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Federal Register / Vol. 86, No. 14 / Monday, January 25, 2021 / Rules and Regulations amount of both IM and VM required to be exchanged with the counterparty.12
During the implementation of the CFTC Margin Rule, market participants identified certain operational and compliance burdens associated with the application of the MTA. To mitigate these burdens, the Division of Swap Dealer and Intermediary Oversight DSIO staff issued two no-action letters.13
B. DSIO No-Action Letter No. 1712
Addressing the Application of MTA to SMAs In February 2017, DSIO staff issued a no-action letter in response to a request for relief from the Securities Industry and Financial Markets Associations Asset Management Group SIFMA
AMG.14 Staff stated that based on SIFMA AMGs representations, it would not recommend enforcement action against an SD that does not comply with the MTA requirements of Regulations 23.152b3 or 23.153c with respect to the swaps of a legal entity that is the owner of multiple SMAs, provided that, among other conditions, the SD applies an MTA no greater than $50,000 to each SMA.
SIFMA AMG sought no-action relief on behalf of membersasset management firms whose clients include large institutional investors, such as pension plans and endowments, that hire asset managers to exercise investment discretion over portions of the clients assets for management in SMAsthat enter into uncleared swaps with SDs that are registered with the Commission and are subject to the CFTC
Margin Rule.15 SIFMA AMG requested relief that would permit SDs entering into swaps with SMAs to treat each SMA separately for the purposes of applying the MTA.
SIFMA AMG argued that the application of the MTA at the SMA
owner or legal entity level presented significant practical challenges for SMAs that trade uncleared swaps with a single SD. SIFMA AMG stated that each SMA is governed by an investment management agreement that grants asset managers authority over a portion of their clients assets. An SD may face the same legal entity as a counterparty 12 See
17 CFR 23.152b3; 17 CFR 23.153c.
to a Commission plan of reorganization, DSIO was renamed Market Participants Division MPD effective November 8, 2020.
14 CFTC Letter No. 1712, Regulations 23.152b3 and 23.153c: No-Action Position for Minimum Transfer Amount with respect to Separately Managed Accounts Feb. 13, 2017
Letter 1712, https www.cftc.gov/idc/groups/
public/@lrlettergeneral/documents/letter/17-12.pdf.
15 Id.

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through multiple SMAs administered by different asset managers. Each SMA that trades derivatives typically has its own payment netting set corresponding to each International Swaps and Derivatives Association ISDA master agreement and credit support annex CSA used by an asset manager.16
Because the SMAs exist independently from each other, with their assets held, transferred, and returned separately at the account level, SIFMA AMG asserted that it is impractical for asset managers to collectively calculate the MTA across the SMAs of a single owner and to move collateral, in the aggregate, across the accounts.
C. DSIO No-Action Letter No. 1925
Concerning the Application of Separate MTAs for IM and VM
In December 2019, DSIO staff issued an additional no-action letter concerning the application of the MTA
in response to a request for relief from ISDA on behalf of its member SDs.17
DSIO stated that based on ISDAs representations, it would not recommend enforcement action against an SD or MSP that does not combine IM
and VM amounts for the purposes of Regulations 23.152b3 and 23.153c.
More specifically, the no-action position covers SDs or MSPs that apply separate MTAs for IM and VM obligations on uncleared swap transactions with each swap counterparty, provided that the combined MTA for IM and VM with respect to that counterparty does not exceed $500,000.
In its request for no-action relief, ISDA stated that separate MTAs for IM
and VM better reflect the operational requirements and the legal structure of the Commissions regulations, noting that the CFTC Margin Rule requires IM
to be segregated with an unaffiliated third party, while not imposing similar segregation requirements with respect to VM. ISDA asserted that, as a result, distinct workflows have been established for the settlement of IM
through custodians and tri-party agents that are completely separate from the settlement process for VM.
16 The ISDA master agreement is a standard contract published by ISDA commonly used in over-the-counter derivatives transactions that governs the rights and obligations of parties to a derivatives transaction. A CSA sets forth the terms of the collateral arrangement for the derivatives transaction.
17 CFTC Letter No. 1925, Regulations 23.151, 23.152, and 23.153Staff Time-Limited No-Action Position Regarding Application of Minimum Transfer Amount under the Uncleared Margin Rules Dec. 6, 2019 Letter 1925, https
www.cftc.gov/csl/19-25/download.

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D. Market Participant Feedback and Proposal Swap market participants, including a subcommittee established by the CFTCs Global Markets Advisory Committee GMAC Subcommittee, expressed support for the adoption of regulations consistent with the no-action letters, noting that Letter 1925, in particular, is time-limited and, more generally, the codification of no-action positions can be beneficial in that it can provide certainty to market participants with respect to the application of the Commissions regulations.18
Consistent with this feedback, the Commission has expressed the view that adopting regulations in accordance with the terms of no-action letters, where feasible, can facilitate efforts by market participants to take the operation of the Commissions regulations into account in planning their uncleared swap activities. Accordingly, based on its experience implementing the CFTC
Margin Rule and the administration of Letters 1712 and 1925, the Commission decided to issue a notice of proposed rulemaking Proposal to amend the CFTC Margin Rule consistent with the staff positions set forth in those no-action letters, and to request comments on the Proposal.19
II. Final Rule The Commission received six comment letters, all of which expressed support for the Proposal.20 Commenters 18 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, https www.cftc.gov/media/3886/
GMAC_051920MarginSubcommitteeReport/
download GMAC Subcommittee Report or Report. The Global Markets Advisory Committee GMAC established the GMAC Subcommittee to consider issues raised by the implementation of margin requirements for non-cleared swaps, to identify challenges associated with forthcoming implementation phases, and to make recommendations through a report. The GMAC
Subcommittee issued the GMAC Subcommittee Report recommending various actions, including the codification of Letters 1712 and 1925. The GMAC adopted the Report and recommended to the Commission that it consider adopting the Reports recommendations.
19 See Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 85
FR 59470 Sept. 22, 2020.
20 Comments were submitted by the following entities: American Council of Life Insurers ACLI; Futures Industry Association FIA;
Investment Company Institute ICI; ISDA, Global Foreign Exchange Division GFXD of the Global Financial Markets Association GFMA, and Securities Industry and Financial Markets Association SIFMA in a joint letter ISDA/
GFMA/SIFMA; Managed Funds Association MFA; and SIFMA AMG. The comment letters are available at https comments.cftc.gov/
PublicComments/CommentList.aspx?id=4155.

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