October 27, 2017 Alert- CFTC Issues No-Action Relief from Compliance with VM for Legacy SPV Swaps

This afternoon, October 27th, the Commodity Futures Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight announced that it is providing no-action relief, subject to specified conditions, to registered swap dealers from compliance with the variation margin requirements when amending or novating swaps in existence prior to March 1, 2017 with issuers that are special purpose vehicles (legacy SPV swaps).

The CFTC’s no-action relief follows extensive advocacy by SFIG and its members. During meetings with the CFTC, prudential regulators and Congressional staff as well as via several comment letters and no-action relief requests, we shared the importance of relief from bilateral margin posting requirements for swaps entered into with legacy SPVs. We highlighted, in particular, our concerns regarding market impact and downgrade risk for legacy deals if permanent relief from margin posting requirements was not granted.

While SFIG has been actively advocating on this issue for several years, most recently, we submitted a no-action request to the offices of then Acting Chairman Giancarlo and Commissioner Bowen that reiterated members' interest in seeking relief for legacy SPV swaps on posting requirements for bilateral margin that began on September 1st. Earlier this year, the CFTC issued a time-limited no-action letter on February 13th which postponed enforcement until September 1st, and the Federal Reserve Board and the Office of the Comptroller of the Currency issued guidance on February 23rd explaining how supervisors should examine compliance with minimum variation margin.

If you would like to join SFIG's Derivatives Task Force, please contact Alyssa.Acevedo@sfindustry.org.

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