6850 Federal Register / Vol. 86, No. 14 / Monday, January 25, 2021 / Rules and Regulations 

1See generally Margin Requirements for 

Uncleared Swaps for Swap Dealers and Major Swap 

Participants, 81 FR 636 (Jan. 6, 2016). The CFTC 

Margin Rule, which became effective April 1, 2016, 

is codified in part 23 of the Commission’s 

regulations. 17 CFR 23.150—23.159, 23.161. In May 

2016, the Commission amended the CFTC Margin 

Rule to add Regulation 23.160, 17 CFR 23.160, 

providing rules on its cross-border application. See 

generally Margin Requirements for Uncleared 

Swaps for Swap Dealers and Major Swap 

Participants—Cross-Border Application of the 

Margin Requirements, 81 FR 34818 (May 31, 2016). 

Commission regulations are found at 17 CFR part 

1 et seq. (2017), and may be accessed through the 

Commission’s website, https://www.cftc.gov. 

2 7 U.S.C. 6s(e) (capital and margin requirements). 

3CEA section 1a(39), 7 U.S.C. 1a(39) (defining the 

term ‘‘prudential regulator’’ to include the Board of 

Governors of the Federal Reserve System; the Office 

of the Comptroller of the Currency; the Federal 

Deposit Insurance Corporation; the Farm Credit 

Administration; and the Federal Housing Finance 

Agency). The definition of prudential regulator 

specifies the entities for which these agencies act 

as prudential regulators. 

4 VM (or variation margin), as defined in 

Regulation 23.151, is the collateral provided by a 

party to its counterparty to meet the performance 

of its obligation under one or more uncleared swaps 

between the parties as a result of a change in the 

value of such obligations since the trade was 

executed or the last time such collateral was 

provided. 17 CFR 23.151. 

5See definition of ‘‘financial end user’’ in 

Regulation 23.151. In general, the definition covers 

entities involved in regulated financial activity, 

including banks, brokers, intermediaries, advisers, 

asset managers, collective investment vehicles, and 

insurers. 17 CFR 23.151. 

6 IM (or initial margin) is the collateral (calculated 

as provided by § 23.154 of the Commission’s 

regulations) that is collected or posted in 

connection with one or more uncleared swaps 

pursuant to § 23.152. IM is intended to secure 

potential future exposure following default of a 

counterparty (i.e., adverse changes in the value of 

an uncleared swap that may arise during the period 

of time when it is being closed out). See CFTC 

Margin Rule, 81 FR at 683. 

7 17 CFR 23.152; 17 CFR 23.153. 

8See 17 CFR 23.157(a). 

9Regulation 23.157 does not require VM to be 

maintained in a custodial account. 17 CFR 23.157. 

10 17 CFR 23.152(b)(3); 17 CFR 23.153(c); 81 FR 

at 653. 

11 17 CFR 23.151 (defining the term ‘‘minimum 

transfer amount’’). 

ANM WY D Gillette, WY [Remove] 

Gillette-Campbell County Airport, WY 

(Lat. 44°20′56′′ N, long. 105°32′22′′ W) 

Paragraph 6002 Class E Airspace 

Designated as Surface Areas. 

* * * * * 

ANM WY E2 Gillette, WY [New] 

Northeast Wyoming Regional Airport, WY 

(Lat. 44°20′56′′ N, long. 105°32′22′′ W) 

That airspace extending upward from the 

surface to and including 6,900 feet MSL 

within a 5-mile radius of the Northeast 

Wyoming Regional Airport. This Class E 

airspace is effective during the specific dates 

and times established in advance by a Notice 

to Airmen. The effective date and time will 

thereafter be continuously published in the 

Chart Supplement. 

Paragraph 6004 Class E Airspace Areas 

Designated as an Extension to a Class D or 

Class E Surface Area. 

* * * * * 

ANM WY E4 Gillette, WY [Amended] 

Northeast Wyoming Regional Airport, WY 

(Lat. 44°20′56′′ N, long. 105°32′22′′ W) 

That airspace extending upward from the 

surface within 3.4 miles each side of the 

Northeast Wyoming Regional Airport 170° 

bearing extending from the 5-mile radius to 

12 miles south of the airport. 

Paragraph 6005 Class E Airspace Areas 

Extending Upward From 700 Feet or More 

Above the Surface of the Earth. 

* * * * * 

ANM WY E5 Gillette, WY [Amended] 

Northeast Wyoming Regional Airport, WY 

(Lat. 44°20′56′′ N, long. 105°32′22′′ W) 

That airspace extending upward from 700 

feet above the surface of the earth within 4 

miles each side of the Northeast Wyoming 

Regional Airport 170° bearing extending from 

the 5-mile radius to 14 miles south of the 

airport, and that airspace 4 miles each side 

of the 350° bearing extending from the 5-mile 

radius to 11 miles north of the airport. 

Issued in Seattle, Washington, on January 

14, 2021. 

Byron Chew, 

Acting Group Manager, Operations Support 

Group, Western Service Center. 

[FR Doc. 2021–01306 Filed 1–22–21; 8:45 am] 

BILLING CODE 4910–13–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 23 

RIN 3038–AF06 

Margin Requirements for Uncleared 

Swaps for Swap Dealers and Major 

Swap Participants 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final rule. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’ or 

‘‘CFTC’’) is amending the margin 

requirements for uncleared swaps 

(‘‘Final Rule’’) for swap dealers (‘‘SD’’) 

and major swap participants (‘‘MSP’’) 

for which there is not a prudential 

regulator (‘‘CFTC Margin Rule’’). The 

Final Rule amends the CFTC Margin 

Rule to permit the application of a 

minimum transfer amount (‘‘MTA’’) of 

up to $50,000 for each separately 

managed account (‘‘SMA’’) of a legal 

entity that is a counterparty to an SD or 

MSP in an uncleared swap transaction 

and to permit the application of separate 

MTAs for initial margin (‘‘IM’’) and 

variation margin (‘‘VM’’). 

DATES: This Final Rule is effective 

February 24, 2021. 

FOR FURTHER INFORMATION CONTACT: 

Joshua B. Sterling, Director, 202–418– 

6056, jsterling@cftc.gov; Thomas J. 

Smith, Deputy Director, 202–418–5495, 

tsmith@cftc.gov; Warren Gorlick, 

Associate Director, 202–418–5195, 

wgorlick@cftc.gov; Liliya Bozhanova, 

Special Counsel, 202–418–6232, 

lbozhanova@cftc.gov; or Carmen 

Moncada-Terry, Special Counsel, 202– 

418–5795, cmoncada-terry@cftc.gov, 

Market Participants Division, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW, Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Statutory and Regulatory Background 

In January 2016, the Commission 

adopted Regulations 23.150 through 

23.161, namely the CFTC Margin Rule,1

to implement section 4s(e) of the 

Commodity Exchange Act (‘‘CEA’’),2

which requires SDs and MSPs for which 

there is not a prudential regulator 3

(‘‘covered swap entity’’ or ‘‘CSE’’) to 

meet minimum IM and VM 

requirements adopted by the 

Commission by rule or regulation. 

Regulations 23.152 and 23.153 require 

CSEs to collect or post, each business 

day, VM 4 for uncleared swap 

transactions with each counterparty that 

is an SD, MSP, or financial end user,5

and IM 6 for uncleared swap 

transactions for each counterparty that 

is an SD, MSP, or a financial end user 

that has material swaps exposure.7 IM 

posted or collected by a CSE must be 

held by one or more custodians that are 

not affiliated with the CSE or the 

counterparty.8 VM posted or collected 

by a CSE is not required to be 

maintained with a custodian.9

To alleviate the operational burdens 

associated with making de minimis 

margin transfers without resulting in an 

unacceptable level of uncollateralized 

credit risk, Regulations 23.152(b)(3) and 

23.153(c) provide that a CSE is not 

required to collect or post IM or VM 

with a counterparty until the combined 

amount of such IM and VM, as 

computed under Regulations 23.154 and 

23.155 respectively, exceeds an MTA of 

$500,000.10 The term MTA (or 

minimum transfer amount) is further 

defined in Regulation 23.151 as a 

combined amount of IM and VM, not 

exceeding $500,000, under which no 

exchange of IM or VM is required.11

Once the MTA is exceeded, the SD or 

MSP must collect or post the full 


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Federal Register / Vol. 86, No. 14 / Monday, January 25, 2021 / Rules and Regulations 6851 

12See 17 CFR 23.152(b)(3); 17 CFR 23.153(c). 

13Pursuant to a Commission plan of 

reorganization, DSIO was renamed Market 

Participants Division (‘‘MPD’’) effective November 

8, 2020. 

14CFTC Letter No. 17–12, Regulations 

23.152(b)(3) and 23.153(c): No-Action Position 

for Minimum Transfer Amount with respect to 

Separately Managed Accounts (Feb. 13, 2017) 

(‘‘Letter 17–12’’), https://www.cftc.gov/idc/groups/ 

public/@lrlettergeneral/documents/letter/17-12.pdf. 

15 Id. 

16The ISDA master agreement is a standard 

contract published by ISDA commonly used in 

over-the-counter derivatives transactions that 

governs the rights and obligations of parties to a 

derivatives transaction. A CSA sets forth the terms 

of the collateral arrangement for the derivatives 

transaction. 

17CFTC Letter No. 19–25, Regulations 23.151, 

23.152, and 23.153—Staff Time-Limited No-Action 

Position Regarding Application of Minimum 

Transfer Amount under the Uncleared Margin Rules 

(Dec. 6, 2019) (‘‘Letter 19–25’’), https://

www.cftc.gov/csl/19-25/download. 

18See Recommendations to Improve Scoping and 

Implementation of Initial Margin Requirements for 

Non-Cleared Swaps, Report to the CFTC’s Global 

Markets Advisory Committee by the Subcommittee 

on Margin Requirements for Non-Cleared Swaps 

(May 2020), https://www.cftc.gov/media/3886/ 

GMAC_051920MarginSubcommitteeReport/ 

download (‘‘GMAC Subcommittee Report’’ or 

‘‘Report’’). The Global Markets Advisory Committee 

(‘‘GMAC’’) established the GMAC Subcommittee to 

consider issues raised by the implementation of 

margin requirements for non-cleared swaps, to 

identify challenges associated with forthcoming 

implementation phases, and to make 

recommendations through a report. The GMAC 

Subcommittee issued the GMAC Subcommittee 

Report recommending various actions, including 

the codification of Letters 17–12 and 19–25. The 

GMAC adopted the Report and recommended to the 

Commission that it consider adopting the Report’s 

recommendations. 

19See Margin Requirements for Uncleared Swaps 

for Swap Dealers and Major Swap Participants, 85 

FR 59470 (Sept. 22, 2020). 

20Comments were submitted by the following 

entities: American Council of Life Insurers 

(‘‘ACLI’’); Futures Industry Association (‘‘FIA’’); 

Investment Company Institute (‘‘ICI’’); ISDA, Global 

Foreign Exchange Division (‘‘GFXD’’) of the Global 

Financial Markets Association (‘‘GFMA’’), and 

Securities Industry and Financial Markets 

Association (‘‘SIFMA’’) in a joint letter (‘‘ISDA/ 

GFMA/SIFMA’’); Managed Funds Association 

(‘‘MFA’’); and SIFMA AMG. The comment letters 

are available at https://comments.cftc.gov/ 

PublicComments/CommentList.aspx?id=4155. 

amount of both IM and VM required to 

be exchanged with the counterparty.12

During the implementation of the 

CFTC Margin Rule, market participants 

identified certain operational and 

compliance burdens associated with the 

application of the MTA. To mitigate 

these burdens, the Division of Swap 

Dealer and Intermediary Oversight 

(‘‘DSIO’’) staff issued two no-action 

letters.13

B. DSIO No-Action Letter No. 17–12 

Addressing the Application of MTA to 

SMAs 

In February 2017, DSIO staff issued a 

no-action letter in response to a request 

for relief from the Securities Industry 

and Financial Markets Association’s 

Asset Management Group (‘‘SIFMA 

AMG’’).14 Staff stated that based on 

SIFMA AMG’s representations, it would 

not recommend enforcement action 

against an SD that does not comply with 

the MTA requirements of Regulations 

23.152(b)(3) or 23.153(c) with respect to 

the swaps of a legal entity that is the 

owner of multiple SMAs, provided that, 

among other conditions, the SD applies 

an MTA no greater than $50,000 to each 

SMA. 

SIFMA AMG sought no-action relief 

on behalf of members—asset 

management firms whose clients 

include large institutional investors, 

such as pension plans and endowments, 

that hire asset managers to exercise 

investment discretion over portions of 

the clients’ assets for management in 

SMAs—that enter into uncleared swaps 

with SDs that are registered with the 

Commission and are subject to the CFTC 

Margin Rule.15 SIFMA AMG requested 

relief that would permit SDs entering 

into swaps with SMAs to treat each 

SMA separately for the purposes of 

applying the MTA. 

SIFMA AMG argued that the 

application of the MTA at the SMA 

owner or legal entity level presented 

significant practical challenges for 

SMAs that trade uncleared swaps with 

a single SD. SIFMA AMG stated that 

each SMA is governed by an investment 

management agreement that grants asset 

managers authority over a portion of 

their client’s assets. An SD may face the 

same legal entity as a counterparty 

through multiple SMAs administered by 

different asset managers. Each SMA that 

trades derivatives typically has its own 

payment netting set corresponding to 

each International Swaps and 

Derivatives Association (‘‘ISDA’’) master 

agreement and credit support annex 

(‘‘CSA’’) used by an asset manager.16

Because the SMAs exist independently 

from each other, with their assets held, 

transferred, and returned separately at 

the account level, SIFMA AMG asserted 

that it is impractical for asset managers 

to collectively calculate the MTA across 

the SMAs of a single owner and to move 

collateral, in the aggregate, across the 

accounts. 

C. DSIO No-Action Letter No. 19–25 

Concerning the Application of Separate 

MTAs for IM and VM 

In December 2019, DSIO staff issued 

an additional no-action letter 

concerning the application of the MTA 

in response to a request for relief from 

ISDA on behalf of its member SDs.17

DSIO stated that based on ISDA’s 

representations, it would not 

recommend enforcement action against 

an SD or MSP that does not combine IM 

and VM amounts for the purposes of 

Regulations 23.152(b)(3) and 23.153(c). 

More specifically, the no-action position 

covers SDs or MSPs that apply separate 

MTAs for IM and VM obligations on 

uncleared swap transactions with each 

swap counterparty, provided that the 

combined MTA for IM and VM with 

respect to that counterparty does not 

exceed $500,000. 

In its request for no-action relief, 

ISDA stated that separate MTAs for IM 

and VM better reflect the operational 

requirements and the legal structure of 

the Commission’s regulations, noting 

that the CFTC Margin Rule requires IM 

to be segregated with an unaffiliated 

third party, while not imposing similar 

segregation requirements with respect to 

VM. ISDA asserted that, as a result, 

distinct workflows have been 

established for the settlement of IM 

through custodians and tri-party agents 

that are completely separate from the 

settlement process for VM. 

D. Market Participant Feedback and 

Proposal 

Swap market participants, including a 

subcommittee established by the CFTC’s 

Global Markets Advisory Committee 

(‘‘GMAC Subcommittee’’), expressed 

support for the adoption of regulations 

consistent with the no-action letters, 

noting that Letter 19–25, in particular, is 

time-limited and, more generally, the 

codification of no-action positions can 

be beneficial in that it can provide 

certainty to market participants with 

respect to the application of the 

Commission’s regulations.18

Consistent with this feedback, the 

Commission has expressed the view that 

adopting regulations in accordance with 

the terms of no-action letters, where 

feasible, can facilitate efforts by market 

participants to take the operation of the 

Commission’s regulations into account 

in planning their uncleared swap 

activities. Accordingly, based on its 

experience implementing the CFTC 

Margin Rule and the administration of 

Letters 17–12 and 19–25, the 

Commission decided to issue a notice of 

proposed rulemaking (‘‘Proposal’’) to 

amend the CFTC Margin Rule consistent 

with the staff positions set forth in those 

no-action letters, and to request 

comments on the Proposal.19

II. Final Rule 

The Commission received six 

comment letters, all of which expressed 

support for the Proposal.20 Commenters 


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6852 Federal Register / Vol. 86, No. 14 / Monday, January 25, 2021 / Rules and Regulations 

21See ACLI at 1; FIA at 4. 

22See ISDA/GFMA/SIFMA at 2; SIFMA AMG at 

4. 

23See 81 FR at 653 (rejecting commenters’ request 

to extend to each separate account of a fund or plan 

its own initial margin threshold, while 

acknowledging that separate managers acting for the 

same fund or plan may not take steps to inform the 

fund or plan of their uncleared swap exposures on 

behalf of their principal on a frequent basis). 

24 GMAC Subcommittee Report at 16. 

25See ICI at 6; ISDA/GFMA/SIFMA at 2; SIFMA 

AMG at 3. See also MFA at 3 (noting that the 

amendment to the MTA definition would eliminate 

the significant burden of requiring multiple asset 

managers running SMAs for the same SMA owner 

to coordinate the calculation of the MTA among 

them). 

26See, e.g., ICI at 6. 

27The Commission notes that Regulation 

23.410(c)(1)(i) prohibits disclosure by an SD or 

MSP, including a CSE, of confidential information 

provided by or on behalf of a counterparty to the 

SD or MSP. Nevertheless, Regulation 23.410(c)(2) 

provides that the SD or MSP may disclose the 

counterparty’s confidential information if the 

disclosure is authorized in writing by the 

counterparty. 

28As further discussed below, the application of 

the MTA, as provided in this Final Rule, is only 

available for separate accounts of an owner that, 

consistent with the definition of SMA, as adopted 

by the Final Rule, are not subject to collateral 

agreements that provide for netting across separate 

accounts. 

generally noted that the proposed 

amendments represent practical 

solutions that ease the operational 

burden of compliance with the CFTC 

Margin Rule without materially 

increasing systemic risk. Two 

commenters also noted that while 

consistent approaches to derivatives 

regulation are desirable, the 

Commission should adopt the proposed 

amendments even if the prudential 

regulators do not adopt similar 

changes.21 Several commenters 

highlighted the importance of the 

regulatory certainty that the adoption of 

regulations consistent with existing noaction relief would bring.22

The comments confirm the rationale 

articulated for the Proposal. As such, 

the Commission is adopting the 

amendments to Regulations 23.151, 

23.152(b)(3), 23.153(c) and 23.158(a), as 

proposed. 

A. Application of MTA to SMAs 

The Commission is adopting the 

proposed amendment to the definition 

of MTA in Regulation 23.151 to allow a 

CSE to apply an MTA of up to $50,000 

to each SMA owned by a counterparty 

with whom the CSE enters into 

uncleared swaps. The amendment is 

consistent with the terms of Letter 17– 

12, which provides that DSIO would not 

recommend enforcement action if an SD 

applies an MTA no greater than $50,000 

to each SMA of a legal entity, subject to 

certain conditions. 

As discussed in the Proposal, when 

the Commission adopted the CFTC 

Margin Rule, it rejected the notion that 

SMAs of a legal entity should be treated 

separately from each other in applying 

certain aspects of the margin 

requirements for uncleared swaps.23

However, after implementing the margin 

requirements for several years, and in 

particular, administering the application 

of the MTA, including the staff’s 

issuance of Letter 17–12, the 

Commission believes that separately 

treating SMAs, at least with respect to 

the application of the MTA, is 

appropriate from an operational 

perspective. 

The Commission notes, as discussed 

in the Proposal, that certain owners of 

SMAs, such as pension funds, in 

administering investments for 

beneficiaries, may engage in collateral 

management exercises and may have the 

capability to aggregate collateral across 

their SMAs. As such, a beneficial owner 

may be able to aggregate the MTA across 

its SMAs that trade with a particular 

CSE and centralize the management of 

collateral for the SMAs, which may 

result in increased netting among the 

SMAs and the CSE, and more efficient 

collateral management. However, the 

Commission points out that other SMA 

owners may not have such capability 

because, as noted in the GMAC 

Subcommittee Report, the SMA owners 

may not be able to coordinate trading 

activity across their SMAs, given that 

they typically grant full investment 

discretion to their asset managers and 

do not employ a centralized collateral 

manager in-house.24

In theory, while asset managers could 

coordinate with each other the 

calculation of the MTA across SMAs 

under their management, the 

Commission believes that accepted 

market practice may preclude the 

sharing of information among asset 

managers. In this regard, the 

Commission notes that the GMAC 

Subcommittee Report stated that owners 

of SMAs typically prohibit information 

sharing among their SMAs and require 

asset managers to keep trading 

information confidential, with the result 

that asset managers lack transparency 

and control over the assets of the SMA 

owner other than the specific assets 

under their management. 

The Commission requested comment 

on the feasibility of coordination among 

asset managers. Several commenters, 

consistent with the GMAC 

Subcommittee Report’s findings, 

indicated that confidentiality 

requirements and logistical 

impediments prevent asset managers 

from aggregating IM and VM obligations 

across SMAs for purposes of 

determining whether the MTA 

threshold has been exceeded, rendering 

the application of a single MTA across 

SMAs impractical.25 Commenters 

further asserted that the ability to apply 

a separate MTA to each SMA is critical 

for asset managers that provide services 

to clients through an SMA structure.26

Likewise, the Commission believes 

that confidentiality requirements may 

also preclude communications between 

a CSE and individual asset managers of 

SMAs of an owner concerning the 

owner’s overall trading activity. As 

discussed in the GMAC Subcommittee 

Report, a duty of confidentiality to the 

legal entity may prevent a CSE from 

sharing information across the asset 

managers of SMAs of a legal entity.27 As 

a result, even though each SMA of an 

owner may contribute to reaching the 

MTA limit, asset managers for the SMAs 

may only know the amounts of IM and 

VM being contributed by SMAs under 

their management. 

In light of the practical challenges that 

the calculation of the MTA across SMAs 

poses, as described above, the 

Commission is amending Regulation 

23.151 to allow CSEs to apply an MTA 

of up to $50,000 for each SMA of a 

counterparty. The Commission notes, 

however, that under this application of 

the MTA to SMAs, as adopted, an MTA 

of up to $50,000 could be applied to an 

indefinite number of SMAs. This 

application of the MTA would 

effectively replace the aggregate limit of 

$500,000 for a particular counterparty’s 

uncollateralized risk for uncleared 

swaps with an individual limit of 

$50,000 for each SMA of such 

counterparty. In turn, the counterparty 

could have an aggregate amount of 

uncollateralized risk in excess of 

$500,000. 

This application of the MTA to SMAs 

could incentivize owners of SMAs to 

create separate accounts by formulating 

trading strategies to reduce or avoid 

margin transfers. However, the 

Commission believes that the inability 

to net collateral across separate accounts 

would stem the indiscriminate creation 

of SMAs 28 because the MTA for SMAs, 

as adopted in this Final Rule, is set at 

a low level (i.e., $50,000), and any 

potential benefits resulting from the 

avoidance of margin transfers would 

become less meaningful, as the 

fragmentation of an owner’s investments 

among SMAs would reduce the ability 

to aggregate swaps positions and net 

collateral. 

Several commenters agreed with the 

Commission’s view that the potential 


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29See ICI at 7; MFA at 3; SIFMA AMG at 4. 30See ICI at 7, MFA at 3. 31See ICI at 7. 32As further discussed below, the Final Rule 

defines the term SMA as an account managed by 

an asset manager pursuant to a specific grant of 

authority to such asset manager under an 

investment management agreement between the 

counterparty and the asset manager with respect to 

a specified portion of the counterparty’s assets. 33See SIFMA AMG at 4. 34See 7 U.S.C. 6s(j). 35 17 CFR 23.600. 

36The definition of the term SMA, as adopted, 

refers to the aggregate account of a counterparty 

managed by an asset manager under the investment 

management agreement, and not to fund or pool 

sleeves overseen by sub-advisers. 

37See 17 CFR 23.157 (requiring IM to be 

segregated with an independent custodian. The 

CFTC Margin Rule does not impose similar 

segregation requirements with respect to VM). 

38Letter 19–25 describes the application of 

separate MTAs for IM and VM with the following 

illustration: An SD and a counterparty agree to a 

$300,000 IM MTA and a $200,000 VM MTA. If the 

margin calculations set forth in Commission 

regulations 23.154 (for IM) and 23.155 (for VM) 

require the SD to post $400,000 of IM with the 

counterparty and $150,000 of VM with the 

counterparty, the SD will be required to post 

$400,000 of IM with the counterparty (assuming 

that the $50 million IM threshold amount, defined 

in Commission regulation 23.151, for the 

counterparty has been exceeded). The SD, however, 

will not be obligated to post any VM with the 

counterparty as the $150,000 requirement is less 

than the $200,000 MTA. By contrast, in the absence 

of relief, the SD would have been required to post 

$550,000 (the full amount of both IM and VM), 

given that the combined amount of IM and VM 

exceeds the MTA of $500,000. 

risk of an increase in the amount of 

uncollateralized margin is mitigated by, 

among other safeguards, the low MTA 

thresholds and the limitations on 

netting across separate accounts.29 The 

commenters further noted that the costs 

and practical challenges associated with 

establishing and maintaining SMAs are 

significant and would likely override 

the benefit of a marginal MTA 

increase.30 One commenter also argued 

that it is extremely unlikely that an asset 

manager could coordinate its activities 

with other SMA managers to minimize 

the SMA owner’s margin requirements, 

given that asset managers typically 

exercise discretion over a portion of the 

SMA’s assets and maintain 

confidentiality with respect to the 

SMA’s trading activity.31 Another 

commenter pointed out that the 

requirement that the SMAs’ asset 

managers must be granted authority 

over assets under their management 

under the investment management 

agreement 32 creates practical as well as 

cost challenges that would further 

disincentivize the creation of 

unnecessary SMAs.33

The Commission further notes that 

there are other provisions in the CEA 

and the Commission’s regulations that 

would mitigate the increase in 

uncollateralized credit risk resulting 

from the absence of an aggregate limit in 

the MTA. Specifically, section 4s(j)(2) of 

the CEA requires CSEs to adopt a robust 

and professional risk management 

system adequate for the management of 

their swap activities,34 and Regulation 

23.600 35 mandates that CSEs establish a 

risk management program to monitor 

and manage risks associated with their 

swap activities that includes, among 

other things, a description of risk 

tolerance limits. 

The Commission is also amending 

Regulation 23.151 to add a definition for 

the term SMA. The new definition of 

SMA uses the definition of the term set 

forth in Letter 17–12. As adopted, the 

term SMA is defined as an account of 

a counterparty to a CSE that is managed 

by an asset manager pursuant to a 

specific grant of authority to such asset 

manager under an investment 

management agreement between the 

counterparty and the asset manager, 

with respect to a specified portion of the 

counterparty’s assets.36 The definition 

requires that the swaps of the SMA (i) 

be entered into between the 

counterparty and the CSE by the asset 

manager pursuant to authority granted 

by the counterparty to the asset manager 

through an investment management 

agreement; and (ii) be subject to a 

master netting agreement that does not 

provide for the netting of IM or VM 

obligations across all SMAs of the 

counterparty that have swaps 

outstanding with the CSE. 

The definition of SMA is designed to 

limit the application of the MTA, as 

prescribed by the Final Rule, to SMAs 

that have dedicated netting sets under 

the SMAs’ ISDA master agreements and 

CSAs, or are otherwise precluded from 

netting collateral across SMAs, and that 

are administered by asset managers with 

authority that is limited to assets 

specifically under their management. 

The Commission notes that the limited 

authority of asset managers over the 

assets of a legal entity and the practical 

inability to net collateral payments 

across SMAs pose obstacles in the 

calculation and aggregation of the MTA 

across SMAs that this Final Rule is 

designed to address. 

B. Application of Separate MTAs for IM 

and VM 

The Commission is revising the 

margin documentation requirements 

outlined in Regulation 23.158(a), 

consistent with Letter 19–25, to 

recognize that a CSE can apply separate 

MTAs for IM and VM with each 

counterparty in determining whether IM 

or VM or both must be posted or 

collected with a counterparty under 

Regulation 23.152 (requiring CSEs to 

exchange IM with a counterparty) or 

Regulation 23.153 (requiring CSEs to 

exchange VM with a counterparty). 

Regulation 23.158(a), as amended, states 

that if a CSE and its counterparty agree 

to have separate MTAs for IM and VM, 

the MTAs corresponding to IM and VM 

must be specified in the margin 

documentation required by Regulation 

23.158, and the MTAs, on a combined 

basis, must not exceed the MTA 

specified in Regulation 23.151. 

The Commission believes that the 

amendment to Regulation 23.158(a) 

accommodates a widespread market 

practice that facilitates the 

implementation of the CFTC margin 

requirements. In administering the 

application of the MTA, including the 

issuance of Letter 19–25, the 

Commission has recognized that, as a 

practical matter, CSEs and their 

counterparties maintain separate 

settlement workflows for IM and VM 

and agree to separate MTAs in each of 

their IM and VM CSAs, which, 

combined, do not exceed $500,000. 

These separate settlement workflows for 

IM and VM reflect, from an operational 

perspective, the different segregation 

requirements applicable to IM and VM 

under the CFTC Margin Rule.37

The Commission acknowledges that 

the amendment to Regulation 23.158(a) 

may result in the exchange of less 

margin than the amount that would be 

exchanged if the MTA were computed 

on an aggregate basis.38 However, the 

Commission notes that because the total 

amount of combined IM and VM that 

would not be exchanged would 

generally not exceed $500,000, the 

differences in the total margin 

exchanged would not be material and 

would not result in an unacceptable 

level of credit risk. While the MTA as 

applied to SMAs, pursuant to the 

amendments to Regulation 23.151, may 

result in an aggregate MTA that exceeds 

$500,000, the Commission nonetheless 

believes that the increased level of 

uncollateralized risk that might result 

from the application of the MTA to 

SMAs will be mitigated because the 

MTA levels applicable to SMAs are set 

at a very low level (i.e., $50,000), which 

would reduce the incentive for SMA 

owners to create additional SMAs to 

avoid the transfer of margin given the 

inability to net collateral across SMAs, 

as provided by the Final Rule. 

The Commission believes, consistent 

with the views expressed by DSIO staff 

in issuing Letter 19–25, that the 

application of separate MTAs for IM and 

VM, subject to certain conditions, will 


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6854 Federal Register / Vol. 86, No. 14 / Monday, January 25, 2021 / Rules and Regulations 

39See Commission Delegated Regulation (EU) 

2016/2251 Supplementing Regulation (EU) No. 648/ 

2012 of the European Parliament and of the Council 

of July 4, 2012 on OTC Derivatives, Central 

Counterparties and Trade Repositories with Regard 

to Regulatory Technical Standards for RiskMitigation Techniques for OTC Derivative Contracts 

Not Cleared by a Central Counterparty (Oct. 4, 

2016), Article 25(4), https://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/ 

?uri=CELEX:32016R2251&from=EN. 

40See section 752 of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, Public Law 

111–203, 124 Stat. 1376 (2010), calling on the CFTC 

to consult and coordinate on the establishment of 

consistent international standards with respect to 

the regulation of swaps. 

41See ACLI at 2; MFA at 4; SIFMA AMG at 4. 

42See e.g., ACLI at 2. 

43See ICI at 8. 

44See ICI at 9; MFA at 4. 

45See SIFMA AMG at 4. 

46 5 U.S.C. 601 et seq. 

47Pursuant to section 2(e) of the CEA, 7 U.S.C. 

2(e), each counterparty to an uncleared swap must 

be an ECP, as defined in section 1a(18) of the CEA, 

7 U.S.C. 1a(18). 

48See Further Definition of ‘‘Swap Dealer,’’ 

‘‘Security-Based Swap Dealer,’’ ‘‘‘Major Swap 

Participant,’’ ‘‘Major Security-Based Swap 

Participant’’ and ‘‘Eligible Contract Participant,’’ 77 

FR 30596, 30701 (May 23, 2012). 

49 44 U.S.C. 3501 et seq. 

50 7 U.S.C. 19(a). 

reduce the cost and burdens associated 

with the transfer of small margin 

balances, without undermining the 

Commission’s objective of requiring 

swap counterparties to protect 

themselves by mitigating their credit 

and market risks. The Commission 

further notes that similar applications of 

the MTA are permitted in certain 

foreign jurisdictions, including the 

European Union.39 The amendment to 

Regulation 23.158(a) therefore promotes 

consistent regulatory standards across 

jurisdictions, in line with the statutory 

mandate set forth in the Dodd-Frank 

Act 40 and reduces the need for market 

participants to create and implement IM 

and VM settlement flows tailored to 

different jurisdictions. 

A number of commenters confirmed 

the Commission’s understanding that 

the application of separate MTAs for IM 

and VM facilitates compliance with the 

CFTC Margin Rule.41 Commenters noted 

that if swap counterparties were 

required to apply a single combined 

MTA, they would need to implement 

significant changes to the 

documentation and operational 

processes.42 In particular, ICI noted that 

in the absence of Letter 19–25 and this 

Final Rule, counterparties would have 

to reconcile two operational processes: 

Margin calculation protocols that 

account for a combined MTA and 

separate workflows that exist for IM and 

VM settlement in light of the 

Commission’s segregation requirements, 

which differentiate treatment for IM and 

VM. 43

Several commenters expressed 

support for extending the application of 

separate MTAs for IM and VM to SMAs 

for which an MTA of up to $50,000 

would be applicable, noting that the 

stated rationale for proposing the 

revisions to Regulation 23.158(a) applies 

equally to SMAs and that allowing such 

application would establish a consistent 

regulatory approach to applying MTA 

thresholds.44 In addition, noting some 

ambiguity, SIFMA AMG urged the 

Commission to confirm that the ability 

to apply separate MTAs for IM and VM 

would extend to SMAs.45 In response, 

the Commission confirms that the 

amendments to Regulations 23.151 and 

23.158(a), as adopted, permit a CSE to 

apply separate MTAs for IM and VM 

with each counterparty, or an SMA of a 

counterparty, provided the MTAs, on a 

combined basis, do not exceed the 

respective limits set by Regulation 

23.151. The Commission notes that the 

text of the amendment to Regulation 

23.158(a) refers to Regulation 23.151, 

which, as amended, defines MTA and 

provides for the application of an MTA 

of up to $50,000 for each SMA of a 

counterparty, thus allowing for the 

application of separate amounts of IM 

and VM to the MTA of an SMA, as 

provided in amended Regulation 

23.151. 

C. Conforming Changes 

Consistent with the amendment to the 

definition of MTA in Regulation 23.151, 

the Commission is adopting conforming 

changes to Regulations 23.152(b)(3) and 

23.153(c) by replacing ‘‘$500,000’’ with 

‘‘the minimum transfer amount, as the 

term is defined in 23.151.’’ The changes 

replace the reference to $500,000 in 

current Regulations 23.152(b)(3) and 

23.153(c), which effectively limits the 

MTA to $500,000, with a reference to 

the revised definition of MTA, which 

allows for the application of an MTA of 

up to $50,000 for each SMA. 

III. Administrative Compliance 

The Regulatory Flexibility Act 

(‘‘RFA’’) requires Federal agencies to 

consider whether the rules they propose 

will have a significant economic impact 

on a substantial number of small 

entities.46 As discussed in the Proposal, 

the amendments being adopted herein 

only affect certain SDs and MSPs and 

their counterparties, which must be 

eligible contract participants 

(‘‘ECPs’’).47 The Commission has 

previously established that SDs, MSPs 

and ECPs are not small entities for 

purposes of the RFA.48 Therefore, the 

Commission believes that the Final Rule 

will not have a significant economic 

impact on a substantial number of small 

entities, as defined in the RFA. 

Accordingly, the Chairman, on behalf 

of the Commission, hereby certifies 

pursuant to 5 U.S.C. 605(b) that the 

Final Rule will not have a significant 

economic impact on a substantial 

number of small entities. 

A. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(‘‘PRA’’) 49 imposes certain 

requirements on Federal agencies, 

including the Commission, in 

connection with their conducting or 

sponsoring any collection of 

information, as defined by the PRA. The 

Commission may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a currently valid 

Office of Management and Budget 

control number. The Final Rule, as 

adopted, contains no requirements 

subject to the PRA. 

B. Cost-Benefit Considerations 

Section 15(a) of the CEA 50 requires 

the Commission to consider the costs 

and benefits of its actions before 

promulgating a regulation under the 

CEA. Section 15(a) further specifies that 

the costs and benefits shall be evaluated 

in light of the following five broad areas 

of market and public concern: (1) 

Protection of market participants and 

the public; (2) efficiency, 

competitiveness, and financial integrity 

of futures markets; (3) price discovery; 

(4) sound risk management practices; 

and (5) other public interest 

considerations. The Commission 

considers the costs and benefits 

resulting from its discretionary 

determinations with respect to the 

section 15(a) considerations. 

The Commission is amending 

Regulation 23.151 consistent with Letter 

17–12. The Commission is revising the 

definition of MTA in Regulation 23.151 

to permit CSEs to apply an MTA of up 

to $50,000 for each SMA of a 

counterparty that enters into uncleared 

swaps with a CSE. The Commission also 

is amending Regulation 23.151 to add a 

definition for the term SMA (or 

separately managed account). The 

Commission is also revising Regulation 

23.158(a) consistent with Letter 19–25 

to state that if a CSE and its 

counterparty agree to have separate 

MTAs for IM and VM, the respective 

amounts of MTA must be reflected in 

the margin documentation required by 

Regulation 23.158(a). Finally, the 

Commission is adopting conforming 


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51 7 U.S.C. 2(i). 

52See e.g., ICI at 7 and MFA at 3 (addressing the 

concern that permitting the application of a 

reduced, individualized MTA, as proposed, to an 

indefinite number of SMAs may incentivize SMA 

owners to create additional separate accounts). 

changes to Regulations 23.152(b)(3) and 

23.153(c) to incorporate the change to 

the definition of MTA in Regulation 

23.151. 

The baseline for the Commission’s 

consideration of the costs and benefits 

of this Final Rule is the CFTC Margin 

Rule. The Commission recognizes that 

to the extent market participants have 

relied on Letters 17–12 and 19–25, the 

actual costs and benefits of the 

amendments, as realized in the market, 

may not be as significant. 

The Commission notes that the 

consideration of costs and benefits 

below is based on the understanding 

that the markets function 

internationally, with many transactions 

involving U.S. firms taking place across 

international boundaries; with some 

Commission registrants being organized 

outside of the United States; with 

leading industry members typically 

conducting operations both within and 

outside the United States; and with 

industry members commonly following 

substantially similar business practices 

wherever located. Where the 

Commission does not specifically refer 

to matters of location, the following 

discussion of costs and benefits refers to 

the effects of the Final Rule on all 

activity subject to the amended 

regulations, whether by virtue of the 

activity’s physical location in the 

United States or by virtue of the 

activity’s connection with activities in, 

or effect on, U.S. commerce under 

section 2(i) of the CEA.51

As previously discussed, the 

Commission received six comment 

letters expressing support for the 

Proposal. Commenters generally noted 

that the proposed amendments are 

beneficial for market participants and 

characterized them as helpful and 

practical accommodations that reflect 

the realities of the marketplace and 

facilitate compliance with the CFTC 

Margin Rule. Several commenters 

elaborated on specific benefits of the 

amendments, noting for instance that 

the amendments would eliminate 

burdens associated with the application 

of a single MTA across SMAs of a 

counterparty, provide regulatory 

certainty and contribute to global 

consistency in regulatory standards. 

Some commenters also addressed 

concerns that the Commission had 

raised in the Proposal, pointing out 

mitigating factors.52

1. Benefits 

The amendments to Regulation 23.151 

allow CSEs to apply an MTA of up to 

$50,000 to SMAs of a counterparty. 

Under the current requirements, a CSE 

must apply the MTA with respect to 

each counterparty to an uncleared 

transaction. As a result, in the context 

of a counterparty that has multiple 

SMAs through which uncleared swaps 

are traded, with each SMA potentially 

giving rise to IM and VM obligations, 

the amounts of IM and VM attributable 

to the SMAs of the counterparty must be 

aggregated to determine whether the 

MTA has been exceeded, which would 

require the exchange of IM or VM. 

As previously discussed, because the 

assets of SMAs are separately held, 

transferred, and returned at the account 

level, and CSEs and SMA asset 

managers do not share trading 

information across SMAs, aggregation of 

IM and VM obligations across SMAs for 

the purpose of determining whether the 

MTA has been exceeded may be 

impractical, hindering efforts to comply 

with the CFTC Margin Rule. The 

Commission acknowledges, however, 

the possibility that, in certain contexts, 

an owner of SMAs, such as a pension 

fund that administers investments for 

beneficiaries, may be set up to perform 

collateral management exercises and 

may have the capability to aggregate 

collateral across SMAs. Nevertheless, 

according to industry feedback, the only 

practical alternative to fully ensure 

compliance with the margin 

requirements is to set the MTA for each 

SMA at zero, so that trading by a given 

SMA does not result in an inadvertent 

breach of the aggregate MTA threshold 

without the exchange of the required 

margin. 

The amendments to Regulation 

23.151, by allowing the application of 

an MTA of up to $50,000 for each SMA 

of a counterparty, will ease the 

operational burdens and transactional 

costs associated with managing frequent 

transfers of small amounts of collateral 

that counterparties would incur if the 

MTA for SMAs were to be set at zero. 

In addition, the amendments give 

flexibility to CSEs, owners of SMAs, and 

asset managers to negotiate MTA levels 

within the regulatory limits that match 

the risks of the SMAs and their 

investment strategies, and the uncleared 

swaps being traded. 

Furthermore, because the 

amendments to Regulation 23.151 

simplify the application of the MTA in 

the SMA context, thereby reducing the 

operational burden, market participants 

may be encouraged to participate in the 

uncleared swap markets through 

managed accounts, and account 

managers may also make their services 

more readily available to clients. As a 

result, trading in the uncleared swap 

markets may increase, promoting 

competition and liquidity. 

The amendment of Regulation 

23.158(a) could likewise lead to 

efficiencies in the application of the 

MTA. The amendment, as adopted, 

states that if a CSE and its counterparty 

agree to have separate MTAs for IM and 

VM, the respective amounts of MTA 

must be reflected in the margin 

documentation required by Regulation 

23.158(a). CSEs will thus be able to 

maintain separate margin settlement 

workflows for IM and VM to address the 

differing segregation treatments for IM 

and VM under the CFTC Margin Rule. 

The Commission notes that the 

application of separate MTAs for IM and 

VM has been adopted in other 

jurisdictions, including the European 

Union, and the practice is widespread. 

The amendments, by aligning the CFTC 

with other jurisdictions with respect to 

the application of the MTA, advance the 

CFTC’s goal of promoting consistent 

international standards, in line with the 

statutory mandate set forth in the DoddFrank Act. 

Finally, the amendments, as adopted, 

provide certainty to market participants 

who may have relied on Letters 17–12 

and 19–25, and could thereby facilitate 

their efforts to take the operation of the 

Commission’s regulations into account 

in the planning of their uncleared swap 

activities. 

2. Costs 

The amendments to Regulation 23.151 

could result in a CSE applying an MTA 

that exceeds, in the aggregate, the 

current MTA limit of $500,000. That is 

because the amendments, as adopted, 

permit the application of an MTA of up 

to $50,000 for each SMA of a 

counterparty, without limiting the 

number of SMAs to which the $50,000 

threshold may be applied. The 

amendments thus could incentivize 

SMA owners to increase the number of 

separate accounts in order to benefit 

from the higher MTA limit. As a result, 

the collection and posting of margin for 

some SMAs may be delayed, since 

margin will not need to be exchanged 

until the MTA threshold is exceeded, 

which could result in the exchange of 

less collateral to mitigate the risk of 

uncleared swaps. 

The amendment to Regulation 

23.158(a), as adopted, states that if a 

CSE and its counterparty agree to have 

separate MTAs for IM and VM, the 

respective amounts of MTA must be 

reflected in the margin documentation 


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53Supra note 38 (explaining how the application 

of separate MTAs for IM and VM could result in 

the exchange of lower amounts of margin than if IM 

and VM MTA were computed on an aggregate 

basis). 

54The following illustration explains how the 

application of separate MTAs for IM and VM could 

result in the exchange of higher amounts of margin 

than if IM and VM MTA were computed on an 

aggregate basis: An SD and a counterparty agree to 

$300,000 IM MTA, and $200,000 VM MTA. If the 

margin calculations set forth in Commission 

regulations 23.154 (for IM), and 23.155 (for VM) 

require the SD to post $200,000 of IM with the 

counterparty and $250,000 of VM with the 

counterparty, the SD would not be required to post 

IM with the counterparty as the $200,000 

requirement is less than the $300,000 MTA. 

However, the SD would be required to post 

$250,000 in VM as the VM required exceeds the 

$200,000 VM MTA, even though the total amount 

of margin owed is below the $500,000 MTA set 

forth in Commission regulations 23.152(b)(3) and 

23.153(c). Letter 19–25 at 4. 

55See ICI at 7; MFA at 3; SIFMA AMG at 3. 

56 7 U.S.C. 6s(j)(2). 

57 17 CFR 23.600. 

required by Regulation 23.158(a). The 

amendment recognizes that CSEs can 

apply separate MTAs for IM and VM for 

determining whether Regulations 

23.152(b)(3) and 23.153(c) require the 

exchange of IM or VM. The Commission 

acknowledges that the application of 

separate IM and VM MTAs may result 

in the exchange of a lower amount of 

total margin between a CSE and its 

counterparty to mitigate the risk of their 

uncleared swaps than the amount that 

would be exchanged if the IM and VM 

MTA were computed on an aggregate 

basis.53 The Commission notes that this 

cost may be mitigated because the 

application of separate IM and VM 

MTAs could also result in the exchange 

of higher rather than lower amounts of 

margin.54

While the Commission recognizes that 

the uncollateralized exposure that may 

result from amending Regulations 

23.151 and 23.158(a), in line with 

Letters 17–12 and 19–25, could increase 

credit risk associated with uncleared 

swaps, the Commission believes that a 

number of safeguards exist to mitigate 

this risk. The Commission notes that the 

amendments, as adopted, set the MTA 

at low levels. When the MTA is applied 

to a counterparty, the sum of the IM and 

VM MTAs must not exceed $500,000. 

When the MTA is applied to an SMA of 

a counterparty, the sum of the IM and 

VM MTAs must not exceed $50,000. In 

particular with respect to the 

application of the MTA to SMAs, the 

low level of the MTA may dampen the 

incentive to create additional SMAs to 

benefit from the potentially higher MTA 

threshold given the inability to net 

collateral across SMAs under the Final 

Rule. Several commenters confirmed the 

Commission’s assessment and some 

added that the burdens and costs of 

creating and maintaining separate 

accounts would likely override the 

benefits of any marginal increase in 

MTA.55 Also, the Commission notes that 

other regulatory safeguards exist that 

would limit the potential increase in the 

credit exposure, including section 

4s(j)(2) of the CEA,56 which mandates 

that CSEs adopt a robust and 

professional risk management system 

adequate for the management of day-today swap activities, and Regulation 

23.600,57 which requires CSEs, in 

establishing a risk management program 

for the monitoring and management of 

risk related to their swap activities, to 

account for credit risk and to set risk 

tolerance limits. 

3. Section 15(a) Considerations 

In light of the foregoing, the CFTC has 

evaluated the costs and benefits of the 

Final Rule pursuant to the five 

considerations identified in section 

15(a) of the CEA as follows: 

a. Protection of Market Participants and 

Public 

As discussed above, the amendments 

to Regulations 23.151 and 23.158(a), 

which address the application of the 

MTA to SMAs and the application of 

separate MTAs for IM and VM, remove 

practical burdens in the application of 

the MTA, facilitating the 

implementation of the CFTC Margin 

Rule, with minimal impact on the 

protection of market participants and 

the public in general. Although the 

amendments, as adopted, could result in 

larger amounts of MTA being applied to 

uncleared swaps, potentially resulting 

in the exchange of reduced margin to 

offset the risk of uncleared swaps, the 

impact is likely to be negligible relative 

to the size of the uncleared swap 

positions. The Commission notes that 

the MTA thresholds are set at low 

levels. In addition, CSEs are required to 

monitor and manage risk associated 

with their swaps, in particular credit 

risk, and to set tolerance levels as part 

of the risk management program 

mandated by Regulation 23.600. To 

meet the risk tolerance levels, a CSE 

may contractually limit the MTA or the 

number of SMAs for a particular 

counterparty with whom the CSE enters 

into uncleared swap transactions. 

b. Efficiency, Competitiveness, and 

Financial Integrity of Markets 

By amending Regulation 23.151 to 

allow CSEs to apply an MTA of up to 

$50,000 for each SMA of a counterparty, 

the Commission eliminates burdens and 

practical challenges associated with the 

computation and aggregation of the 

MTA across multiple SMAs. In 

addition, the new MTA threshold for 

SMAs could have the effect of delaying 

how soon margin would be exchanged, 

as the aggregate MTA for SMAs is no 

longer limited to $500,000. 

The simplification of the process for 

applying the MTA to SMAs and the 

reduced cost that may be realized from 

the deferral of margin obligations may 

encourage market participants to enter 

into uncleared swaps through accounts 

managed by asset managers and also 

encourage asset managers to accept 

more clients. The amendments to 

Regulation 23.151 could therefore foster 

competitiveness by encouraging 

increased participation in the uncleared 

swap markets. 

The amendment to Regulation 

23.158(a) states that if a CSE and its 

counterparty agree to have separate 

MTAs for IM and VM, the respective 

amounts of MTA must be reflected in 

the margin documentation required by 

Regulation 23.158(a). The amendment 

recognizes that CSEs can apply separate 

MTAs for IM and VM, enabling CSEs to 

accommodate the different segregation 

treatments for IM and VM under the 

CFTC’s margin requirements and to 

more efficiently comply with the CFTC 

Margin Rule. 

The amendments to Regulations 

23.151 and 23.158(a) could have the 

overall effect of permitting larger 

amounts of MTA being applied to 

uncleared swaps, resulting in the 

collection and posting of less collateral 

to offset the risk of uncleared swaps, 

which could undermine the integrity of 

the markets. The Commission, however, 

believes that the uncollateralized swap 

exposure will be limited given that the 

MTA thresholds are set at low levels, 

and there are other built-in regulatory 

safeguards, such as the requirement that 

CSEs establish a risk management 

program under Regulation 23.600 that 

provides for the implementation of 

internal risk parameters for the 

monitoring and management of swap 

risk. 

The Commission also notes that the 

amendments provide certainty to market 

participants who may have relied on 

Letters 17–12 and 19–25, and thereby 

facilitate their efforts to take the 

operation of the Commission’s 

regulations into account in planning 

their uncleared swap activities. 

c. Price Discovery 

The amendments to Regulations 

23.151 and 23.158(a) simplify the 

process for applying the MTA, reducing 

the burden and cost of implementation. 

Given these cost savings, CSEs and 


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58 7 U.S.C. 19(b). 

other market participants may be 

encouraged to increase their 

participation in the uncleared swap 

markets. As a result, trading in 

uncleared swaps may increase, leading 

to increased liquidity and enhanced 

price discovery. 

d. Sound Risk Management 

Because the amendments to 

Regulations 23.151 and 23.158(a) permit 

the application of larger amounts of 

MTA, less margin may be collected and 

posted to offset the risk of uncleared 

swaps. Nevertheless, the Commission 

believes that the risk is mitigated 

because the regulatory MTA thresholds 

are set at low levels, and CSEs are 

required to have a risk management 

program that provides for the 

implementation of internal risk 

management parameters for the 

monitoring and management of swap 

risk. 

The Commission also notes that the 

amendments simplify the application of 

the MTA, reducing the burden and cost 

of implementation, without leading to 

an unacceptable level of 

uncollateralized credit risk. Such 

reduced burden and cost could 

encourage market participants to 

increase their participation in the 

uncleared swap markets, potentially 

facilitating improved risk management 

for counterparties using uncleared 

swaps to hedge risks. Moreover, by 

facilitating compliance with certain 

aspects of the Commission’s regulations, 

the Commission allows market 

participants to focus their efforts on 

monitoring and ensuring compliance 

with other substantive aspects of the 

CFTC Margin Rule, thus promoting 

balanced and sound risk management. 

e. Other Public Interest Considerations 

The amendment to Regulation 

23.158(a) addresses the application of 

separate MTAs for IM and VM, 

contributing to the CFTC’s alignment 

with other jurisdictions, such as the 

European Union, which advances the 

CFTC’s efforts to achieve consistent 

international standards. The CFTC’s 

alignment with other jurisdictions with 

respect to the application of the MTA 

will benefit CSEs that are global market 

participants by eliminating the need to 

establish different settlement workflows 

tailored to each jurisdiction in which 

they operate. 

C. Antitrust Considerations 

Section 15(b) of the CEA requires the 

Commission to take into consideration 

the public interest to be protected by the 

antitrust laws and endeavor to take the 

least anticompetitive means of 

achieving the objectives of the CEA, as 

well as the policies and purposes of the 

CEA, in issuing any order or adopting 

any Commission rule or regulation 

(including any exemption under section 

4(c) or 4c(b)), or in requiring or 

approving any bylaw, rule, or regulation 

of a contract market or registered futures 

association established pursuant to 

section 17 of the CEA.58

The Commission believes that the 

public interest to be protected by the 

antitrust laws is generally to protect 

competition. The Commission requested 

comment on whether the Proposal 

implicated any other specific public 

interest to be protected by the antitrust 

laws and received no comments. 

The Commission has considered the 

Final Rule to determine whether it is 

anticompetitive and has identified no 

anticompetitive effects. The 

Commission requested comment on 

whether the Proposal was 

anticompetitive and, if it was, what the 

anticompetitive effects were, and 

received no comments. 

Because the Commission has 

determined that the Final Rule is not 

anticompetitive and has no 

anticompetitive effects, the Commission 

has not identified any less 

anticompetitive means of achieving the 

purposes of the CEA. 

List of Subjects 17 CFR Part 23 

Swaps, Swap dealers, Major swap 

participants, Capital and margin 

requirements. 

For the reasons stated in the 

preamble, the Commodity Futures 

Trading Commission amends 17 CFR 

part 23 as set forth below: 

PART 23—SWAP DEALERS AND 

MAJOR SWAP PARTICIPANTS 

■ 1. The authority citation for part 23 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b– 

1,6c, 6p, 6r, 6s, 6t, 9, 9a, 12, 12a, 13b, 13c, 

16a, 18, 19, 21. 

■ 2. Amend § 23.151 by: 

■ a. Revising the definition of 

‘‘minimum transfer amount’’; and 

■ b. Adding in alphabetical order a 

definition for ‘‘separately managed 

account’’. 

The revision and addition read as 

follows: 

§ 23.151 Definitions applicable to margin 

requirements. 

* * * * * 

Minimum transfer amount means a 

combined initial and variation margin 

amount under which no actual transfer 

of funds is required. The minimum 

transfer amount shall be $500,000. 

Where a counterparty to a covered swap 

entity owns two or more separately 

managed accounts, a minimum transfer 

amount of up to $50,000 may be applied 

for each separately managed account. 

* * * * * 

Separately managed account means 

an account of a counterparty to a 

covered swap entity that meets the 

following requirements: 

(1) The account is managed by an 

asset manager and governed by an 

investment management agreement, 

pursuant to which the counterparty 

grants the asset manager authority with 

respect to a specified amount of the 

counterparty’s assets; 

(2) Swaps are entered into between 

the counterparty and the covered swap 

entity by the asset manager on behalf of 

the account pursuant to authority 

granted by the counterparty through an 

investment management agreement; and 

(3) The swaps of such account are 

subject to a master netting agreement 

that does not provide for the netting of 

initial or variation margin obligations 

across all such accounts of the 

counterparty that have swaps 

outstanding with the covered swap 

entity. 

* * * * * 

■ 3. Amend § 23.152 by revising 

paragraph (b)(3) to read as follows: 

§ 23.152 Collection and posting of initial 

margin. 

* * * * * 

(b) * * * 

(3) Minimum transfer amount. A 

covered swap entity is not required to 

collect or to post initial margin pursuant 

to §§ 23.150 through 23.161 with respect 

to a particular counterparty unless and 

until the combined amount of initial 

margin and variation margin that is 

required pursuant to §§ 23.150 through 

23.161 to be collected or posted and that 

has not been collected or posted with 

respect to the counterparty is greater 

than the minimum transfer amount, as 

the term is defined in § 23.151. 

* * * * * 

■ 4. Amend § 23.153 by revising 

paragraph (c) to read as follows: 

§ 23.153 Collection and posting of 

variation margin. 

* * * * * 

(c) Minimum transfer amount. A 

covered swap entity is not required to 

collect or to post variation margin 

pursuant to §§ 23.150 through 23.161 

with respect to a particular counterparty 

unless and until the combined amount 

of initial margin and variation margin 


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6858 Federal Register / Vol. 86, No. 14 / Monday, January 25, 2021 / Rules and Regulations 

59Recommendations to Improve Scoping and 

Implementation of Initial Margin Requirements for 

Non-Cleared Swaps, Report to the CFTC’s Global 

Markets Advisory Committee by the Subcommittee 

on Margin Requirements for Non-Cleared Swaps 

(April 2020), available at https://www.cftc.gov/ 

media/3886/GMAC_

051920MarginSubcommitteeReport/download. 

60See generally BCBS/IOSCO, Margin 

requirements for non-centrally cleared derivatives 

(July 2019), available at https://www.bis.org/bcbs/ 

publ/d475.pdf. 

61Specifically, CEA Section 4s(j)(2), 7 U.S.C. 

6s(j)(2), requires swap dealers to adopt a robust risk 

management system adequate for the management 

of their swap activities, and CFTC Rule 23.600, 17 

CFR 23.600, requires swap dealers to establish a 

risk management program to monitor and manage 

risks associated with their swap activities. 

62Statement of Commissioner Dawn D. Stump 

Regarding Final Rule: Cross-Border Application of 

the Registration Thresholds and Certain 

Requirements Applicable to Swap Dealers and 

Major Swap Participants (July 23, 2020), available 

at https://www.cftc.gov/PressRoom/ 

SpeechesTestimony/stumpstatement072320. 

63CFTC Letter No. 17–12, Commission 

Regulations 23.152(b)(3) and 23.153(c): No-Action 

Position for Minimum Transfer Amount with 

respect to Separately Managed Accounts (February 

13, 2017), available at https://www.cftc.gov/idc/ 

groups/public/@lrlettergeneral/documents/letter/ 

17-12.pdf. 

that is required pursuant to §§ 23.150 

through 23.161 to be collected or posted 

and that has not been collected or 

posted with respect to the counterparty 

is greater than the minimum transfer 

amount, as the term is defined in 

§ 23.151. 

* * * * * 

■ 5. Amend § 23.158 by revising 

paragraph (a) to read as follows: 

§ 23.158 Margin documentation. 

(a) General requirement. Each covered 

swap entity shall execute 

documentation with each counterparty 

that complies with the requirements of 

§ 23.504 and that complies with this 

section, as applicable. For uncleared 

swaps between a covered swap entity 

and a counterparty that is a swap entity 

or a financial end user, the 

documentation shall provide the 

covered swap entity with the 

contractual right and obligation to 

exchange initial margin and variation 

margin in such amounts, in such form, 

and under such circumstances as are 

required by §§ 23.150 through 23.161. 

With respect to the minimum transfer 

amount, if a covered swap entity and a 

counterparty that is a swap entity or a 

financial end user agree to have separate 

minimum transfer amounts for initial 

and variation margin, the 

documentation shall specify the 

amounts to be allocated for initial 

margin and variation margin. Such 

amounts, on a combined basis, must not 

exceed the minimum transfer amount, 

as the term is defined in § 23.151. 

* * * * * 

Issued in Washington, DC, on December 9, 

2020, by the Commission. 

Robert Sidman, 

Deputy Secretary of the Commission. 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendices to Margin Requirements for 

Uncleared Swaps for Swap Dealers and 

Major Swap Participants—Voting 

Summary and Chairman’s and 

Commissioners’ Statements 

Appendix 1—Voting Summary 

On this matter, Chairman Tarbert and 

Commissioners Quintenz, Behnam, Stump, 

and Berkovitz voted in the affirmative. No 

Commissioner voted in the negative. 

Appendix 2—Supporting Statement of 

Commissioner Dawn D. Stump 

Overview 

I am pleased to support the final 

rulemaking that the Commission is adopting 

with respect to the ‘‘minimum transfer 

amount’’ provisions of its margin 

requirements for uncleared swaps. 

This rulemaking addresses 

recommendations that the Commission has 

received from its Global Markets Advisory 

Committee (‘‘GMAC’’), which I am proud to 

sponsor, and is based on a comprehensive 

report prepared by GMAC’s Subcommittee on 

Margin Requirements for Non-Cleared Swaps 

(‘‘GMAC Margin Subcommittee’’).59 It 

demonstrates the value added to the 

Commission’s policymaking by its Advisory 

Committees, in which market participants 

and other interested parties come together to 

provide us with their perspectives and 

potential solutions to practical problems. 

The rulemaking we are adopting makes 

two changes to the Commission’s uncleared 

margin rules, which have much to commend 

them—indeed, we did not receive any 

comment letters opposing them. These rule 

changes further objectives that I have 

commented on before: 

• The need to tailor our rules to assure that 

they are workable for those required to 

comply with them; and 

• the benefits of codifying relief that has 

been issued by our Staff and re-visiting our 

rules, where appropriate. 

A Different Universe Is Coming Into Scope 

of the Uncleared Margin Rules 

The Commission’s uncleared margin rules 

for swap dealers, like the Framework of the 

Basel Committee on Banking Supervision 

and the Board of the International 

Organization of Securities Commissions 

(‘‘BCBS/IOSCO’’) 60 on which they are based, 

were designed primarily to ensure the 

exchange of margin between the largest, most 

systemic, and interconnected financial 

institutions for their uncleared swap 

transactions with one another. Today, these 

institutions and transactions are subject to 

uncleared margin requirements that have 

taken effect since the rules were adopted. 

Pursuant to the phased implementation 

schedule of the Commission’s rules and the 

BCBS/IOSCO Framework, though, a different 

universe of market participants—presenting 

unique considerations—will soon be coming 

into scope of the margin rules. It is only now, 

as we enter the final phases of the 

implementation schedule, that the 

Commission’s uncleared margin rules will 

apply to a significant number of financial 

end-users, and we have a responsibility to 

make sure they are fit for that purpose. 

Accordingly, now is the time we must 

thoughtfully consider whether the regulatory 

parameters that we have designed for the 

largest financial institutions in the earlier 

phases of margin implementation need to be 

tailored to account for the practical and 

operational challenges posed by the exchange 

of margin when one of the counterparties is 

a pension plan, endowment, insurance 

provider, mortgage service provider, or other 

financial end-user. 

This rulemaking regarding the minimum 

transfer amount (‘‘MTA’’) does exactly that. 

The Commission’s uncleared margin rules 

provide that a swap dealer is not required to 

collect or post initial margin (‘‘IM’’) or 

variation margin (‘‘VM’’) with a counterparty 

until the combined amount of such IM and 

VM exceeds the MTA of $500,000. Yet, the 

application of the MTA presents a significant 

operational challenge for institutional 

investors that typically hire asset managers to 

exercise investment discretion over portions 

of their assets in separately managed 

accounts (‘‘SMAs’’) for purposes of 

diversification. As a practical matter, neither 

the owner of the SMA, the manager of the 

assets in the SMA, nor the swap dealer that 

is a counterparty to the SMA is in a position 

to readily determine when the MTA has been 

exceeded on an aggregate basis (or to assure 

that it is not). 

To address this challenge, the Commission 

is amending the definition of MTA in its 

margin rules to allow a swap dealer to apply 

an MTA of up to $50,000 to each SMA 

owned by a counterparty with which the 

swap dealer enters into uncleared swaps. As 

noted in the release, any potential increase in 

uncollateralized credit risk as a result would 

be mitigated both by the conditions set out 

in the rules we are adopting, as well as 

existing safeguards in the Commodity 

Exchange Act (‘‘CEA’’) and the Commission’s 

regulations.61

This is a sensible approach and an 

appropriate refinement to make the 

Commission’s uncleared margin rules 

workable for SMAs given the realities of the 

modern investment management 

environment. As I have stated before, no 

matter how well-intentioned a rule may be, 

if it is not workable, it cannot deliver on its 

intended purpose.62

The Benefits of Codifying Staff Relief and 

Re-Visiting Our Rules 

Application of MTA to SMAs: The rule 

change that I have discussed above regarding 

the application of the MTA to SMAs would 

codify no-action relief in Letter No. 17–12 

that our Staff issued in 2017.63 The 

Commission’s Staff often has occasion to 

issue relief or take other action in the form 


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Federal Register / Vol. 86, No. 14 / Monday, January 25, 2021 / Rules and Regulations 6859 

64See comments of Commissioner Dawn D. 

Stump during Open Commission Meeting on 

January 30, 2020, at 183 (noting that after several 

years of no-action relief regarding trading on swap 

execution facilities (‘‘SEFs’’), ‘‘we have the benefit 

of time and experience and it is time to think about 

codifying some of that relief. . . . [T]he SEFs, the 

market participants, and the Commission have 

benefited from this time and we have an obligation 

to provide more legal certainty through codifying 

these provisions into rules.’’), available at https:// 

www.cftc.gov/sites/default/files/2020/08/ 

1597339661/openmeeting_013020_Transcript.pdf. 

65Statement of Commissioner Dawn D. Stump for 

CFTC Open Meeting on: (1) Final Rule on Position 

Limits and Position Accountability for Security 

Futures Products; and (2) Proposed Rule on Public 

Rulemaking Procedures (Part 13 Amendments) 

(September 16, 2019), available at https://

www.cftc.gov/PressRoom/SpeechesTestimony/ 

stumpstatement091619. 

66CFTC Letter No. 19–25, Commission 

Regulations 23.151, 23.152, and 23.153—Staff 

Time-Limited No-Action Position Regarding 

Application of Minimum Transfer Amount under 

the Uncleared Margin Rules (December 6, 2019), 

available at https://www.cftc.gov/csl/19-25/ 

download. 

67Under the Commission’s uncleared margin 

rules, IM posted or collected by a swap dealer must 

be held by one or more custodians that are not 

affiliated with the swap dealer or the counterparty, 

whereas VM posted or collected by a swap dealer 

is not required to be segregated with an 

independent custodian. See 17 CFR 23.157. 

1Margin Requirements for Uncleared Swaps for 

Swap Dealers and Major Swap Participants, 81 FR 

636 (Jan. 6, 2016) (‘‘Margin Rule’’). 

2Although addressed in the final rules, there are 

currently no registered MSPs. 

3Section 4s(e) of the Commodity Exchange Act 

(‘‘CEA’’), as amended by the Dodd-Frank Act, 

requires the Commission to adopt rules for 

minimum initial and variation margin for uncleared 

swaps entered into by SDs and MSPs for which 

there is no prudential regulator. 

4BCBS/IOSCO, Margin requirements for noncentrally cleared derivatives (July 2019), available 

at https://www.bis.org/bcbs/publ/d475.pdf. The 

BCBS/IOSCO framework was originally 

promulgated in 2013 and later revised in 2015. 

5Recommendations to Improve Scoping and 

Implementation of Initial Margin Requirements for 

Non-Cleared Swaps, Report to the CFTC’s Global 

Markets Advisory Committee by the Subcommittee 

on Margin Requirements for Non-Cleared Swaps 

(Apr. 2020), available at https://www.cftc.gov/ 

media/3886/GMAC_

051920MarginSubcommitteeReport/download. 

6See Margin Rule, 81 FR at 645. 

of no-action letters, interpretative letters, or 

advisories on various issues and in various 

circumstances. This affords the Commission 

a chance to observe how the Staff action 

operates in real-time, and to evaluate lessons 

learned. With the benefit of this time and 

experience, the Commission should then 

consider whether codifying such Staff action 

into rules is appropriate.64

As I have said before, ‘‘[i]t is simply good 

government to re-visit our rules and assess 

whether certain rules need to be updated, 

evaluate whether rules are achieving their 

objectives, and identify rules that are falling 

short and should be withdrawn or 

improved.’’ 65 Experience with the Staff noaction relief in Letter No. 17–12 supports our 

rule change to tailor the application of the 

MTA under the Commission’s uncleared 

margin rules in the SMA context. 

Separate MTAs for IM and VM: The second 

rule change regarding the MTA that we are 

adopting similarly would codify existing 

Staff no-action relief in recognition of market 

realities. Consistent with Staff no-action 

Letter No. 19–25,66 it would recognize that a 

swap dealer may apply separate MTAs for IM 

and VM with each counterparty, provided 

that the MTAs corresponding to IM and VM 

are specified in the margin documentation 

required under the Commission’s regulations, 

and that the MTAs, on a combined basis, do 

not exceed the prescribed MTA. 

Staff’s no-action relief, and the 

Commission’s rule amendments to codify 

that relief, take into account the separate 

settlement workflows that swap 

counterparties maintain to reflect, from an 

operational perspective, the different 

regulatory treatment of IM and VM.67 And 

given that the total amount of combined IM 

and VM exchanged would not exceed the 

prescribed MTA, separate MTAs for IM and 

VM would not materially increase the 

amount of credit risk at a given time. Under 

Letter No. 19–25 and this codification, swap 

dealers and their counterparties can manage 

MTA in an operationally practicable way that 

aligns with the market standard. 

There Remains Unfinished Business 

While I am pleased with the steps the 

Commission is taking, there remains 

unfinished business in the implementation of 

uncleared margin requirements. The report of 

the GMAC Margin Subcommittee 

recommended several actions, beyond those 

that we are adopting, to address the hurdles 

associated with the application of uncleared 

margin requirements to end-users. Having 

been present for the development of the 

Dodd-Frank Act, I recall that the concerns 

expressed by many lawmakers at the time 

focused on the application of the new 

requirements to end-users. The unique 

challenges with respect to uncleared margin 

that caused uneasiness back in 2009–2010 

are now much more immediate as the margin 

requirements are being phased in to apply to 

these end-users. As the calendar turns into 

the new year, I look forward to continuing to 

work together to address the other 

recommendations included in the GMAC 

Margin Subcommittee’s report regarding 

applying the uncleared margin rules to 

financial end-users. The need to do so will 

only become more urgent as time marches 

on. 

Conclusion 

To be clear, these changes to the uncleared 

margin rules are not a ‘‘roll-back’’ of the 

margin requirements that apply today to the 

largest financial institutions in their swap 

transactions with one another. Rather, they 

reflect a thoughtful refinement of our rules to 

take account of specific circumstances in 

which the rules impose substantial practical 

and operational challenges (i.e., they are not 

workable) when applied to financial endusers that are now coming within the scope 

of their mandates. 

I am very appreciative of the many people 

whose efforts have contributed to bringing 

this rulemaking to fruition. First, the 

members of the GMAC, and especially the 

GMAC Margin Subcommittee, who devoted a 

tremendous amount of time to provide us 

with a high-quality report on complex margin 

issues during the turmoil at the start of the 

pandemic. Second, Chairman Tarbert and my 

fellow Commissioners for working with me 

on these important issues. And finally, the 

Staff of the Market Participants Division, 

whose tireless efforts have enabled us to 

advance these initiatives to assure that our 

uncleared margin rules are workable for all, 

thereby enhancing compliance consistent 

with our oversight responsibilities under the 

CEA. 

Appendix 3—Statement of Commissioner 

Dan M. Berkovitz 

I. Introduction 

I support today’s two final rules that make 

tailored amendments to the CFTC’s Margin 

Rule.1 The Margin Rule requires swap 

dealers (‘‘SDs’’) and major swap participants 

(‘‘MSPs’’) for which there is no prudential 

regulator to post and collect, each business 

day, initial and variation margin for 

uncleared swap transactions with each 

counterparty that is an SD, MSP, or a 

financial end user with material swaps 

exposure (‘‘MSE’’).2 The Margin Rule is a 

lynchpin of the Dodd-Frank reforms for 

swaps markets, and critical to mitigating 

risks in the financial system that might 

otherwise arise from uncleared swaps.3 I 

support the final rules because they provide 

targeted, operational improvements to the 

Margin Rule; include backstops to deter any 

potential abuse; and are unlikely to increase 

risk to the U.S. financial system. 

The two final rules address: (1) The 

definition of MSE and an alternative method 

for calculating initial margin (‘‘MSE and 

Initial Margin Final Rule’’); and (2) the 

application of the minimum transfer amount 

(‘‘MTA’’) for initial and variation margin 

(‘‘MTA Final Rule’’). The final rules align 

Commission requirements with international 

frameworks developed by the Basel 

Committee on Banking Supervision and the 

International Organization of Securities 

Commissions (‘‘BCBS/IOSCO’’),4 and 

incorporate recommendations made to the 

CFTC’s Global Markets Advisory 

Committee.5 The final rules also build off 

existing CFTC staff no-action letters that in 

some cases have been in place since 2017, 

and that have operated with no apparent 

detrimental effects. 

II. MSE and Initial Margin Final Rule 

The MSE and Initial Margin Final Rule 

amends the definition of MSE to align it with 

the BCBS/IOSCO framework, including the 

method for calculating the average daily 

aggregate notional amount (‘‘AANA’’) of 

swaps. The final rule provides for 

calculations based on the average of the last 

business day in each month of a three-month 

period. The Commission previously raised 

concerns that this method of AANA 

calculation could potentially become less 

representative of an entity’s true AANA and 

swaps exposure, potentially through the use 

of ‘‘window dressing’’ to artificially reduce 

AANA during the measurement period.6

The MSE and Initial Margin Final Rule 

includes an important new provision to 


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6860 Federal Register / Vol. 86, No. 14 / Monday, January 25, 2021 / Rules and Regulations 

7MSE and Initial Margin Final Rule at new 

§ 23.151 (defining ‘‘Material Swaps Exposure’’). 

8The preamble to the MSE and Initial Margin 

Final Rule also notes an analysis by the CFTC’s 

Office of the Chief Economist indicating that the 

new month-end AANA calculation method captures 

substantially the same entities and total number of 

entities as the Commission’s previous daily AANA 

calculation method. As with any rulemaking, the 

Commission is free in the future to periodically 

review its data and confirm that the new AANA 

calculation method is performing as expected. 

9 7 U.S.C. 6a(c)(2). 

10MSE and Initial Margin Final Rule at section 

II(B). 

11 17 CFR 23.151. 

12Both aspects of the MTA Final Rule were the 

subject of CFTC staff no-action letters issued in 

2017 and 2019, respectively. 

address this issue. The final rule explicitly 

prohibits any ‘‘[a]ctivities not carried out in 

the regular course of business and willfully 

designed to circumvent calculation at monthend to evade meeting the definition of 

material swaps exposure . . . .’’ 7 The 

addition of this language to the final rule’s 

regulatory text will help ensure that CFTC 

efforts at international harmonization will 

not come at the expense of the safety and 

soundness of the U.S. financial system.8 I 

thank the Chairman and the CFTC staff for 

working with my office to include this 

provision. 

The MSE and Initial Margin Final Rule will 

also allow SDs and MSPs for which there is 

no prudential regulator (‘‘Covered Swap 

Entities’’ or ‘‘CSEs’’) to rely on the initial 

margin calculations of the more sophisticated 

counterparties with whom they transact 

swaps to manage their risks. This flexibility 

is limited to circumstances where a CSE 

enters into uncleared swaps with an SD, 

MSP, or swap entity to hedge its customerfacing swaps. This amendment to the 

Commission’s existing rules could help 

promote liquidity and competition in swaps 

markets by increasing choice for end-users 

that are CSE customers. 

The MSE and Initial Margin Final Rule 

provides helpful direction regarding the 

scope of hedging swaps for purposes of 

relying on a CSE counterparty’s initial 

margin calculations. As set forth in the 

preamble to the final rule, a hedging swap 

must be consistent (although not identical) 

with the statutory definition of ‘‘bona fide 

hedging transaction or position’’ in CEA 

section 4a(c)(2)(B).9 The final rule also makes 

clear that existing Commission regulations 

require a CSE that relies on its counterparty’s 

initial margin calculations to also take steps 

to ‘‘monitor, identify, and address potential 

shortfalls in the amounts of [initial margin] 

generated by the counterparty on whose 

[initial margin] model the CSE is relying.’’ 10

III. MTA Final Rule 

To reduce operational burdens associated 

with de minimis margin transfers, the Margin 

Rule provides that a CSE is not required to 

collect or post margin until the combined 

amount of initial margin and variation 

margin that is required to be collected or 

posted and that has not been collected or 

posted with respect to the counterparty 

exceeds $500,000—the MTA.11 This MTA 

level, in part, helps limit the amount of a 

counterparty’s uncollateralized, uncleared 

swaps exposure and mitigate any systemic 

risk arising from such swaps. 

The MTA Final Rule addresses the 

application of the $500,000 MTA level to a 

counterparty’s ‘‘separately managed 

accounts,’’ as well as the use of separate 

MTAs for initial and variation margin.12 The 

MTA Final Rule codifies separate treatment 

for separately managed accounts and permits 

an MTA of $50,000 for each such account of 

a counterparty. This approach responds to 

practical limits on the ability of asset 

managers, for example, to aggregate initial 

and variation margin obligations across 

multiple separately managed accounts owned 

by the same counterparty. The MTA Final 

Rule also provides that if certain entities 

agree to separate MTAs for initial margin and 

variation margin, the respective amounts of 

MTA must be reflected in their required 

margin documentation. 

These new provisions balance concerns 

over operational inefficiencies and practical 

challenges in the Commission’s MTA rules 

against concerns that they may result in the 

exchange of less total margin than would be 

the case under the Commission’s current 

requirements. Comments in response to the 

proposed rule noted the difficulties that 

would be associated with creating numerous 

separately managed accounts solely to evade 

the comparatively low $50,000 MTA for 

separately managed accounts. The MTA 

Final Rule also defines separately managed 

account so that the swaps of such account are 

not subject to a netting of initial or variation 

margin obligations. This potentially provides 

further disincentive to create separately 

managed accounts solely for the purpose of 

evading the $50,000 MTA level for such 

accounts. 

IV. Conclusion 

Mitigating systemic risk to the U.S. 

financial system was a primary objective of 

the Dodd-Frank Act in 2010, and of 

subsequent Commission rulemakings to 

implement Dodd-Frank, including the 

Margin Rule adopted in 2016. The 

Commission must remain committed to the 

Margin Rule and vigilant for any large pool 

of uncollateralized, uncleared swaps 

exposure. Today’s targeted final rules, which 

codify existing practices, include embedded 

backstops, and provide tailored operational 

enhancements to the Margin Rule, are 

unlikely to present systemic risks. 

I thank staff of the Market Participants 

Division for their work on these final rules. 

[FR Doc. 2020–27508 Filed 1–22–21; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF COMMERCE 

National Oceanic and Atmospheric 

Administration 

50 CFR Part 679 

[Docket No. 200221–0062; RTID 0648– 

XA805] 

Fisheries of the Exclusive Economic 

Zone Off Alaska; Pacific Cod by 

Catcher Vessels Using Trawl Gear in 

the Western Regulatory Area of the 

Gulf of Alaska 

AGENCY: National Marine Fisheries 

Service (NMFS), National Oceanic and 

Atmospheric Administration (NOAA), 

Commerce. 

ACTION: Temporary rule; modification of 

closure. 

SUMMARY: NMFS is opening directed 

fishing for Pacific cod by catcher vessels 

using trawl gear in the Western 

Regulatory Area of the Gulf of Alaska 

(GOA). This action is necessary to fully 

use the A season allowance of the 2021 

total allowable catch (TAC) of Pacific 

cod by catcher vessels using trawl gear 

in the Western Regulatory Area of the 

GOA. 

DATES: Effective 1200 hrs, Alaska local 

time (A.l.t.), January 20, 2021, through 

1200 hrs, A.l.t., June 10, 2021. 

Comments must be received at the 

following address no later than 4:30 

p.m., A.l.t., February 3, 2021. 

ADDRESSES: Submit your comments, 

identified by NOAA–NMFS–2019–0102 

by any of the following methods: 

• Federal e-Rulemaking Portal: Go to 

www.regulations.gov/ 

#!docketDetail;D=NOAA-NMFS-2019- 

0102, click the ‘‘Comment Now!’’ icon, 

complete the required fields, and enter 

or attach your comments. 

• Mail: Submit written comments to 

Glenn Merrill, Assistant Regional 

Administrator, Sustainable Fisheries 

Division, Alaska Region NMFS, Attn: 

Records. Mail comments to P.O. Box 

21668, Juneau, AK 99802–1668. 

Instructions: NMFS may not consider 

comments if they are sent by any other 

method, to any other address or 

individual, or received after the 

comment period ends. All comments 

received are a part of the public record, 

and NMFS will post the comments for 

public viewing on www.regulations.gov 

without change. All personal identifying 

information (e.g., name, address), 

confidential business information, or 

otherwise sensitive information 

submitted voluntarily by the sender will 

be publicly accessible. NMFS will 

accept anonymous comments (enter 


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