SIFMA and IIB Criticize CFTC's Cross-Border Margin Proposal

SIFMA and the Institute of International Bankers ("IIB") asserted that the CFTC's proposal for the cross-border application of its margin requirements for uncleared swaps (the "proposal") would "undermine" the Basel Committee on Banking Supervision / IOSCO Framework for margin requirements.

In a comment letter, SIFMA and the IIB criticized the CFTC's approach to "substituted compliance," and argued that the limited availability of substituted compliance in the proposal (i) is not necessary to mitigate risk to the United States and (ii) "would result in overlapping rules that deter cross-border trading and increase risk."

SIFMA and the IIB recommended that the CFTC make the following changes (among others) to the proposal:

• mandate the availability of substituted compliance to U.S. and non-U.S. swaps dealers with regard to "all aspects of [over-the-counter ('OTC')] margin requirements in all circumstances where either the swap dealer or its counterparty is located in a jurisdiction that has adopted a comparable OTC margin regime";
• "adopt an exclusion from OTC margin requirements for uncleared swaps between a U.S. [covered swap entity] and an emerging market counterparty that is conditioned on the U.S. swap dealer satisfying an aggregate 5% limit on its notional trading volume in uncleared swaps with such counterparties relative to its total notional swap trading volume";
• "at a minimum, grant a limited exclusion designed to minimize the extent of competitive disparities and disruption to non-U.S. counterparties";
• "remove the collective investment vehicle majority-ownership prong from the 'U.S. person' definition for purposes of other swaps-related provisions of the Commodity Exchange Act" ("CEA"); and
• adopt the proposed definition of "guarantee" for the purpose of "determining the extraterritorial application of the CEA's other swap-related provisions."