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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Rules and Regulations Commission may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid Office of Management and Budget control number. The Final Rule, as adopted, contains no requirements subject to the PRA.
C. Cost-Benefit Considerations Section 15a of the CEA requires the Commission to consider the costs and benefits of its actions before promulgating a regulation under the CEA.142 Section 15a further specifies that the costs and benefits shall be evaluated in light of the following five broad areas of market and public concern: 1 Protection of market participants and the public; 2
efficiency, competitiveness and financial integrity of futures markets; 3
price discovery; 4 sound risk management practices; and 5 other public interest considerations.
The Commission is amending the CFTC Margin Rule to revise the method for calculating AANA for determining whether an FEU has MSE and the timing of compliance with the IM
requirements after the end of the phased compliance schedule timing of postphase-in compliance. These amendments align the CFTC Margin Rule with the BCBS/IOSCO Framework with respect to these matters. The Commission is also amending Regulation 23.154a, consistent with Letter 1929, to allow CSEs to use the risk-based model calculation of IM of a counterparty that is a swap entity.143
With respect to these rule amendments, the Commission considered the costs and benefits resulting from its discretionary determinations with respect to section 15a considerations, and sought comments from interested persons regarding the nature and extent of such costs and benefits. In response to its request for comment, as noted earlier, the Commission received nine comment letters.144 All the comment letters generally expressed support for the Proposal.145 One commenter noted that it reflects the realities of the 142 7

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the definition of the term swap entity, see supra note 42.
144 See ACLI 10/23/2020 Letter; Associations 10/
22/2020 Letter; BPEC 10/23/2020 Letter; FIA 10/22/
2020 Letter; ICI 10/22/2020 Letter; MFA 10/22/2020
Letter; STRM 10/23/2020 Letter; SIFMA AMG 10/
22/2020 Letter; Working Group 10/22/2020 Letter.
145 See ACLI 10/23/2020 Letter at 1; Associations 10/22/2020 Letter at 1; BPEC 10/23/2020 Letter at 2; FIA 10/22/2020 Letter at 23; ICI 10/22/2020
Letter at 1; MFA 10/22/2020 Letter at 1; STRM 10/
23/2020 Letter at 1; SIFMA AMG 10/22/2020 Letter at 1; Working Group 10/22/2020 Letter at 3.

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marketplace and further aligns the U.S.
regulations with the global regulators.146
Other commenters stated that the Proposal would enable the implementation of the IM requirements in a practical and efficient manner and reduce the complexity and burden associated with the implementation of those requirements.147 The commenters added that the Proposal would foster greater liquidity and contribute to the lowering of hedging costs, particularly in the last phases of the compliance schedule.148
The baseline against which the benefits and costs associated with the Final Rule is compared is the uncleared swaps markets as they exist today and the currently applicable timing for compliance with the IM requirements after the expiration of the phased compliance schedule. Concerning the amendment to Regulation 23.154a, the Commission believes that to the extent market participants may have relied on Letter 1929, the actual costs and benefits of the amendment, as realized by the market, may not be as significant at a practical level. With respect to the amendments to align aspects of the CFTC Margin Rule with the BCBS/
IOSCO Framework, the Commission notes that the Dodd-Frank Act calls on the CFTC to consult and coordinate on the establishment of consistent international standards with respect to the regulation of swaps.149 The amendments therefore advance the Congressional direction towards harmonization of the CFTCs requirements with international standards, thereby removing a regulatory impediment that might hinder the competitiveness of the U.S.
swaps industry.150
The Commission notes that the consideration of costs and benefits below is based on the understanding that the markets function internationally, with many transactions 146 See
ACLI 10/23/2020 Letter.
generally BPEC 10/23/2020 Letter; MFA
10/22/2020 Letter.
148 Id.
149 See supra note 79.
150 A starting point in determining the potential benefit of alignment with the BCBS/IOSCO
Framework is various statutory provisions where the U.S. Congress has called on the CFTC and other financial regulators to align U.S. regulatory requirements with international standards. For example, the Commodity Futures Modernization Act of 2000 CFMA focused on the potential threat to competitiveness of the U.S. industry where there is divergence with international standards. In particular, section 126 of the CFMA provides that regulatory impediments to the operation of global business interests can compromise the competitiveness of United States businesses. See CFMA section 126a, Appendix E of Pub. L. 106
554, 114 Stat. 2763 2000.
147 See
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involving U.S. firms taking place across international boundaries; with some Commission registrants being organized outside of the United States; with leading industry members typically conducting operations both within and outside the United States; and with industry members commonly following substantially similar business practices wherever located. Where the Commission does not specifically refer to matters of location, the following discussion of costs and benefits refers to the effects of the Final Rule on all activity subject to the Final Rule, whether by virtue of the activitys physical location in the United States or by virtue of the activitys connection with activities in, or effect on, U.S.
commerce under section 2i of the CEA.151
1. Benefits By harmonizing the CFTCs method for calculating AANA for determining MSE and the timing of post-phase-in compliance with the BCBS/IOSCO
Framework, the Final Rule will create a benefit because it will reduce complexityfor example, the monthend AANA calculation method being adopted will require consideration of only three observation dates rather than daily AANA averaging over the threemonth calculation periodand the potential for confusion in the application of the margin requirements.
Some entities will no longer need to undertake separate AANA calculations using different calculation periods, nor will they need to conform to two separate compliance timings, varying according to the location of their swap counterparties and jurisdictional requirements applicable to the counterparties.
The Final Rule will affect FEUs with AANA between $8 billion and $50
billion that come into the scope of compliance with the IM requirements under the CFTC Margin Rule in the last compliance phase beginning on September 1, 2022, as well as those entities that come into scope after the end of the last compliance phase. The Commission believes that the Final Rule will benefit some of these entities, which, given their level of swap activity, pose a lower risk to the uncleared swaps market and the U.S.
financial system in general than entities that came into scope in earlier phases.
The OCE has estimated that there are approximately 514 of such entities representing 4% of total AANA across 151 7

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