By Andrew P. Cross and Shawn R. Durrani

In a speech before the FIA International Derivatives Conference earlier this week, CFTC Chairman Timothy G. Massad outlined a proposal for dealing with the issue of margin on uncleared swaps in situations where one of the counterparties (or perhaps one or both of their guarantors or parent companies) are located in the United States and the other counterparty is not a U.S. entity.  We have prepared a table that summarizes Chairman Massad’s comments and is available for download at the end of this posting.

In short, Chairman Massad’s comments appear to be focused on two key principles:

1) U.S. margin rules should apply if a counterparty has its obligations guaranteed by, or financial results consolidated with, a U.S. Person.

2) U.S. margin rules are designed to mitigate systemic risk introduced into the U.S. markets vis-à-vis the swap dealing activity of a U.S. swap dealer or a non-U.S. swap dealer with obligations guaranteed by, or financials consolidated with, a U.S. person. Accordingly, the CFTC appears to be considering an application of U.S. rules to the collection of margin by a swap dealer, even if the counterparty to the swap is a non-U.S. person.

Consistent with those principles, the CFTC is also considering
Continue Reading CFTC Chairman Massad Outlines Proposal for Margin on Uncleared Swaps in Cross-Border Scenarios