The Futures Industry Association ("FIA"), the Managed Funds Association ("MFA"), SIFMA and the Institute of International Bankers ("IIB"), and SIFMA AMG offered recommendations (see here and here) on the CFTC's proposed amendments to uncleared swap margin regulations.

As previously covered, the CFTC proposed (i) extending the implementation date of initial margin requirements and (ii) exempting certain transactions with the European Stability Mechanism ("ESM") from uncleared margin requirements. Specifically, the CFTC would extend the "Phase Five" implementation date of the swaps initial margin requirements for firms with an aggregate average notional amount of between $8 billion and $50 billion to September 1, 2021. In addition, the CFTC proposed exempting uncleared swaps with the ESM from uncleared swap margin requirements by explicitly excepting the ESM from the definition of "financial end user."

FIA recommended that the CFTC:

  • allow commercial swap dealers ("SDs") to rely on institutional SD counterparties for approved risk-based initial margin ("IM") models rather than the SD's grid-based model;

  • "carve out" swaps from the CFTC's IM requirements for uncleared swaps;

  • align the definitions of "financial entity" and "financial end-user" to reflect that they are similar but not identical;

  • consider the impact of the CFTC's uncleared margin rule when implementing requirements for SD capital;

  • permit commercial SDs' affiliates representing the company's treasury affiliates to rely on the non-financial end-user exception under CFTC margin rules; and

  • extend the Phase V compliance requirement past September 1, 2020.

The MFA advised the CFTC to:

  • amend the use of money market funds by removing the "unduly restrictive conditions" regarding their use as eligible IM collateral;

  • include a six-month deferral or grace period for implementing the Uncleared Margin Rules ("UMR") compliant documentation and systems;

  • mitigate the costliness and burdensomeness of daily IM exchange thresholds ("IM Thresholds") monitoring by separately managed accounts ("SMAs") through an annual calculation, testing and monitoring alternative;

  • create a standardized approach for distributing IM Thresholds between the various asset managers attached to each SMA client; and

  • no longer consider physically settled foreign exchange ("FX") swaps and forwards in the calculation of aggregate average notional amounts ("AANA") when assessing if the counterparties are subject to IM requirements.

SIFMA and the IIB emphasized the importance of the CFTC's proposal to provide a sixth compliance phase for IM requirements for qualifying counterparties. They explained that the extension would prevent market disruption by keeping qualifying counterparties from coming into scope at the same time for IM requirements.

SIFMA AMG criticized the CFTC's proposed amendments for not fully addressing the impact of the initial margin requirements on asset managers and their clients. SIFMA AMG urged the CFTC to:

  • reduce the costliness and burdensomeness of daily IM Threshold monitoring by introducing an annual calculation and/or a six-month grace period for UMR-compliant documentation and systems;

  • exclude physically settled FX swaps and forwards from AANA calculation;

  • remove the requirement to consolidate seeded funds for the purposes of AANA calculation;

  • consider an alternative to the generally accepted accounting principles accounting analysis for certain privately-run entities;

  • remove the restrictions on the use of money market funds as eligible IM collateral; and

  • codify (i) the minimum transfer amounts relief for SMAs and (ii) the time-limited relief relating to the application of minimum transfer amounts under uncleared margin requirements.