Proposals Related to Margin Requirements for Uncleared Swaps

The Asset Management Group (AMG) of SIFMA provides comments to multiple federal regulators including the Commodity Futures Trading Commission (CFTC), the Board of the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC) on the agencies’ respective proposals related to margin and capital requirements for uncleared swaps, Docket No. R–1415, RIN 7100 AD74, RIN 3052–AC69, RIN 3064–AD79, RIN 2590–AA45, Docket No. OCC–2011–0008, RIN 1557–AD43, RIN 3038—AC97.

The AMG’s observations and recommendations include:

• Variation margin requirements should be bilateral and, if margin is required to be posted to a covered swap entity (CSE), the counterparty to that transaction should have the right to collect initial margin from the CSE as well.
• If initial margin is bilateral, then both parties should be able to agree upon the calculation methodology.  If unilateral, end users should be able to choose whether margin is calculated using a model or regulator-approved grid.  In any event, end users should have the right to independently verify the margin calculation model.
• Registered Investment Companies, ERISA funds, government benefit plans, and foreign pension plans should be explicitly exempt from initial margin requirements because they are all subject to comprehensive regulation, employ de minimis, or no, leverage, and are highly creditworthy.