CFTC Exempts Dealers from Margin Requirements in Swap Transactions with the European Stability Mechanism

The CFTC Division of Swap Dealer and Intermediary Oversight ("DSIO") issued no-action relief exempting certain swap dealers from "Final Margin Rule" requirements when entering into uncleared swaps with the European Stability Mechanism ("ESM").

In response to a request letter from the ESM, the DSIO agreed not to pursue enforcement actions against swap dealers that do not comply with the Final Margin Rule for uncleared swaps transactions with the ESM. The DSIO described the ESM as an "intergovernmental international financial institution that provides financial assistance to euro area member states in or threatened by severe financial distress for national or regional development." The DSIO noted that the ESM does not intend to enter into uncleared swaps for speculative purposes, and is backed by a guarantee that member states will contribute up to $687 billion in additional capital if the institution faces financial distress. In addition, the DSIO claimed that exemptive relief is appropriate because the ESM poses limited systemic risk to the financial markets (like the Multilateral Development Banks listed in CFTC Rule 23.151 that are excluded from the definition of "financial end user").

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