On February 1, the Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) issued No Action Letter 17-05, which allows certain swap dealers to substitute—for a limited period of time—compliance with the non-centrally cleared OTC derivative margin requirements applicable in the European Union (the “EU Rules”) for compliance with certain of the CFTC’s uncleared swap margin requirements in cross-border transactions with counterparties subject to the EU Rules.
The overall CFTC framework for substituted compliance is identified in the CFTC Cross-Border Margin Rule (81 FR 34818 (May 31, 2016)) and is conditioned in the case of each other jurisdiction on a determination by the CFTC that the rules of the other jurisdiction are “comparable” to the relevant CFTC rules.
The effect of the relief is to suspend that condition for the EU. The no-action relief only applies to swap dealers that do not have a prudential regulator (i.e., non-bank swap dealers) and is effective from (and including) February 4 to (and excluding) May 8.
DSIO cautioned that the granting of this no-action relief should not be presumed to be a guarantee that the CFTC will ultimately make a comparability determination with respect to the EU Rules that is exactly consistent with the terms of this letter.
When, and if, the EU Rules are determined to be comparable to the CFTC’s uncleared swap margin requirements, a swap dealer without a prudential regulator will be able to comply with the EU Rules in lieu of the CFTC’s rules in accordance with the Cross-Border Margin Rule and this relief will no longer be necessary. DSIO indicated the European Commission is assessing the CFTC’s uncleared swap margin requirements to potentially make an equivalency determination of its own.