Earlier today, we published an overview of the margin proposal issued by the banking regulators.  We encourage all of our readers to read that posting, but recognize that it is long.  So, we offer the following very brief thoughts for you to consider:

  • Corporate End-Users Not Likely to Be Affected  – The proposed margin rules represent relief to corporate end-users, since they are likely to be able to continue to do business under their existing Credit Support Annexes with swap dealer banks without the need for any substantial modification;
  • Regional and Community Banks Likely to Have IM Relief, But May Have to Post Variation Margin – Most regional and community banks (for example, small or mid-sized banks) are likely to not face initial margin requirements due to the $65 million “Initial Margin Threshold” .  But, those banks will face variation margin requirements, once the amount of variation margin exceeds the proposed $650,000 Minimum Transfer Amount;
  • Mutual funds, hedge funds and ERISA Plans May Face Variation Margin – Mutual funds, hedge funds, and ERISA plans will be in a situation similar to regional and community banks.  In fact, all financial end-users (as defined in the rule) will face variation margin requirements.
  • To Grandfather Existing Swaps, New Documentation Needed – Existing swaps can stay on existing ISDAs without being subject to the new margin rules.  But, in order to take advantage of the “grandfathering” provisions, the swap dealer bank will require end-users to which the new rules apply to enter into new swap trading documentation.
  • Coming “Not So Soon” to a Trading Floor Near You– Compliance Dates are likely to be several years from now for end-users and, in most cases, not until December 2019 based upon current proposal.

Good day.  Good relief for end-users. DR2