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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Rules and Regulations regulators and is similar to the U.S.
prudential regulators method of calculation, is not consistent with the most recent version of the BCBS/IOSCO
Framework. Nor is it consistent with requirements in other major market jurisdictions, most of which adopted the 2015 BCBS/IOSCO Frameworks monthend AANA calculation using the period of March, April, and May for the purposes of determining whether an entity is subject to the IM requirements beginning in the last phase of implementation.22
In a report prepared by a subcommittee established by the CFTCs Global Markets Advisory Committee GMAC, discussed in more detail below, the subcommittee reported that the differences in the methods for determining when an entity comes within the scope of the IM requirements and the timing of compliance after the last phase of compliance may impose an undue burden on market participants efforts to comply with the CFTCs margin requirements.23 The report stated that entities have to account for different compliance schedules and set up and maintain separate processes for determining when they meet the thresholds for IM compliance.24

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B. No-Action Letter No. 1929
Concerning the Calculation of IM
The Commissions Division of Swap Dealer and Intermediary Oversight 25
issued CFTC No-Action Letter 1929 in July 2019 in response to a request for 22 See, e.g., Commission Delegated Regulation EU 2016/2251 Supplementing Regulation EU No.
648/2012 of the European Parliament and of the Council of July 4, 2012 on OTC Derivatives, Central Counterparties and Trade Repositories with Regard to Regulatory Technical Standards for RiskMitigation Techniques for OTC Derivative Contracts Not Cleared by a Central Counterparty Oct. 4, 2016, Article 281, https eur-lex.europa.eu/legalcontent/EN/TXT/PDF/
?uri=CELEX:32016R2251&from=EN. Financial Services Agency of Japan JFSA Cabinet Office Ordinance on Financial Instruments Business Cabinet Office Ordinance No. 52 of August 6, 2007, as amended March 31, 2016, Article 12311iv; Office of the Superintendent of Financial Institutions Canada OSFI Guideline No.
E22, Margin Requirements for Non-Centrally Cleared Derivatives April 2020, Section 5, 71, https www.osfi-bsif.gc.ca/Eng/Docs/e22.pdf.
23 See 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, May 2020 at, 4854, https www.cftc.gov/media/
3886/GMAC_051920MarginSubcommitteeReport/
download Margin Subcommittee Report or Report.
24 Id.
25 Pursuant to a Commission plan of reorganization, the Division of Swap Dealer and Intermediary Oversight was renamed Market Participants Division MPD effective November 8, 2020. The Division is referred to as MPD
hereinafter.

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relief submitted by Cargill Incorporated Cargill, a CFTC-registered SD and CSE.26 Cargill sought no-action relief to be able to use the risk-based model calculation of IM of a counterparty that is an SD to determine the amount of IM
to be collected from the counterparty.
Cargill stated that while its swap activity primarily involved physical agricultural commodities with non-SD
counterparties seeking to mitigate commercial risk, it maintained positions that required the collection of IM from SDs. Given the highly specialized and discrete nature of its swaps business, mainly focusing on commodities, Cargill opted to rely on the standardized IM
table to calculate IM rather than develop a risk-based model. Because the use of the standardized table could generate higher amounts of IM than a risk-based model, requiring its SD counterparties to post higher amounts of IM, Cargill stated that SD counterparties might choose not to trade with it.
Based on Cargills representations, MPD stated that it would not recommend enforcement action, subject to specified conditions, if Cargill used the risk-based model calculation of IM
of a counterparty that is a CFTCregistered SD as the amount of IM that Cargill was required to collect from the SD and to determine whether the IM
threshold amount of $50 million IM
threshold amount 27 had been exceeded, which would trigger the requirement for documentation concerning the posting, collection, and custody of IM collateral.
C. Market Participant Feedback As previously mentioned, the CFTCs GMAC established a subcommittee of market participants in January 2020 to consider issues raised by the implementation of margin requirements for non-cleared swaps, identify challenges associated with forthcoming implementation phases, and prepare a report with recommendations. The subcommittee issued the Margin Subcommittee Report and submitted the
Report to the GMAC.28 The GMAC
adopted the Report and recommended to the Commission that it consider adopting the Reports recommendations.
Among other things, the Margin Subcommittee Report recommended the alignment of the CFTC Margin Rule with the BCBS/IOSCO Framework with respect to the method for calculating AANA for determining whether an entity comes within the scope of the IM
requirements and the timing of compliance after the end of the phased compliance schedule.29 The Report also recommended the codification of Letter 1929.30
In response to feedback from market participants, in particular the GMAC
subcommittees recommendations, the Commission issued a notice of proposed rulemaking Proposal, published in the Federal Register on September 23, 2020, proposing amendments to the CFTC Margin Rule. The Commission proposed to align the CFTC Margin Rule with the BCBS/IOSCO Framework with respect to the method for calculating AANA for determining whether certain entities come within the scope of the IM
requirements and the timing of compliance after the end of the phased compliance schedule, noting that BCBS/
IOSCO is the global standard setter for margin requirements for non-centrally cleared derivatives and that the proposed amendments would promote international harmonization in the application of the IM requirements. The Commission stated that the disjunction between the CFTC and BCBS/IOSCO
concerning the calculation of AANA
and the timing of compliance with the IM requirements does not further any regulatory purpose, noting, in particular, the foreseeability of calculation errors resulting from differences in the calculation methods.31
The Commission also proposed to amend the CFTC Margin Rule to permit CSEs to use the risk-based IM
calculation of a counterparty that is a 28 See
supra note 23.
Margin Subcommittee Report at 4854.
30 See Margin Subcommittee Report at 3436.
31 The possibility of calculation errors may be mitigated by substituted compliance, as described in Regulation 23.160, if the parties are non-U.S.
entities and substituted compliance is available, as the parties may be able to avail themselves of the rules in the foreign jurisdiction and may therefore not face the concern about different calculation methods. However, while the changes to the method of calculation of AANA under the Final Rule will align the CFTCs method of calculation with BCBS/IOSCOs approach, the Commission acknowledges that the changes will result in a divergence from the U.S. prudential regulators approach, which may increase the potential for calculation errors for entities located in the United States.
29 See
26 CFTC Letter No. 1929, Request for No-Action Relief Concerning Calculation of Initial Margin Dec.19, 2019 Letter 1929, http
www.cftc.gov/idc/groups/public/@lrlettergeneral/
documents/letter/19-29.pdf.
27 Under Regulation 23.154a3, SDs and MSPs subject to the Commissions regulations are not required to post or collect IM until the initial margin threshold amount has been exceeded. See 17 CFR 23.154a3. The term initial margin threshold amount is defined in Regulation 23.151
to mean an aggregate credit exposure of $50 million resulting from all uncleared swaps between an SD
and its margin affiliates or an MSP and its margin affiliates on the one hand, and the SDs or MSPs counterparty and its margin affiliates on the other.
See 17 CFR 23.151.

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