CME and LCH Amend Rulebooks on Variation Margin

Market participants historically have characterized cleared derivatives as being "collateralized-to-market", treating variation margin transfers as daily collateral transfers.  However, each of the Chicago Mercantile Exchange and LCH.Clearnet Limited, which act as central clearing parties in the cleared derivatives market, recently amended their rules to characterize cleared derivatives as being "settled-to-market".  Under this characterization, variation margin transfers are deemed to "settle outstanding exposure" between the parties, with no right to reclaim or obligation to return the variation margin.  This characterization may have certain accounting implications for market participants.  Read more here.

Effective Date for FINRA Rule 4210 Margin Amendments Approaches

Beginning on December 15, 2017, amendments approved by the Securities and Exchange Commission last year to FINRA Rule 4210 will require U.S. registered broker-dealers to collect daily variation margin and, in some cases, initial margin, from their customers on "Covered Agency Transactions," which include "to-be-announced" (or "TBA") transactions on mortgage-backed securities.  TBA transactions, which account for the vast majority of trading in the sizable MBS market, historically have not been margined by broker-dealers.  Read more here.

CFTC Extends No-Action Relief to Swap Dealers in Connection with Swaps Subject to EMIR Margin Requirements

On April 18, 2017, the Commodity Futures Trading Commission ("CFTC") issued a no-action letter extending until November 7, 2017 relief provided earlier this year to certain swap dealers from compliance with certain margin requirements in connection with swaps subject to the margin requirements of both the CFTC and the European Market Infrastructure Regulation.  The existing relief was scheduled to expire on May 8, 2017.  Read more here.