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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Rules and Regulations
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all phases.152 This means that the Final Rule addresses entities that tend to engage in less uncleared swap trading activity and, and in the aggregate, pose less systemic risk than entities in previous phases. Because these entities are smaller, they presumably have fewer resources to devote to IM compliance and hence will benefit from the alignment of the method of calculation of AANA across jurisdictions without contributing substantially to systemic risk.
For entities with AANA between $8
billion and $50 billion that will begin collecting IM on September 1, 2022, moving the calculation period from June, July, and August 2021 to March, April, and May 2022 will better align with current practices. While the Commission cannot anticipate exactly how the JuneAugust 2021 period will differ from the MarchMay 2022 period, based on comparable past experience, the OCE estimates that approximately 75100 entities will come into scope, and a similar number will fall below the threshold by virtue of moving the calculation period. The adjusted calculation period will reduce the regulatory burden for firms that have reduced their MSE below the $8 billion threshold while requiring the collection of margin for those firms that have increased their swaps business above the threshold. While aggregate AANA
for firms that fall into or out of scope is small relative to the overall market less than one percent of total aggregate AANA, moving the calculation period close to the compliance date may have a significant impact on entities that have reduced their MSE.
The Commission also notes that the benefits of alignment with the BCBS/
IOSCO Framework will continue to accrue in future years, as the determination of MSE for an FEU under the CFTC Margin Rule is an annual undertaking, triggered by the entry into an uncleared swap between the FEU
and a CSE counterparty and the need to determine whether the FEU has MSE, which triggers the application of the IM
requirements and the exchange of regulatory IM between a CSE and an FEU for their uncleared swap transactions.
With respect to the amendment to Regulation 23.154a, the Commission believes that the uncleared swap markets will benefit from the extension 152 Using March-May of 2020 as the calculation period. The methodology for calculating AANA is described in Richard Haynes, Madison Lau, & Bruce Tuckman, Initial Margin Phase 5, at 4 Oct. 24, 2018, https www.cftc.gov/sites/default/files/
About/Economic%20Analysis/Initial%20Margin %20Phase%205%20v5_ada.pdf.

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of the targeted relief provided to Cargill, the requester in Letter 1929, to a wider group of CSEs with similar unique swaps business models. In taking a noaction position, MPD took account of Cargills representation that its swap trading activity primarily involved physical agricultural commodities and certain other asset classes and that it may maintain positions that require collection of IM from SDs. Cargill further stated that given the highly specialized and discrete nature of its swaps business, risk-based modeling would impose a disproportionate burden.
The more widespread availability of the alternative method of calculation of IM provided by Regulation 23.154a, as amended by the Final Rule, may incentivize some market participants to expand their swaps business. In particular, given that certain market participants will have the option to forgo the cost of risk-based modeling, this potential reduction in compliance costs may encourage certain entities to increase their swaps trading. By increasing the pool of potential swap counterparties, the Final Rule could enhance competition, increase overall liquidity, and facilitate price discovery in the uncleared swaps markets.
2. Costs While the Final Rule will have the effect of creating efficiencies for market participants, the Commission acknowledges that the rule changes being adopted will also give rise to some costs. Among other things, the change of the CFTCs AANA calculation period for determining MSE to align it with BCBS/
IOSCOs AANA calculation period will reduce the time frame for determining whether an FEU is subject to the IM
requirements and for preparing for compliance with the requirements during the final phase-in period of 2022.
Under the current margin requirements, in the period leading to the final phase-in date of September 1, 2022, FEUs would have a full year to prepare, as MSE for an FEU would be determined using the AANA for June, July and August of the prior year.
However, under the Final Rule, entities will have only a three-month advance notice in 2022, as AANA will be calculated using the March, April and May period of that year. Entities will have a shorter time frame to engage in preparations to comply with IM
requirements, including, among other things, procuring rule-compliant documentation, establishing processes for the exchange of regulatory IM, and setting up IM custodial arrangements.
Because the Final Rule aligns the AANA

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calculation for determining MSE with BCBS/IOSCOs approach and the compliance date remains unchanged, the Commission believes that the cost will be mitigated. In particular, the Commission notes that commenters confirmed,153 as reported in the Margin Subcommittee Report, that the differences in the U.S. regulations could create complexity and confusion and lead to additional effort, cost and compliance challenges for smaller market participants that are generally subject to margin requirements in multiple global jurisdictions.154
The Commission further notes that the amendment to the timing of postphase-in compliance, as proposed, will defer compliance with the IM
requirements with respect to uncleared swaps entered into by a CSE with an FEU that comes into the scope of IM
compliance after the end of the last compliance phase. Under the current rule being amended, FEUs with MSE as measured in June, July, and August 2022 would have come into the scope of compliance post-phase-in beginning on January 1, 2023. On the other hand, under the Final Rule, FEUs with MSE as measured in March, April, and May 2023 will come into scope, post-phasein compliance, beginning on September 1, 2023. As a result, for FEUs with MSE
in both periods, less collateral for uncleared swaps may be collected given that the Final Rule changes the beginning of post-phase-in compliance from January 1, 2023, to September 1, 2023, rendering uncleared swap positions entered into between January 1, 2023, and September 1, 2023, riskier, as no IM will be required to be collected during that period, which could increase the risk of contagion and the potential for systemic risk. The Commission, however, notes that under the Final Rule, a CSE may be required to exchange IM with an FEU that comes into scope in the last phase of compliance beginning on September 1, 2022, but falls below the MSE level by January 1, 2023, for nine months longer than otherwise would have been the case, as post-phase-in, no assessment of MSE status will be required until September 1, 2023.
With respect to the adoption of a month-end AANA methodology for the calculation of AANA for determining MSE, as proposed, the Commission acknowledges that there are potential costs. The utilization of month-end 153 See ACLI 10/23/2020 Letter at 2; Associations 10/22/2020 Letter at 3; FIA 10/22/2020 Letter at 4;
SIFMA AMG 10/22/2020 Letter at 3; Working Group 10/22/2020 Letter at 2.
154 Margin Subcommittee Report at 49.

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