Congress Exempts Non-Financial End-Users, Their Agents and Certain Cooperatives From Non-Cleared Swap Margin Requirements in Reauthorization of Terrorism Insurance Bill

by Eversheds Sutherland (US) LLP

On January 8, 2015, the U.S. Senate approved legislation, by a 93-4 vote, to reauthorize the Terrorism Risk Insurance Act (“TRIA”). The legislation, dubbed the Terrorism Risk Insurance Program Reauthorization Act of 2015 (the “TRIA Reauthorization Act”), was passed by the U.S. House of Representatives on January 7, 2015, also by a wide margin, in a vote of 416-5. Once signed into law, the TRIA Reauthorization Act would extend the Terrorism Insurance Program, which provides federal terrorism insurance to businesses suffering catastrophic losses above $200 million, for an additional six years.

Although completely unrelated to the reauthorization of TRIA, embedded within the TRIA Reauthorization Act is an exemption for certain entities from those provisions of the Commodity Exchange Act (“CEA”) that require swap dealers and major swap participants to collect margin from their over-the-counter (“OTC”) non-cleared swap transaction counterparties (the “Margin Requirements”).1 As market participants may be aware, the U.S. “Prudential Regulators”2 and the Commodity Futures Trading Commission (“CFTC”) proposed rules last year to implement the Margin Requirements, but such rules have yet to be adopted.

The TRIA Reauthorization Act amends Section 4s(e) of the Commodity Exchange Act to exempt the following from the Margin Requirements:

  • Swaps for which a counterparty is a non-financial entity end-user that qualifies for the end-user exception from mandatory clearing;3
  • Swaps for which a counterparty is a financial entity that is acting on behalf of, and as agent for, a non-financial entity end-user that qualifies for the end-user exception from mandatory clearing; and
  • Swaps for which a counterparty is a cooperative entity that qualifies for an exemption from mandatory clearing.4

Although the amendment of Section 4s(e) of the CEA appears to be a win for end-users, it must be viewed in the context of the Proposed Margin Rules. Under the Proposed Margin Rules, non-financial entity end-users would not per se be required to post and collect initial and variation margin. Rather, the Proposed Margin Rules require swap dealers and major swap participants to perform a credit analysis to determine if the collection of initial and variation margin is merited, i.e., if the swap dealer or major swap participant believes that there is a credit risk associated with having an uncollateralized trade with a non-financial end-user. It seems unlikely that the exemption embedded in the TRIA Reauthorization Act would cause the Proposed Margin Rules to be amended in a way that would remove the requirement that a swap dealer or major swap participant perform a credit analysis to determine whether the collection of margin is necessary (in particular those swap dealers and major swap participants that are subject to the safety and soundness requirements of a Prudential Regulator). Moreover, from a practical perspective, it is likely that, even absent an affirmative regulatory requirement to collect margin, swap dealers and major swap participants may nevertheless require margin from certain end-users so as to offset the capital and liquidity requirements resulting from Basel III requirements.5 Thus, even with the exemption from the margin requirements afforded by the TRIA Reauthorization Act, it is likely that some end-users, from a commercial perspective, may have to post margin for their non-cleared swaps. For those end-users that are not required to post margin, the costs of engaging in OTC non-cleared swaps may increase.
It is worth noting that Senator Elizabeth Warren of Massachusetts advocated for the removal of the exemption from margin requirements contained in the TRIA Reauthorization Act because the exemption was unrelated to terrorism risk insurance and provided an unwarranted benefit to “Wall Street.” However, Senator Warren failed to garner sufficient support from her fellow Senators, perhaps because the exemption was more of a benefit to “Main Street” non-financial companies rather than “Wall Street.” The Senator’s proposed amendment failed by a vote of 31 to 66.6
It is anticipated that President Barack Obama will sign the TRIA Reauthorization Act into law. However, even if the President vetoes the bill, given the overwhelming support from Congress, it is likely that a presidential veto would be overridden.

It remains to be seen how regulators will implement the exemption from margin implemented by the TRIA Reauthorization Act (including how it is to be claimed). Once the TRIA Reauthorization Act is signed into law, the CFTC would be charged with implementing the exemption via the promulgation of an interim final rule, pursuant to which public comment must be sought before a final rule is issued. We will update you with any developments regarding the new exemption.

1 See Margin and Capital Requirements for Covered Swap Entities, 79 Fed. Reg. 57,347 (proposed Sept. 24, 2014) (the Prudential Regulators’ proposed margin rules); Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 79 Fed. Reg. 59,898 (proposed Oct. 3, 2014) (the CFTC’s proposed margin rules) (the Prudential Regulators’ proposed margin rules, together with the CFTC’s proposed margin rules, are collectively referred to as the “Proposed Margin Rules”).  Please see Sutherland’s Sept. 24, 2014 Legal Alert, “Regulators Publish Re-proposed Margin Requirements for Uncleared Swaps,” for an overview of the Proposed Margin Rules.

2 The “Prudential Regulators” are the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Federal Reserve System, the Federal Housing Finance Agency and the Farm Credit Administration.

3 See § 2(h)(7)(A) of the CEA and CFTC Regulation 50.50, 17 C.F.R. § 50.50 (2014).

4 See CFTC Regulation 50.51, 17 C.F.R. § 50.51 (2014), which, essentially, affords certain Farm Credit System institutions an exemption from clearing certain swaps.

5 See Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems, available at

6 See

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Eversheds Sutherland (US) LLP | Attorney Advertising

Written by:

Eversheds Sutherland (US) LLP

Eversheds Sutherland (US) LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.