The Commodity Futures Trading Commission on Tuesday approved rules toughening restrictions on uncleared cross-border swaps by foreign-based subsidiaries of U.S. financial services firms.
The CFTC in a 2-1 vote approved aligning margin rules for U.S. cross-border swap trades made outside clearinghouses to earlier requirements that were approved by the CFTC, according to a fact sheet on its website. U.S. entities like banks with foreign subsidiaries had not been governed by the CFTC uncleared cross-border margin rules that were approved by the CFTC in December and are slated to go into effect in stages starting Sept. 1.
The cross-border margin rules require swap dealers and participants to provide both initial margin, collateral based on worst-case potential losses for a future, and variation margin, the mark-to-market value of the future. High-volume market participants will be subject to the new rules as of Sept. 1, with all market participants to be covered by Sept. 1, 2020.
“Today’s action ensures that our rule, or a comparable international measure, applies to swap dealers that are foreign consolidated subsidiaries of a U.S. parent,” Timothy Massad, CFTC chairman, said in a transcript of a speech to the commission Tuesday. “This helps address the risk that can flow back into the United States from that offshore activity, even when the subsidiary is not explicitly guaranteed by the U.S. parent.”
Mr. Massad, who voted in favor of the rule, said the risks targeted “do not only originate in the United States. … One of the most important objectives we already accomplished was to ensure our margin rule is substantially similar to comparable international rules. Harmonization is critical to creating a sound international framework for regulation.”