US and European Regulators Issue Additional Relief from March 1st Variation Margin Deadline for Non-Cleared Swaps

Earlier today, European regulators and the Federal Reserve Board and the Office of the Comptroller of Currency provided additional relief (of sorts) from the March 1st variation margin deadline and related amendments of credit support documentation for non-cleared swaps.   This relief was provided by the regulators in recognition of the challenges faced by market participants in amending trading and credit support documentation in time for the March 1, 2017 variation margin deadline.  The following is a “Plain English” overview of where things stand in less than 300 words: Continue Reading

Defending Bankruptcy Exemptions for Repos and Sec Lending

One great thing about a new Congress is that bills pending at the end of the prior Congress must be reintroduced. This wipes the slate clean of problematic proposals and reduces the risk of something slipping through without sufficient debate. For example, the proposed Bankruptcy Fairness Act of 2016 (BFA) expired with the 114th Congress. The BFA would have required the Office of Financial Research (OFR) to produce a biannual report to Congress regarding, among other things:

whether amendments to the Bankruptcy Code … and other laws relating to insolvency to modify the treatment of qualified financial contracts and master netting agreements in future situations of insolvency could reduce—

(i)         losses in the value of the financial company and its assets;

(ii)        losses to other parties in interest;

(iii)       moral hazard; and

(iv)       risks to financial stability in the United States.”

While such a report may seem innocuous, it might have provided a gateway for eliminating the safe harbors for qualified financial contracts (such as securities contracts, repurchase agreements and derivatives contracts) from the Bankruptcy Code and the Federal Deposit Insurance Act. Continue Reading

More on Proposed Repo Benchmark Rates

In a previous post we summarized the FRBNY’s announcement that it was considering publishing three benchmark repo rates.  Recently the Liberty Street Economics blog (available on the FRBNY’s website) explored the goals of the proposed benchmarks as well as how each benchmark would have performed over the period from August 2014 to October 2016.

Highlights from the post include:

  • Bi-lateral repo is not included in the proposed benchmarks “since robust data on the bilateral repo market are currently unavailable.”
  • The tri-party market (excluding GCF repo and Fed repo) represents approximately two-thirds of the total tri-party repo market.
  • GCF repo is the smallest segment, representing about 10% on average while the Fed’s repo program represents “slightly more than 20 percent” on average.
  • The three benchmark rates tracked each other exactly approximately 60% of the time in the sample period.
  • In those periods in which they did not track each other the rate including GCF repo was generally slightly higher while the rate including Fed repo was slightly lower.

The blog post can be found here.

ISDA Publishes List of Steps Required to Get Ready for the March 1, 2017 Variation Margin Deadline

The International Swaps and Derivatives Association (“ISDA”) has published a very useful 2-page checklist of steps that should be taken in order to get ready for the March 1, 2017 Variation Margin deadline.  In summary, ISDA has identified four steps: Continue Reading

Don’t Forget March 1, 2017: Amending Trading Documentation to Account for New Non-Cleared Swap Margin Requirements

Many buy-side market participants are in the process of grappling with issues related to the amendment of their derivatives trading documentation in order to account for new U.S. margin requirements that will apply to non-cleared swaps beginning on March 1, 2017 (the “Implementation Date”).  But, in our experience, a large number of market participants have not yet begun to consider how they are going to implement the required changes despite the fact that the Implementation Date is only a little over three months away.  In this posting, we offer a few thoughts on a protocol that was recently published by the International Swaps and Derivatives Association (“ISDA”) to facilitate amendments to ISDA Master Agreements and related Credit Support Annexes that account for the new non-cleared swap margin rules recently enacted by U.S. regulators. Continue Reading

Buy-Side Reminder: Electronic Filing of CFTC Form 40 Begins at Midnight on November 18th

On your list of things for which to be thankful, remember to add “the ability to electronically file a CFTC Form 40 / 40S”.

Here is a very courteous reminder from the CFTC’s Division of Market Oversight that the new era of submitting electronic Form 40 is about to begin.

In case some readers do not know, the CFTC conducts market surveillance activities under what it refers to as a “Large Trader Reporting Program“.  As part of that program, the CFTC monitors when the level of derivatives trading by an individual market participant (like an investment adviser and the funds or accounts under their control) exceeds a certain specified level.  For example, CFTC Rule 15.03 designates different reporting levels for different types of futures contracts.   Once a reporting level is crossed, the CFTC will send a notice to the “large trader” that it must complete and submit what is known as a CFTC Form 40 (for futures contracts) or a CFTC Form 40S (for swaps).

Prior to midnight Eastern on November 18, 2016, this form could be submitted in paper form – ah, the good old days.  But, in less than 6 hours, the form will need to be submitted electronically.  Many market participants have already submitted a Form 40 electronically, well in advance of this evening’s deadline.  Nevertheless, the good old days are about to come to an end and we are certain that there are some market participants who are unaware of this change.

Not to worry, as Billy Joel said, “I guess the good old days were not so good and tomorrow ain’t as bad as it seems.”

Good day. Good e-filing of Forms 40/40S. DR2


FRBNY’s Proposes Benchmark Repo Rates

On Friday, the Federal Reserve Bank of New York (FRBNY) announced that it, together with the Treasury Department’s Office of Financial Research (OFR), is considering publishing three benchmark rates for repurchase agreement (repo) transactions collateralized by Treasury securities (Benchmark Rates).  Continue Reading

Quick Guide to New Form ADV Derivative and Borrowings Disclosure

The SEC has finalized a rule requiring registered advisers to report certain information related to the use of derivatives and borrowings in separately managed accounts (“SMAs”).  The release can be found here (the “Release”).  This posts seeks to provide advisers with a quick snap shot of the information they will need to collect and disclose.  The compliance date is October 1, 2017. Continue Reading