Cross-Border Margin Requirements for Uncleared Swaps: CFTC Finalizes Rule Regarding the Cross-Border Application of its Margin Requirements for Uncleared Swaps

Sullivan & Cromwell LLP - June 3, 2016

On May 24, 2016, the Commodity Futures Trading Commission (“CFTC”) voted to adopt a final rule (the “Final Rule”) to establish a framework for determining the cross-border application of the CFTC’s final rule adopting margin requirements for uncleared swaps, which the CFTC had adopted on December 16, 2015 (the “CFTC Margin Rules”).  The Final Rule is closely aligned with the cross-border framework in the final rules promulgated on November 30, 2015 by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Farm Credit Administration and the Federal Housing Finance Agency (collectively, the “Prudential Regulators” and the “Prudential Regulators’ Margin Rules”), and is generally consistent with the CFTC’s proposed rule regarding the cross-border application of the margin rules (the “Proposed Rule”), which was published on July 14, 2015.
The Final Rule determines the applicability of the CFTC Margin Rules depending upon the location of the counterparties to an uncleared swap and the nexus of the counterparties to the United States, including, in the case of counterparties that are not U.S. persons, whether the obligations of the counterparties are consolidated for financial accounting purposes by a U.S. parent entity.