CFTC Division of Swap Dealer and Intermediary Oversight ("DSIO") Director Joshua B. Sterling highlighted a number of regulatory issues for swap dealers being considered at the CFTC.
Capital Requirements. Mr. Sterling indicated that the CFTC staff is considering the SEC-adopted capital requirements, and will complete that process "in the coming weeks." However, he said that CFTC staff intends to recommend re-opening the comment period for the CFTC capital rules (given that the proposal was published in 2016) to ask "very directed questions," with the aim of adopting rules next year.
Supplemental Leverage Ratio. Mr. Sterling expressed his general agreement with past efforts by CFTC leadership to push for changes in the way the supplemental leverage ratio impacts the cleared swaps markets. Mr. Sterling, in particular, highlighted a June Basel Committee action that suggests bank regulators are reconsidering the matter.
Uncleared Swaps Margin. Mr. Sterling noted that the CFTC has already undertaken measures to address possible "congestion" for implementation of initial margin requirements in September 2020 and highlighted a recent DSIO letter regarding documentation requirements as initial margin rules are implemented.
Benchmark Reform. Mr. Sterling said that the CFTC staff has worked with U.S. banking regulators to address concerns relating to "legacy" status of certain swaps and treatment under margin requirements as a result of benchmark reform-related amendments.
FCM Customer Margin Permitted Investments. Mr. Sterling pointed out that DSIO is considering an industry request to expand the list of permitted investments in which futures commission merchants ("FCMs") may invest customer margin funds, in particular to align FCM requirements with an exemption given to derivatives clearing organizations relating to foreign sovereign debt.
Mr. Sterling's comments were given in a speech before the ABA Securities Association.
The Basel Committee agreed to advance several ongoing policy and supervisory initiatives concerning, among other things, FinTech developments and excluding initial margin from the leverage ratio.
The CFTC Division of Swap Dealer and Intermediary Oversight clarified that "Phase Five" initial margin documentation requirements will not apply to trading relationships where initial margin requirements have not gone above the $50 million threshold.
The CFTC passed an interim final rule to allow uncleared swaps to retain "legacy status" under the CFTC margin requirements in the event of a "no-deal" Brexit.
The CFTC Division of Swap Dealer and Intermediary Oversight granted no-action relief allowing swap dealers to permit certain amendments to "legacy swaps" without causing them to lose their legacy status under uncleared swaps margin requirements.
CFTC Commissioner Brian Quintenz expressed concern that post-crisis reforms were not appropriately tailored to address market-specific risks, and that regulators are disincentivizing activity that is necessary for healthy, efficient markets.
The CFTC approved proposed rules establishing minimum capital, liquidity, financial reporting and other related requirements applicable to CFTC-registered swap dealers and major swap participants.
The CFTC proposed to increase position limits on security futures products.
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