The CFTC Division of Swap Dealer and Intermediary Oversight ("DSIO") granted time-limited no-action relief relating to the application of minimum transfer amounts ("MTAs") under uncleared margin requirements.
CFTC margin regulations permit the use of "minimum transfer amounts," under which swap dealers need not post or collect margin until the required amount exceeds the minimum transfer amount, which may not be higher than $500,000. Rules 23.152 and 23.153 provide that, for purposes of the MTA, amounts are considered collectively for initial margin and variation margin. In response to a request from ISDA, DSIO provided time-limited relief to permit separate MTAs for initial margin ("IM") and variation margin ("VM"), so long as the combined MTA does not exceed $500,000.
The relief contains the following conditions:
- separate MTAs for IM and VM with each counterparty are applied;
- the relevant MTAs are specified in agreed-to margin documentation;
- the separate MTAs combined do not exceed $500,000; and
- the full amount of IM or VM, as applicable, is posted or collected if the applicable MTA is exceeded.
The no-action relief will expire on December 31, 2021, or on the effective date of a final rule addressing the issue of MTA application.
The treatment of MTAs is an aspect of the CFTC (and prudential regulator) margin rules that never really worked. In a world where margin flows directly between the two parties, it might be reasonable to expect that MTAs are looked at across IM and VM. However, once IM is required to be posted to tri-party accounts, the flows are disaggregated and it makes little practical sense to expect parties to combine them for MTA purposes. In other words, the DSIO relief makes sense and addresses an unnecessary problem of the CFTC's own creation.
Of course, the CFTC relief doesn't solve everything. The prudential regulators' rules contain virtually identical language, but no such relief has been provided. And the SEC, in adopting its margin rules, also imposed a combined MTA requirement (though it did not require segregation of IM, potentially limiting the need for separate amounts). Finally, it's hard to see why DSIO felt the need to impose a time limit on this relief. There's no impression that DSIO expects market participants to work to conform their businesses to the current rule text in the interim period. If, for any reason, the CFTC does not amend the rules in the next two years, DSIO will (presumably) just have to issue an extension.
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