Swap Dealers Gear Up for Non-Cleared U.S. Swap Margin Rules To Take Effect Next Year

One year ago, Derivative Path sent out a Regulatory Update (published October 27, 2015 – see below) regarding new margin rules finalized by the CFTC and Prudential Regulators.  In short, these rules set guidelines for the calculation and posting of Initial (IM) and Variation Margin (VM) between parties in non-cleared/over-the-counter swap transactions — intended to reduce systemic risk. Enforcement of the first phase of the rules pertaining to IM are scheduled to go into effect on March 1, 2017 (6 months later than previously indicated) for covered entities with an average daily aggregate notional amount of covered swaps* for March, April and May of 2016 that exceeds $3 trillion. VM enforcement will begin on March 1, 2017 for all affected counterparties.

If a bank has over $10 billion in assets, it is likely that the swap dealers will require an amendment to their existing ISDA documents and the type of collateral accepted under the Credit Support Annex may change.  We present the details around this new rule and as well as changes banks may need to get ready for. 

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