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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Rules and Regulations
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AANA for June, July, and August of the prior year. If the FEU has MSE on January 1 of a given year, the FEU
would come within the scope of the IM
requirements on January 1 of such year.
As such, a CSE would be required to exchange regulatory IM beginning on such January 1 for its uncleared swaps with such FEU.
As proposed, the Commission is amending the definition of MSE in Regulation 23.151 by replacing June, July and August of the previous calendar year with March, April and May of that year. The period for calculating AANA for determining whether an FEU has MSE will thus be March, April, and May of that year.
That year will be understood to mean the year the MSE status for an FEU is assessed for the purpose of determining whether a CSE that enters into uncleared swaps with the FEU is required to exchange IM with the FEU.
The Commission is also amending the definition of MSE to set September 1
of any year as the determination date for MSE. Under the current requirements, absent a rule change, the MSE for an FEU would have to be determined first on September 1, 2022, which would begin the last phase of compliance under the phased compliance schedule, and subsequently, after the end of the phased compliance schedule, on January 1 of each year.
Under the Final Rule, the date for the determination of MSE after the end of the phased compliance schedule will shift from January 1 to September 1. The change in the MSE determination date to September 1 of each year effectively sets the timing for compliance with the IM requirements on September 1 after the end of the phased compliance schedule with respect to uncleared swaps entered into by a CSE and an FEU
with MSE.
The shift of the MSE determination date from January 1 to September 1 may defer for nine months to September 1, 2023, the obligation to exchange IM for a firm that absent the rule change would have been subject to the IM
requirements on January 1, 2023.
Uncleared swaps entered into by the firm during the nine-month deferral period will be deemed legacy swaps, or uncleared swaps exempt from the IM
requirements.49 As a result, in 2023, less 23.161a7 addressing the last phase of compliance and the timing of compliance going forward and the definition of MSE in Regulation 23.151 can be reasonably read together to set January 1 as the MSE determination date. See 17
CFR 23.151; 17 CFR 23.161a7.
49 Pursuant to Regulation 23.161, the compliance dates for the IM and VM requirements under the CFTC Margin Rule are staggered across a phased
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collateral may be collected for uncleared swaps, which could render uncleared swap positions riskier and increase the risk of contagion and systemic risk. The Commission, however, notes that because the deferral period will affect entities with lower AANAs than entities brought into scope in earlier phases of the IM compliance schedule, the potential uncollateralized risk would be mitigated, becoming a lesser concern, particularly because the proposed change in the MSE determination date will draw the Commissions rules closer to BCBS/IOSCOs approach, promoting international harmonization.
Conversely, the change in the MSE
determination date could also result in requiring certain entities to post and collect IM that otherwise would not have been required to do so. This could occur when an FEU meets the MSE
threshold in the last phase of compliance beginning on September 1, 2022, but falls below the threshold by January 1, 2023, because the AANA for June, July, and August of the prior year i.e. 2022 is below $8 billion. In such case, under the current rule, a CSE
would no longer be required to exchange IM with such FEU beginning on January 1, 2023. However, the change in the MSE determination date to September 1, as adopted, will require the CSE to continue to exchange IM
with the FEU through September 1, 2023, as no determination of MSE status will be required between September 1, 2022, and September 1, 2023, and, as a result, the CSE will be required to exchange IM with the FEU for nine months longer than the January 1, 2023
MSE determination date would have required.
These amendments to the definition of MSE will have the effect of reducing the time frame that FEUs and their CSE
counterparties will have to prepare for compliance with the IM requirements.
Under the current rule being amended, CSEs would have been required to exchange regulatory IM with counterparties that are FEUs with MSE
beginning on September 1, 2022, which starts the last phase of the phased compliance schedule. The MSE for the FEU would have been determined using the AANA for June, July, and August of schedule that extends from September 1, 2016, to September 1, 2022. The compliance period for the VM requirements ended on March 1, 2017 though the CFTC and other regulators provided guidance permitting a six-month grace period to implement the requirements following the implementation date, while the IM requirements continue to phase in through September 1, 2022. An uncleared swap entered into prior to an entitys IM compliance date is a legacy swap that is not subject to the IM
requirements. See CFTC Margin Rule, 81 FR at 651
and Regulation 23.161. 17 CFR 23.161.

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the prior year i.e., 2021. As a result, for the last phase of compliance in 2022, a CSE and FEU would have had at least twelve months to prepare for compliance with the IM requirements.
By contrast, under the Final Rule, a CSE
and FEU, for the last phase of compliance in 2022, will have only 3
months to prepare for IM compliance because MSE will be required to be determined using the AANA for March, April, and May of the current year i.e., 2022.
Also, under the Final Rule, after the last phase of compliance under the phased compliance schedule, the date for determining MSE for an FEU will be September 1 of each year, and the AANA calculation period for determining whether an FEU has MSE
will be March, April, and May of such year. As a result, an FEU with MSE and its CSE counterparty will have three months to prepare in advance of compliance with the IM requirements, whereas under the current rule being amended, such parties would have had four months because MSE would have been required to be determined on January 1 based on the AANA for June, July, and August of the prior year.
In its Margin Subcommittee Report, the GMAC subcommittee acknowledged that the change in the period for the calculation of AANA and the change in the MSE determination date from January 1 to September 1 would reduce the time frame for preparing for compliance with the IM requirements.50
Nevertheless, the subcommittee expressed support for the changes, noting that the changes would align the CFTCs margin requirements with the BCBS/IOSCO Framework.51
The Commission is also amending the definition of MSE to replace average daily aggregate notional amount, or daily average AANA, with average month-end aggregate notional amount, for calculating AANA to determine whether an entity has MSE. In adopting the CFTC Margin Rule, the Commission acknowledged that month-end AANA
averaging for the calculation of AANA
would be consistent with BCBS/
IOSCOs approach. Nonetheless, the CFTC, along with the U.S prudential regulators, decided to adopt daily AANA averaging for the calculation of AANA to determine MSE. In the preamble to the CFTC Margin Rule, the 50 See
Margin Subcommittee Report at 49.
The GMAC subcommittee stated that the divergence between the U.S. and international requirements creates complexity and confusion, and leads to additional effort, cost and compliance changes for smaller market participants that are generally subject to margin requirements in multiple global jurisdictions..
51 Id.

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