On December 17, MFA submitted a comment letter on the CFTC proposed “Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants”. In our letter, MFA supported the proposed one-year extension of the final phase (i.e., to September 30, 2021) and the addition of an intermediate phase in the compliance schedule. Nevertheless, MFA urged the CFTC to coordinate with other regulators to adopt the following additional changes to prevent confusion and market disruption:
- Expand the use of money market funds by removing the unduly restrictive conditions to their use as eligible initial margin (IM) collateral;
- Provide a deferral or grace period of six months after a given counterparty relationship involving a financial end user, including any separately managed account (SMA), first exceeds the IM threshold to allow the counterparties to put in place the necessary documentation and systems;
- Authorize annual calculation, testing and monitoring of the $50 million regulatory IM threshold for in-scope counterparty relationships involving SMAs to facilitate a controlled and orderly implementation process for SMAs that will reduce the costs and operational burdens of daily monitoring and minimize unexpected breaches of the threshold;
- Work with market participants to develop a feasible, standardized approach for allocating IM thresholds across multiple asset managers for a given SMA client; and
- Exclude physically settled foreign exchange swaps and forwards in calculations of aggregate average notional amounts for determining whether counterparties are subject to regulatory IM requirements.
