Yesterday the Commodity Futures Trading Commission's Division of Swap Dealer and Intermediary Oversight ("DSIO") issued a time-limited no-action letter stating that from March 1, 2017, to September 1, 2017, DSIO will not recommend an enforcement action against a swap dealer ("SD") for failure to comply with the variation margin ("VM") requirements for swaps that are subject to a March 1, 2017 compliance date. The no-action letter provides transitional relief from CFTC Rule 23.153 where:
1. The SD does not comply with the March 1 VM requirements with respect to a particular counterparty solely because it has not, despite good faith efforts, completed necessary credit
- support documentation (including custodial segregation documentation, if any) with such counterparty or, acting in good faith, requires additional time to implement operational processes to settle VM in accordance with the March 1 VM requirements with such counterparty;
- The SD uses its best efforts to implement with the March 1 VM requirements without delay with each counterparty following March 1, 2017;
- To the extent the SD has existing VM arrangements with a counterparty, it must continue to post and collect VM with such counterparty in accordance with such arrangements until such time as the SD is able to comply with the March 1 VM requirements with respect to that counterparty; and
- No later than September 1, 2017, the SD complies with the March 1 VM requirements with respect to all swaps to which the March 1 VM requirements are applicable entered into on or after March 1, 2017.
The DSIO stated that "[d]uring the no-action period, DSIO intends to monitor the progress of SDs who rely on this letter. In order to rely on the protections of this letter, such SDs are expected to make continual, consistent, and quantifiable progress toward compliance with the March 1 VM Requirements with all counterparties on a rolling basis during the no-action period. DSIO expects that all SDs should be in compliance with the March 1 VM Requirements with all counterparties, as applicable, by September 1, 2017."
The DSIO also noted its "understanding...that the Commission remains committed to implementing the March 1 VM Requirements in accordance with the March 1, 2017 compliance date for variation margin requirements that was agreed upon in 2013 by 26 regulatory authorities from around the world, and thus all swaps entered into from March 1, 2017 must be subject to such requirements."
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