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Federal Register / Vol. 86, No. 14 / Monday, January 25, 2021 / Rules and Regulations
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of no-action letters, interpretative letters, or advisories on various issues and in various circumstances. This affords the Commission a chance to observe how the Staff action operates in real-time, and to evaluate lessons learned. With the benefit of this time and experience, the Commission should then consider whether codifying such Staff action into rules is appropriate.64
As I have said before, it is simply good government to re-visit our rules and assess whether certain rules need to be updated, evaluate whether rules are achieving their objectives, and identify rules that are falling short and should be withdrawn or improved. 65 Experience with the Staff noaction relief in Letter No. 1712 supports our rule change to tailor the application of the MTA under the Commissions uncleared margin rules in the SMA context.
Separate MTAs for IM and VM: The second rule change regarding the MTA that we are adopting similarly would codify existing Staff no-action relief in recognition of market realities. Consistent with Staff no-action Letter No. 1925,66 it would recognize that a swap dealer may apply separate MTAs for IM
and VM with each counterparty, provided that the MTAs corresponding to IM and VM
are specified in the margin documentation required under the Commissions regulations, and that the MTAs, on a combined basis, do not exceed the prescribed MTA.
Staffs no-action relief, and the Commissions rule amendments to codify that relief, take into account the separate settlement workflows that swap counterparties maintain to reflect, from an operational perspective, the different regulatory treatment of IM and VM.67 And given that the total amount of combined IM
and VM exchanged would not exceed the prescribed MTA, separate MTAs for IM and VM would not materially increase the 64 See comments of Commissioner Dawn D.
Stump during Open Commission Meeting on January 30, 2020, at 183 noting that after several years of no-action relief regarding trading on swap execution facilities SEFs, we have the benefit of time and experience and it is time to think about codifying some of that relief. . . . The SEFs, the market participants, and the Commission have benefited from this time and we have an obligation to provide more legal certainty through codifying these provisions into rules., available at https
www.cftc.gov/sites/default/files/2020/08/
1597339661/openmeeting_013020_Transcript.pdf.
65 Statement of Commissioner Dawn D. Stump for CFTC Open Meeting on: 1 Final Rule on Position Limits and Position Accountability for Security Futures Products; and 2 Proposed Rule on Public Rulemaking Procedures Part 13 Amendments September 16, 2019, available at https
www.cftc.gov/PressRoom/SpeechesTestimony/
stumpstatement091619.
66 CFTC Letter No. 1925, Commission Regulations 23.151, 23.152, and 23.153Staff Time-Limited No-Action Position Regarding Application of Minimum Transfer Amount under the Uncleared Margin Rules December 6, 2019, available at https www.cftc.gov/csl/19-25/
download.
67 Under the Commissions uncleared margin rules, IM posted or collected by a swap dealer must be held by one or more custodians that are not affiliated with the swap dealer or the counterparty, whereas VM posted or collected by a swap dealer is not required to be segregated with an independent custodian. See 17 CFR 23.157.

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amount of credit risk at a given time. Under Letter No. 1925 and this codification, swap dealers and their counterparties can manage MTA in an operationally practicable way that aligns with the market standard.
There Remains Unfinished Business While I am pleased with the steps the Commission is taking, there remains unfinished business in the implementation of uncleared margin requirements. The report of the GMAC Margin Subcommittee recommended several actions, beyond those that we are adopting, to address the hurdles associated with the application of uncleared margin requirements to end-users. Having been present for the development of the Dodd-Frank Act, I recall that the concerns expressed by many lawmakers at the time focused on the application of the new requirements to end-users. The unique challenges with respect to uncleared margin that caused uneasiness back in 20092010
are now much more immediate as the margin requirements are being phased in to apply to these end-users. As the calendar turns into the new year, I look forward to continuing to work together to address the other recommendations included in the GMAC
Margin Subcommittees report regarding applying the uncleared margin rules to financial end-users. The need to do so will only become more urgent as time marches on.
Conclusion To be clear, these changes 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 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, thereby enhancing compliance consistent with our oversight responsibilities under the CEA.
Appendix 3Statement of Commissioner Dan M. Berkovitz I. Introduction I support todays two final rules that make tailored amendments to the CFTCs Margin Rule.1 The Margin Rule requires swap 1 Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 81 FR
636 Jan. 6, 2016 Margin Rule.

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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 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 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.
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_
051920MarginSubcommitteeReport/download.
6 See Margin Rule, 81 FR at 645.

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