Voglio sapere a riguardo di…

Federal Register / Vol. 86, No. 14 / Monday, January 25, 2021 / Rules and Regulations risk of an increase in the amount of uncollateralized margin is mitigated by, among other safeguards, the low MTA
thresholds and the limitations on netting across separate accounts.29 The commenters further noted that the costs and practical challenges associated with establishing and maintaining SMAs are significant and would likely override the benefit of a marginal MTA
increase.30 One commenter also argued that it is extremely unlikely that an asset manager could coordinate its activities with other SMA managers to minimize the SMA owners margin requirements, given that asset managers typically exercise discretion over a portion of the SMAs assets and maintain confidentiality with respect to the SMAs trading activity.31 Another commenter pointed out that the requirement that the SMAs asset managers must be granted authority over assets under their management under the investment management agreement 32 creates practical as well as cost challenges that would further disincentivize the creation of unnecessary SMAs.33
The Commission further notes that there are other provisions in the CEA
and the Commissions regulations that would mitigate the increase in uncollateralized credit risk resulting from the absence of an aggregate limit in the MTA. Specifically, section 4sj2 of the CEA requires CSEs to adopt a robust and professional risk management system adequate for the management of their swap activities,34 and Regulation 23.600 35 mandates that CSEs establish a risk management program to monitor and manage risks associated with their swap activities that includes, among other things, a description of risk tolerance limits.
The Commission is also amending Regulation 23.151 to add a definition for the term SMA. The new definition of SMA uses the definition of the term set forth in Letter 1712. As adopted, the term SMA is defined as an account of a counterparty to a CSE that is managed by an asset manager pursuant to a specific grant of authority to such asset manager under an investment management agreement between the 29 See
ICI at 7; MFA at 3; SIFMA AMG at 4.
ICI at 7, MFA at 3.
31 See ICI at 7.
32 As further discussed below, the Final Rule defines the term SMA as an account managed by an asset manager pursuant to a specific grant of authority to such asset manager under an investment management agreement between the counterparty and the asset manager with respect to a specified portion of the counterpartys assets.
33 See SIFMA AMG at 4.
34 See 7 U.S.C. 6sj.
35 17 CFR 23.600.

jbell on DSKJLSW7X2PROD with RULES

30 See
VerDate Sep<11>2014

17:40 Jan 22, 2021

Jkt 253001

counterparty and the asset manager, with respect to a specified portion of the counterpartys assets.36 The definition requires that the swaps of the SMA i be entered into between the counterparty and the CSE by the asset manager pursuant to authority granted by the counterparty to the asset manager through an investment management agreement; and ii be subject to a master netting agreement that does not provide for the netting of IM or VM
obligations across all SMAs of the counterparty that have swaps outstanding with the CSE.
The definition of SMA is designed to limit the application of the MTA, as prescribed by the Final Rule, to SMAs that have dedicated netting sets under the SMAs ISDA master agreements and CSAs, or are otherwise precluded from netting collateral across SMAs, and that are administered by asset managers with authority that is limited to assets specifically under their management.
The Commission notes that the limited authority of asset managers over the assets of a legal entity and the practical inability to net collateral payments across SMAs pose obstacles in the calculation and aggregation of the MTA
across SMAs that this Final Rule is designed to address.
B. Application of Separate MTAs for IM
and VM
The Commission is revising the margin documentation requirements outlined in Regulation 23.158a, consistent with Letter 1925, to recognize that a CSE can apply separate MTAs for IM and VM with each counterparty in determining whether IM
or VM or both must be posted or collected with a counterparty under Regulation 23.152 requiring CSEs to exchange IM with a counterparty or Regulation 23.153 requiring CSEs to exchange VM with a counterparty.
Regulation 23.158a, as amended, states that if a CSE and its counterparty agree to have separate MTAs for IM and VM, the MTAs corresponding to IM and VM
must be specified in the margin documentation required by Regulation 23.158, and the MTAs, on a combined basis, must not exceed the MTA
specified in Regulation 23.151.
The Commission believes that the amendment to Regulation 23.158a accommodates a widespread market practice that facilitates the implementation of the CFTC margin requirements. In administering the 36 The definition of the term SMA, as adopted, refers to the aggregate account of a counterparty managed by an asset manager under the investment management agreement, and not to fund or pool sleeves overseen by sub-advisers.

PO 00000

Frm 00007

Fmt 4700

Sfmt 4700

6853

application of the MTA, including the issuance of Letter 1925, the Commission has recognized that, as a practical matter, CSEs and their counterparties maintain separate settlement workflows for IM and VM
and agree to separate MTAs in each of their IM and VM CSAs, which, combined, do not exceed $500,000.
These separate settlement workflows for IM and VM reflect, from an operational perspective, the different segregation requirements applicable to IM and VM
under the CFTC Margin Rule.37
The Commission acknowledges that the amendment to Regulation 23.158a may result in the exchange of less margin than the amount that would be exchanged if the MTA were computed on an aggregate basis.38 However, the Commission notes that because the total amount of combined IM and VM that would not be exchanged would generally not exceed $500,000, the differences in the total margin exchanged would not be material and would not result in an unacceptable level of credit risk. While the MTA as applied to SMAs, pursuant to the amendments to Regulation 23.151, may result in an aggregate MTA that exceeds $500,000, the Commission nonetheless believes that the increased level of uncollateralized risk that might result from the application of the MTA to SMAs will be mitigated because the MTA levels applicable to SMAs are set at a very low level i.e., $50,000, which would reduce the incentive for SMA
owners to create additional SMAs to avoid the transfer of margin given the inability to net collateral across SMAs, as provided by the Final Rule.
The Commission believes, consistent with the views expressed by DSIO staff in issuing Letter 1925, that the application of separate MTAs for IM and VM, subject to certain conditions, will 37 See 17 CFR 23.157 requiring IM to be segregated with an independent custodian. The CFTC Margin Rule does not impose similar segregation requirements with respect to VM.
38 Letter 1925 describes the application of separate MTAs for IM and VM with the following illustration: An SD and a counterparty agree to a $300,000 IM MTA and a $200,000 VM MTA. If the margin calculations set forth in Commission regulations 23.154 for IM and 23.155 for VM
require the SD to post $400,000 of IM with the counterparty and $150,000 of VM with the counterparty, the SD will be required to post $400,000 of IM with the counterparty assuming that the $50 million IM threshold amount, defined in Commission regulation 23.151, for the counterparty has been exceeded. The SD, however, will not be obligated to post any VM with the counterparty as the $150,000 requirement is less than the $200,000 MTA. By contrast, in the absence of relief, the SD would have been required to post $550,000 the full amount of both IM and VM, given that the combined amount of IM and VM
exceeds the MTA of $500,000.

E:FRFM25JAR1.SGM

25JAR1