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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Rules and Regulations only become more urgent as time marches on.
Conclusion To be clear, these amendments to the uncleared margin rules are not a roll-back of the margin requirements that apply today to the largest financial institutions in their swap transactions with one another. Rather, they reflect a thoughtful refinement of our rules to align them with the rest of the international regulatory community, and to take account of specific circumstances in which the rules impose substantial practical and operational challenges i.e., they are not workable when applied to financial endusers that are now coming within the scope of their mandates.
I am very appreciative of the many people whose efforts have contributed to bringing this rulemaking to fruition. First, the members of the GMAC, and especially the GMAC Margin Subcommittee, who devoted a tremendous amount of time to provide us with a high-quality report on complex margin issues during the turmoil at the start of the pandemic. Second, Chairman Tarbert and my fellow Commissioners for working with me on these important issues. And finally, the Staff of the Market Participants Division, whose tireless efforts have enabled us to advance these initiatives to assure that our uncleared margin rules are workable for all and are in line with international standards, thereby enhancing compliance consistent with our oversight responsibilities under the Commodity Exchange Act.

Appendix 4Statement of Commissioner Dan M. Berkovitz
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I. Introduction I support todays two final rules that make tailored amendments to the CFTCs Margin Rule.1 The Margin Rule requires swap dealers SDs and major swap participants MSPs for which there is no prudential regulator to post and collect, each business day, initial and variation margin for uncleared swap transactions with each counterparty that is an SD, MSP, or a financial end user with material swaps exposure MSE.2 The Margin Rule is a lynchpin of the Dodd-Frank reforms for swaps markets, and critical to mitigating risks in the financial system that might otherwise arise from uncleared swaps.3 I
support the final rules because they provide targeted, operational improvements to the Margin Rule; include backstops to deter any potential abuse; and are unlikely to increase risk to the U.S. financial system.
The two final rules address: 1 The definition of MSE and an alternative method for calculating initial margin MSE and 1 Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 81 FR
636 Jan. 6, 2016 Margin Rule.
2 Although addressed in the final rules, there are currently no registered MSPs.
3 Section 4se of the Commodity Exchange Act CEA, as amended by the Dodd-Frank Act, requires the Commission to adopt rules for minimum initial and variation margin for uncleared swaps entered into by SDs and MSPs for which there is no prudential regulator.

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Initial Margin Final Rule; and 2 the application of the minimum transfer amount MTA for initial and variation margin MTA Final Rule. The final rules align Commission requirements with international frameworks developed by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions BCBS/IOSCO,4 and incorporate recommendations made to the CFTCs Global Markets Advisory Committee.5 The final rules also build off existing CFTC staff no-action letters that in some cases have been in place since 2017, and that have operated with no apparent detrimental effects.
II. MSE and Initial Margin Final Rule The MSE and Initial Margin Final Rule amends the definition of MSE to align it with the BCBS/IOSCO framework, including the method for calculating the average daily aggregate notional amount AANA of swaps. The final rule provides for calculations based on the average of the last business day in each month of a three-month period. The Commission previously raised concerns that this method of AANA
calculation could potentially become less representative of an entitys true AANA and swaps exposure, potentially through the use of window dressing to artificially reduce AANA during the measurement period.6
The MSE and Initial Margin Final Rule includes an important new provision to address this issue. The final rule explicitly prohibits any activities not carried out in the regular course of business and willfully designed to circumvent calculation at monthend to evade meeting the definition of material swaps exposure . . . . 7 The addition of this language to the final rules regulatory text will help ensure that CFTC
efforts at international harmonization will not come at the expense of the safety and soundness of the U.S. financial system.8 I
thank the Chairman and the CFTC staff for working with my office to include this provision.
The MSE and Initial Margin Final Rule will also allow SDs and MSPs for which there is no prudential regulator Covered Swap 4 BCBS/IOSCO, Margin requirements for noncentrally cleared derivatives July 2019, available at https www.bis.org/bcbs/publ/d475.pdf. The BCBS/IOSCO framework was originally promulgated in 2013 and later revised in 2015.
5 Recommendations to Improve Scoping and Implementation of Initial Margin Requirements for Non-Cleared Swaps, Report to the CFTCs Global Markets Advisory Committee by the Subcommittee on Margin Requirements for Non-Cleared Swaps Apr. 2020, available at https www.cftc.gov/
media/3886/GMAC_051920MarginSubcommittee Report/download.
6 See Margin Rule, 81 FR at 645.
7 MSE and Initial Margin Final Rule at new 23.151 defining Material Swaps Exposure.
8 The preamble to the MSE and Initial Margin Final Rule also notes an analysis by the CFTCs Office of the Chief Economist indicating that the new month-end AANA calculation method captures substantially the same entities and total number of entities as the Commissions previous daily AANA
calculation method. As with any rulemaking, the Commission is free in the future to periodically review its data and confirm that the new AANA
calculation method is performing as expected.

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Entities or CSEs to rely on the initial margin calculations of the more sophisticated counterparties with whom they transact swaps to manage their risks. This flexibility is limited to circumstances where a CSE
enters into uncleared swaps with an SD, MSP, or swap entity to hedge its customerfacing swaps. This amendment to the Commissions existing rules could help promote liquidity and competition in swaps markets by increasing choice for end-users that are CSE customers.
The MSE and Initial Margin Final Rule provides helpful direction regarding the scope of hedging swaps for purposes of relying on a CSE counterpartys initial margin calculations. As set forth in the preamble to the final rule, a hedging swap must be consistent although not identical with the statutory definition of bona fide hedging transaction or position in CEA
section 4ac2B.9 The final rule also makes clear that existing Commission regulations require a CSE that relies on its counterpartys initial margin calculations to also take steps to monitor, identify, and address potential shortfalls in the amounts of initial margin generated by the counterparty on whose initial margin model the CSE is relying. 10
III. MTA Final Rule To reduce operational burdens associated with de minimis margin transfers, the Margin Rule provides that a CSE is not required to collect or post margin until the combined amount of initial margin and variation margin that is required to be collected or posted and that has not been collected or posted with respect to the counterparty exceeds $500,000the MTA.11 This MTA
level, in part, helps limit the amount of a counterpartys uncollateralized, uncleared swaps exposure and mitigate any systemic risk arising from such swaps.
The MTA Final Rule addresses the application of the $500,000 MTA level to a counterpartys separately managed accounts, as well as the use of separate MTAs for initial and variation margin.12 The MTA Final Rule codifies separate treatment for separately managed accounts and permits an MTA of $50,000 for each such account of a counterparty. This approach responds to practical limits on the ability of asset managers, for example, to aggregate initial and variation margin obligations across multiple separately managed accounts owned by the same counterparty. The MTA Final Rule also provides that if certain entities agree to separate MTAs for initial margin and variation margin, the respective amounts of MTA must be reflected in their required margin documentation.
These new provisions balance concerns over operational inefficiencies and practical challenges in the Commissions MTA rules against concerns that they may result in the exchange of less total margin than would be the case under the Commissions current 97

U.S.C. 6ac2.
and Initial Margin Final Rule at section
10 MSE

IIB.
11 17 CFR 23.151.
12 Both aspects of the MTA Final Rule were the subject of CFTC staff no-action letters issued in 2017 and 2019, respectively.

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