The CFTC’s staff recently provided guidance on a swap dealers duty, under Reg. 23.701 and 23.704, to provide counterparty’s with a notification informing them of their option to have their initial margin segregated at a custodian.

The guidance provides that:

• The SD is required to provide a counterparty with a notice in any year that the SD enters into a new uncleared swap transaction.
• The SD is required to provide an annual notice regardless of what election the counterparty previously made with respect to segregation of its initial margin.
• The annual notice requirement is not required to be given to a counterparty if no initial margin is required to be posted by a counterparty pursuant to the terms of the contract or pursuant to applicable law.
• SD may rely upon negative consent to verify a counterparty’s receipt of the annual notice and its election not to segregate its initial margin. In order to rely upon negative consent the notice must include “a prominent and unambiguous statement that failure to respond within a reasonable time period will be deemed by the SD or MSP as confirmation of receipt of the notice and an election by the counterparty not to require segregation of initial margin. . .”

The staff’s guidance can be found here. 

Good Day. Good Segregation. DR2