or the EU regulatory authorities issue comparability/equivalence determinations."
Commentary / Nihal Patel
As previously noted, the relief granted by the CFTC will apply to provisions where substituted compliance could apply under the CFTC margin rules: (1) for U.S.-based/guaranteed SDs, with regard to the posting of initial margin to non-U.S. counterparties (CFTC Rules 23.160(b)(1)(ii) and (b)(2)(iv)); and (2) for non-U.S. SDs, except with regard to their posting of initial margin to U.S.-based/guaranteed SDs (CFTC Rules 23.160(b)(2)(iii)-(iv)).
As in the previous no-action letter, no similar relief has been provided by the prudential regulators, meaning that EMIR-regulated swap dealers subject to those rules and not the CFTC rules may not rely on this relief.
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