Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants
Key claim: The CFTC is amending uncleared swaps margin rules so certain seeded investment funds are treated as having no margin affiliates for up to three years, money market and similar funds become eligible initial margin collateral, and related haircut schedules are updated.
Abstract
(Rule · Commodity Futures Trading Commission) The Commodity Futures Trading Commission (“Commission”) is amending the margin requirements for uncleared swaps applicable to swap dealers and major swap participants that are not subject to the margin rules of a prudential regulator. The amendment revises the definition of “margin affiliate” in the Commission’s regulations to provide that certain collective investment vehicles (“investment funds” or “funds”) that receive start-up capital from a sponsor entity (“seeded funds”) would be deemed not to have any margin affiliates or to constitute margin affiliates of another entity for the purposes of calculating certain thresholds that trigger the requirement to exchange initial margin for uncleared swaps (“Seeded Funds Amendment”). The Seeded Funds Amendment relieves swap dealers and major swap participants subject to the Commission’s uncleared swaps margin rules from the requirement to post and collect initial margin with certain eligible seeded funds for a period of up to three years from the date on which the eligible seeded fund’s asset manager begins making investments on behalf of the fund (“trading inception date”). The Commission is also eliminating a provision disqualifying securities issued by certain pooled investment funds (“money market and similar funds”) whose asset managers transfer fund assets through securities lending, securities borrowing, repurchase agreements, reverse repurchase agreements, and similar arrangements from being used as eligible initial margin collateral for uncleared swaps, thereby expanding the scope of assets that qualify as eligible collateral (“Eligible Collateral Amendment”). Additionally, the Commission is amending the haircut schedule for eligible margin collateral for uncleared swaps to address the haircuts applicable to money market and similar funds (“Haircut Schedule Amendment”).
Why this matters
Uncleared swaps margin rules are a core post-crisis prudential requirement for swap dealers and major swap participants, and these amendments narrow compliance frictions for newly launched funds and broaden the collateral eligible to satisfy initial margin. For swap dealers, the changes reduce operational burdens around affiliate aggregation for seeded funds; for buy-side counterparties, expanded MMF collateral eligibility improves capital efficiency without changing the overall margin framework.