The Commodity Futures Trading Commission (CFTC) has passed by unanimous vote, a provision to provide greater certainty to the global marketplace in the event of a “no-deal Brexit” precipitated by the withdrawal of the UK from the European Union without a negotiated withdrawal agreement.
“At a time of heightened market uncertainty caused by Brexit, this Commission has worked over the past several weeks to bring clarity to participants in global derivatives markets by a series of separate actions and statements with its regulatory counterparts in London, Brussels and Singapore,” says CFTC chairman Christopher Giancarlo. “Today the Commission takes another important step to bring certainty to the global derivatives markets. Consistent with actions already taken by US prudential regulators, we are providing regulatory certainty regarding the transfer of uncleared legacy swaps to facilitate global swaps market participants’ needs in the event that the UK withdraws from the EU without a negotiated withdrawal agreement.
“These measures show that UK and US authorities are committed to taking measures to ensure the UK’s withdrawal from the EU, in whatever form it takes, will not create regulatory uncertainty regarding derivatives market activity between the UK and United States,” he adds. “These measures will help support financial stability and the sound functioning of financial markets. They also will give confidence to market participants about their ability to trade and manage risk through these markets.”
In the event that the UK leaves the EU without a negotiated withdrawal agreement, affected swap dealers and major swap participants may need to effect legal transfers of uncleared swaps that were entered into before the relevant compliance dates under the CFTC Margin Rule or Prudential Margin Rule. The interim final rule is designed to allow an uncleared swap to retain its legacy status under the CFTC Margin Rule or Prudential Margin Rule when so transferred.