On December 14, 2020 MFA provided the SEC and CFTC with comments on portfolio margining of uncleared swaps and non-cleared security-based swaps. MFA is supportive of the CFTC’s and SEC’s efforts and make the following recommendations:
- Preserve the important customer protection benefits afforded under the CFTC initial margin regulations with respect to uncleared swaps.
- Ensure that the Commissions, in adopting any portfolio margining regime, provide guidance to market participants on the applicable bankruptcy regimes, as well as require Dealers to disclose to customers how claims to recover assets may be treated in an insolvency.
- Provide clarity on the types of dealer entities eligible to offer portfolio margining.
- Require dealers to provide transparency on portfolio margining models to allow customers to independently plan, predict and calculate the margin needed under different market conditions as this will reduce systemic risk.
- Adopt a portfolio margining framework that allows offsetting exposures with respect to both variation margin and initial margin to enhance margining efficiency and customer protection.
- Allow customers to opt-out of portfolio margining as some may prefer to margin positions on a standalone basis.
- Coordinate with U.S. Prudential Regulators to adopt, where possible, a consistent regulatory approach to portfolio margining, which will reduce regulatory complexity and facilitate compliance.
- Align the SEC’s margin rule compliance date (currently, October 6, 2021) with the CFTC’s and the U.S. Prudential Regulators’ final (Phase 6) phase-in date for initial margin requirements, set for September 1, 2022, to facilitate compliance, ease regulatory burden, and provide the Commissions with additional time to consider their approach to offering portfolio margining solutions.