margin on uncleared swaps


1. Inventory “relationship level” considerations in legal documentation that governs your derivatives trading relationships (ISDA Master Agreements, Futures Customer Agreements, Master Securities Forward Transaction Agreements, etc.)

a. Example: Decline in Net Asset Value Provisions (Common in ISDAs)

i. Identify the trigger decline levels and time frames at which transactions under the agreement can be terminated (25% over a 1-month period – is that measured on a rolling basis or by reference to the prior month’s end?)

ii. Confirm whether all or only some transactions can be terminated (typically, it is all transactions)

iii. Identify the notice requirements that apply when a threshold is crossed

iv. Identify whether the agreement includes a “fish or cut bait clause” that restricts the ability of the other party to designate the termination of the transactions under the trading agreementContinue Reading Market Volatility Regulatory Outline for Asset Managers

On October 31st, the CFTC’s Office of the Chief Economist (the “OCE”) issued a report about “Phase 5” of the uncleared margin rules (“UMR”) that are slated to go into effect on September 1, 2020.  The purpose of the report was “to guide regulators in their responses to industry requests for relief” from the scheduled application of Phase 5.

This post will provide an overview of the main conclusions of the report.  Any potential implementation of revisions to the UMR consistent with the conclusions in the report would have the effect of reducing the number of market participants subject to UMR, thereby simplifying compliance processes and burdens on entities that may have otherwise been impacted by the UMR.  It is too early to forecast whether regulators will propose and ultimately implement revisions to the UMR based upon this report.  Although, we believe that its issuance is a noteworthy development.

At the outset, the UMR are complex and their application to any particular trading activities should be undertaken in consultation with counsel familiar with these rules.  This post is not legal advice.Continue Reading Initial Margin Phase 5: Report from CFTC’s Office of the Chief Economist

The International Swaps and Derivatives Association (“ISDA”) has published a very useful 2-page checklist of steps that should be taken in order to get ready for the March 1, 2017 Variation Margin deadline.  In summary, ISDA has identified four steps:
Continue Reading ISDA Publishes List of Steps Required to Get Ready for the March 1, 2017 Variation Margin Deadline

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