CFTC Proposed Margin Requirements for Uncleared Swaps Under Dodd-Frank: The CFTC Reproposes Rules for Minimum Margin Requirements for Swap Dealers and Major Swap Participants, Largely Aligned with Prudential Regulators’ Recent Reproposed Rules

Sullivan & Cromwell LLP - September 30, 2014

On September 23, 2014, the Commodity Futures Trading Commission (“CFTC”) issued a proposed rule to establish minimum initial and variation margin collection requirements for uncleared swaps entered into by certain swap dealers and major swap participants. With some exceptions, as discussed below, the proposal is substantially similar to the proposal promulgated collectively by the Federal Reserve Board, the Office of the Comptroller of Currency, the Federal Deposit Insurance Corporation, the Farm Credit Administration and the Federal Housing Finance Authority on September 3, 2014 concerning swap margin and capital requirements. The CFTC’s reproposed rule supersedes the agency’s previous proposal originally issued in April 2011, is intended to take into account the comments received by the CFTC in response to the 2011 Proposal and follows the promulgation of the international framework for margin requirements of uncleared swaps, uncleared security-based swaps, foreign exchange forwards and foreign exchange swaps finalized in September 2013 by the Basel Committee on Banking Supervision and the Board of the International Organization of Securities Commissions. If adopted, the proposed rule would require that swap dealers and major swap participants subject to the jurisdiction of the CFTC collect and post minimum initial and variation margin amounts from and to certain swap counterparties, depending on the type of counterparty, in connection with swap transactions. Comments are due to the CFTC by sixty (60) days after publication in the Federal Register.