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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Rules and Regulations
to prevent evasion or the facilitation of an evasion by an FEU counterparty.167
As proposed, the Final Rule allows CSEs to use the risk-based model calculation of a swap entity counterparty to calculate the amount of IM to be collected from such counterparty, consistent with Letter 19
29. As a result, CSEs may no longer be incentivized to adopt a proprietary riskbased model. If a CSE uses a counterpartys IM model calculation without developing its own model, the CSE may lack reasonable means to verify the IM provided by its counterparty, recognize shortfalls in the IM calculation, and identify potential flaws in the swap entity counterpartys risk-based model. As such, insufficient amounts of IM may be collected by the CSE to protect itself against the risk of default by the swap entity counterparty, increasing the risk of contagion and the potential for systemic risk. The Commission, however, believes that these risks are mitigated because, under the Final Rule, CSEs are able to use a counterpartys risk-based model IM
calculation only with respect to uncleared swaps entered into for the purpose of hedging. In addition, the Commission notes that there are other requirements in the Commissions regulations that address the monitoring of exposures and swap risk.

association established pursuant to section 17 of the CEA.168
The Commission believes that the public interest to be protected by the antitrust laws is generally to protect competition. The Commission requested comment on whether the Proposal implicated any other specific public interest to be protected by the antitrust laws and received no comments.
The Commission has considered the Final Rule to determine whether it is anticompetitive, and has identified no anticompetitive effects. The Commission requested comment on whether the Proposal was anticompetitive and, if it was, what the anticompetitive effects were, and received no comments.
Because the Commission has determined that the Final Rule is not anticompetitive and has no anticompetitive effects, the Commission has not identified any less competitive means of achieving the purposes of the Act.

e Other Public Interest Considerations The Commission believes that the Final Rule, by aligning the CFTC Margin Rule with the BCBS/IOSCO Framework, will promote harmonization with international regulatory requirements and may reduce the potential for regulatory arbitrage. However, given that the U.S. prudential regulators have not amended their margin requirements in line with the Final Rule, the possibility exists that certain firms may undertake swaps with particular SDs based on which U.S. regulatory agency is responsible for setting margin requirements for such SDs.

PART 23SWAP DEALERS AND
MAJOR SWAP PARTICIPANTS

D. Antitrust Laws Section 15b of the CEA requires the Commission to take into consideration the public interest to be protected by the antitrust laws and endeavor to take the least anticompetitive means of achieving the objectives of the CEA, as well as the policies and purposes of the CEA, in issuing any order or adopting any Commission rule or regulation including any exemption under section 4c or 4cb, or in requiring or approving any bylaw, rule or regulation of a contract market or registered futures 167 See
17 CFR 23.402aii.

VerDate Sep<11>2014

16:32 Jan 04, 2021

List of Subjects in 17 CFR Part 23
Capital and margin requirements, Major swap participants, Swap dealers, Swaps.
For the reasons stated in the preamble, the Commodity Futures Trading Commission amends 17 CFR
part 23 as follows:

1. The authority citation for part 23
continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b 1, 6c, 6p, 6r, 6s, 6t, 9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21.
Section 23.160 also issued under 7 U.S.C.
2i; Sec. 721b, Pub. L. 111203, 124 Stat.
1641 2010.

2. In 23.151, revise the definition of Material swaps exposure to read as follows:

23.151 Definitions applicable to margin requirements.

Material swaps exposure for an entity means that, as of September 1 of any year, the entity and its margin affiliates have an average month-end aggregate notional amount of uncleared swaps, uncleared security-based swaps, foreign exchange forwards, and foreign exchange swaps with all counterparties for March, April, and May of that year that exceeds $8 billion, where such amount is calculated only for the last business day of the month. Activities not carried out in the regular course of 168 7

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business and willfully designed to circumvent calculation at month-end to evade meeting the definition of material swaps exposure shall be prohibited. An entity shall count the average monthend aggregate notional amount of an uncleared swap, an uncleared securitybased swap, a foreign exchange forward, or a foreign exchange swap between the entity and a margin affiliate only one time. For purposes of this calculation, an entity shall not count a swap that is exempt pursuant to 23.150b or a security-based swap that qualifies for an exemption under section 3Cg10 of the Securities Exchange Act of 1934 15
U.S.C. 78c3g4 and implementing regulations or that satisfies the criteria in section 3Cg1 of the Securities Exchange Act of 1934 15 U.S.C. 78
c3g4 and implementing regulations.

3. In 23.154, add paragraph a5 to read as follows:

23.154

Calculation of initial margin.

a
5 A covered swap entity would be deemed to calculate initial margin as required by paragraph a1 of this section if it uses the amount of initial margin calculated by a counterparty that is a swap entity and the initial margin amount is calculated using the swap entitys risk-based model that meets the requirements of paragraph b of this section or is approved by a prudential regulator, provided that initial margin calculated in such manner is used only with respect to uncleared swaps entered into by the covered swap entity and the swap entity for the purpose of hedging the covered swap entitys swaps with non-swap entity counterparties.

Issued in Washington, DC, on December 11, 2020, by the Commission.
Christopher Kirkpatrick, Secretary of the Commission.
Note: The following appendices will not appear in the Code of Federal Regulations.

Appendices to Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap ParticipantsCommission Voting Summary and Commissioners Statements Appendix 1Commission Voting Summary On this matter, Chairman Tarbert and Commissioners Quintenz, Behnam, Stump, and Berkovitz voted in the affirmative. No Commissioner voted in the negative.

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