On October 22, 2015, the Board of Directors of the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Farm Credit Administration and the Federal Housing Finance Agency (collectively, the “agencies”) jointly approved a final rule1 (the “Rule”) to establish margin and capital requirements for swaps and security-based swaps that are not cleared through a registered clearinghouse. The Rule applies to any “swap entity” (i.e., any swap dealer or major swap participant registered with the Commodity Futures Trading Commission (CFTC) or securitybased swap dealer or major security-based swap participant registered with the Securities and Exchange Commission (SEC)) that is also subject to the jurisdiction of one of the agencies (“covered swap entities”). All of a covered swap entity’s non-cleared swaps and non-cleared security-based swaps are subject to the Rule, even if the covered swap entity is registered only with the CFTC or only with the SEC. Swap entities that are not covered swap entities will be subject to the CFTC’s and/or SEC’s margin rules, which have not yet been finalized.
Sections 731 and 764 of the Dodd-Frank Wall Street Reform and Consumer Protection Act require the agencies to adopt joint rules to establish capital requirements and initial and variation margin requirements for covered swap entities on all non-cleared swaps and all non-cleared security-based swaps in light of the perceived risk associated with those swaps. Margin requirements under the Rule largely follow the policy framework issued by the Bank for International Settlements’ Basel Committee on Banking Supervision and the International Organization of Securities Commissioners, released in September 2013 and amended in March 2015.
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