US Commodity Futures Trading Commission Issues Final Cross-Border Margin Rule

The US Commodity Futures Trading Commission issued a rule implementing a cross-border approach to the CFTC’s margin requirements for uncleared swaps. The CFTC’s margin rule applies to CFTC-registered swap dealers and major swap participants for which there is no prudential regulator (collectively, Covered Swap Entities or CSEs) but these rules are closely aligned with the cross-border margin requirements already adopted by the prudential regulators.

The final rule generally requires CSEs to comply with the CFTC’s margin requirements for all uncleared swaps in cross-border transactions, with a limited exclusion for certain non-US CSEs. In certain circumstances, the final rule would allow CSEs to comply with comparable margin requirements in a foreign jurisdiction as an alternative means of complying with the CFTC’s margin rule for uncleared swaps (Substituted Compliance) to the extent that the CFTC determines that the foreign jurisdiction’s requirements are comparable to the CFTC’s (Comparability Determination).

The final rule also includes special provisions to accommodate swap activities in jurisdictions that do not have a legal framework to support custodial arrangements or that do not have netting arrangements that comply with the CFTC’s margin rule. Finally, the rule establishes a process for requesting Comparability Determinations, including eligibility and submission requirements, as well as the standard of review the CFTC would apply in assessing the comparability of a foreign jurisdiction’s margin requirements.

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