Joint Letter on Posting Cash and Money Market Funds for Initial Margin
Summary
SIFMA, ISDA, MFA, ICI, IMMFA, SIFMA AMG sent comments to the CFTC, OCC, FRB requesting US regulators provide relief or amendments pertaining to posting money market funds as initial margin to covered swap entities, including swap dealers, security-based swap dealers, major swap participants, and major security-based swap participants and their counterparties which will become subject to the initial margin requirements of the Margin and Capital Requirements for Covered Swap Entities and the Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants. Specifically, we request that the US prudential regulators and the CFTC provide relief or rule amendments to expand the types of money market funds that can be used as eligible collateral, including allowing non-US MMFs. We also request that the US prudential regulators permit substituted compliance with EU margin rules.
Excerpt
To: Commodity Futures Trading Commission
Board of Governors of the Federal Reserve System
Department of the Treasury/Office of the Comptroller of the Currency
Farm Credit Administration
Federal Deposit Insurance Corporation
Federal Housing Finance Agency
Re: Posting Cash and Money Market Funds for Initial Margin
Ladies and Gentlemen,
The International Swaps and Derivatives Association (“ISDA”), Managed Funds Association (“MFA”), Securities Industry and Financial Markets Association’s Asset Management Group (“SIFMA AMG”), Investment Company Institute (“ICI”), Institutional Money Market Funds Association (“IMMFA”), and Securities Industry and Financial Markets Association (“SIFMA”) are requesting that US regulators provide relief or amendments pertaining to posting money market funds (“MMF”s) as initial margin to covered swap entities, including swap dealers, security-based swap dealers, major swap participants, and major security-based swap participants (collectively, “CSEs”) and their counterparties which will become subject to the initial margin (“IM”) requirements of the Margin and Capital Requirements for Covered Swap Entities1 (“USPR rule”) and the Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants2 (“CFTC rule”) (collectively, the “US Margin Rules.”) Specifically, we request that the US prudential regulators and the CFTC provide relief or rule amendments to expand the types of money market funds that can be used as eligible collateral, including allowing non-US MMFs. We also request that the US prudential regulators permit substituted compliance with EU margin rules.
Both in the United States and European Union, MMF regulations allow for the use of repurchase and reverse repurchase agreements, and the prospectuses for a large majority of MMFs in both jurisdictions contemplate the use of these transactions to properly manage short term liquidity. The US Margin Rules restrict such activity in the conditions for use of MMFs as eligible collateral, even though these same restrictions do not apply to use of MMFs as collateral for cleared swaps. EU margin rules for uncleared derivatives transactions also do not restrict MMFs’ use of repurchase or reverse repurchase transactions3. Consequently, parties subject to both EU and US margin requirements have limited options for using MMFs as collateral absent US regulators granting substituted compliance with the EU margin rules. Unless remedied, the use of MMFs as eligible collateral for IM will be extremely limited and the global market will be bifurcated by regulatory regime.