Prudential Regulators Release Final Margin Rules for Swaps

by Cadwalader, Wickersham & Taft LLP

On October 22, 2015, the Federal Deposit Insurance Corporation held an open meeting at which it voted to adopt: (i) final rules governing margin and capital requirements for uncleared swaps1 and (ii) an interim final rule to implement statutory amendments excluding certain entities from the requirements.2  The Rules, which were also approved by the Comptroller of the Currency and are to be jointly adopted by the other “Prudential Regulators,”3 set margin requirements for uncleared swaps and uncleared security-based swaps entered into by swap dealers, security-based swap dealers, major swap participants and major security-based swap participants who are supervised by a Prudential Regulator (such entities, “Covered Swap Entities”).4

Consistent with the international framework published by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions5 (and the rules proposed in September 2014),6 the Margin Rule requires Covered Swap Entities to collect and post variation margin (“VM”) on Swaps with counterparties who are swap dealers, security-based swap dealers, major swap participants and major-security-based swap participants (“Swap Entities”) or “financial end users.”  The Margin Rule also requires two-way deliveries of initial margin (“IM”) into segregated accounts where counterparties are Swap Entities or financial end users with “material swaps exposure.”  The compliance schedule provided in the Margin Rule matches the recommendations of BCBS-IOSCO Framework, with an initial compliance date of September 1, 2016 for the largest market participants, “big-bang” implementation of VM requirements for all other market participants on March 1, 2017, and phased implementation of initial margin requirements on an annual basis thereafter. 

Given the highly detailed nature of the Margin Rules, time will be required to fully analyze the various requirements.  In the interim, the following is an initial summary of notable elements of the Margin Rule focusing primarily on changes from the Proposal.  

Scope:  Under the Margin Rule, a Covered Swap Entity will not be required to collect or post specified amounts of variation margin or initial margin on Swaps with counterparties that are not Swap Entities or “financial end users” as defined in the rule.  The Margin Rule retains the “financial end user” concept used in the Proposal, which is intended to provide greater clarity than the “financial entity” concept used in the statutory exemption from mandatory clearing.  Financial end users are generally: (i) entities engaging in financial activities (deposit taking, lending, securities and derivatives trading, insurance, asset management, and advisory service) that subject them to registration or chartering requirements under federal or state law, (ii) pooled investment vehicles, and (iii) equivalent non-U.S. entities.  Swaps with entities that are not financial end users are exempt from mandatory margin requirements under the Margin Rule without regard to whether they hedge commercial risk.  In addition, to implement the requirements of Title III of the Terrorism Risk Insurance Program Reauthorization Act of 2015, the Interim End User Exemption separately provides that the requirements of the Margin Rule will not apply where the counterparty would be eligible for an exemption from mandatory clearing under the Commodity Exchange Act or CFTC rules (or under comparable Securities Exchange Act and SEC requirements).7  The result appears to be a relatively broad but highly-complicated set of exemptive criteria for non-financial commercial entities, small banks and cooperatives.

Material Swaps Exposure and other Thresholds:  The threshold for the imposition of IM requirements was set at an average aggregate notional amount of Swaps (including exempted FX swaps) of $8 billion, which is in line with the BCBS-IOSCO Framework and greater than the $3 billion that was previously proposed.  To determine whether it is above or below this threshold in any given year, a financial end user would need aggregate the notional amounts for its own swap book with that of “affiliates” who are consolidated (or would be consolidated) for purposes of preparing financial statements under generally accepted accounting standards.  This represents a change from the Proposal, which would have required aggregation based on a definition of “affiliate” derived from the securities-law concept of “control.”  In addition, swaps that are eligible for an exemption from mandatory clearing can now be excluded from the count.  More broadly, the Prudential Regulators adjusted various dollar-denominated thresholds in the Margin Rule to reflect an assumed 1-to-1 conversion rate to the euro.  The result is that these thresholds have been lowered relative to the Proposal in order to keep them in line with the BCBS-IOSCO Framework.

Securitizations:  The Prudential Regulators did not modify the financial end user definition to provide an exclusion for structured finance vehicles or covered bond issuers.  Indeed, the preamble of the Margin Rule indicates that the Prudential Regulators believe such issuers should be classified as financial end users.  As a consequence, Covered Swap Entities dealing with these issuers would be required to collect (and post) variation margin with respect to Swaps entered into after March 1, 2017.

Eligible Collateral for VM For transactions with another Swap Entity, the eligible collateral list for VM has been expanded to include 10 “major currencies” as well as USD and the “currency of settlement” for the relevant Swap.8  For transactions with a financial end user, the list of eligible collateral has been further expanded to include all assets that are eligible as IM, including various liquid debt and equity securities.  While this expansion is a victory for end users with difficulty posting cash, non-cash margin that is denominated in a currency different than the “currency of settlement,” is subject to an 8% cross-currency haircut.  The Margin Rule does not provide useful guidance as to how to implement this haircut under circumstances where transactions under a single netting agreement settle in different currencies.

Eligible Collateral for IM The Margin Rule is generally consistent with the Proposal as to the eligible collateral list for initial margin.  In addition to currencies, various government debt securities, corporate debt securities and equities that are deemed by the Prudential Regulators to be high-quality liquid assets, certain money market mutual funds that invest in U.S. Treasury securities or similar non-U.S. sovereign debt securities were added to the list.  Cross currency haircuts would not apply to collateral posted as IM provided that the currency of the collateral matches either the currency of settlement for the transactions or an agreed termination currency specified under the relevant master netting agreement for net payments that become due upon a default or other close-out event.

Limitations on Cash IM:  Among other requirements, terms for segregating IM at a custodian must provide that the custodian is not permitted to rehypothecate or otherwise use segregated assets.  Cash collateral that would be treated as a general deposit account at a bank custodian will be permissible only if the funds are used to purchase a permissible non-cash asset within a time period reasonably necessary to consummate such a purchase. 

Netting:  For portfolios of multiple Swaps, VM requirements can be calculated on a net basis and risk offsets can be recognized in calculating IM requirements, provided that the Swaps are under an “eligible master netting agreement.”  For this purpose, the definition of eligible master netting agreement was amended to provide that impermissible “walk-away” clauses do not include clauses that merely suspend payment obligations when the counterparty defaults.  Netting opinions will be required to establish a well-founded legal conclusion that close-out rights will not be stayed or avoided under applicable insolvency law, other than temporary stays applicable under the Federal Deposit Insurance Act, Title II of the Dodd-Frank Act or certain similar U.S. or foreign laws.  No relief was provided for transactions with insurance companies, pension plans, or municipalities where it may not be possible to obtain a netting opinion.

Inter-Affiliate Transactions:  While the Proposal would have required full two-way margining for transactions with affiliates, the Margin Rule will require Covered Swap Entities to collect but not post IM when transacting with affiliates.  In addition, a Covered Swap Entity is permitted to offer a collateral threshold of up to $20 million to each affiliate with which it trades (there is no aggregation requirement among affiliates connected to this permitted threshold).  Finally, where an inter-affiliate swap would be required to be cleared but for an exemption, the IM requirement under a models-based approach to margin is reduced. 

Legacy Transactions One oft-noted concern with the Proposal was that grandfathering for legacy Swap transactions would have been lost where such transactions were included with regulated transactions under a single eligible master netting agreement.  The final Margin Rule is intended to provide for the ability to margin separate “netting portfolios” under a single eligible master netting agreement. 

No Hotel California:  While the Margin Rule technically provides that parties remain subject to margin requirements at all times after the initial compliance date, it also provides new rules specifying the consequences of a change in status.   Where a change would make the rules stricter, the stricter rules will apply for new Swaps entered into after the change.  Where a change would make the rules less strict (e.g., a financial end user’s portfolio shrinks below the “material swaps exposure” threshold for IM requirements), the Covered Swap Entity may comply with the less strict requirements for all outstanding Swaps (e.g., IM requirements would no longer apply). 

Cross-Border Application The cross-border requirements are substantially similar to the Proposal.  For transactions by a foreign branch of a U.S. Covered Swap Entity that is a bank or a non-U.S. Covered Swap Entity that is a subsidiary of a bank with a counterparty in a jurisdiction that imposes impediments to segregation of IM, special new rules would excuse posting of IM in some cases, subject to written approval from the relevant Prudential Regulator.


1 See Final Rule to Establish Margin and Capital Requirements for Covered Swap Entities (unofficial text), available at (“Margin Rule”).

2 See Interim Final Rule to Exempt Commercial End Users and Small Banks (unofficial text), available at (“Interim End User Exemption” and collectively with the Margin Rule, the “Rules”).

3 The “Prudential Regulators” consist of the FDIC, 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.

4 For ease of reference, the term “Swaps” will be used in this memorandum to mean both swaps and security-based swaps unless the context requires differentiation.

A Cadwalader summary of the proposal by the Commodity Futures Trading Commission (“CFTC”) to implement margin requirements for swap dealers and major swap participants subject to their jurisdiction is available here.   

5 SeeMargin Requirements for Non-Centrally Cleared Derivatives” (Mar. 2015) (“BCBS-IOSCO Framework”).

6 79 Fed. Reg. 57348 (Sept. 24, 2014) (the “Proposal”). A Cadwalader summary of the Proposal is available here.

7 See Terrorism Risk Insurance Program Reauthorization Act of 2015, Pub. L. No. 114-1.

8 The “currency of settlement” is defined as the currency in which the parties have agreed to discharge normal course payments for the specific swap or security-based swap.

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.

© Cadwalader, Wickersham & Taft LLP | Attorney Advertising

Written by:

Cadwalader, Wickersham & Taft LLP

Cadwalader, Wickersham & Taft 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:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. 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. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our 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 are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy 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 our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.