CFTC Issues Final Rule Regarding Protection for Uncleared Swaps (Fed. Reg.) (with Lofchie Comment)

The CFTC has published the final rule imposing requirements on SDs and MSPs with respect to the treatment of collateral posted by their counterparties to margin, guarantee or secure uncleared swaps in the Federal Register. The final rule also includes revisions to ensure that securities held in a portfolio margining account that is a futures or Cleared Swaps Customer Account constitute "customer property," and that the owners of such accounts constitute "customers."

The rule will be effective on January 6, 2014.

Lofchie Comment: As we had previously commented, the policy that underlies the specific requirements of this rule seems internally contradictory. On the one hand, the CFTC says that swap customers have a choice as to whether or not to segregate their initial margin for uncleared swaps. On the other, the CFTC imposes various conditions on customers that elect to segregate their margin, including that a customer who chooses to segregate collateral can only reinvest the customer's collateral in accordance with CFTC Rule 1.25. But if a customer can legally elect not to segregate at all, then how can it be illegal for that customer to elect to segregate, but to refuse to accept the CFTC's limits on its authority to invest its collateral as it sees fit? It's a bit like saying that one can drive a car or a motorcycle, but if you drive a car, you can only drive 35 miles per hour and if you drive a motorcycle you can go as fast as you want.

See: 78 FR 66621.
Related news: CFTC Issues Final Rule Regarding Collateral Protection for Uncleared Swaps (Pre-Fed. Reg.) (with Lofchie Comment) (November 1, 2013).