Earlier today, the Board of Directors (the “Board”) of the Federal Deposit Insurance Corporation (FDIC) approved a final rule to establish margin requirements on non-cleared swaps and security-based swaps (collectively, for this posting, “non-cleared swaps”).  The FDIC is issuing the rule jointly with the OCC, the board of the Federal Reserve, the Farm Credit Administration, and the Federal Housing Finance Agency (collectively, the “Agencies”).  Also, the joint final rule was developed in consultation with the Commodity Futures Trading Commission (“CFTC”) and the Securities and Exchange Commission (“SEC”)

As part of this rulemaking activity, the Board approved an interim final rule clarifying that the margin requirements do not apply to non-cleared swaps entered into with:

1) A non-financial entity (including a bank with total assets of $10 billion or less, as well as certain captive finance companies) entering into the trade to hedge or mitigate commercial risk (i.e., the counterparty qualifies for the end-user exception to central clearing available under section 2(h)(7)(A) of the Commodity Exchange Act (the “CEA”) or section 3C(g)(1) of the Securities Exchange Act of 1934 (the “Exchange Act”));

2) A cooperative entity that qualifies for an exemption from central clearing issued by the CFTC under section 4(c)(1) of the CEA; and

3) A treasury affiliate that qualifies for the agency exception to central clearing under section 2(h)(7)(D) of the CEA or section 3C(g)(4) of the Exchange Act.

The interim final rule implements Title III of the Terrorism Risk Insurance Program Reauthorization Act of 2015 (“TRIPRA”).  Although not seemingly connected at all to terrorism risk insurance, Title III of TRIPRA mandated that the Agencies’ swap margin rules for non-cleared swaps must not apply if the counterparty to the transaction qualifies for one of the enumerated exemptions or exceptions from clearing under the laws and regulations put into effect by the Dodd-Frank Act.  In other words, today’s interim final rule rounds-out the Congressional mandate and intentions under TRIPRA to ensure that end-users do not face margin on non-cleared swaps used to hedge or mitigate commercial risk.

We will provide an overview of the final rule in a separate posting as a follow-up to our September 2014 non-cleared swap margin proposal (which is available here).  In the meantime, both the final and the interim final rules can be accessed here.

Good day.  Good (interim) final part of the saga for end-users. DR2