At a meeting of the CFTC Global Markets Advisory Committee, Commissioners considered (i) the continuing implementation of margin requirements for uncleared swaps and (ii) home regulator deference under European Market Infrastructure Regulation ("EMIR 2.2") rules, including a response to treatment of central clearing counterparties.
Initial Margin for Non-Centrally Cleared Derivatives
CFTC Chair Heath Tarbert stated that the CFTC should grant an extension for "phase five" counterparties, and that the CFTC would vote in the "near future" on whether to issue a proposal to amend its margin rules consistent with a recent proposal by U.S. banking regulators. Commissioner Brian Quintenz also encouraged extending the compliance deadline, saying that BCBS-IOSCO has recognized the "operation challenges" associated with phase five implementation. Commissioner Dawn D. Stump stated that now is a good time to reflect on past implementation phases in order to understand what it means for market participants who will be subject to the initial margin requirements. Ms. Stump emphasized that such reflection was a good "exercise" for regulators in assessing how to avoid a "potential compliance bottleneck" due to the large increase in market participants coming into scope in the last implementation phase.
EMIR 2.2
Mr. Tarbert strongly encouraged the European Union to finalize EMIR 2.2 in a manner that "advance[es] home regulator deference." Mr. Tarbert cautioned that the regulatory changes being considered could result in (i) fragmentation of U.S. financial markets due to "inconsistent and contradictory" risk management requirements and (ii) increased system risk.
Mr. Quintenz added that in order to determine if a third-country central counterparty ("CCP") classifies as Tier 2, the European Securities and Markets Authority ("ESMA") has proposed a set of 14 "indicators." While ESMA lists many qualitative metrics, he said, not one assesses whether a CCP is systemically significant or if the co-regulation of the CCP with a home regulator is justified. Mr. Quintenz stated that "it is impossible to construct such a tiering methodology while remaining blind to its ultimate results."
Commentary
While Mr. Tarbert indicated that the CFTC will follow the prudential regulators in terms of the implementation of "Phase 5" for initial margin requirements, he did not indicate that the CFTC would otherwise seek to align its relief to the relief proposed by the prudential regulators in terms of benchmark amendments, non-material amendments, and pre-threshold documentation.
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