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:

  • Federal Reserve Board and Office of Comptroller of Currency (U.S. Prudential Regulators) –  A covered swap entity (such as a “swap dealer bank”) has until September 1, 2017 to finalize amendments to credit support documentation with counterparties that do not present “significant credit and market risks”.  The statement of the Federal Reserve Board is available here.
  • Commodity Futures Trading Commission – The U.S. Commodity Futures Trading Commission issued its version of that relief on February 13th.  That relief is available here.
  • European Supervisory Authorities – The European regulators (ESMA, EBA, and EIOPA) issued a statement in respect of the March 1st dealer that can be described as “circumscribed relief,” in so far as those regulators do not have the power to grant a formal extensions without additional legislative action. Instead, the regulators articulated a risk-based enforcement view based upon the size of counterparty exposures, explaining that: “[The ESA’s] approach does not entail a general forbearance, but a case-by-case assessment from the [Competent Authorities or “CAs”] on the degree of compliance and progress.  In any case, the ESAs and CAs expect that difficulties will be solved in the coming few months and that transactions concluded on or after 1 March 2017 remain subject to the obligation to exchange variation margin.”  The statement of the ESA is available here.

In short, dealer banks and their counterparties should finalize their amendments to credit support documentation as quickly as possible, but it does not appear that trading lines will have to be shut down on March 1st for counterparties that present dealers with relatively low credit-risk and exposure.

Good day.  Good delay! DR2