On February 13th, consistent with the requests from a number of market participants and trade organizations, including SIFMA and ISDA, a division of the U.S. Commodity Futures Trading Commission (CFTC) indicated that it would delay enforcement of the variation margin rules for uncleared swaps that are due to go into effect for swaps with financial end-users (including most investment funds) on March 1st. By way of a no-action letter, the Division of Swap Dealer and Intermediary Oversight (Division) provided, among other things, time-limited no-action relief to CFTC registered swap dealers to comply with the variation margin rules until September 1, 2017 subject to a number of conditions. While the no-action letter itself does not extend the March 1 compliance date, it does make clear that the CFTC will not be enforcing actions against swap dealers for failure to comply with the variation margin rules for uncleared swaps until September 1.
The relief provides that a swap dealer may only rely on the no-action letter’s non-enforcement period if:
• non-compliance with the March 1, 2017 date is solely due to inability to complete, despite good-faith efforts, necessary documentation or, acting in good faith, requires additional time to implement operational processes;
• the swap dealer uses its best efforts to comply with the March 1, 2017 deadline as soon as possible after March 1, 2017;
• in situations where the swap dealer already exchanges variation margin with a counterparty, it must continue to do so with such counterparty until the swap dealer can comply with the March 1 requirements with respect to that counterparty; and
• the swap dealer complies with the March 1, 2017 requirements with respect to all swaps to which the March 1, 2017 compliance date applies that were entered on or after March 1, 2017 (i.e., back-loading is required).
Note that the European and the five U.S. banking regulators enacting rules with a March 1 deadline have not issued any delay notifications yet. Due to the conditional nature of the no-action relief and the uncertainty as to whether the U.S. banking and other global regulators will issue a similar delay, we are advising clients to continue to coordinate with their counterparties to address required documentation changes that may be necessary to ensure compliance with the uncleared swap margin rules by March 1st. Our derivatives and trading team is following the global developments on these issues closely and we will continue to keep clients updated as things develop.