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CFTC Extends Relief for UMR

Commodity Futures Trading Commission (CFTC) Chairman Heath Tarbert today released a statement outlining the commission’s unanimous vote last night to finalise a one-year extension of the initial margin compliance deadline for market participants with the smallest uncleared swaps portfolios.

“I am committed to ensuring that initial margin remains a core risk-mitigating component of the global uncleared swaps market,” Tarbert said in a statement. “As of now, the CFTC’s initial margin requirements apply to the biggest 40 swap dealers, thereby covering approximately 97% of the US portion of this global market.

“In tackling the remaining 3% of the US market, phase five of our initial margin requirements would have expanded the number of in-scope entities from 40 to over 700 and required documenting and operationalising nearly 7,000 initial margin relationships. Recognising the operational complexity of this undertaking, the CFTC along with other regulators here in America and around the world proposed adding a sixth compliance phase, extending the compliance deadline by one year for entities with the smallest uncleared swaps portfolios. There is universal agreement that this extension will mitigate rather than exacerbate risk.”

The vote marks the ninth final rule passed by the commission since Tarbert took office last July.  Approval of this rule is one of nearly a dozen concrete actions the CFTC and its staff will have taken by week’s end to address the spread of the coronavirus and its effect on financial markets, he noted.

Tarbert recently laid out five key objectives for the CFTC’s coronavirus response: monitoring derivatives markets and their participants; using the regulatory framework to promote orderly and liquid markets; responding swiftly to changing conditions with practical, targeted relief; communicating consistently and transparently with all stakeholders; and maintaining a commitment to advancing strategic policy goals.

“Providing extended relief for initial margin requirements for uncleared swaps clearly fits within the third objective – responding swiftly to changing conditions with practical, targeted relief,” Tarbert added. “Just as market participants must be committed to following the rules, the CFTC is committed to providing targeted relief where necessary during this historic period of market volatility and uncertainty.

“Indeed, this rule gives many buy side market participants needed time to put required custodial arrangements and documentation in place, which is becoming even more challenging now that many firms’ resources have been appropriately redirected to coronavirus response efforts.”

Commenting on the news, Matt Kulkin, who worked on UMR rules while serving as director of CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO), now a partner at Steptoe & Johnson, says: “The CFTC should be commended for swiftly implementing the international Working Group on Margin Requirements’ decision to bifurcate the remaining market participants into two phases over the next 18 months. This important decision will allow market participants, including dealers, customers and custodians to focus their limited resources and ensure a smooth transition to the new regulatory regime, while limiting potential risks to financial markets. Once again, the CFTC has taken the lead among global regulators and has set an example for how to best provide clarity and certainty to the market.”


Julie Ros

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