• CFTC Adopts Rules for the Cross-Border Application of Its Margin Rules
  • June 14, 2016
  • Law Firm: Eversheds Sutherland (US) LLP - Washington Office
  • On May 24, 2016, the U.S. Commodity Futures Trading Commission (“CFTC”) adopted rules (the “Final Rule”) establishing a framework for applying the CFTC’s previously adopted margin rules (the “CFTC Margin Rules”) to cross-border uncleared swaps. The Final Rule provides that certain parties that are subject to the CFTC Margin Rules may, in certain circumstances, (i) be partially or wholly exempt from the CFTC Margin Rules or (ii) satisfy certain requirements under the CFTC Margin Rules by complying with certain foreign jurisdictions’ margin requirements instead. The Final Rule will go into effect August 1, 2016.

    The Final Rule provides for three categories of rules relating to the cross-border application of the CFTC Margin Rules. First, the Final Rule defines certain key terms, including terms for different types of entities under the Final Rule. These terms and definitions are critical for determining how the Final Rule will apply to different market participants.

    Second, the Final Rule specifies how the CFTC Margin Rules will apply to cross-border uncleared swaps. This includes rules exempting from the CFTC Margin Rules, in whole or in part, certain cross-border uncleared swaps. The Final Rule also provides that certain parties may, by satisfying specific conditions, comply with certain foreign jurisdictions’ margin rules in lieu of complying with certain requirements under the CFTC Margin Rules (referred to in the Final Rule as “substituted compliance”).

    And third, the Final Rule establishes the framework that the CFTC will use when considering whether a foreign jurisdiction’s margin rules are sufficiently comparable to the CFTC Margin Rules such that substituted compliance is appropriate.

    CFTC Chairman Timothy Massad and Commissioner Sharon Y. Bowen, each of whom voted in favor of the Final Rule, issued statements on the Final Rule’s adoption. Commissioner J. Christopher Giancarlo, who voted against adoption of the Final Rule, also issued a statement.