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Federal Register / Vol. 86, No. 14 / Monday, January 25, 2021 / Rules and Regulations
generally noted that the proposed amendments represent practical solutions that ease the operational burden of compliance with the CFTC
Margin Rule without materially increasing systemic risk. Two commenters also noted that while consistent approaches to derivatives regulation are desirable, the Commission should adopt the proposed amendments even if the prudential regulators do not adopt similar changes.21 Several commenters highlighted the importance of the regulatory certainty that the adoption of regulations consistent with existing noaction relief would bring.22
The comments confirm the rationale articulated for the Proposal. As such, the Commission is adopting the amendments to Regulations 23.151, 23.152b3, 23.153c and 23.158a, as proposed.
A. Application of MTA to SMAs The Commission is adopting the proposed amendment to the definition of MTA in Regulation 23.151 to allow a CSE to apply an MTA of up to $50,000
to each SMA owned by a counterparty with whom the CSE enters into uncleared swaps. The amendment is consistent with the terms of Letter 17
12, which provides that DSIO would not recommend enforcement action if an SD
applies an MTA no greater than $50,000
to each SMA of a legal entity, subject to certain conditions.
As discussed in the Proposal, when the Commission adopted the CFTC
Margin Rule, it rejected the notion that SMAs of a legal entity should be treated separately from each other in applying certain aspects of the margin requirements for uncleared swaps.23
However, after implementing the margin requirements for several years, and in particular, administering the application of the MTA, including the staffs issuance of Letter 1712, the Commission believes that separately treating SMAs, at least with respect to the application of the MTA, is appropriate from an operational perspective.
The Commission notes, as discussed in the Proposal, that certain owners of SMAs, such as pension funds, in administering investments for 21 See
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22 See
ACLI at 1; FIA at 4.
ISDA/GFMA/SIFMA at 2; SIFMA AMG at
24 GMAC

Subcommittee Report at 16.
ICI at 6; ISDA/GFMA/SIFMA at 2; SIFMA
AMG at 3. See also MFA at 3 noting that the amendment to the MTA definition would eliminate the significant burden of requiring multiple asset managers running SMAs for the same SMA owner to coordinate the calculation of the MTA among them.
26 See, e.g., ICI at 6.
25 See
4.
23 See 81 FR at 653 rejecting commenters request to extend to each separate account of a fund or plan its own initial margin threshold, while acknowledging that separate managers acting for the same fund or plan may not take steps to inform the fund or plan of their uncleared swap exposures on behalf of their principal on a frequent basis.

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beneficiaries, may engage in collateral management exercises and may have the capability to aggregate collateral across their SMAs. As such, a beneficial owner may be able to aggregate the MTA across its SMAs that trade with a particular CSE and centralize the management of collateral for the SMAs, which may result in increased netting among the SMAs and the CSE, and more efficient collateral management. However, the Commission points out that other SMA
owners may not have such capability because, as noted in the GMAC
Subcommittee Report, the SMA owners may not be able to coordinate trading activity across their SMAs, given that they typically grant full investment discretion to their asset managers and do not employ a centralized collateral manager in-house.24
In theory, while asset managers could coordinate with each other the calculation of the MTA across SMAs under their management, the Commission believes that accepted market practice may preclude the sharing of information among asset managers. In this regard, the Commission notes that the GMAC
Subcommittee Report stated that owners of SMAs typically prohibit information sharing among their SMAs and require asset managers to keep trading information confidential, with the result that asset managers lack transparency and control over the assets of the SMA
owner other than the specific assets under their management.
The Commission requested comment on the feasibility of coordination among asset managers. Several commenters, consistent with the GMAC
Subcommittee Reports findings, indicated that confidentiality requirements and logistical impediments prevent asset managers from aggregating IM and VM obligations across SMAs for purposes of determining whether the MTA
threshold has been exceeded, rendering the application of a single MTA across SMAs impractical.25 Commenters further asserted that the ability to apply a separate MTA to each SMA is critical for asset managers that provide services to clients through an SMA structure.26
Likewise, the Commission believes that confidentiality requirements may also preclude communications between
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a CSE and individual asset managers of SMAs of an owner concerning the owners overall trading activity. As discussed in the GMAC Subcommittee Report, a duty of confidentiality to the legal entity may prevent a CSE from sharing information across the asset managers of SMAs of a legal entity.27 As a result, even though each SMA of an owner may contribute to reaching the MTA limit, asset managers for the SMAs may only know the amounts of IM and VM being contributed by SMAs under their management.
In light of the practical challenges that the calculation of the MTA across SMAs poses, as described above, the Commission is amending Regulation 23.151 to allow CSEs to apply an MTA
of up to $50,000 for each SMA of a counterparty. The Commission notes, however, that under this application of the MTA to SMAs, as adopted, an MTA
of up to $50,000 could be applied to an indefinite number of SMAs. This application of the MTA would effectively replace the aggregate limit of $500,000 for a particular counterpartys uncollateralized risk for uncleared swaps with an individual limit of $50,000 for each SMA of such counterparty. In turn, the counterparty could have an aggregate amount of uncollateralized risk in excess of $500,000.
This application of the MTA to SMAs could incentivize owners of SMAs to create separate accounts by formulating trading strategies to reduce or avoid margin transfers. However, the Commission believes that the inability to net collateral across separate accounts would stem the indiscriminate creation of SMAs 28 because the MTA for SMAs, as adopted in this Final Rule, is set at a low level i.e., $50,000, and any potential benefits resulting from the avoidance of margin transfers would become less meaningful, as the fragmentation of an owners investments among SMAs would reduce the ability to aggregate swaps positions and net collateral.
Several commenters agreed with the Commissions view that the potential 27 The Commission notes that Regulation 23.410c1i prohibits disclosure by an SD or MSP, including a CSE, of confidential information provided by or on behalf of a counterparty to the SD or MSP. Nevertheless, Regulation 23.410c2
provides that the SD or MSP may disclose the counterpartys confidential information if the disclosure is authorized in writing by the counterparty.
28 As further discussed below, the application of the MTA, as provided in this Final Rule, is only available for separate accounts of an owner that, consistent with the definition of SMA, as adopted by the Final Rule, are not subject to collateral agreements that provide for netting across separate accounts.

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