Voglio sapere a riguardo di…

236

Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Rules and Regulations
IM requirements.78 In addition, section 752a of the Dodd-Frank Act calls on the CFTC to consult and coordinate with respect to the establishment of consistent international standards.79 As such, the Commission believes that amending the definition of MSE, as proposed, is appropriate to harmonize its compliance schedule with that of BCBS/IOSCO and, for entities engaging in swaps with CSEs, eliminates a disjunction that could risk calculation errors and may hinder compliance with the IM requirements.

jbell on DSKJLSW7X2PROD with RULES

B. Regulation 23.154Alternative Method of Calculation of IM
As originally adopted, the CFTC
Margin Rule requires CSEs to collect and post IM with covered counterparties, including CFTCregistered SDs or MSPs.80 Regulation 23.154a directs CSEs to calculate, on a daily basis, the IM amount to be collected from covered counterparties.81
CSEs have the option to calculate the IM
amount by using either a risk-based model or the standardized IM table set forth in Regulation 23.154c1.82 For a CSE that elects to use a risk-based model to calculate IM, Regulation 23.154b1 requires the CSE to obtain the written approval of the Commission or a registered futures association 83 to use the model to calculate IM required by the Commissions margin requirements for uncleared swaps.84
After reviewing the comments on the Proposal, the Commission is adopting the amendment to Regulation 23.154a as proposed, subject to some clarifications further discussed below.
More specifically, the Commission is amending Regulation 23.154a by adding new paragraph a5. Paragraph a5 permits a CSE that enters into 78 The Commission acknowledges that the burdens on market participants will not be fully eliminated, and in fact, may increase, for those entities that enter into uncleared swaps with SDs and MSPs that are subject to the U.S. prudential regulators margin requirements for uncleared swaps and come within the scope of the prudential regulators margin regime, as the prudential regulators have not revised their rules consistent with the rule changes being adopted herein. Any further discussion in this Final Rule of the benefits of not needing to maintain separate schedules and processes is limited to entities not also undertaking swaps with U.S. prudentially regulated SDs.
79 See section 752a of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111203, 124 Stat. 1376 2010.
80 See 17 CFR 23.152.
81 See 17 CFR 23.154a.
82 See id.
83 See 17 CFR 23.154b1i. In this context, the term registered futures association refers to the National Futures Association NFA, which is the only futures association registered with the Commission.
84 See 17 CFR 23.154b1i.

VerDate Sep<11>2014

16:32 Jan 04, 2021

Jkt 253001

uncleared swaps with a CFTC-registered SD or MSP, or a swap entity, to use the swap entitys risk-based model calculation of IM to determine the amount of IM that must be collected from such counterparty and to determine whether the IM threshold amount has been exceeded, which would require documentation concerning the posting, collection, and custody of IM.
This amendment to Regulation 23.154a modifies, consistent with Letter 1929, the requirement that CSEs calculate the amount of IM to be collected from a swap entity counterparty by giving CSEs the option to rely on such counterpartys risk-based IM calculation. The Commission acknowledges that as a result, some CSEs may forgo the adoption of a riskbased model to avoid the cost and burden associated with developing and maintaining such a model. The Commission notes that without a model to compute its own IM, a CSE may lack reasonable means to verify the IM
amount provided by its counterparty or may fail to recognize shortfalls in the IM
calculation or flaws in the counterpartys risk-based model. As such, the CSE may collect insufficient amounts of IM to offset counterparty risk. In addition, the Commission acknowledges the swap entitys potential conflict of interest in calculating IM for the CSE, 85 as it may be biased in favor of calculating and posting lower amounts of IM to the CSE.
Based on the foregoing concerns, the Commission is adopting, as part of the new paragraph 5 in Regulation 23.154a, two of the conditions set forth in Letter 1929.86
First, consistent with Letter 1929, paragraph a5 requires that the riskbased model used by the CSEs swap entity counterparty for the calculation of IM satisfy the requirements of Regulation 23.154b requiring the approval of the use of the model by either the Commission or the NFA, or that the model be approved by a prudential regulator.87
85 The Commission, however, notes that the potential for conflict may be mitigated as the swap entity, as a CFTC-registered SD or MSP, would be subject to Regulation 23.600, which requires SDs and MSPs to establish a risk management program for the management and monitoring of risk, including credit and legal risk, associated with their swap activities. See 17 CFR 23.600.
86 As previously discussed, Letter 1929 permits Cargill to use the risk-based IM calculation of a counterparty that is a CFTC-registered SD to determine the amount of IM to be collected from such counterparty, subject to specified conditions discussed in more detail below.
87 The prudential regulators have not amended their margin requirements for uncleared swaps consistent with the amendment to Regulation
PO 00000

Frm 00014

Fmt 4700

Sfmt 4700

Second, paragraph a5 permits CSEs to use the risk-based model calculation of IM of a swap entity counterparty only if the uncleared swaps for which IM is calculated are entered into for the purpose of hedging the CSEs own risk.
The risk to be hedged is understood to be the risk that a CSE would incur when entering into swaps with non-swap entity counterparties. By limiting the application of this alternative method of calculation of IM to only uncleared swaps entered into for the purpose of hedging risk arising from swaps entered into with non-swap entities, the Commission ensures the narrow application of this method of calculation.
The Commission contrasts the risk of customer-facing swaps with the risk that CSEs incur when entering into a swap in a dealing capacity to accommodate the demand of a swap entity counterparty.88 The Commission believes that it would be inappropriate to allow a CSE to use the IM calculation of the swap entity counterparty in this latter case. The Commission notes that the latter case i.e., where the CSE is acting in a dealing capacity for a counterparty that is itself calculating IM would occur in the inter-dealer market for swaps. The Commission believes that a CSE participating in the inter-dealer market in a dealing capacity should have the capacity to develop, implement, and use an approved riskbased model.
The Commission expects that new paragraph a5 would be relied upon by CSEs that opt not to develop and obtain approval to use a risk-based model for the calculation of IM but instead elect to use the table-based calculation described in Regulation 23.154c for swaps with non-swap entity counterparties. Such CSEs, in the course of their uncleared swaps business, would enter into uncleared swaps mostly with end-user, non-swap entity counterparties, and hedge the risk of those swaps with other uncleared swaps entered into with swap entity counterparties. The CSEs would exchange IM with the swap entity counterparties for the uncleared swaps entered into for their own hedging, as the swaps would be subject to the CFTC
23.154b discussed herein. As such, the CFTCs margin requirements will diverge from the prudential regulators approach.
88 See Further Definition of Swap Dealer, Security-Based Swap Dealer, Major Swap Participant, Major Security-Based Swap Participant and Eligible Contract Participant, 77
FR 30596, 30608 May 23, 2012 noting that a distinguishing characteristic of swap dealers is being known in the industry for their availability to accommodate demand for swaps.

E:FRFM05JAR1.SGM

05JAR1