48394 Federal Register / Vol. 82, No. 200 / Wednesday, October 18, 2017 / Rules and Regulations 

1 7 U.S.C. 1 et seq. 

2See 7 U.S.C. 6s(e)(1)(B). SDs and MSPs for 

which there is a Prudential Regulator must meet the 

margin requirements for uncleared swaps 

established by the applicable Prudential Regulator. 

7 U.S.C. 6s(e)(1)(A). See also 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 

Prudential Regulators published final margin 

requirements in November 2015. See Margin and 

Capital Requirements for Covered Swap Entities, 80 

FR 74840 (Nov. 30, 2015) (‘‘Prudential Regulators’ 

Final Margin Rule’’). 

3See Margin Requirements for Uncleared Swaps 

for Swap Dealers and Major Swap Participants, 81 

FR 636 (Jan. 6, 2016). The Final Margin Rule, which 

became effective April 1, 2016, is codified in part 

23 of the Commission’s regulations. See §§ 23.150— 

23.159 and 23.161. The Commission’s regulations 

are found in Chapter I of Title 17 of the Code of 

Federal Regulations, 17 CFR parts 1 through 199. 

4See 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). The 

Cross-Border Margin Rule, which became effective 

August 1, 2016, is codified in part 23 of the 

Commission’s regulations. See § 23.160. 

Issued in Renton, Washington, on October 

12, 2017. 

Victor Wicklund, 

Manager, Transport Standards Branch, Policy 

and Innovation Division, Aircraft 

Certification Service. 

[FR Doc. 2017–22544 Filed 10–17–17; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 25 

[Docket No. FAA–2015–6359; Special 

Conditions No. 25–633–SC] 

Special Conditions: Bombardier Inc. 

Model BD–700–2A12 and BD–700– 

2A13 Airplanes; Airplane ElectronicSystem Security Protection From 

Unauthorized Internal Access 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final special conditions; 

correction. 

SUMMARY: This document corrects an 

error that appeared in Docket No. FAA– 

2015–6359, Special Conditions No. 25– 

633–SC, which was published in the 

Federal Register on August 22, 2016. 

The error is an incorrect word in the 

title of the final special conditions 

document. 

DATES: The effective date of this 

correction is October 18, 2017. 

FOR FURTHER INFORMATION CONTACT: 

Varun Khanna, FAA, Airplane and 

Flight Crew Interface, AIR–671, Aircraft 

Certification Service, 1601 Lind Avenue 

SW., Renton, Washington 98057–3356; 

telephone 425–227–1298; facsimile 

425–227–1149. 

SUPPLEMENTARY INFORMATION: 

Background 

On August 22, 2016, the Federal 

Register published a document 

designated as Docket No. FAA–2015– 

6359, Final Special Conditions No. 25– 

633–SC (81 FR 56474). The document 

issued special conditions pertaining to 

system security to protect against 

unauthorized access to digital systems 

architecture composed of several 

connected data networks that will have 

the capability to allow connectivity of 

the passenger-service computer systems 

to the airplane critical systems and data 

networks. As published, the document 

contained an error in the title of the 

special conditions document, stating 

‘‘Authorized’’ where ‘‘Unauthorized’’ is 

correct. 

Correction 

In the final special conditions 

document (FR Doc. 2016–19994), 

published on August 22, 2016 (81 FR 

56474), make the following correction. 

On page 56474, first column, the 

special conditions title is corrected to 

read: 

Special Conditions: Bombardier Inc. 

Model BD–700–2A12 and BD–700– 

2A13 Airplanes; Airplane ElectronicSystem Security Protection from 

Unauthorized Internal Access 

Issued in Renton, Washington, on October 

12, 2017. 

Victor Wicklund, 

Manager, Transport Standards Branch, Policy 

and Innovation Division, Aircraft 

Certification Service. 

[FR Doc. 2017–22525 Filed 10–17–17; 8:45 am] 

BILLING CODE 4910–13–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Chapter I 

Comparability Determination for the 

European Union: Margin Requirements 

for Uncleared Swaps for Swap Dealers 

and Major Swap Participants 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notification of determination. 

SUMMARY: The following is the analysis 

and determination of the Commodity 

Futures Trading Commission 

(‘‘Commission’’) regarding a request by 

the European Commission (‘‘EC’’) that 

the Commission determine that laws 

and regulations applicable in the 

European Union (‘‘EU’’) provide a 

sufficient basis for an affirmative 

finding of comparability with respect to 

margin requirements for uncleared 

swaps applicable to certain swap 

dealers (‘‘SDs’’) and major swap 

participants (‘‘MSPs’’) registered with 

the Commission. As discussed in detail 

herein, the Commission has found the 

margin requirements for uncleared 

swaps under the laws and regulations of 

the EU comparable in outcome to those 

under the Commodity Exchange Act 

(‘‘CEA’’) and Commission regulations. 

DATES: This determination was made 

and issued by the Commission on 

October 13, 2017. 

FOR FURTHER INFORMATION CONTACT: 

Matthew Kulkin, Director, 202–418– 

5213, mkulkin@cftc.gov, or Katherine S. 

Driscoll, Associate Chief Counsel, 202– 

418–5544, kdriscoll@cftc.gov, Division 

of Swap Dealer and Intermediary 

Oversight, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Introduction 

Pursuant to section 4s(e) of the CEA,1

the Commission is required to 

promulgate margin requirements for 

uncleared swaps applicable to each SD 

and MSP for which there is no 

Prudential Regulator (collectively, 

‘‘Covered Swap Entities’’ or ‘‘CSEs’’).2

The Commission published final margin 

requirements for such CSEs in January 

2016 (the ‘‘Final Margin Rule’’).3

Subsequently, on May 31, 2016, the 

Commission published in the Federal 

Register its final rule with respect to the 

cross-border application of the 

Commission’s margin requirements for 

uncleared swaps applicable to CSEs 

(hereinafter, the ‘‘Cross-Border Margin 

Rule’’).4 The Cross-Border Margin Rule 

sets out the circumstances under which 

a CSE is allowed to satisfy the 

requirements under the Final Margin 

Rule by complying with comparable 

foreign margin requirements 

(‘‘substituted compliance’’); offers 

certain CSEs a limited exclusion from 

the Commission’s margin requirements; 

and outlines a framework for assessing 

whether a foreign jurisdiction’s margin 

requirements are comparable in 

outcome to the Final Margin Rule 

(‘‘comparability determinations’’). The 

Commission promulgated the CrossBorder Margin Rule after close 

consultation with the Prudential 

Regulators and in light of comments 


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5 In 2014, in conjunction with re-proposing its 

margin requirements, the Commission requested 

comment on three alternative approaches to the 

cross-border application of its margin requirements: 

(i) A transaction-level approach consistent with the 

Commission’s guidance on the cross-border 

application of the CEA’s swap provisions, see 

Interpretive Guidance and Policy Statement 

Regarding Compliance with Certain Swap 

Regulations, 78 FR 45292 (July 26, 2013) (the 

‘‘Guidance’’); (ii) an approach consistent with the 

Prudential Regulators’ proposed cross-border 

framework for margin, see Margin and Capital 

Requirements for Covered Swap Entities, 79 FR 

57348 (Sept. 24, 2014); and (iii) an entity-level 

approach that would apply margin rules on a firmwide basis (without any exclusion for swaps with 

non-U.S. counterparties). See Margin Requirements 

for Uncleared Swaps for Swap Dealers and Major 

Swap Participants, 79 FR 59898 (Oct. 3, 2014). 

Following a review of comments received in 

response to this release, the Commission’s Global 

Markets Advisory Committee (‘‘GMAC’’) hosted a 

public panel discussion on the cross-border 

application of margin requirements. See GMAC 

Meeting (May 14, 2015), transcript and webcast 

available at http://www.cftc.gov/PressRoom/Events/ 

opaevent_gmac051415. 

6The Commission understands that competent 

authorities in the individual EU Member States 

have direct supervisory authority over CSEs in their 

respective Member State with respect to the EU 

margin requirements (as defined below) and are 

responsible for administering those margin 

requirements. Nevertheless, given that the EU 

comprises the Member States and the EU margin 

requirements are directly applicable in the Member 

States, the Commission recognizes the EC as the 

relevant foreign regulatory authority for purposes of 

§ 23.160(c)(1)(ii). 

7See 7 U.S.C. 6s(e)(3)(A). 

8See Final Margin Rule, 81 FR 689. 

9 In determining the extent to which the DoddFrank swap provisions apply to activities overseas, 

the Commission strives to protect U.S. interests, as 

determined by Congress in Title VII, and minimize 

conflicts with the laws of other jurisdictions, 

consistent with principles of international comity. 

See Guidance, 78 FR 45300–45301 (referencing the 

Restatement (Third) of Foreign Relations Law of the 

United States). 

10 In October 2011, the Basel Committee on 

Banking Supervision (‘‘BCBS’’) and the 

International Organization of Securities 

Commissions (‘‘IOSCO’’), in consultation with the 

Committee on Payment and Settlement Systems and 

the Committee on Global Financial Systems, formed 

a Working Group on Margining Requirements to 

develop international standards for margin 

requirements for uncleared swaps. Representatives 

of 26 regulatory authorities participated, including 

the Commission. In September 2013, the Working 

Group on Margin Requirements published a final 

report articulating eight key principles for noncleared derivatives margin rules. These principles 

represent the minimum standards approved by 

BCBS and IOSCO and their recommendations to the 

regulatory authorities in member jurisdictions. See 

BCBS/IOSCO, Margin requirements for noncentrally cleared derivatives (updated March 2015) 

(‘‘BCBS/IOSCO Framework’’), available at http://

www.bis.org/bcbs/publ/d317.pdf. 

11See § 23.160(c)(1)(i). 

12See § 23.160(c)(1)(ii). 

13See § 23.160(c)(2)(v). 

14See § 23.160(c)(2)(i). 

15See § 23.160(c)(2)(iii). See also § 23.160(a)(3) 

(defining ‘‘international standards’’ as based on the 

BCBS–ISOCO Framework). 

16See 17 CFR 23.160(c)(2)(ii) (identifying 12 

particular elements of the Commission’s margin 

requirements). Section 23.160(c)(2)(ii) largely tracks 

the elements of the BCBS/IOSCO Framework but 

breaks them down into their components as 

appropriate to ensure ease of application. 

17See id. 

18See § 23.160(c)(3)(i). 

from and discussions with market 

participants and foreign regulators.5

On November 22, 2016, the EC (the 

‘‘applicant’’) submitted a request that 

the Commission determine that laws 

and regulations applicable in the EU 

provide a sufficient basis for an 

affirmative finding of comparability 

with respect to the Final Margin Rule.6

The Commission’s analysis and 

comparability determination for the EU 

regarding the Final Margin Rule is 

detailed below. 

II. Cross-Border Margin Rule 

A. Regulatory Objective of Margin 

Requirements 

The regulatory objective of the Final 

Margin Rule is to further the 

congressional mandate to ensure the 

safety and soundness of CSEs in order 

to offset the greater risk to CSEs and the 

financial system arising from the use of 

swaps that are not cleared.7 As the 

Commission has previously stated, the 

primary function of margin is to protect 

a CSE from counterparty default, 

allowing it to absorb losses and 

continue to meet its obligations using 

collateral provided by the defaulting 

counterparty. While the requirement to 

post margin protects the counterparty in 

the event of the CSE’s default, it also 

functions as a risk management tool, 

limiting the amount of leverage a CSE 

can utilize by requiring that it have 

adequate eligible collateral to enter into 

an uncleared swap. In this way, margin 

serves as a first line of defense not only 

in protecting the CSE but in containing 

the amount of risk in the financial 

system as a whole, reducing the 

potential for contagion arising from 

uncleared swaps.8

However, the global nature of the 

swap market, coupled with the 

interconnectedness of market 

participants, also necessitate that the 

Commission recognize the supervisory 

interests of foreign regulatory 

authorities and consider the impact of 

its choices on market efficiency and 

competition, which the Commission 

believes are vital to a well-functioning 

global swap market.9 Foreign 

jurisdictions are at various stages of 

implementing margin reforms. To the 

extent that other jurisdictions adopt 

requirements with different coverage or 

timelines, the Commission’s margin 

requirements may lead to competitive 

burdens for U.S. entities and deter nonU.S. persons from transacting with U.S. 

CSEs and their affiliates overseas. 

B. Substituted Compliance 

To address these concerns, the CrossBorder Margin Rule provides that, 

subject to certain findings and 

conditions, a CSE is permitted to satisfy 

the requirements of the Final Margin 

Rule by complying with the margin 

requirements in the relevant foreign 

jurisdiction. This substituted 

compliance regime is intended to 

address the concerns discussed above 

without compromising the 

congressional mandate to protect the 

safety and soundness of CSEs and the 

stability of the U.S. financial system. 

Substituted compliance helps preserve 

the benefits of an integrated, global 

swap market by reducing the degree to 

which market participants will be 

subject to multiple sets of regulations. 

Further, substituted compliance builds 

on international efforts to develop a 

global margin framework.10

Pursuant to the Cross-Border Margin 

Rule, any CSE that is eligible for 

substituted compliance under 

§ 23.160 11 and any foreign regulatory 

authority that has direct supervisory 

authority over one or more CSEs and 

that is responsible for administering the 

relevant foreign jurisdiction’s margin 

requirements may apply to the 

Commission for a comparability 

determination.12

The Cross-Border Margin Rule 

requires that applicants for a 

comparability determination provide 

copies of the relevant foreign 

jurisdiction’s margin requirements 13

and descriptions of their objectives,14

how they differ from the BCBS/IOSCO 

Framework,15 and how they address the 

elements of the Commission’s margin 

requirements.16 The applicant must 

identify the specific legal and regulatory 

provisions of the foreign jurisdiction’s 

margin requirements that correspond to 

each element and, if necessary, whether 

the relevant foreign jurisdiction’s 

margin requirements do not address a 

particular element.17

C. Standard of Review for Comparability 

Determinations 

The Cross-Border Margin Rule 

identifies certain key factors that the 

Commission will consider in making a 

comparability determination. 

Specifically, the Commission will 

consider the scope and objectives of the 

relevant foreign jurisdiction’s margin 

requirements; 18 whether the relevant 

foreign jurisdiction’s margin 

requirements achieve comparable 

outcomes to the Commission’s 


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19See § 23.160(c)(3)(ii). As discussed above, the 

Commission’s Final Margin Rule is based on the 

BCBS/IOSCO Framework; therefore, the 

Commission expects that the relevant foreign 

margin requirements would conform to such 

Framework at minimum in order to be deemed 

comparable to the Commission’s corresponding 

margin requirements. 

20See § 23.160(c)(3)(iii). See also 

§ 23.160(c)(3)(iv) (indicating the Commission would 

also consider any other relevant facts and 

circumstances). 

21The Final Margin Rule was modified 

substantially from its proposed form to further align 

the Commission’s margin requirements with the 

BCBS/IOSCO Framework and, as a result, the 

potential for conflict with foreign margin 

requirements should be reduced. For example, the 

Final Margin Rule raised the material swaps 

exposure level from $3 billion to the BCBS/IOSCO 

standard of $8 billion, which reduces the number 

of entities that must collect and post initial margin. 

See Final Margin Rule, 81 FR at 644. In addition, 

the definition of uncleared swap was amended to 

not include swaps cleared by derivatives clearing 

organizations that are not registered with the 

Commission but pursuant to Commission orders are 

permitted to clear for U.S. persons. See id. at 638. 

The Commission notes, however, that the BCBS/ 

IOSCO Framework leaves certain elements open to 

interpretation (e.g., the definition of ‘‘derivative’’) 

and expressly invites regulators to build on certain 

principles as appropriate. See, e.g., Element 4 

(eligible collateral) (national regulators should 

‘‘develop their own list of eligible collateral assets 

based on the key principle, taking into account the 

conditions of their own markets’’); Element 5 

(initial margin) (the degree to which margin should 

be protected would be affected by ‘‘the local 

bankruptcy regime, and would vary across 

jurisdictions’’); Element 6 (transactions with 

affiliates) (‘‘Transactions between a firm and its 

affiliates should be subject to appropriate regulation 

in a manner consistent with each jurisdiction’s legal 

and regulatory framework.’’). 

22See 17 CFR 23.160(c)(5). 

23Under Commission regulations 23.203 and 

23.606, CSEs must maintain all records required by 

the CEA and the Commission’s regulations in 

accordance with Commission regulation 1.31 and 

keep them open for inspection by representatives of 

the Commission, the U.S. Department of Justice, or 

any applicable prudential regulator. See 17 CFR 

23.203, 23.606. The Commission further expects 

that prompt access to books and records and the 

ability to inspect and examine a non-U.S. CSE will 

be a condition to any comparability determination. 

24The Commission notes that finalized rules of 

the foreign jurisdiction must be in full force and 

effect before a CSE may rely on this comparability 

determination for purposes of substituted 

compliance. 

25 ‘‘Swaps activities’’ is defined in Commission 

regulation 23.600(a)(7) to mean, ‘‘with respect to a 

registrant, such registrant’s activities related to 

swaps and any product used to hedge such swaps, 

including, but not limited to, futures, options, other 

swaps or security-based swaps, debt or equity 

securities, foreign currency, physical commodities, 

and other derivatives.’’ The Commission’s 

regulations under 17 CFR part 23 are limited in 

scope to the swaps activities of CSEs. 

26No CSE that is not legally required to comply 

with a law or regulation determined to be 

comparable may voluntarily comply with such law 

or regulation in lieu of compliance with the CEA 

and the relevant Commission regulation. Each CSE 

that seeks to rely on a comparability determination 

is responsible for determining whether it is subject 

to the laws and regulations found comparable. 

27The Commission has provided the relevant 

foreign regulator(s) with opportunities to review 

and correct the applicant’s description of such laws 

and regulations on which the Commission will base 

its comparability determination. The Commission 

relies on the accuracy and completeness of such 

review and any corrections received in making its 

comparability determinations. A comparability 

determination based on an inaccurate description of 

foreign laws and regulations may not be valid. 

28 78 FR 45345. 

29Regulation No. 2016/2251 of October 4, 2016 

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 Risk-Mitigation Techniques 

for OTC Derivative Contracts Not Cleared by a 

Central Counterparty (as corrected by Commission 

Delegated Regulation (EU) 2017/323 of January 20, 

2017). Regulation (EU) No 648/2012 of the 

European Parliament and the Council of July 4, 

2012 is more commonly known as the European 

Market Infrastructure Regulation or ‘‘EMIR.’’ 

corresponding margin requirements; 19

and the ability of the relevant regulatory 

authority or authorities to supervise and 

enforce compliance with the relevant 

foreign jurisdiction’s margin 

requirements.20

This process reflects an outcomesbased approach to assessing the 

comparability of a foreign jurisdiction’s 

margin requirements. Instead of 

demanding strict uniformity with the 

Commission’s margin requirements, the 

Commission evaluates the objectives 

and outcomes of the foreign margin 

requirements in light of foreign 

regulator(s)’ supervisory and 

enforcement authority. Recognizing that 

jurisdictions may adopt different 

approaches to achieving the same 

outcome, the Commission will focus on 

whether the foreign jurisdiction’s 

margin requirements are comparable to 

the Commission’s in purpose and effect, 

not whether they are comparable in 

every aspect or contain identical 

elements. 

In keeping with the Commission’s 

commitment to international 

coordination on margin requirements 

for uncleared derivatives, the 

Commission believes that the standards 

it has established are fully consistent 

with the BCBS/IOSCO Framework.21

Accordingly, where relevant to the 

Commission’s comparability analysis, 

the BCBS/IOSCO Framework is 

discussed to explain certain 

internationally agreed upon concepts. 

The Cross-Border Margin Rule 

provided a detailed discussion 

regarding the facts and circumstances 

under which substituted compliance for 

the requirements under the Final 

Margin Rule would be available and 

such discussion is not repeated here. 

CSEs seeking to rely on substituted 

compliance based on the comparability 

determinations contained herein are 

responsible for determining whether 

substituted compliance is available 

under the Cross-Border Margin Rule 

with respect to the CSE’s particular 

status and circumstances. 

D. Conditions to Comparability 

Determinations 

The Cross-Border Margin Rule 

provides that the Commission may 

impose terms and conditions it deems 

appropriate in issuing a comparability 

determination.22 Specific terms and 

conditions with respect to margin 

requirements are discussed in the 

Commission’s determinations detailed 

below. 

As a general condition to all 

determinations, however, the 

Commission requires notification of any 

material changes to information 

submitted to the Commission by the 

applicant in support of a comparability 

finding, including, but not limited to, 

changes in the relevant foreign 

jurisdiction’s supervisory or regulatory 

regime. The Commission also expects 

that the relevant foreign regulator will 

enter into, or will have entered into, an 

appropriate memorandum of 

understanding or similar arrangement 

with the Commission in connection 

with a comparability determination.23

Finally, the Commission will 

generally rely on an applicant’s 

description of the laws and regulations 

of the foreign jurisdiction in making its 

comparability determination. The 

Commission considers an application to 

be a representation by the applicant that 

the laws and regulations submitted are 

finalized,24 that the description of such 

laws and regulations is accurate and 

complete, and that, unless otherwise 

noted, the scope of such laws and 

regulations encompasses the swaps 

activities 25 of CSEs 26 in the relevant 

jurisdictions.27 Further, the Commission 

requires that an applicant would notify 

the Commission of any material changes 

to information submitted in support of 

a comparability determination 

(including, but not limited to, changes 

in the relevant supervisory or regulatory 

regime) as, depending on the nature of 

the change, the Commission’s 

comparability determination may no 

longer be valid.28

III. Margin Requirements for Swaps 

Activities in the EU 

As represented to the Commission by 

the applicant, margin requirements for 

swap activities in the EU are governed 

by the Regulatory Technical Standards 

for Risk-Mitigation Techniques for OTC 

Derivative Contracts Not Cleared by a 

Central Counterparty (‘‘RTS’’).29 The 

RTS supplement the requirements of 

EMIR with a more detailed direction 


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30Together, EMIR and RTS are referred to herein 

as the ‘‘EU margin rules,’’ ‘‘the EU’s margin 

regime,’’ ‘‘EU margin requirements’’ or the ‘‘laws of 

the EU.’’ 

31See RTS, Article 40 and EMIR, Article 12(1). 

32See Cross-Border Margin Rule, 81 FR 34819. 

33See RTS, Explanatory Memorandum at 3. 

34 7 U.S.C. 1a(47). 

35See, e.g., § 1.3(xxx), 17 CFR 1.3(xxx). 

36 17 CFR 23.151. 

37See EMIR, Article 11(1) and RTS, Recital (1). 

CCP is defined in Article 2(1) of EMIR to mean ‘‘a 

legal person that interposes itself between the 

counterparties to the contracts traded on one or 

more financial markets, becoming the buyer to 

every seller and the seller to every buyer.’’ 

38Under MiFID, such financial instruments are: 

(4) Options, futures, swaps, forward rate agreements 

and any other derivative contracts relating to 

securities, currencies, interest rates or yields, or 

other derivatives instruments, financial indices or 

financial measures which may be settled physically 

or in cash; (5) Options, futures, swaps, forward rate 

agreements and any other derivative contracts 

relating to commodities that must be settled in cash 

or may be settled in cash at the option of one of 

the parties (otherwise than by reason of a default 

or other termination event); (6) Options, futures, 

swaps, and any other derivative contract relating to 

commodities that can be physically settled 

provided that they are traded on a regulated market 

and/or an MTF; (7) Options, futures, swaps, 

forwards and any other derivative contracts relating 

to commodities, that can be physically settled not 

otherwise mentioned in C.6 and not being for 

commercial purposes, which have the 

characteristics of other derivative financial 

instruments, having regard to whether, inter alia, 

they are cleared and settled through recognised 

clearing houses or are subject to regular margin 

calls; (8) Derivative instruments for the transfer of 

credit risk; (9) Financial contracts for differences; 

(10) Options, futures, swaps, forward rate 

agreements and any other derivative contracts 

relating to climatic variables, freight rates, emission 

allowances or inflation rates or other official 

economic statistics that must be settled in cash or 

may be settled in cash at the option of one of the 

parties (otherwise than by reason of a default or 

other termination event), as well as any other 

derivative contracts relating to assets, rights, 

obligations, indices and measures not otherwise 

mentioned in this Section, which have the 

characteristics of other derivative financial 

instruments, having regard to whether, inter alia, 

they are traded on a regulated market or an MTF, 

are cleared and settled through recognised clearing 

houses or are subject to regular margin calls. See 

MiFID, Annex I, Section C(4)–(10). 

39Article 38 of EU Regulation No. 1287/2006 

further defines the financial instruments described 

in Point (7) of Section C of Annex I to MiFID to 

generally be physically-settled FX forwards and 

swaps. Article 39 of EU Regulation No. 1287/2006 

further refines the definition of financial 

instruments described in Point (10) of Section C of 

Annex I to MiFID to generally be exchanges of 

principal of currency swaps. 

40See RTS, Article 27. 

41See RTS, Article 30. 

42See EMIR, Article 2(7). 

with respect to margin requirements 30

and are directly applicable in all 

countries that are members of the EU 

(each country a ‘‘Member State’’). 

Article 12 of EMIR further gives Member 

States the authority to ‘‘lay down the 

rules on penalties’’ that apply to 

infringements of the RTS and to take all 

measures necessary to ensure that those 

rules are implemented.31

IV. Comparability Analysis 

The following section describes the 

regulatory objectives of the 

Commission’s requirements with 

respect to margin for uncleared swaps 

imposed by the CEA and the Final 

Margin Rule and a description of such 

requirements. Immediately following a 

description of the requirement(s) of the 

Final Margin Rule for which a 

comparability determination was 

requested by the applicant, the 

Commission provides a description of 

the foreign jurisdiction’s comparable 

laws, regulations, or rules. The 

Commission then provides a discussion 

of the comparability of, or differences 

between, the Final Margin Rule and the 

foreign jurisdiction’s laws, regulations, 

or rules. 

A. Objectives of Margin Requirements 

1. Commission Statement of Regulatory 

Objectives 

The regulatory objectives of the Final 

Margin Rule are to ensure the safety and 

soundness of CSEs in order to offset the 

greater risk to CSEs and the financial 

system arising from the use of swaps 

that are not cleared. The primary 

function of margin is to protect a CSE 

from counterparty default, allowing it to 

absorb losses and continue to meet its 

obligations using collateral provided by 

the defaulting counterparty. While the 

requirement to post margin protects the 

counterparty in the event of the CSE’s 

default, it also functions as a risk 

management tool, limiting the amount 

of leverage a CSE can incur by requiring 

that it have adequate eligible collateral 

to enter into an uncleared swap. In this 

way, margin serves as a first line of 

defense, not only in protecting the CSE, 

but in containing the amount of risk in 

the financial system as a whole, 

reducing the potential for contagion 

arising from uncleared swaps.32

2. EC Statement of Regulatory 

Objectives 

The applicant states that, in the 

absence of clearing of OTC derivatives 

by a CCP, it is essential that 

counterparties apply robust riskmitigation techniques to their bilateral 

relationships to reduce counterparty 

credit risk and to mitigate the potential 

systemic risk that could arise. Article 11 

of EMIR prescribes risk-mitigation 

techniques for OTC derivative contracts 

not cleared by a CCP. The RTS 

supplement EMIR with regard to 

regulatory technical standards for riskmitigation techniques for OTC 

derivative contracts not cleared by a 

CCP and take into account the Basel 

Committee-IOSCO margin framework 

for non-centrally cleared OTC 

derivatives and the Basel Committee 

guidelines for managing settlement risk 

in foreign exchange transactions.33

B. Products Subject to Margin 

Requirements 

The Commission’s Final Margin Rule 

applies only to uncleared swaps. Swaps 

are defined in section 1a(47) of the 

CEA 34 and Commission regulations.35

‘‘Uncleared swap’’ is defined for 

purposes of the Final Margin Rule in 

Commission regulation § 23.151 to mean 

a swap that is not cleared by a registered 

derivatives clearing organization, or by 

a clearing organization that the 

Commission has exempted from 

registration by rule or order pursuant to 

section 5b(h) of the Act.36

The EU’s margin rules apply to OTC 

derivatives not cleared by a CCP (‘‘noncentrally cleared OTC derivative’’).37

‘‘Derivative’’ for purposes of the EU 

margin rules is defined in Article 2(5) of 

EMIR as a financial instrument as set 

out in points (4) to (10) of Section C of 

Annex I to MIFID 38 as implemented by 

Articles 38 and 39 of EU Regulation No. 

1287/2006.39 Initial margin need not be 

collected for physically-settled foreign 

exchange forwards, physically-settled 

foreign exchange swaps, or crosscurrency swaps.40 Regarding covered 

bonds for hedging purposes, no 

variation margin needs to be posted by 

a covered bond issuer or covered pool 

but must be collected from a 

counterparty in cash and returned to a 

counterparty when due, and no initial 

margin required.41

An OTC derivative is a derivative 

which is not executed on a regulated 

market or on a third-country market 

considered as equivalent to a regulated 

market.42 While it is beyond the scope 

of this comparability determination to 

definitively map any differences 

between the definitions of ‘‘swap’’ and 

‘‘uncleared swap’’ under the CEA and 

Commission regulations and the EU’s 

definitions of ‘‘OTC derivative’’ and 

‘‘non-centrally cleared OTC derivative,’’ 

the Commission believes that such 

definitions largely cover the same 

products and instruments. 

However, because the definitions are 

not identical, the Commission 

recognizes the possibility that a CSE 

may enter into a transaction that is an 

uncleared swap as defined in the CEA 

and Commission regulations, but that is 

not a non-centrally cleared OTC 


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43See 7 U.S.C. 6s(e)(1)(B). SDs and MSPs for 

which there is a Prudential Regulator must meet the 

margin requirements for uncleared swaps 

established by the applicable Prudential Regulator. 

7 U.S.C. 6s(e)(1)(A). See also 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 

Prudential Regulators published final margin 

requirements in November 2015. See Prudential 

Regulators’ Final Margin Rule, 80 FR 74840 (Nov. 

30, 2015). 

44See § 23.152. 

45See definition of ‘‘Financial end user’’ in 

§ 23.150. 

46See § 23.150, which states that ‘‘material swaps 

exposure’’ for an entity means that the entity and 

its margin affiliates have an average daily aggregate 

notional amount of uncleared swaps, uncleared 

security-based swaps, foreign exchange forwards, 

and foreign exchange swaps with all counterparties 

for June, July and August of the previous calendar 

year that exceeds $8 billion, where such amount is 

calculated only for business days. That provision 

further states that an entity shall count the average 

daily aggregate notional amount of an uncleared 

swap, an uncleared security-based swap, a foreign 

exchange forward, or a foreign exchange swap 

between the entity and a margin affiliate only one 

time. For purposes of this calculation, an entity 

shall not count a swap that is exempt pursuant to 

§ 23.150(b) or a security-based swap that qualifies 

for an exemption under section 3C(g)(10) of the 

Securities Exchange Act of 1934 (15 U.S.C. 78c– 

3(g)(4)) and implementing regulations or that 

satisfies the criteria in section 3C(g)(1) of the 

Securities Exchange Act of 1934 (15 U.S.C. 78– 

c3(g)(4)) and implementing regulations. 

47 ‘‘Swap entity’’ is defined in § 23.150 as a 

person that is registered with the Commission as a 

swap dealer or major swap participant pursuant to 

the Act. 

48See § 23.153. 

49See EMIR, Article 11 (Risk-Mitigation 

Techniques for OTC Derivative Contracts Not 

Cleared by a CCP). While the definition of 

‘‘financial counterparty’’ under EMIR includes 

credit institutions authorized in accordance with 

Directive 2006/48/EU, CCPs that are authorized as 

credit institutions are exempted from the EU’s 

margin rules. See RTS, Article 23. As explained in 

the RTS, since CCPs might be authorized as a credit 

institution according to Union legislation, it is 

necessary to excluded non-centrally cleared OTC 

derivative contracts that CCPs enter into during a 

default management process from the requirements 

of this Regulation since those contracts are already 

subject to the provisions of Commission Delegated 

Regulation (EU) No 153/2013 and therefore they are 

not subject to the provisions of these Regulations. 

50See RTS, Article 23. 

51See EMIR, Article 2(9). 

52See EMIR, Article 11(3) (‘‘[NFCs] . . . shall 

have risk-management procedures that require the 

timely, accurate and appropriately segregated 

exchange of collateral with respect to OTC 

derivative contracts that are entered into on or after 

the clearing threshold is exceeded.’’). The clearing 

threshold values are measured by asset class as 

follows: 

(a) EUR 1 billion in gross notional value for OTC 

credit derivative contracts; 

(b) EUR 1 billion in gross notional value for OTC 

equity derivative contracts; 

(c) EUR 3 billion in gross notional value for OTC 

interest rate derivative contracts; 

(d) EUR 3 billion in gross notional value for OTC 

foreign exchange derivative contracts; 

(e) EUR 3 billion in gross notional value for OTC 

commodity derivative contracts and other OTC 

derivative contracts not provided for under points 

(a) to (d). 

See Article 11 of Commission Delegated 

Regulation (EU) No 149/2013 of December 19, 2012 

Supplementing EMIR with Regard to Regulatory 

Technical Standards on Indirect Clearing 

Arrangements, the Clearing Obligation, the Public 

Register, Access to a Trading Venue, Non-Financial 

Counterparties, and Risk Mitigation Techniques for 

Uncleared OTC Derivatives (pursuant to Article 

10(4)(b) of EMIR). 

53See RTS, Article 24. 

54See RTS, Recital (2). 

55See RTS, Article 28, stating: Counterparties 

may provide in their risk management procedures 

that initial margins are not collected for all new 

OTC derivative contracts entered into within a 

calendar year where one of the two counterparties 

has an aggregate month-end average notional 

amount of non-centrally cleared OTC derivatives for 

the months March, April and May of the preceding 

year of below EUR 8 billion. The aggregate monthend average notional amount referred to in the first 

subparagraph shall be calculated at the 

counterparty level or at the group level where the 

counterparty belongs to a group. 

derivative as defined under the laws of 

the EU. In such cases, the Final Margin 

Rule would apply to the transaction but 

the EU’s margin rules would not apply 

and thus, substituted compliance would 

not be available. The CSE could not 

choose to comply with the EU’s margin 

rules in place of the Final Margin Rule. 

Likewise, if a transaction is a noncentrally cleared OTC derivative as 

defined under the laws of the EU but 

not an uncleared swap subject to the 

Final Margin Rule, a CSE could not 

choose to comply with the Final Margin 

Rule pursuant to this determination, 

unless the EU determines that it will 

permit the EU entity to follow the 

Commission’s margin requirements. 

CSEs are solely responsible for 

determining whether a particular 

transaction is both an uncleared swap 

and a non-centrally cleared OTC 

derivative before relying on substituted 

compliance under the comparability 

determinations set forth below. 

C. Entities Subject to Margin 

Requirements 

As stated previously, the 

Commission’s Final Margin Rule and 

Cross-Border Margin Rule apply only to 

CSEs, i.e., SDs and MSPs registered with 

the Commission for which there is not 

a Prudential Regulator.43 Thus, only 

such CSEs may rely on the 

determinations herein for substituted 

compliance, while CSEs for which there 

is a Prudential Regulator must look to 

the determinations of the Prudential 

Regulators. 

CSEs are not required to collect 

and/or post margin with every 

uncleared swap counterparty. Under the 

Final Margin Rule, the initial margin 

obligations of CSEs apply only to 

uncleared swaps with counterparties 

that meet the definition of ‘‘covered 

counterparty’’ in § 23.151.44 Such 

definition provides that a ‘‘covered 

counterparty’’ is a counterparty that is a 

financial end user 45 with material 

swaps exposure 46 or a swap entity 47

that enters into a swap with a CSE. The 

variation margin obligations of CSEs 

under the Final Margin Rule apply more 

broadly. Such obligations apply to 

counterparties that are swap entities and 

all financial end users, regardless of 

their level of material swaps exposure.48

As represented by the applicant, the 

EU’s margin rules apply to all financial 

counterparties, which include 

investment firms, credit institutions, 

insurance companies, and alternative 

investment funds that are authorized or 

registered in accordance with various 

EU directives (‘‘FC’’).49 CCPs not 

authorized as credit institutions are 

outside the scope of Article 11 of EMIR 

and CCPs authorized as credit 

institutions are exempt from the RTS.50

The EU’s margin rules also apply to 

non-financial counterparties (any EU 

entity other than an FC or a CCP 51) 

(‘‘NFC’’) that are above a certain clearing 

threshold (‘‘NFC+’’).52 Under the EU 

rules, no margin is required for noncentrally cleared OTC derivatives with 

NFCs that fall below the clearing 

threshold (‘‘NFC-’’) or non-EU entities 

that would be NFC-s if established in 

the EU.53 However, under the EU 

margin rules, counterparties must take 

into account the different risk profiles of 

NFC-s when entering into non-centrally 

cleared OTC derivatives with such 

counterparties and determine whether 

or not the level of counterparty credit 

risk posed by those NFC-s needs to be 

mitigated through the exchange of 

collateral.54 Like the Final Margin Rule, 

the EU margin rules include a threshold 

under which initial margin 

requirements will not apply, while the 

variation margin requirements apply 

more broadly.55

Given the definitional differences and 

differences in activity thresholds with 

respect to the scope of application of the 

Final Margin Rule and the EU’s margin 

requirements, the Commission notes the 

possibility that the Final Margin Rule 

and the EU’s margin rules may not 

apply to every uncleared swap that a 

CSE may enter into with a EU 

counterparty. For example, it appears 

possible that a financial end user with 

‘‘material swaps exposure’’ would meet 

the definition of ‘‘covered counterparty’’ 

under the Final Margin Rule (and thus 

the initial and variation margin 


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56See BCBS/IOSCO Framework, Element 6: 

Treatment of transactions with affiliates. 

57 § 23.151. 

58 ‘‘Initial margin’’ is margin exchanged to protect 

against a potential future exposure and is defined 

in § 23.151 to mean the collateral, as calculated in 

accordance with § 23.154 that is collected or posted 

in connection with one or more uncleared swaps. 

59See § 23.159(a). 

60See § 23.159(c). 

61See id. 

62See BCBS/IOSCO Framework, Element 6: 

Treatment of transactions with affiliates. 

63See § 23.159(b); see also Prudential Regulators’ 

Final Margin Rule, 80 FR 74909. 64Article 3(2) of EMIR defines an ‘‘intragroup 

transaction’’ for an FC to be: 

(a) An OTC derivative contract entered into with 

another counterparty which is part of the same 

group, provided that the following conditions are 

met: 

(i) The financial counterparty is established in the 

Union or, if it is established in a third country, the 

Commission has adopted an implementing act 

under Article 13(2) in respect of that third country; 

(ii) the other counterparty is a financial 

counterparty, a financial holding company, a 

financial institution or an ancillary services 

undertaking subject to appropriate prudential 

requirements; 

(iii) both counterparties are included in the same 

consolidation on a full basis; and 

(iv) both counterparties are subject to appropriate 

centralised risk evaluation, measurement and 

control procedures; 

(b) an OTC derivative contract entered into with 

another counterparty where both counterparties are 

part of the same institutional protection scheme, 

referred to in Article 80(8) of Directive 2006/48/EC, 

provided that the condition set out in point (a)(ii) 

of this paragraph is met; 

(c) an OTC derivative contract entered into 

between credit institutions affiliated to the same 

central body or between such credit institution and 

the central body, as referred to in Article 3(1) of 

Directive 2006/48/EC; or 

(d) an OTC derivative contract entered into with 

a non-financial counterparty which is part of the 

same group provided that both counterparties are 

included in the same consolidation on a full basis 

and they are subject to an appropriate centralised 

risk evaluation, measurement and control 

procedures and that counterparty is established in 

the Union or in a third-country jurisdiction for 

which the Commission has adopted an 

implementing act as referred to in Article 13(2) in 

respect of that third country. 

65Article 3(1) of EMIR defines an ‘‘intragroup 

transaction’’ for an NFC to be: 

[A]n OTC derivative contract entered into with 

another counterparty which is part of the same 

Continued 

requirements) while at the same time 

fall under the EU’s clearing threshold 

(an NFC-) and not be subject the EU 

margin requirements. It may also be 

possible that the Final Margin Rule’s 

definition of ‘‘financial end user’’ could 

capture an entity that is an NFC under 

the EU’s margin regime. 

With these differences in scope in 

mind, the Commission reiterates that no 

CSE may rely on substituted compliance 

unless it and its transaction are subject 

to both the Final Margin Rule and the 

EU’s margin rules; a CSE may not 

voluntarily comply with the EU’s 

margin rules where such law does not 

otherwise apply. Likewise, a CSE that is 

not seeking to rely on substituted 

compliance should understand that the 

EU’s margin rules may apply to its 

counterparty irrespective of the CSE’s 

decision to comply with the Final 

Margin Rule. 

D. Treatment of Inter-Affiliate 

Derivative Transactions 

The BCBS/IOSCO Framework 

recognizes that the treatment of interaffiliate derivative transactions will vary 

between jurisdictions. Thus, the BCBS/ 

IOSCO Framework does not set 

standards with respect to the treatment 

of inter-affiliate transactions. Rather, it 

recommends that regulators in each 

jurisdiction review their own legal 

frameworks and market conditions and 

put in place margin requirements 

applicable to inter-affiliate transactions 

as appropriate.56

1. Commission Requirements for 

Treatment of Inter-Affiliate Transactions 

The Commission determined through 

its Final Margin Rule to provide rules 

for swaps between ‘‘margin affiliates.’’ 

In defining ‘‘margin affiliate,’’ those 

rules provide that a company is a 

margin affiliate of another company if: 

(1) Either company consolidates the 

other on a financial statement prepared 

in accordance with U.S. Generally 

Accepted Accounting Principles, the 

International Financial Reporting 

Standards, or other similar standards; 

(2) both companies are consolidated 

with a third company on a financial 

statement prepared in accordance with 

such principles or standards; or (3) for 

a company that is not subject to such 

principles or standards, if consolidation 

as described in (1) or (2) would have 

occurred if such principles or standards 

had applied.57

With respect to swaps between 

margin affiliates, the Final Margin Rule, 

with one exception explained below, 

provides that a CSE is not required to 

collect initial margin 58 from a margin 

affiliate provided that the CSE meets the 

following conditions: (i) The swaps are 

subject to a centralized risk management 

program that is reasonably designed to 

monitor and to manage the risks 

associated with the inter-affiliate swaps; 

and (ii) the CSE exchanges variation 

margin with the margin affiliate.59

In an exception to the foregoing 

general rule, the Final Margin Rule does 

require CSEs to collect initial margin 

from non-U.S. affiliates that are 

financial end users that are not subject 

to initial margin collection requirements 

on their own outward-facing swaps with 

financial end users that are not 

comparable in outcome to the Final 

Margin Rule.60 This provision is an 

important anti-evasion measure. It is 

designed to prevent the potential use of 

affiliates to avoid collecting initial 

margin from third parties. For example, 

suppose that an unregistered non-U.S. 

affiliate of a CSE enters into a swap with 

a financial end user and does not collect 

initial margin. Suppose further that the 

affiliate then enters into a swap with the 

CSE. Effectively, the risk of the swap 

with the third party would have been 

passed to the CSE without any initial 

margin. The rule would require this 

affiliate to post initial margin with the 

CSE in such cases. The rule would 

further require that the CSE collect 

initial margin even if the affiliate routed 

the trade through one or more other 

affiliates.61

The Commission has stated that its 

inter-affiliate initial margin requirement 

is consistent with its goal of 

harmonizing its margin rules as much as 

possible with the BCBS/IOSCO 

Framework. Such Framework, for 

example, states that the exchange of 

initial and variation margin by affiliated 

parties ‘‘is not customary’’ and that 

initial margin in particular ‘‘would 

likely create additional liquidity 

demands.’’ 62 With an understanding 

that many authorities, such as those in 

Europe and Japan, are not expected to 

require initial margin for inter-affiliate 

swaps, the Commission recognized that 

requiring the posting and collection of 

initial margin for inter-affiliate swaps 

generally would be likely to put CSEs at 

a competitive disadvantage to firms in 

other jurisdictions. 

The Final Margin Rule however, does 

require CSEs to exchange variation 

margin with affiliates that are SDs, 

MSPs, or financial end users (as is also 

required under the Prudential 

Regulators’ rules).63 The Commission 

stated that marking open positions to 

market each day and requiring the 

posting or collection of variation margin 

reduces the risks of inter-affiliate swaps. 

2. Requirement for Treatment of InterAffiliate Derivatives Under the Laws of 

the EU 

Under Article 11 of EMIR, the EU’s 

margin requirements generally apply to 

intragroup transactions as defined in 

Article 3 of EMIR. Such ‘‘intragroup 

transactions’’ are defined differently for 

intragroup transactions in relation to an 

FC (‘‘FC Intragroup Transactions’’) 64

and intragroup transactions in relation 

to an NFC (‘‘NFC Intragroup 

Transactions’’ and, together with FC 

Intragroup Transactions, ‘‘Intragroup 

Transactions’’).65 What the EU defines 


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group provided that both counterparties are 

included in the same consolidation on a full basis 

and they are subject to an appropriate centralised 

risk evaluation, measurement and control 

procedures and that counterparty is established in 

the Union or, if it is established in a third country, 

the Commission has adopted an implementing act 

under Article 13(2) in respect of that third country. 66See EMIR, Article 11(5); see also RTS, Article 

33 (Applicable Criteria for the Legal Impediment to 

the Prompt Transfer of Own Funds and Repayment 

of Liabilities). 

67See RTS, Article 33. Such restrictions include: 

(a) Currency and exchange controls; 

(b) a regulatory, administrative, legal or 

contractual framework that prevents mutual 

financial support or significantly affects the transfer 

of funds within the group; 

(c) any of the conditions on the early 

intervention, recovery and resolution as referred to 

in Directive 2014/59/EU of the European Parliament 

and of the Council (1) are met, as a result of which 

the competent authority foresees an impediment to 

the prompt transfer of own funds or repayment of 

liabilities; 

(d) the existence of minority interests that limit 

decision-making power within entities that form the 

group; 

(e) the nature of the legal structure of the 

counterparty, as defined in its statutes, instruments 

of incorporation and internal rules. 

See RTS, Article 33(a)–(e). 

68See RTS, Article 32. 

69See EMIR, Article 2(13) for the definition of 

‘‘competent authority’’ for purposes of the RTS. 

70See EMIR, Article 11(6) to (10). 71See EMIR, Article 11(11). 72See RTS, Recital (40). 73See RTS, Articles 36 and 37. 74See RTS, Recital (40). 75See RTS, Articles 36 and 37. 76See Final Margin Rule, 81 FR 674. 77See id. 

78RTS, Recital (37) states: 

When a counterparty notifies the relevant 

competent authority regarding its intention to take 

advantage of the exemption of intragroup 

transactions, in order for the competent authority to 

decide whether the conditions for the exemption 

are met, the counterparty should provide a 

complete file including all relevant information 

necessary for the competent authority to complete 

its assessment. 

79See EMIR, Article 11(6), (8), and (10). 

80See EMIR, Article 11(7) and (9). 

81See EMIR, Article 11(6)–(10). In addition, RTS, 

Recital (39) states: 

In order for the exemption for intragroup 

transactions to be applicable, it must be certain that 

no legislative, regulatory, administrative or other 

mandatory provisions of applicable law could 

legally prevent the intragroup counterparties from 

meeting their obligations to transfer monies or 

repay liabilities or securities under the terms of the 

intragroup transactions. Similarly, there should be 

no operational or business practices of the 

intragroup counterparties or the group that could 

as Intragroup Transactions is generally 

in keeping with the Commission’s 

definition of ‘‘margin affiliate’’ for 

purposes of the Final Margin Rule, 

discussed above. 

For Intragroup Transactions between 

counterparties established in the same 

Member State, no margin requirements 

will apply, but only as long as there is 

no legal impediment to the prompt 

transfer of own funds or repayment of 

liabilities between counterparties.66 A 

legal impediment to the prompt transfer 

of own funds and repayment of 

liabilities shall be deemed to exist 

where there are actual or foreseen 

restrictions of a legal nature.67

For Intragroup Transactions between 

counterparties established in different 

Member States, the EU margin rules 

generally provide, depending on the 

nature and location of the 

counterparties, that such Intragroup 

Transactions may be excluded from the 

EU margin requirements but only if, in 

addition to there being no current or 

legal impediment to the prompt transfer 

of own funds or repayment of liabilities 

between the counterparties, the 

counterparties (i) have risk management 

procedures that are sound, robust, and 

consistent with the level of complexity 

of the derivative transaction, and (ii) in 

keeping with the procedures established 

under the RTS,68 the counterparties 

have notified the relevant competent 

authority 69 or authorities of the 

intention to use the exemption and the 

authority or authorities have reached a 

positive decision to allow the 

exemption.70 The counterparties to an 

exempted Intragroup Transaction must 

publicly disclose information about the 

exemption.71

Where one of the two counterparties 

in the group is domiciled in a thirdcountry for which an equivalence 

determination under Article 13(2) of 

EMIR has not yet been provided, the 

group has to exchange variation and 

appropriately segregated initial margins 

for all the Intragroup Transactions with 

the subsidiaries in those thirdcountries.72 However, the requirements 

are delayed for three years in these 

cases.73 This is to allow enough time for 

completion of the process to produce 

the equivalence determinations, while 

not requiring an inefficient allocation of 

resources to the groups with 

subsidiaries domiciled in thirdcountries.74 Where an equivalence 

decision has been made, counterparties 

may then apply for an exemption 

pursuant to the timing and process 

established under EMIR and the RTS.75

3. Commission Determination 

Having compared the outcomes of the 

EU’s margin requirements applicable to 

Intragroup Transactions to the outcomes 

of the Commission’s corresponding 

margin requirements applicable to interaffiliate swaps, the Commission finds 

that the treatment of inter-affiliate 

transactions under the Final Margin 

Rule and under the EU’s margin 

requirements are comparable in 

outcome. 

A CSE entering into a transaction with 

a consolidated affiliate under the Final 

Margin Rule would be required to 

exchange variation margin in 

accordance with §§ 23.151 through 

23.161, and in certain circumstances, 

collect initial margin in accordance with 

§ 23.159(c). The Commission continues 

to deem this provision an important 

anti-evasion measure, designed to 

prevent the potential use of affiliates to 

avoid collecting initial margin from 

third parties.76 In adopting its Final 

Margin Rule, the Commission 

recognized that, in absence of proper 

anti-evasion measures, a CSE could 

import risk from another jurisdiction, 

one with potentially less stringent 

margin protections, through interaffiliate trades.77 In analyzing the EU’s 

margin rules, the Commission 

specifically notes that the EU margin 

rules will apply to inter-affiliate trades 

involving an affiliate that is established 

in a third-country (non-EU) jurisdiction, 

unless specifically excluded. Any 

exclusion from the EU margin rules is 

subject to an application process, which 

would require a finding that the relevant 

non-EU jurisdiction’s margin 

requirements are equivalent. This 

comparability requirement provides 

protection to the consolidated entity, as 

the consolidated entity would not be 

able to import risk from third country 

jurisdictions that are not equivalent, 

without posting and collecting initial 

margin and exchanging variation 

margin. Therefore, the Commission 

believes that the EU’s review process for 

finding comparability in third-country 

jurisdictions addresses the 

Commission’s anti-evasion concerns 

relating to inter-affiliate transactions. 

In addition, where a CSE and its interaffiliate counterparty are subject to the 

Commission’s margin requirements and 

the EU’s margin requirements, all of the 

EU’s margin requirements would apply, 

including the requirement to exchange 

variation margin, absent meeting the 

specific conditions detailed above. 

Other than where the two counterparties 

are established in the same Member 

State, those specific conditions involve 

a process of applying to the relevant 

Member State competent 

authority(ies) 78 and receiving a positive 

determination from either or both 

competent authorities 79 or upon 

notification to the relevant Member 

State competent authority(ies) and 

agreement of those competent 

authorities.80 All exemptions are also 

predicated on the absence of any current 

or foreseen practical or legal 

impediment to the prompt transfer of 

own funds or repayment of liabilities 

between the counterparties 81 and on the 


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result in funds not being available to meet payment 

obligations as they fall due on a day-to-day basis, 

or in prompt electronic transfer of funds not being 

possible. 

82RTS, Recital (38) states: 

For a group to be deemed to have adequately 

sound and robust risk management procedures, a 

number of conditions have to be met. The group 

should ensure a regular monitoring of the 

intragroup exposures, and the timely settlement of 

the obligations resulting from the intragroup OTC 

derivative contracts should be guaranteed based on 

the monitoring and liquidity tools at group level 

that are consistent with the complexity of the 

intragroup transactions. 83See BCBS/IOSCO Framework. 

existence of adequately sound and 

robust risk management practices that 

are consistent with the level of 

complexity of the derivatives 

transaction.82

E. Methodologies for Calculating the 

Amounts of Initial and Variation Margin 

As an overview, the methodologies for 

calculating initial and variation margin 

as agreed under the BCBS/IOSCO 

Framework state that the margin 

collected from a counterparty should (i) 

be consistent across entities covered by 

the requirements and reflect the 

potential future exposure (initial 

margin) and current exposure (variation 

margin) associated with the particular 

portfolio of non-centrally cleared 

derivatives, and (ii) ensure that all 

counterparty risk exposures are covered 

fully with a high degree of confidence. 

With respect to the calculation of 

initial margin, as a minimum the BCBS/ 

IOSCO Framework generally provides 

that: 

• Initial margin requirements will not 

apply to counterparties that have less 

than EUR 8 billion of gross notional in 

outstanding derivatives. 

• Initial margin may be subject to a 

EUR 50 million threshold applicable to 

a consolidated group of affiliated 

counterparties. 

• All margin transfers between parties 

may be subject to a de-minimis 

minimum transfer amount not to exceed 

EUR 500,000. 

• The potential future exposure of a 

non-centrally cleared derivative should 

reflect an extreme but plausible estimate 

of an increase in the value of the 

instrument that is consistent with a onetailed 99% confidence interval over a 

10-day horizon, based on historical data 

that incorporates a period of significant 

financial stress. 

• The required amount of initial 

margin may be calculated by reference 

to either (i) a quantitative portfolio 

margin model or (ii) a standardized 

margin schedule. 

• When initial margin is calculated 

by reference to an initial margin model, 

the period of financial stress used for 

calibration should be identified and 

applied separately for each broad asset 

class for which portfolio margining is 

allowed. 

• Models may be either internally 

developed or sourced from the 

counterparties or third-party vendors 

but in all such cases, models must be 

approved by the appropriate 

supervisory authority. 

• Quantitative initial margin models 

must be subject to an internal 

governance process that continuously 

assesses the value of the model’s risk 

assessments, tests the model’s 

assessments against realized data and 

experience, and validates the 

applicability of the model to the 

derivatives for which it is being used. 

• An initial margin model may 

consider all of the derivatives that are 

approved for model use that are subject 

to a single legally enforceable netting 

agreement. 

• Initial margin models may account 

for diversification, hedging, and risk 

offsets within well-defined asset classes 

such as currency/rates, equity, credit, or 

commodities, but not across such asset 

classes and provided these instruments 

are covered by the same legally 

enforceable netting agreement and are 

approved by the relevant supervisory 

authority. 

• The total initial margin requirement 

for a portfolio consisting of multiple 

asset classes would be the sum of the 

initial margin amounts calculated for 

each asset class separately. 

• Derivatives for which a firm faces 

zero counterparty risk require no initial 

margin to be collected and may be 

excluded from the initial margin 

calculation. 

• Where a standardized initial margin 

schedule is appropriate, it should be 

computed by multiplying the gross 

notional size of a derivative by the 

standardized margin rates provided 

under the BCBS/IOSCO Framework and 

adjusting such amount by the ratio of 

the net current replacement cost to gross 

current replacement cost (NGR) 

pertaining to all derivatives in a legally 

enforceable netting set. The BCBS/ 

IOSCO Framework provides the 

following standardized margin rates: 83

Asset class 

Initial margin 

requirement 

(% of notional 

exposure) 

Credit: 

0–2 year duration ........ 2 

2–5 year duration ........ 5 

5+ year duration .......... 10 

Commodity ...................... 15 

Asset class 

Initial margin 

requirement 

(% of notional 

exposure) 

Equity .............................. 15 

Foreign exchange ........... 6 

Interest rate: 

0–2 year duration ........ 1 

2–5 year duration ........ 2 

5+ year duration .......... 4 

Other ............................... 15 

• For a regulated entity that is already 

using a schedule-based margin to satisfy 

requirements under its required capital 

regime, the appropriate supervisory 

authority may permit the use of the 

same schedule for initial margin 

purposes, provided that it is at least as 

conservative. 

• The choice between model- and 

schedule-based initial margin 

calculations should be made 

consistently over time for all 

transactions within the same well 

defined asset class. 

• Initial margin should be collected at 

the outset of a transaction, and collected 

thereafter on a routine and consistent 

basis upon changes in measured 

potential future exposure, such as when 

trades are added to or subtracted from 

the portfolio. 

• In the event that a margin dispute 

arises, both parties should make all 

necessary and appropriate efforts, 

including timely initiation of dispute 

resolution protocols, to resolve the 

dispute and exchange the required 

amount of initial margin in a timely 

fashion. 

With respect to the calculation of 

variation margin, as a minimum the 

BCBS/IOSCO Framework generally 

provides that: 

• The full amount necessary to fully 

collateralize the mark-to-market 

exposure of the non-centrally cleared 

derivatives must be exchanged. 

• Variation margin should be 

calculated and exchanged for 

derivatives subject to a single, legally 

enforceable netting agreement with 

sufficient frequency (e.g., daily). 

• In the event that a margin dispute 

arises, both parties should make all 

necessary and appropriate efforts, 

including timely initiation of dispute 

resolution protocols, to resolve the 

dispute and exchange the required 

amount of variation margin in a timely 

fashion. 

1. Commission Requirement for 

Calculation of Initial Margin 

In keeping with the BCBS/IOSCO 

Framework described above, with 

respect to the calculation of initial 


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84See Final Margin Rule, 81 FR 683. 

85See § 23.154(b)(2)(i). 

86See § 23.154(a)(1)(i) and (ii). 

87See § 23.154(b)(2)(ii). 

88See § 23.154(b)(1)(i). 

89See § 23.154(b)(2)(v). 

90See id. 

91See id. 

92See § 23.154(b)(2)(vi). 

93The standardized margin rates provided in 

§ 23.154(c)(i) are, in all material respects, the same 

as those provided under the BCBS/IOSCO 

Framework. See supra note 83 and table in 

accompanying text. 

94See § 23.154(c). 

95See § 23.152(d)(2)(i). 

96See § 23.155(a). 

97See id. 

98See § 23.153(d)(1). 

99See § 23.153(e)(2)(i). 

100See RTS, Recital (3). 

101See RTS, Article 1. 

102See RTS, Article 15(1). 

103See RTS, Article 11(1). 

margin, the Commission’s Final Margin 

Rule generally provides that: 

• Initial margin is intended to address 

potential future exposure, i.e., in the 

event of a counterparty default, initial 

margin protects the non-defaulting party 

from the loss that may result from a 

swap or portfolio of swaps, during the 

period of time needed to close out the 

swap(s).84

• Potential future exposure is to be an 

estimate of the one-tailed 99% 

confidence interval for an increase in 

the value of the uncleared swap or 

netting portfolio of uncleared swaps due 

to an instantaneous price shock that is 

equivalent to a movement in all material 

underlying risk factors, including 

prices, rates, and spreads, over a 

holding period equal to the shorter of 10 

business days or the maturity of the 

swap or netting portfolio.85

• The required amount of initial 

margin may be calculated by reference 

to either (i) a risk-based margin model 

or (ii) a table-based method.86

• All data used to calibrate the initial 

margin model shall incorporate a period 

of significant financial stress for each 

broad asset class that is appropriate to 

the uncleared swaps to which the initial 

margin model is applied.87

• CSEs shall obtain the written 

approval of the Commission or a 

registered futures association to use a 

model to calculate the initial margin 

required.88

• An initial margin model may 

calculate initial margin for a netting 

portfolio of uncleared swaps covered by 

the same eligible master netting 

agreement.89

• An initial margin model may reflect 

offsetting exposures, diversification, and 

other hedging benefits for uncleared 

swaps that are governed by the same 

eligible master netting agreement by 

incorporating empirical correlations 

within the following broad risk 

categories, provided the CSE validates 

and demonstrates the reasonableness of 

its process for modeling and measuring 

hedging benefits: Commodity, credit, 

equity, and foreign exchange or interest 

rate.90

• Empirical correlations under an 

eligible master netting agreement may 

be recognized by the model within each 

broad risk category, but not across broad 

risk categories.91

• If the initial margin model does not 

explicitly reflect offsetting exposures, 

diversification, and hedging benefits 

between subsets of uncleared swaps 

within a broad risk category, the CSE 

shall calculate an amount of initial 

margin separately for each subset of 

uncleared swaps for which such 

relationships are explicitly recognized 

by the model and the sum of the initial 

margin amounts calculated for each 

subset of uncleared swaps within a 

broad risk category will be used to 

determine the aggregate initial margin 

due from the counterparty for the 

portfolio of uncleared swaps within the 

broad risk category.92

• Where a risk-based model is not 

used, initial margin must be computed 

by multiplying the gross notional size of 

a derivative by the standardized margin 

rates provided under § 23.154(c)(i) 93

and adjusting such amount by the ratio 

of the net current replacement cost to 

gross current replacement cost (NGR) 

pertaining to all derivatives under the 

same eligible master netting 

agreement.94

• A CSE shall not be deemed to have 

violated its obligation to collect or post 

initial margin if, inter alia, it makes 

timely initiation of dispute resolution 

mechanisms, including pursuant to 

§ 23.504(b)(4).95

2. Commission Requirements for 

Calculation of Variation Margin 

In keeping with the BCBS/IOSCO 

Framework described above, with 

respect to the calculation of variation 

margin, the Commission’s Final Margin 

Rule generally provides that: 

• Each business day, a CSE must 

calculate variation margin amounts for 

itself and for each counterparty that is 

an SD, MSP, or financial end user. Such 

variation margin amounts must be equal 

to the cumulative mark-to-market 

change in value to the CSE of each 

uncleared swap, adjusted for any 

variation margin previously collected or 

posted with respect to that uncleared 

swap.96

• Variation margin must be calculated 

using methods, procedures, rules, and 

inputs that to the maximum extent 

practicable rely on recently-executed 

transactions, valuations provided by 

independent third parties, or other 

objective criteria.97

• CSEs may comply with variation 

margin requirements on an aggregate 

basis with respect to uncleared swaps 

that are governed by the same eligible 

master netting agreement.98

• A CSE shall not be deemed to have 

violated its obligation to collect or post 

variation margin if, inter alia, it makes 

timely initiation of dispute resolution 

mechanisms, including pursuant to 

§ 23.504(b)(4).99

3. EU Requirements for Calculation of 

Initial Margin 

In keeping with the BCBS/IOSCO 

Framework, with respect to the 

calculation of initial margin, the EU’s 

margin requirements generally provide: 

• Initial margin protects 

counterparties against potential losses 

which could stem from movements in 

the market value of the derivatives 

position occurring between the last 

exchange of variation margin before the 

default of a counterparty and the time 

that the OTC derivatives are replaced or 

the corresponding risk is hedged.100 It is 

the collateral collected by a 

counterparty to cover its current and 

potential future exposure in the interval 

between the last collection of margin 

and the liquidation of positions or 

hedging of market risk following a 

default of the other counterparty.101

• The assumed variations in the value 

of the non-centrally cleared OTC 

derivative contracts within the netting 

set for the calculation of initial margins 

using an initial margin model shall be 

based on a one-tailed 99% confidence 

interval over a margin period of risk 

(‘‘MPOR’’) of at least 10 days.102

• Counterparties shall calculate the 

amount of initial margin to be collected 

using either a standardized approach or 

an initial margin model or both.103

• Parameters used in initial margin 

models shall be calibrated, at least 

annually, based on historical data from 

a time period with a minimum duration 

of three years and a maximum duration 

of five years. 

• The data used for calibrating the 

parameters of initial margin models 

shall include the most recent 

continuous period from the date on 

which the calibration is performed and 

at least 25% of those data shall be 


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104See RTS, Article 16(1) and (2). 

105See RTS, Article 14. 

106See RTS, Article 17(1) and (2). 

107See RTS, Article 17(1) and (2). 

108See RTS, Article 13(3). 

109See EMIR, Article 11(2); RTS, Article 9. 

110See EMIR, Article 11(2); RTS, Article 10. 

111See RTS, Article 12(3). 

112See BCBS/IOSCO Framework Requirement 

3.3. 

113See § 23.154(b)(1)(i). 

114See § 23.154(b)(4), discussed further below. 

115See § 23.154(b)(5), discussed further below. 

116See § 23.154(b)(6), discussed further below. 

117See § 23.154(b)(7), discussed further below. 

118See RTS, Article 2(6). 

representative of a period of significant 

financial stress (stressed data).104

• Where a counterparty uses an initial 

margin model, that model may be 

developed by any of, or both, 

counterparties or by a third party agent. 

• Where a counterparty uses an initial 

margin model developed by a third 

party agent, the counterparty shall 

remain responsible for ensuring that 

that model complies with the EU’s 

margin rules.105

• Initial margin models shall only 

include non-centrally cleared OTC 

derivative contracts within the same 

netting set.106

• Initial margin models may provide 

for diversification, hedging and risk 

offsets arising from the risks of the 

contracts within the same netting set, 

provided that the diversification, 

hedging or risk offset is only carried out 

within the same underlying asset class 

as referred to in these requirements. 

• Diversification, hedging, and risk 

offsets may only be carried out within 

the following underlying asset classes: 

(a) Interest rates, currency and inflation; 

(b) equity; (c) credit; (d) commodities 

and gold; (e) other.107

• In the event of a dispute over the 

amount of initial margin due, 

counterparties shall provide at least the 

part of the initial margin amount that is 

not being disputed within the same 

business day of the calculation date 

determined in accordance with Article 

9(3).108

4. EU Requirements for Calculation of 

Variation Margin 

In keeping with the BCBS/IOSCO 

Framework, with respect to the 

calculation of variation margin, the EU’s 

margin requirements generally provide: 

• FCs and NFC+s shall mark-tomarket on a daily basis the value of 

outstanding contracts. Where market 

conditions prevent marking-to-market, 

reliable and prudent marking-to-model 

shall be used.109

• The amount of variation margin to 

be collected by a counterparty shall be 

the aggregation of the values calculated 

for purposes of variation margin of all 

contracts in the netting set, minus the 

value of all variation margin previously 

collected, minus the net value of each 

contract in the netting set at the point 

of entry into the contract, and plus the 

value of all variation margin previously 

posted.110

• In the event of a dispute over the 

amount of variation margin due, 

counterparties shall provide at least the 

part of the variation margin amount that 

is not being disputed.111

5. Commission Determination 

Based on the foregoing and the 

representations of the applicant, the 

Commission has determined that the 

amounts of initial and variation margin 

calculated under the methodologies 

required under the EU’s margin rules 

would be similar to those calculated 

under the methodologies required under 

the Final Margin Rule. Specifically, 

under the Final Margin Rule and the 

EU’s margin rules: 

• The definitions of initial and 

variation margin are similar, including 

the description of potential future 

exposure agreed under the BCBS/IOSCO 

Framework; 

• Margin models and/or a 

standardized margin schedule may be 

used to calculate initial margin; 

• Criteria for historical data to be 

used in initial margin models is similar; 

• Eligibility for netting is similar; 

• Correlations may be recognized 

within broad risk categories, but not 

across such risk categories; 

• The required method of calculating 

initial margin using standardized 

margin rates is essentially identical; and 

• The proscribed standardized margin 

rates are essentially identical. 

Accordingly, the Commission finds 

that the methodologies for calculating 

the amounts of initial and variation 

margin for non-centrally cleared OTC 

derivatives under the laws of the EU are 

comparable in outcome to those of the 

Final Margin Rule. 

F. Process and Standards for Approving 

Margin Models 

Pursuant to the BCBS/IOSCO 

Framework, initial margin models may 

be either internally developed or 

sourced from counterparties or thirdparty vendors but in all such cases, 

models must be approved by the 

appropriate supervisory authority.112

1. Commission Requirement for Margin 

Model Approval 

In keeping with the BCBS/IOSCO 

Framework, the Final Margin Rule 

generally requires: 

• CSEs shall obtain the written 

approval of the Commission or a 

registered futures association to use a 

model to calculate the initial margin 

required.113

• The Commission or a registered 

futures association will approve models 

that demonstrate satisfaction of all of 

the requirements for an initial margin 

model set forth above in Section 

IV(E)(1), in addition to the requirements 

for annual review; 114 control, oversight, 

and validation mechanisms; 115

documentation; 116 and escalation 

procedures.117

• CSEs must notify the Commission 

and the registered futures association in 

writing 60 days prior to extending the 

use of an initial margin model to an 

additional product type; making any 

change to the model that would result 

in a material change in the CSE’s 

assessment of initial margin 

requirements; or making any material 

change to modeling assumptions. 

• The Commission or the registered 

futures association may rescind its 

approval, or may impose additional 

conditions or requirements if the 

Commission or the registered futures 

association determines, in its discretion, 

that a model no longer complies with 

the requirements for an initial margin 

model summarized above in Section 

IV(E)(1). 

2. EU Requirement for Approval of 

Margin Models 

The EU’s margin rules generally 

require: 

• Upon request, counterparties using 

a non-standardized initial margin model 

shall provide the competent authorities 

with any documentation relating to the 

risk management procedures relating to 

such model at any time.118

3. Commission Determination 

Based on the foregoing and the 

representations of the applicant, the 

Commission has determined that the EU 

margin rules’ requirement that an FC/ 

NFC+ make documentation supporting 

an initial model available to a 

competent authority at any time is 

comparable in outcome to, the 

regulatory approval requirements of the 

Final Margin Rule. While the 

Commission recognizes that keeping 

documents open to regulatory review is 

not the same as requiring specific preapproval from a regulator, the EC has 

represented that competent authorities 

within the Member States responsible 

for supervising FCs and, where 

applicable NFC+s, as part of their 

ongoing prudential regulation and 

supervision will enforce applicable 


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119See RTS, Article 40. 

120The applicant noted that, in a November 23, 

2016 report to the European Parliament and the 

Council on areas where further action is necessary 

to ensure that the objectives of EMIR are fulfilled 

‘‘in a more appropriate, efficient and effective 

manner,’’ on the issue of margin model approval, 

the EC stated: 

[W]ith respect to non-cleared transactions, some 

respondents, notably financial institutions, noted 

the absence of a clear mandate for initial margin 

models to be endorsed by authorities, which could 

lead to uncertainty among market participants as to 

whether their calculations are considered by 

authorities to be fully compliant with regulations. 

A mandate for initial margin models to be endorsed 

by authorities could promote certainty for market 

participants and authorities alike. 

See November 23, 2016 Report from the EC to the 

European Parliament and the Council under Article 

85(1) of EMIR on OTC Derivatives, Central 

Counterparties and Trade Repositories, section 4.1.2 

(emphasis included), at http://ec.europa.eu/ 

finance/financial-markets/docs/derivatives/161123- 

report_en.pdf. 

121See § 23.153(a). 

122See § 23.153(b). 

123See § 23.153(e)(2)(i). 

124See RTS, Article 9(2). 

125See RTS, Article 13(2). 

126See RTS, Article 9(3)(a). 

127See RTS, Article 9(3)(b). 

128See RTS, Article 13(3). 

129See RTS, Article 9(1). 

130The provision of variation margin within two 

business of the calculation date may only be 

applied to the following: (a) Netting sets comprising 

derivative contracts not subject to initial margin 

requirements in accordance with this Regulation, 

where the posting counterparty has provided, at or 

before the calculation date of the variation margin, 

an advance amount of eligible collateral calculated 

in the same manner as that applicable to initial 

margins in accordance with Article 15, for which 

the collecting counterparty has used a margin 

period of risk (MPOR) at least equal to the number 

of days in between and including the calculation 

date and the collection date; (b) netting sets 

comprising contracts subject to initial margin 

requirements in accordance with this Regulation, 

where the initial margin has been adjusted in one 

of the following ways: (i) By increasing the MPOR 

referred to in Article 15(2) by the number of days 

in between, and including, the calculation date 

determined in accordance with Article 9(3) and the 

collection date determined in accordance with 

paragraph 1 of this Article; (ii) by increasing the 

initial margin calculated in accordance with the 

standardised approach referred to in Article 11 

using an appropriate methodology taking into 

account a MPOR that is increased by the number 

of days in between, and including, the calculation 

date determined in accordance with Article 9(3) 

and the collection date determined in accordance 

with paragraph 2 of this Article. For the purposes 

of point (a), in case no mechanism for segregation 

is in place between the two counterparties, those 

counterparties may offset the amounts to be 

provided. 

131See RTS, Article 12(1). 

legislation and control whether the 

models adopted by these entities 

comply with the requirements under the 

EU margin rules. Furthermore, Article 

12 of EMIR grants the competent 

authorities in each Member State the 

authority to impose fines in case of 

infringement of the rules promulgated 

under EMIR, such as the RTS.119 Such 

infringement could include an FC’s or 

NFC+’s violations of the provisions 

under Section 4 of the RTS that 

establish the general requirements for 

initial margin models.120

G. Timing and Manner for Collection or 

Payment of Initial and Variation Margin 

1. Commission Requirement for Timing 

and Manner for Collection or Payment 

of Initial and Variation Margin 

With respect to the timing and 

manner for collection or posting of 

initial margin, the Final Margin Rule 

generally provides that: 

• Where a CSE is required to collect 

initial margin, it must be collected on or 

before the business day after execution 

of an uncleared swap, and thereafter the 

CSE must continue to hold initial 

margin in an amount equal to or greater 

than the required initial margin amount 

as re-calculated each business day until 

such uncleared swap is terminated or 

expires. 

• Where a CSE is required to post 

initial margin, it must be posted on or 

before the business day after execution 

of an uncleared swap, and thereafter the 

CSE must continue to post initial 

margin in an amount equal to or greater 

than the required initial margin amount 

as re-calculated each business day until 

such uncleared swap is terminated or 

expires. 

• Required initial margin amounts 

must be posted and collected by CSEs 

on a gross basis (i.e., amounts to be 

posted may not be set-off against 

amounts to be collected from the same 

counterparty). 

With respect to the timing and 

manner for collection or posting of 

variation margin, the Final Margin Rule 

generally provides that: 

• Where a CSE is required to collect 

variation margin, it must be collected on 

or before the business day after 

execution of an uncleared swap, and 

thereafter the CSE must continue to 

collect the required variation margin 

amount, if any, each business day as recalculated each business day until such 

uncleared swap is terminated or 

expires.121

• Where a CSE is required to post 

variation margin, it must be posted on 

or before the business day after 

execution of an uncleared swap, and 

thereafter the CSE must continue to post 

the required variation margin amount, if 

any, each business day as re-calculated 

each business day until such uncleared 

swap is terminated or expires.122

With respect to both initial and 

variation margin, a CSE shall not be 

deemed to have violated its obligation to 

collect or post margin if, inter alia, it 

makes timely initiation of dispute 

resolution mechanisms, including 

pursuant to § 23.504(b)(4).123

2. EU Requirements for Timing and 

Manner for Collection of Initial and 

Variation Margin 

With respect to the timing and 

manner for collection or posting of 

initial margin, the EU’s margin rules 

generally provide that: 

• Counterparties shall calculate 

initial margin no later than the business 

day following one of these events: (a) 

Where a new non-centrally cleared OTC 

derivative contract is executed or added 

to the netting set; (b) where an existing 

non-centrally cleared OTC derivative 

contract expires or is removed from the 

netting set; (c) where an existing noncentrally cleared OTC derivative 

contract triggers a payment or a delivery 

other than the posting and collecting of 

margins; (d) where the initial margin is 

calculated in accordance with the 

standardized approach and an existing 

contract is reclassified in terms of the 

asset category referred to by the RTS as 

a result of reduced time to maturity; (e) 

where no calculation has been 

performed in the preceding 10 business 

days.124

• The posting counterparty shall 

provide the initial margin within the 

same business day of the calculation 

date.125

• Where two counterparties are 

located in the same time-zone, the 

calculation shall be based on the netting 

set of the previous business day.126

• Where two counterparties are not 

located in the same time-zone, the 

calculation shall be based on the 

transactions in the netting set which are 

entered into before 16:00 hours of the 

previous business day of the time-zone 

where it is first 16:00 hours.127

• In the event of a dispute over the 

amount of initial margin due, 

counterparties shall provide at least the 

part of the initial margin amount that is 

not being disputed within the same 

business day of the calculation date.128

With respect to the timing and 

manner for collection or posting of 

variation margin, the EU’s margin rules 

generally provide that: 

• Counterparties shall calculate 

variation margin at least on a daily 

basis.129

• The posting counterparty shall 

provide the variation margin as follows: 

(a) Within the same business day of the 

calculation date; (b) where certain 

conditions are met,130 within two 

business days of the calculation date.131

• In the event of a dispute over the 

amount of variation margin due, 


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132See RTS, Article 12(3). 

133See RTS, Article 12(2). 

134See RTS, Recital (20). 

135See RTS, Article 12(2)(b). 

136See RTS, Recital (20) and Article 12(2)(a). 

137See § 23.154(a)(3) and definition of ‘‘initial 

margin threshold’’ in § 23.151. 

138See § 23.152(b)(3). 

139See RTS, Article 29(1). 

140See RTS, Article 25(1). 

counterparties shall provide at least the 

part of the variation margin amount that 

is not being disputed.132

3. Commission Determination 

Having compared the EU’s margin 

requirements applicable to the timing 

and manner of collection and payment 

of initial and variation margin to the 

Commission’s corresponding margin 

requirements, the Commission finds 

that the EU’s margin requirements are, 

despite apparent differences in certain 

respects, comparable in outcome. 

Under the Final Margin Rule, where 

initial margin is required, a CSE must 

calculate the amount of initial margin 

each business day. The EU’s margin 

rules only require initial margin to be 

calculated after certain events, 

including the addition or removal of a 

non-centrally cleared OTC derivative 

from the netting set or at least within 10 

days after the last initial margin 

calculation. While this is different from 

the Final Margin Rule’s requirement 

that the amount of initial margin be 

calculated each business day, the EC has 

explained that the more sophisticated 

counterparties subject to the EU margin 

rules actively operate in non-centrally 

cleared OTC derivatives to the point 

where the RTS requirement to 

recalculate whenever there is a change 

to the netting set will in practice require 

these types of counterparties to 

recalculate daily. Because of this, the EC 

views the 10-day allowance under 

Article 9(2)(e) of the RTS as a backstop 

only and one that is likely to be 

exercised only in the case of a static 

portfolio. The Commission believes that 

as a result of these entities still 

exchanging variation margin, and 

thereby eliminating current exposure, 

this difference will be mitigated. 

With respect to the timing of 

collecting/posting margin, the Final 

Margin Rule requires CSEs to collect/ 

post any required margin amount within 

one business day of calculation which, 

under the Final Margin Rule, must 

occur daily. In contrast, the EU’s margin 

rules allow for a variation margin 

posting date within two business days 

of the calculation date (T+2) when 

certain conditions are met.133 As 

explained in the Recitals to the RTS, 

additional time for posting of variation 

margin is allowed only where 

compensated by an adjustment to initial 

margin by an adequate recalculation of 

MPOR.134 Where initial margin is 

required, an adequate recalculation of 

MPOR under the RTS would occur by 

increasing the MPOR by the number of 

days in between, and including, the 

calculation and collection dates or by 

increasing the initial margin calculated 

with the standardized approach taking 

into account a MPOR increased by the 

number of days in between, and 

including, the calculation and collection 

dates.135 Where no initial margin 

requirements apply, additional time is 

permitted for posting of variation 

margin if the posting counterparty has 

provided, at or before the variation 

margin calculation date, an advance 

amount of eligible collateral calculated 

in the same manner as required for 

initial margin with an MPOR at least 

equal to the number of days in between, 

and including, the calculation and 

collection dates.136

While the RTS conditions to a delay 

in the exchange of variation margin do 

not make the EU’s rule in this area the 

same as the Final Margin Rule, they do 

serve to mitigate the potential risks, as 

described above, by increasing the 

initial margin’s MPOR by the 

corresponding number of days 

associated with a delay in the exchange 

of variation margin. Furthermore, 

although the EU’s allowance for a delay 

of up to 10 days to recalculate initial 

margin is not the same as the Final 

Margin Rule’s daily recalculation 

requirement, as detailed above, the EC 

has represented that, in practice, it 

expects the most sophisticated 

counterparties subject to the EU margin 

rules to recalculate initial margin on a 

daily basis. Thus, the Commission finds 

that the requirements of the EU margin 

rules with respect to the timing and 

manner for collection or payment of 

initial and variation margin are 

comparable in outcome to the Final 

Margin Rule. 

H. Margin Threshold Levels or Amounts 

The BCBS/IOSCO Framework 

provides that initial margin could be 

subject to a threshold not to exceed EUR 

50 million. The threshold is applied at 

the level of the consolidated group to 

which the threshold is being extended 

and is based on all non-centrally cleared 

derivatives between the two 

consolidated groups. 

Similarly, to alleviate operational 

burdens associated with the transfer of 

small amounts of margin, the BCBS/ 

IOSCO Framework provides that all 

margin transfers between parties may be 

subject to a de-minimis minimum 

transfer amount not to exceed EUR 

500,000. 

1. Commission Requirement for Margin 

Threshold Levels or Amounts 

In keeping with the BCBS/IOSCO 

Framework, with respect to margin 

threshold levels or amounts the Final 

Margin Rule generally provides that: 

• CSEs may agree with their 

counterparties that initial margin may 

be subject to a threshold of no more 

than $50 million applicable to a 

consolidated group of affiliated 

counterparties.137

• CSEs are not required to collect or 

to post initial or variation margin with 

a counterparty until the combined 

amount of initial margin and variation 

margin to be collected or posted is 

greater than $500,000 (i.e., a minimum 

transfer amount).138

2. EU Requirement for Margin 

Threshold Levels or Amounts 

In keeping with the BCBS/IOSCO 

Framework, with respect to margin 

threshold levels or amounts, the EU’s 

margin requirements generally provide 

that: 

• Counterparties may provide in their 

risk management procedures that initial 

margin collected is reduced by an 

amount up to EUR 50 million where 

neither counterparty belongs to any 

group or the counterparties are part of 

different groups; or EUR 10 million 

where both counterparties belong to the 

same group.139

• Counterparties may provide in their 

risk management procedures that no 

collateral is collected from a 

counterparty where the amount due 

from the last collection of collateral is 

equal to or lower than the amount 

agreed by the counterparties. The 

minimum transfer amount shall not 

exceed EUR 500,000 or the equivalent 

amount in another currency.140

3. Commission Determination 

Based on the foregoing and the 

representations of the applicant, the 

Commission has determined that the EU 

requirements for margin threshold 

levels or amounts, in the case of FCs 

and NFC+s, are comparable in outcome 

to those required by the Final Margin 

Rule, in the case of CSEs. 

The Commission notes that at current 

exchange rates, EUR 50 million is 

approximately $59 million, while EUR 

500,000 is approximately $588,000. 

Although these amounts are greater than 

those permitted by the Final Margin 

Rule, the Commission recognizes that 


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141See § 23.154(b)(5). 

142See § 23.154(b)(5)(iv). 

143See § 23.154(b)(5)(iv). 

144See RTS, Article 1. 

145See RTS, Article 18(2). 

146See RTS, Article 18(3). 

exchange rates will fluctuate over time 

and thus the Commission finds that 

such requirements under the laws of the 

EU are comparable in outcome to those 

of the Final Margin Rule. 

I. Risk Management Controls for the 

Calculation of Initial and Variation 

Margin 

1. Commission Requirement for Risk 

Management Controls for the 

Calculation of Initial and Variation 

Margin 

With respect to risk management 

controls for the calculation of initial 

margin, the Final Margin Rule generally 

provides that: 

• CSEs are required to have a risk 

management unit pursuant to 

§ 23.600(c)(4). Such risk management 

unit must include a risk control unit 

tasked with validation of a CSE’s initial 

margin model prior to implementation 

and on an ongoing basis, including an 

evaluation of the conceptual soundness 

of the initial margin model, an ongoing 

monitoring process that includes 

verification of processes and 

benchmarking by comparing the CSE’s 

initial margin model outputs (estimation 

of initial margin) with relevant 

alternative internal and external data 

sources or estimation techniques, and 

an outcomes analysis process that 

includes back testing the model.141

• In accordance with § 23.600(e)(2), 

CSEs must have an internal audit 

function independent of the business 

trading unit and the risk management 

unit that at least annually assesses the 

effectiveness of the controls supporting 

the initial margin model measurement 

systems, including the activities of the 

business trading units and risk control 

unit, compliance with policies and 

procedures, and calculation of the CSE’s 

initial margin requirements under this 

part.142

• At least annually, such internal 

audit function shall report its findings 

to the CSE’s governing body, senior 

management, and chief compliance 

officer.143

With respect to risk management 

controls for the calculation of variation 

margin, the Final Margin Rule generally 

provides that: 

• CSEs must maintain documentation 

setting forth the variation methodology 

with sufficient specificity to allow a 

counterparty, the Commission, a 

registered futures association, and any 

applicable prudential regulator to 

calculate a reasonable approximation of 

the margin requirement independently. 

• CSEs must evaluate the reliability of 

its data sources at least annually, and 

make adjustments, as appropriate. 

• CSEs, upon request of the 

Commission or a registered futures 

association, must provide further data or 

analysis concerning the variation 

methodology or a data source, 

including: (a) The manner in which the 

methodology meets the requirements of 

the Final Margin Rule; (b) a description 

of the mechanics of the methodology; (c) 

the conceptual basis of the 

methodology; (d) the empirical support 

for the methodology; and (e) the 

empirical support for the assessment of 

the data sources. 

2. EU Requirement for Risk Management 

Controls for the Calculation of Initial 

and Variation Margin 

With respect to risk management 

controls for the calculation of initial 

margin, the EU’s margin requirements 

generally provide that: 

• Counterparties shall establish an 

internal governance process to assess 

the appropriateness of the initial margin 

model on a continuous basis, including 

all of the following: (a) An initial 

validation of the model by suitably 

qualified persons who are independent 

from the persons developing the model; 

(b) a follow up validation whenever a 

significant change is made to the initial 

margin model and at least annually; and 

(c) a regular audit process to assess the 

following: (i) The integrity and 

reliability of the data sources; (ii) the 

management information system used to 

run the model; (iii) the accuracy and 

completeness of data used; (iv) the 

accuracy and appropriateness of 

volatility and correlation 

assumptions.144

• The documentation of the risk 

management procedures relating to the 

initial margin model shall meet all of 

the following conditions: (a) It shall 

allow a knowledgeable third-party to 

understand the design and operational 

detail of the initial margin model; (b) it 

shall contain the key assumptions and 

the limitations of the initial margin 

model; (c) it shall define the 

circumstances under which the 

assumptions of the initial margin model 

are no longer valid.145

• Counterparties shall document all 

changes to the initial margin model. 

That documentation shall also detail the 

results of the validations carried out 

after those changes.146

3. Commission Determination 

Based on the foregoing and the 

representations of the applicant, the 

Commission has determined that the EU 

requirements applicable to FCs and 

NFC+s pertaining to risk management 

controls for the calculation of initial and 

variation margin are substantially the 

same as the corresponding requirements 

under the Final Margin Rule. 

Specifically, the Commission finds that 

under both the EU’s requirements and 

the Final Margin Rule, a CSE is required 

to establish a unit that is tasked with 

comprehensively managing the entity’s 

use of an initial margin model, 

including establishing controls and 

testing procedures. Accordingly, the 

Commission finds that the EU’s 

requirements pertaining to risk 

management controls over the use of 

initial margin models are comparable in 

outcome to the controls required by the 

Final Margin Rule. 

J. Eligible Collateral for Initial and 

Variation Margin 

As explained in the BCBS/IOSCO 

Framework, to ensure that 

counterparties can liquidate assets held 

as initial and variation margin in a 

reasonable amount of time to generate 

proceeds that could sufficiently protect 

collecting entities from losses on noncentrally cleared derivatives in the 

event of a counterparty default, assets 

collected as collateral for initial and 

variation margin purposes should be 

highly liquid and should, after 

accounting for an appropriate haircut, 

be able to hold their value in a time of 

financial stress. Such a set of eligible 

collateral should take into account that 

assets which are liquid in normal 

market conditions may rapidly become 

illiquid in times of financial stress. In 

addition to having good liquidity, 

eligible collateral should not be exposed 

to excessive credit, market and FX risk 

(including through differences between 

the currency of the collateral asset and 

the currency of settlement). To the 

extent that the value of the collateral is 

exposed to these risks, appropriately 

risk-sensitive haircuts should be 

applied. More importantly, the value of 

the collateral should not exhibit a 

significant correlation with the 

creditworthiness of the counterparty or 

the value of the underlying noncentrally cleared derivatives portfolio in 

such a way that would undermine the 

effectiveness of the protection offered by 

the margin collected. Accordingly, 

securities issued by the counterparty or 

its related entities should not be 

accepted as collateral. Accepted 


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147See § 23.156(a)(1). 148See § 23.156(a)(2). 149See § 23.156(a)(3). 

collateral should also be reasonably 

diversified. 

1. Commission Requirement for Eligible 

Collateral for Initial and Variation 

Margin 

With respect to eligible collateral that 

may be collected or posted to satisfy an 

initial margin obligation, the Final 

Margin Rule generally provides that 

CSEs may collect or post: 147

• Cash denominated in a major 

currency, being United States Dollar 

(USD); Canadian Dollar (CAD); Euro 

(EUR); United Kingdom Pound (GBP); 

Japanese Yen (JPY); Swiss Franc (CHF); 

New Zealand Dollar (NZD); Australian 

Dollar (AUD); Swedish Kronor (SEK); 

Danish Kroner (DKK); Norwegian Krone 

(NOK); any other currency designated 

by the Commission; or any currency of 

settlement for a particular uncleared 

swap. 

• A security that is issued by, or 

unconditionally guaranteed as to the 

timely payment of principal and interest 

by, the U.S. Department of Treasury. 

• A security that is issued by, or 

unconditionally guaranteed as to the 

timely payment of principal and interest 

by, a U.S. government agency (other 

than the U.S. Department of Treasury) 

whose obligations are fully guaranteed 

by the full faith and credit of the U.S. 

government. 

• A security that is issued by, or fully 

guaranteed as to the payment of 

principal and interest by, the European 

Central Bank or a sovereign entity that 

is assigned no higher than a 20 percent 

risk weight under the capital rules 

applicable to SDs subject to regulation 

by a prudential regulator. 

• A publicly-traded debt security 

issued by, or an asset-backed security 

fully guaranteed as to the timely 

payment of principal and interest by, a 

U.S. Government-sponsored enterprise 

that is operating with capital support or 

another form of direct financial 

assistance received from the U.S. 

government that enables the repayments 

of the U.S. Government-sponsored 

enterprise’s eligible securities. 

• A security that is issued by, or fully 

guaranteed as to the payment of 

principal and interest by, the Bank for 

International Settlements, the 

International Monetary Fund, or a 

multilateral development bank as 

defined in § 23.151. 

• Other publicly-traded debt that has 

been deemed acceptable as initial 

margin by a prudential regulator as 

defined in § 23.151. 

• A publicly-traded common equity 

security that is included in the Standard 

& Poor’s Composite 1500 Index (or any 

other similar index of liquid and readily 

marketable equity securities as 

determined by the Commission) or an 

index that a CSE’s supervisor in a 

foreign jurisdiction recognizes for 

purposes of including publicly traded 

common equity as initial margin under 

applicable regulatory policy, if held in 

that foreign jurisdiction. 

• Securities in the form of redeemable 

securities in a pooled investment fund 

representing the security-holder’s 

proportional interest in the fund’s net 

assets and that are issued and redeemed 

only on the basis of the market value of 

the fund’s net assets prepared each 

business day after the security-holder 

makes its investment commitment or 

redemption request to the fund, if the 

fund’s investments are limited to 

securities that are issued by, or 

unconditionally guaranteed as to the 

timely payment of principal and interest 

by, the U.S. Department of the Treasury, 

and immediately-available cash funds 

denominated in U.S. dollars; or 

securities denominated in a common 

currency and issued by, or fully 

guaranteed as to the payment of 

principal and interest by, the European 

Central Bank or a sovereign entity that 

is assigned no higher than a 20% risk 

weight under the capital rules 

applicable to SDs subject to regulation 

by a Prudential Regulator, and 

immediately-available cash funds 

denominated in the same currency; and 

assets of the fund may not be transferred 

through securities lending, securities 

borrowing, repurchase agreements, 

reverse repurchase agreements, or other 

means that involve the fund having 

rights to acquire the same or similar 

assets from the transferee. 

• Gold. 

• A CSE may not collect or post as 

initial margin any asset that is a security 

issued by: The CSE or a margin affiliate 

of the CSE (in the case of posting) or the 

counterparty or any margin affiliate of 

the counterparty (in the case of 

collection); a bank holding company, a 

savings and loan holding company, a 

U.S. intermediate holding company 

established or designated for purposes 

of compliance with 12 CFR 252.153, a 

foreign bank, a depository institution, a 

market intermediary, a company that 

would be any of the foregoing if it were 

organized under the laws of the United 

States or any State, or a margin affiliate 

of any of the foregoing institutions; or a 

nonbank financial institution 

supervised by the Board of Governors of 

the Federal Reserve System under Title 

I of the Dodd-Frank Wall Street Reform 

and Consumer Protection Act (12 U.S.C. 

5323).148

• The value of any eligible collateral 

collected or posted to satisfy initial 

margin requirements must be reduced 

by the following haircuts: an 8% 

discount for initial margin collateral 

denominated in a currency that is not 

the currency of settlement for the 

uncleared swap, except for eligible 

types of collateral denominated in a 

single termination currency designated 

as payable to the non-posting 

counterparty as part of an eligible 

master netting agreement; and the 

discounts set forth in the following 

table: 149

STANDARDIZED HAIRCUT SCHEDULE

Cash in same currency as swap obligation ........................................................................................................................................ 0.0 

Eligible government and related debt (e.g., central bank, multilateral development bank, GSE securities identified in paragraph

(a)(1)(iv) of this section): Residual maturity less than one-year ..................................................................................................... 0.5 

Eligible government and related debt (e.g., central bank, multilateral development bank, GSE securities identified in paragraph

(a)(1)(iv) of this section): Residual maturity between one and five years ....................................................................................... 2.0 

Eligible government and related debt (e.g., central bank, multilateral development bank, GSE securities identified in paragraph

(a)(1)(iv) of this section): Residual maturity greater than five years ............................................................................................... 4.0 

Eligible corporate debt (including eligible GSE debt securities not identified in paragraph (a)(1)(iv) of this section): Residual maturity less than one-year .................................................................................................................................................................. 1.0 

Eligible corporate debt (including eligible GSE debt securities not identified in paragraph (a)(1)(iv) of this section): Residual maturity between one and five years .................................................................................................................................................... 4.0 

Eligible corporate debt (including eligible GSE debt securities not identified in paragraph (a)(1)(iv) of this section): Residual maturity greater than five years ............................................................................................................................................................ 8.0 

Equities included in S&P 500 or related index .................................................................................................................................... 15.0 


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150See § 23.156(b)(1). 

151See § 23.156(b)(2). 

152See § 23.156(c). 

153See RTS, Article 4. 

154See RTS, Article 5(1). 

155See RTS, Article 5(2). 

156See RTS, Article 5(3). 

157See RTS, Article 6. 

158See RTS, Annex III. 

159See RTS, Article 21. 

160See RTS, Article 8. 

STANDARDIZED HAIRCUT SCHEDULE—Continued 

Equities included in S&P 1500 Composite or related index but not S&P 500 or related index ......................................................... 25.0 

Gold ..................................................................................................................................................................................................... 15.0 

With respect to eligible collateral that 

may be collected or posted to satisfy a 

variation margin obligation, the Final 

Margin Rule generally provides that 

CSEs may collect or post: 150

• With respect to uncleared swaps 

with an SD or MSP, only immediately 

available cash funds that are 

denominated in: U.S. dollars, another 

major currency (as defined in § 23.151), 

or the currency of settlement of the 

uncleared swap. 

• With respect to any other uncleared 

swaps for which a CSE is required to 

collect or post variation margin, any 

asset that is eligible to be posted or 

collected as initial margin, as described 

above. 

• The value of any eligible collateral 

collected or posted to satisfy variation 

margin requirements must be reduced 

by the same haircuts applicable to 

initial margin described above.151

Finally, CSEs must monitor the value 

and eligibility of collateral collected and 

posted: 152

• CSEs must monitor the market 

value and eligibility of all collateral 

collected and posted, and, to the extent 

that the market value of such collateral 

has declined, the CSE must promptly 

collect or post such additional eligible 

collateral as is necessary to maintain 

compliance with the margin 

requirements of §§ 23.150 through 

23.161. 

• To the extent that collateral is no 

longer eligible, CSEs must promptly 

collect or post sufficient eligible 

replacement collateral to comply with 

the margin requirements of §§ 23.150 

through 23.161. 

2. EU Requirement for Eligible 

Collateral for Initial and Variation 

Margin 

With respect to eligible collateral that 

may be collected to satisfy an initial or 

variation margin obligation, the EU’s 

margin requirements generally provide 

that counterparties may collect: 153

• Cash in the form of money credited 

to an account in any currency, or similar 

claims for the repayment of money, 

such as money market deposits. 

• Gold. 

• Debt securities issued by Member 

States’ central governments or central 

banks. 

• Debt securities issued by Member 

States’ regional governments or local 

authorities whose exposures are treated 

as exposures to the central government 

of that Member State in accordance with 

Article 115(2) of Regulation (EU) No 

575/2013. 

• Debt securities issued by Member 

States’ public sector entities whose 

exposures are treated as exposures to 

the central government, regional 

government or local authority of that 

Member State in accordance with 

Article 116(4) of Regulation (EU) No 

575/2013. 

• Debt securities issued by 

multilateral development banks listed in 

Article 117(2) of Regulation (EU) No 

575/2013. 

• Debt securities issued by the 

international organizations listed in 

Article 118 of Regulation (EU) No 575/ 

2013. 

• Debt securities issued by third 

countries’ governments or central banks. 

• Where the assets are not issued by 

the posting counterparty, not issued by 

entities that are part of the same group 

as the posting counterparty, or not 

otherwise subject to any wrong way 

risk, a counterparty may collect: 

D Debt securities issued by Member 

States’ regional governments or local 

authorities whose exposures are not 

treated as exposures to the central 

government of that Member State; 

D Debt securities issued by Member 

States’ public sector entities whose 

exposures are treated as exposures to 

the central government, regional 

government, or local authority of that 

Member State; 

D Debt securities issued by third 

countries’ regional governments or local 

authorities whose exposures are treated 

as exposures to the central government, 

regional government, or local authority 

of that third country; 

D Debt securities issued by third 

countries’ regional governments or local 

authorities whose exposures are not 

treated as exposures to the central 

government, regional government, or 

local authority of that third country; 

D Debt securities issued by credit 

institutions or investment firms 

including bonds referred to in Article 

52(4) of Directive 2009/65/EC of the 

European Parliament and of the 

Council; 

D Corporate bonds; 

D The most senior tranche of a 

securitization, as defined in Article 

4(61) of Regulation (EU) No 575/2013, 

that is not a re-securitization as defined 

in Article 4(63) of that Regulation; 

D Convertible bonds provided that 

they can be converted only into equities 

which are included in an index 

specified pursuant to point (a) of Article 

197 (8) of Regulation (EU) No 575/2013; 

D Equities included in an index 

specified pursuant to point (a) of Article 

197(8) of Regulation (EU) No 575/2013; 

D A counterparty may only use units 

or shares in undertakings for collective 

investments in transferable securities 

(UCITS) as eligible collateral where all 

the following conditions are met: (a) 

The units or shares have a daily public 

price quote; (b) the UCITS are limited to 

investing in assets that are eligible in 

accordance with Article 4(1); (c) the 

UCITS meet the criteria laid down in 

Article 132(3) of Regulation (EU) No 

575/2013. For the purposes of point (b), 

UCITS may use derivative instruments 

to hedge the risks arising from the assets 

in which they invest. In addition, where 

a UCITS invests in shares or units of 

other UCITS, these conditions shall also 

apply to those UCITS.154

D Where a UCITS or any of its 

underlying UCITS do not only invest in 

assets that are eligible collateral under 

the RTS, only the value of the unit or 

share of the UCITS that represents 

investment in eligible assets may be 

used as eligible collateral.155

D Where non-eligible assets of a 

UCITS can have a negative value, the 

value of the unit or share of the UCITS 

that may be used as eligible collateral 

shall be determined by deducting the 

maximum negative value of the noneligible assets from the value of eligible 

assets.156

• Counterparties must assess the 

credit quality of certain asset classes.157

• Counterparties shall adjust the 

value of collected collateral in 

accordance with either a methodology 

prescribed by the RTS 158 or a 

methodology using their own volatility 

estimates.159

• There are certain concentration 

limits for collateral collected as initial 

margin.160


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161See RTS, Annex II. 

162See RTS, Annex II, Table 3. 

163See Final Margin Rule, 81 FR 636, 665. 

164See id. at 668. 

165See RTS, Article 6(1). 

166See RTS, Article 6(2). 

167See RTS, Articles 6 and 7. 

168See RTS, Article 8. 

If a counterparty chooses to not use its 

own volatility estimates, the value of 

any eligible collateral collected or 

posted to satisfy initial margin 

requirements must be reduced by the 

following haircuts: 161

Cash in same currency as swap obligation ........................................................................................................................................ 0.0 

Debt securities issued by entities describe in Article 4(1)(c) to (e) and (h) to (k): Residual maturity less than one-year ................ 0.5 

Debt securities issued by entities describe in Article 4(1)(c) to (e) and (h) to (k): Residual maturity between one and five years .. 2.0 

Debt securities issued by entities describe in Article 4(1)(c) to (e) and (h) to (k): Residual maturity greater than five years .......... 4.0 

Debt securities issued by entities describe in Article 4(1)(f), (g) and (l) to (n): Residual maturity less than one-year ..................... 1.0 

Debt securities issued by entities describe in Article 4(1)(f), (g) and (l) to (n): Residual maturity between one and five years ....... 4.0 

Debt securities issued by entities describe in Article 4(1)(f), (g) and (l) to (n): Residual maturity greater than five years ............... 8.0 

Securitization positions meeting the criteria in Article 4(1)(o): Residual maturity of less than one year ........................................... 2.0 

Securitization positions meeting the criteria in Article 4(1)(o): Residual maturity between one and five years ................................ 8.0 

Securitization positions meeting the criteria in Article 4(1)(o): Residual maturity of more than five years ........................................ 16.0 

Equities included in main indices, bonds convertible to equities in main indices, and gold .............................................................. 15.0 

In addition to the foregoing, under the 

EU’s margin requirements, for the 

purpose of exchanging initial margin, all 

cash and non-cash collateral posted in 

a currency other than the currency in 

which the payments in case of early 

termination or default have to be made 

in accordance with the single derivative 

contract, the relevant exchange of 

collateral agreement or the relevant 

credit support annex (‘‘termination 

currency’’). Each of the counterparties 

may choose a different termination 

currency. Where the agreement does not 

identify a termination currency, the 

haircut shall apply to the market value 

of all the assets posted as collateral.162

3. Commission Determination 

Based on the foregoing and the 

representations of the applicant, the 

Commission finds that the EU’s 

requirements pertaining to assets 

eligible for posting or collecting by FCs 

and NFC+s as collateral for noncentrally cleared OTC derivatives, while 

different than the Final Margin Rule in 

some respects, are comparable in 

outcome to the Final Margin Rule. 

For example, under the EU margin 

regime, cash in the form of a claim for 

the repayment of money, such as money 

market deposits, is eligible collateral 

while under the Final Margin Rule it is 

not. However, although the EU margin 

regime and Final Margin Rule take 

different approaches on this point, the 

Commission did recognize the need for 

flexibility provided to counterparties by 

money market funds when it allowed 

for the use of redeemable securities in 

a pooled investment fund that holds 

only securities that are issued by, or 

unconditionally guaranteed as to the 

timely payment of principal and interest 

by, the U.S. Department of the Treasury, 

and cash funds denominated in U.S. 

dollars.163

The EU’s requirements are also 

different with respect to the eligible 

collateral for variation margin for noncentrally cleared OTC derivatives 

between FC/NFC+s that are CSEs and 

FC/NFC+s that are SDs and MSPs 

(including other CSEs). For uncleared 

swaps with an SD or MSP, the Final 

Margin Rule only permits variation 

margin to be posted or collected as 

immediately available cash funds that 

are denominated in U.S. dollars, another 

major currency (as defined in § 23.151), 

or the currency of settlement of the 

uncleared swap, while the EU’s margin 

requirements would permit any form of 

eligible collateral (as described above). 

The Commission did state in the Final 

Margin Rule, however, that requiring 

variation margin to be posted or 

collected as immediately available cash 

funds is ‘‘consistent with regulatory and 

industry initiatives to improve 

standardization and efficiency in the 

OTC swaps market.’’ 164 Thus, in 

outcome, an SD or MSP that is also 

subject to the EU margin rules likely 

would, in the normal course of business, 

be exchanging variation margin in 

immediately available cash funds. 

Other differences concern corporate 

bonds, the most senior tranche of a 

securitization, and convertible bonds 

that can be converted only into equities 

listed on specific indexes, all of which 

are allowed under the EU margin rules 

but not under the Final Margin Rule. 

However, the EU margin rules do 

address the inherent risk posed by these 

assets by including additional 

safeguards when using these types of 

collateral. Regarding corporate bonds 

and convertible bonds, a counterparty 

subject to the EU margin rules must 

assess the credit quality of the assets 

using a specified internal rating or a 

credit quality assessment issued by a 

recognized External Credit Assessment 

Institution (‘‘ECAI’’).165 Regarding the 

most senior tranche of a securitization, 

a counterparty must use an ECAI’s 

credit quality assessment to assess the 

tranche’s credit quality.166

The EU’s margin rules on eligible 

collateral also differ from the Final 

Margin Rule in ways that make the EU 

rules more stringent than the Final 

Margin Rule. For example, the EU 

margin rules require a larger haircut 

than the Final Margin Rule on 

government, central bank, and corporate 

debt where a credit quality assessment, 

as required under Article of the RTS, 

indicates low credit quality for such 

debt.167 In addition, the EU’s margin 

rules impose concentration limits for 

initial margin.168

While not identical, the Commission 

finds that the forms of eligible collateral 

for initial and variation margin under 

the laws of the EU provide protections 

that are comparable in outcome, as 

explained above, to the forms of eligible 

collateral mandated by the Final Margin 

Rule. Specifically, the Commission 

finds that the EU’s margin regime 

ensures that assets collected as 

collateral for initial and variation 

margin purposes are highly liquid and 

able to hold their value in a time of 

financial stress. Because under the EU’s 

margin regime a non-defaulting party 

would be able to liquidate assets held as 

initial and variation margin in a 

reasonable amount of time to generate 

proceeds that could sufficiently protect 

collecting entities from losses on 

uncleared swaps in the event of a 

counterparty default, the Commission 

finds the EU’s margin regime with 

respect to the forms of eligible collateral 

for initial and variation margin for 

uncleared swaps is comparable in 

outcome to the Final Margin Rule. 

K. Requirements for Custodial 

Arrangements, Segregation, and 

Rehypothecation 

As explained in the BCBS/IOSCO 

Framework, the exchange of initial 

margin on a net basis may be 


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169See BCBS/IOSCO Framework, Key principle 5. 170See id. 171See § 23.157(a) and (b). 

172See § 23.157(c)(1) and (2). 

173See § 23.157(c)(3). 

174See id. 

175See Final Margin Rule, 81 FR at 672. 

176See RTS, Article 19(1)(e). 

177See RTS, Article 19(2). 

178See RTS, Article 19(3). 

179See RTS, Article 19(5). 

180See RTS, Article 20(1). 

181See RTS, Article 20(2). 

182See § 23.157(a) and (b). 

183See http://eur-lex.europa.eu/legal-content/EN/ 

TXT/PDF/?uri=CELEX:02002L0047- 

20140702&from=EN. 

insufficient to protect two market 

participants with large gross derivatives 

exposures to each other in the case of 

one firm’s failure. Thus, the gross initial 

margin between such firms should be 

exchanged.169

Further, initial margin collected 

should be held in such a way as to 

ensure that (i) the margin collected is 

immediately available to the collecting 

party in the event of the counterparty’s 

default, and (ii) the collected margin 

must be subject to arrangements that 

protect the posting party to the extent 

possible under applicable law in the 

event that the collecting party enters 

bankruptcy.170

1. Commission Requirement for 

Custodial Arrangements, Segregation, 

and Rehypothecation 

In keeping with the principles set 

forth in the BCBS/IOSCO Framework, 

with respect to custodial arrangements, 

segregation, and rehypothecation, the 

Final Margin Rule generally requires 

that: 

• All assets posted by or collected by 

CSEs as initial margin must be held by 

one or more custodians that are not the 

CSE, the counterparty, or margin 

affiliates of the CSE or the 

counterparty.171

• CSEs must enter into an agreement 

with each custodian holding initial 

margin collateral that: 

D Prohibits the custodian from 

rehypothecating, repledging, reusing, or 

otherwise transferring (through 

securities lending, securities borrowing, 

repurchase agreement, reverse 

repurchase agreement or other means) 

the collateral held by the custodian; 

D May permit the custodian to hold 

cash collateral in a general deposit 

account with the custodian if the funds 

in the account are used to purchase an 

asset that qualifies as eligible collateral 

(other than equities, investment vehicle 

securities, or gold), such asset is held in 

compliance with § 23.157, and such 

purchase takes place within a time 

period reasonably necessary to 

consummate such purchase after the 

cash collateral is posted as initial 

margin; and 

D Is a legal, valid, binding, and 

enforceable agreement under the laws of 

all relevant jurisdictions including in 

the event of bankruptcy, insolvency, or 

a similar proceeding.172

• A posting party may substitute any 

form of eligible collateral for posted 

collateral held as initial margin.173

• A posting party may direct 

reinvestment of posted collateral held as 

initial margin in any form of eligible 

collateral.174

• Collateral that is collected or posted 

as variation margin is not required to be 

held by a third party custodian and is 

not subject to restrictions on 

rehypothecation, repledging, or 

reuse.175

2. EU Requirement for Custodial 

Arrangements, Segregation, and 

Rehypothecation 

In keeping with the principles set 

forth in the BCBS/IOSCO Framework, 

with respect to custodial arrangements, 

segregation, and rehypothecation, the 

EU’s margin rules generally require that: 

• Cash collected as initial margin 

must be maintained in cash accounts at 

central banks or credit institutions 

which fulfill all of the following 

conditions: (i) They are authorized in 

accordance with Directive 2013/36/EU 

or are authorized in a third country 

whose supervisory and regulatory 

arrangements have been found to be 

equivalent in accordance with Article 

142(2) of Regulation (EU) No 575/2013; 

and (ii) they are neither the posting nor 

the collecting counterparties, nor part of 

the same group as either of the 

counterparties.176

• Any collateral posted as initial or 

variation margin may be substituted by 

alternative collateral where all of the 

following conditions are met: (a) The 

substitution is made in accordance with 

the terms of the collateral agreement 

between the counterparties; (b) the 

alternative collateral is eligible under 

the RTS; (c) the value of the alternative 

collateral is sufficient to meet all margin 

requirements after applying any relevant 

haircut.177

• Initial margin shall be protected 

from the default or insolvency of the 

collecting counterparty by segregating it 

in either or both of the following ways: 

(a) On the books and records of a third 

party-holder or custodian; (b) via other 

legally binding arrangements.178

• Counterparties shall ensure that 

non-cash collateral exchanged as initial 

margin is segregated as follows: (a) 

Where collateral is held by the 

collecting counterparty on a proprietary 

basis, it shall be segregated from the rest 

of the proprietary assets of the collecting 

counterparty; (b) where collateral is 

held by the posting counterparty on a 

non-proprietary basis, it shall be 

segregated from the rest of the 

proprietary assets of the posting 

counterparty; (c) where collateral is held 

on the books and records of a custodian 

or other third party holder, it shall be 

segregated from the proprietary assets of 

that third-party holder or custodian.179

• The collecting counterparty shall 

not rehypothecate, repledge nor 

otherwise reuse the collateral collected 

as initial margin.180

• A third party holder may use the 

initial margin received in cash for 

reinvestment purposes.181

3. Commission Determination 

The Commission notes that in one 

respect, the EU’s margin requirements 

with respect to custodial arrangements 

are less stringent than those of the Final 

Margin Rule. Under the Final Margin 

Rule, all assets posted by or collected by 

CSEs as initial margin must be held by 

one or more custodians that are not the 

CSE, the counterparty, or margin 

affiliates of the CSE or the 

counterparty.182 The EU’s margin rules 

do not prohibit an FC or NFC+ from 

using an affiliated entity as custodian to 

hold initial margin other than cash 

collected from counterparties. 

However, the EC has highlighted in its 

application that Article 19(3) of the 

RTS, which governs how initial margin 

must be held, leads with the 

requirement that ‘‘initial margin shall be 

protected from the default or insolvency 

of the collecting counterparty.’’ As the 

applicant further represented, the EC 

and the European Supervisory 

Authorities favor the use of third-party 

holders or custodians for non-cash 

collateral but recognize through Article 

19(3)(b) of the RTS that the legal 

framework in the EU and, in particular, 

the Financial Collateral Directive,183

allows Member States to authorize other 

specific legally binding arrangements 

with equivalent finality and protection. 

An example, according to the applicant, 

would be a third-country trust bank 

that, while not necessarily recognized as 

a custodian in the EU or individual 

Member State, may offer equivalent 

collateral protection, both legally and 

operationally. 

To further encourage the use of 

arrangements that protect initial margin 

from the default or insolvency of a 

counterparty, FCs and NFC+s subject to 

the EU margin regime must get legal 

certainty (either by way of an internal 


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184See RTS, Article 19(6). 

185See RTS, Article 19(1)(g). 

186See § 23.158(a). 

187See § 23.158(b). 

188See RTS, Article 2(g). 

189See § 23.157 and Section IV(K) above. 

190See § 23.160(d) and (e). Paragraph (d) of the 

rule addresses requirements for non-netting 

jurisdictions, and paragraph (e) addresses 

jurisdictions where compliance with custodial 

arrangement requirements is unavailable. 

191See id. 

192See §§ 23.160(e) and 23.157(b). 

and independent opinion or via an 

external independent third party) as to 

whether the segregation requirements 

have been met.184 In addition, the RTS 

require counterparties to provide 

documentation to their competent 

authority upon request supporting that 

the segregation arrangements in all 

relevant jurisdictions meet these 

requirements. The RTS also require 

counterparties subject to the EU margin 

regime to have procedures that ensure 

ongoing compliance with these 

requirements, particularly to show that 

initial margin is freely transferable to 

the posting counterparty in a timely 

manner in case of default of the 

collecting counterparty.185

Accordingly, despite the differences 

in required custodial arrangements, the 

Commission has determined that the 

EU’s margin requirements applicable to 

FCs and NFC+s pertaining to custodial 

arrangements, segregation, and 

rehypothecation are comparable in 

outcome to the corresponding 

requirements under the Final Margin 

Rule. Specifically, the Commission 

finds that under both the EU’s 

requirements and the Final Margin Rule, 

a CSE/FC/NFC+ is required to segregate 

the initial margin posted by its 

counterparties under terms that ensure 

initial margin is protected from the 

default or insolvency of the collecting 

counterparty and freely transferable to 

the posting counterparty in a timely 

manner in case of any such default. 

Both regimes also prohibit the 

rehypothecation of initial margin. 

Accordingly, the Commission finds that 

the EU’s requirements pertaining to 

custodial arrangements, segregation, and 

rehypothecation are comparable in 

outcome to those required by the Final 

Margin Rule. 

L. Requirements for Margin 

Documentation 

1. Commission Requirement for Margin 

Documentation 

With respect to requirements for 

documentation of margin arrangements, 

the Final Margin Rule generally 

provides that: 

• CSEs must execute documentation 

with each counterparty that provides 

the CSE 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 the 

Final Margin Rule.186

• The margin documentation must 

specify the methods, procedures, rules, 

inputs, and data sources to be used for 

determining the value of uncleared 

swaps for purposes of calculating 

variation margin; describe the methods, 

procedures, rules, inputs, and data 

sources to be used to calculate initial 

margin for uncleared swaps entered into 

between the CSE and the counterparty; 

and specify the procedures by which 

any disputes concerning the valuation 

of uncleared swaps, or the valuation of 

assets collected or posted as initial 

margin or variation margin may be 

resolved.187

2. EU Requirement for Margin 

Documentation 

With respect to requirements for 

documentation of margin arrangements, 

the EU’s margin rules generally provide 

that the terms of all necessary 

agreements to be entered into by 

counterparties, at the latest, at the 

moment in which a non-centrally 

cleared OTC derivative contract is 

concluded. Such documentation shall 

include the terms of the netting 

agreement and the terms of the 

exchange of collateral agreement, and 

(a) any payment obligations arising 

between counterparties; (b) the 

conditions for netting payment 

obligations; (c) events of default or other 

termination events of the non-centrally 

cleared OTC derivative contracts; (d) all 

calculation methods used in relation to 

payment obligations; (e) the conditions 

for netting payment obligations upon 

termination, (f) the transfer of rights and 

obligations upon termination; (g) the 

governing law of the transactions of the 

non-centrally cleared OTC derivative 

contracts.188

3. Commission Determination 

Based on the foregoing and the 

representations of the applicant, the 

Commission has determined that the 

EU’s margin requirements pertaining to 

margin documentation are substantially 

the same as the margin documentation 

requirements under the Final Margin 

Rule. Specifically, the Commission 

finds that under both the EU’s 

requirements and the Final Margin Rule, 

a CSE/FC/NFC+ is required to enter into 

documentation with each OTC 

derivative/swap counterparty that sets 

forth the method for calculating and 

transferring initial and variation margin. 

Accordingly, the Commission finds that 

the EU’s requirements pertaining to 

margin documentation are comparable 

in outcome to those required by the 

Final Margin Rule. 

M. Cross-Border Application of the 

Margin Regime 

1. Cross-Border Application of the Final 

Margin Rule 

The general cross-border application 

of the Final Margin Rule, as set forth in 

the Cross-Border Margin Rule, is 

discussed in detail in Section II above. 

However, §§ 23.160(d) and (e) of the 

Cross-Border Margin Rule also provide 

certain alternative requirements for 

uncleared swaps subject to the laws of 

a jurisdiction that does not reliably 

recognize close-out netting under a 

master netting agreement governing a 

swap trading relationship, or that has 

inherent limitations on the ability of a 

CSE to post initial margin in compliance 

with the custodial arrangement 

requirements 189 of the Final Margin 

Rule.190

Section 23.160(d) generally provides 

that where a jurisdiction does not 

reliably recognize close-out netting, the 

CSE must treat the uncleared swaps 

covered by a master netting agreement 

on a gross basis with respect to 

collecting initial and variation margin, 

but may treat such swaps on a net basis 

with respect to posting initial and 

variation margin.191

Section 23.160(e) generally provides 

that where certain CSEs are required to 

transact with certain counterparties in 

uncleared swaps through an 

establishment in a jurisdiction where, 

due to inherent limitations in legal or 

operational infrastructure, it is 

impracticable to require posted initial 

margin to be held by an independent 

custodian pursuant to § 23.157, the CSE 

is required to collect initial margin in 

cash (as described in § 23.156(a)(1)(i)) 

and post and collect variation margin in 

cash, but is not required to post initial 

margin. In addition, the CSE is not 

required to hold the initial margin 

collected with an unaffiliated 

custodian.192 Finally, the CSE may only 

enter into such affected transactions up 

to 5% of its total uncleared swap 

notional outstanding in each broad 

category of swaps described in 

§ 23.154(b)(2)(v). 

2. Cross-Border Application of EU’s 

Margin Regime 

With respect to cross-border 

transactions, the EU’s margin 

requirements generally provide that the 


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193See EMIR, Article 13(2). 

194See EMIR, Article 13(3). 

195See RTS, Article 2(3). 

196See RTS, Article 19(6). 

197See RTS, Article 31(1). 198See RTS, Article 31(2) and (3). 

199See RTS, Recital (18). 

200See RTS, Article 31(2). 

201To facilitate this cooperation, the Commission 

has concluded memoranda of understanding with 

many of the competent authorities. See the 

Commission’s Web site at http://www.cftc.gov/ 

EC may, in order to avoid duplicative 

and conflicting requirements in respect 

of derivatives transactions, adopt 

implementing acts declaring that the 

legal, supervisory, and enforcement 

arrangements of a non-EU country are 

equivalent to the margin requirements 

for non-centrally cleared OTC 

derivatives in Article 11 or EMIR.193 An 

implementing act determining 

equivalence shall imply that 

counterparties entering into a 

transaction within the scope of EMIR 

will be deemed to have fulfilled their 

requirements where at least one of the 

counterparties is established in the third 

country in respect of which the 

implementing act has been adopted, and 

with respect to the requirements to 

which the implementing act applies.194

With respect to non-centrally cleared 

OTC derivatives subject to the laws of 

a jurisdiction where legal enforceability 

of netting agreements or collateral 

protection cannot be ensured, the EU’s 

margin regime provides that: 

• Where counterparties enter into a 

netting or an exchange of collateral 

agreement, they shall perform an 

independent legal review of the 

enforceability of those agreements. The 

review may be conducted by an internal 

independent unit or by an independent 

third party.195

• Counterparties shall perform an 

independent legal review in order to 

verify that the segregation arrangement 

meets the requirements of the RTS. The 

review may be conducted by an internal 

independent unit or by an independent 

third party.196

• Counterparties established in the 

EU may provide in their risk 

management procedures that variation 

and initial margins are not required to 

be posted for non-centrally cleared OTC 

derivative contracts concluded with 

counterparties established in a thirdcountry for which any of the following 

apply: (a) The legal review referred to in 

Article 2(3) of the RTS confirms that the 

netting agreement and, where used, the 

exchange of collateral agreement cannot 

be legally enforced with certainty at all 

times; (b) the legal review referred to in 

Article 19(6) of the RTS confirms that 

the segregation requirements of the RTS 

cannot be met. For the purposes of 

subparagraph (a), counterparties 

established in the EU shall collect 

margin on a gross basis.197

• Counterparties established in the 

EU may provide in their risk 

management procedures that variation 

and initial margins are not required to 

be posted or collected for contracts 

concluded with counterparties 

established in a third-country where all 

of the following conditions apply: (a) 

The legal review referred to in Article 

2(3) of the RTS confirms that the netting 

agreement and, where used, the 

exchange of collateral agreement cannot 

be legally enforced with certainty at all 

times and, where applicable, the legal 

review referred to in Article 19(6) of the 

RTS confirms that the segregation 

requirements of the RTS cannot be met; 

(b) the legal reviews confirm that 

collecting collateral in accordance with 

this RTS is not possible, even on a gross 

basis; and (c) the OTC derivatives in a 

counterparty’s portfolio from 

counterparties in non-netting 

jurisdictions is below 2.5%.198

3. Commission Determination 

Based on the foregoing and the 

representations of the applicant, the 

Commission finds that the EU’s margin 

regime with respect to its cross-border 

application is comparable in outcome to 

that of the Final Margin Rule as set forth 

in the Cross-Border Margin Rule. 

First, the Commission recognizes that 

the EU’s margin regime permits 

substituted compliance to substantially 

the same extent as the Cross-Border 

Margin Rule. For example, where a CSE 

finds itself subject to both the Final 

Margin Rule and the EU’s margin 

regime, it may be possible under an EC 

equivalence determination that such 

CSE’s compliance with the Final Margin 

Rule will have fulfilled the 

corresponding obligation under the EU’s 

margin regime. 

Second, with respect to transactions 

subject to the laws of a non-netting 

jurisdiction or a jurisdiction where 

collateral protection cannot be ensured, 

the EU’s margin regime requires that 

margin be collected on a gross basis and, 

where that is not possible, that the FC/ 

NFC+ limit their dealings in such 

jurisdiction to 2.5% of the OTC 

derivatives in the FC/NFC+’s portfolio. 

While this framework for non-centrally 

cleared OTC derivatives transacted with 

counterparties in these types of 

jurisdictions is not identical to the Final 

Margin Rule on this subject, the 

Commission recognizes that the 

conditions requiring that margin be 

collected on a gross basis or, where that 

is not possible, such transactions be 

subject to a conservative limit, will 

serve to mitigate the potential risks 

associated with these types of 

transactions. The RTS also provides that 

‘‘these treatments would be considered 

sufficiently prudent, because there are 

also other risk-mitigation techniques as 

an alternative to margins.’’ 199 Moreover, 

before a counterparty may even consider 

collecting margin on a gross basis or be 

permitted to transact with 

counterparties in a non-netting 

jurisdiction up to any level, the EU 

margin rules obligate counterparties to 

conduct a legal review on the 

enforceability of netting agreements in 

the third-country jurisdiction and to 

obtain a negative independent legal 

review.200

The Commission also notes that a 

CSE, including a CSE that would be 

operating under a substituted 

compliance determination, is required 

to have a risk management program 

pursuant § 23.600, and thus the 

Commission has the authority to inquire 

as to the adequacy of the risk 

management covering uncleared swaps 

in non-netting jurisdictions. 

Having considered the similarities 

and differences described above, the 

Commission finds that: (1) The 

availability of reciprocity of substituted 

compliance available from the EU 

makes the EU margin regime 

comparable in outcome in this respect 

to that of the Final Margin Rule and the 

Cross-Border Margin Rule; and (2) the 

conditions that would allow an FC/ 

NFC+ to engage in up to 2.5% of its OTC 

derivatives portfolio in jurisdictions that 

do not recognize non-netting agreements 

or where collateral protection cannot be 

ensured, including that a counterparty 

must obtain a negative independent 

legal opinion about the enforceability of 

netting agreements before even 

considering trading with counterparties 

in non-netting jurisdictions, plus other 

risk-mitigation techniques that FC/ 

NFC+s must have, make the EU margin 

regime comparable in outcome in this 

respect to that of the Final Margin Rule 

and the Cross-Border Margin Rule. 

Accordingly, the Commission finds the 

cross-border aspects of the EU’s margin 

regime comparable in outcome to those 

of the Commission. 

N. Supervision and Enforcement 

The Commission has a long history of 

regulatory cooperation with the Member 

State competent authorities, including 

cooperation in the regulation of 

registrants of the Commission that are 

also FCs.201 These competent 


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International/MemorandaofUnderstanding/ 

index.htm. 

202See § 23.160(c)(3)(i). 

203See § 23.160(c)(3)(ii). As discussed above, the 

Commission’s Final Margin Rule is based on the 

BCBS/IOSCO Framework; therefore, the 

Commission expects that the relevant foreign 

margin requirements would conform to such 

Framework at minimum in order to be deemed 

comparable in outcome to the Commission’s 

corresponding margin requirements. 

204See § 23.160(c)(3)(iii). See also 

§ 23.160(c)(3)(iv) (indicating the Commission would 

also consider any other relevant facts and 

circumstances). 205See § 23.160(c)(4). 

authorities, as noted above, are 

responsible for supervising FCs as part 

of their ongoing prudential regulation 

and supervision of such FCs, will 

enforce the RTS, which are directly 

applicable in the Member States, and 

will take all measures necessary to 

ensure that those rules are 

implemented. Thus, the Commission 

finds that the EC, through the competent 

authorities, has the necessary powers to 

supervise, investigate, and discipline 

entities for compliance with its margin 

requirements and recognizes the 

relevant competent authorities’ ongoing 

efforts to detect and deter violations of, 

and ensure compliance with, the margin 

requirements applicable in the EU. 

V. Conclusion 

As detailed above, the Commission 

has noted several differences between 

the Final Margin Rule and the EU 

margin rules. However, having 

considered the scope and objectives of 

the margin requirements for uncleared 

swaps under the laws of the EU,202

whether such margin requirements 

achieve comparable outcomes to the 

Commission’s corresponding margin 

requirements,203 and the ability of the 

Member State competent authorities to 

supervise and enforce compliance with 

the margin requirements for noncentrally cleared OTC derivatives under 

the laws of the EU,204 the Commission 

has determined that the EU margin rules 

are comparable in outcome to the Final 

Margin Rule. 

As noted above, the Final Margin 

Rule’s regulatory objective is to ensure 

the safety and soundness of CSEs in 

order to offset the greater risk to CSEs 

and the financial system arising from 

the use of swaps that are not cleared. 

The EU margin rules require 

counterparties to apply robust riskmitigation techniques to their bilateral 

relationships to reduce counterparty 

credit risk and to mitigate the potential 

systemic risk that could arise. Moreover, 

the EU margin rules achieve comparable 

outcomes to the Final Margin Rule in 

the following specific areas: The 

products and entities subject to the EU’s 

margin requirements; the treatment of 

inter-affiliate derivative transactions; 

the methodologies for calculating the 

amounts of initial and variation margin; 

the process and standards for approving 

models for calculating initial and 

variation margin models; the timing and 

manner in which initial and variation 

margin must be collected and/or paid; 

any threshold levels or amounts; risk 

management controls for the calculation 

of initial and variation margin; eligible 

collateral for initial and variation 

margin; the requirements of custodial 

arrangements, including segregation of 

margin and rehypothecation; margin 

documentation requirements; and the 

cross-border application of the EU’s 

margin regime. Finally, based on the 

long history of regulatory cooperation 

between the Commission and Member 

State competent authorities with 

supervisory and enforcement authority 

under the RTS, the Commission finds 

that the EC, through the competent 

authorities, has the necessary powers to 

supervise, investigate, and discipline 

entities for compliance with its margin 

requirements, and recognizes the 

relevant authorities’ ongoing efforts to 

detect and deter violations of, and 

ensure compliance with, the margin 

requirements applicable in the EU. 

Accordingly, a CSE that is subject to 

both the Final Margin Rule and the EU’s 

margin rules with respect to an 

uncleared swap that is also a noncentrally cleared OTC derivative may 

rely on substituted compliance for all 

aspects of the Final Margin Rule and the 

Cross-Border Margin Rule. Any such 

CSE that, in accordance with this 

comparability determination, complies 

with the EU margin rules, would be 

deemed to be in compliance with the 

Final Margin Rule but would remain 

subject to the Commission’s 

examination and enforcement 

authority.205

Issued in Washington, DC, on October 13, 

2017, by the Commission. 

Christopher J. Kirkpatrick, 

Secretary of the Commission. 

Appendix to Comparability 

Determination for the European Union: 

Margin Requirements for Uncleared 

Swaps for Swap Dealers and Major 

Swap Participants—Commission Voting 

Summary 

On this matter, Chairman Giancarlo and 

Commissioners Quintenz and Behnam voted 

in the affirmative. No Commissioner voted in 

the negative. 

[FR Doc. 2017–22616 Filed 10–17–17; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Food and Drug Administration 

21 CFR Part 862 

[Docket No. FDA–2017–N–5160] 

Medical Devices; Clinical Chemistry 

and Clinical Toxicology Devices; 

Classification of the Organophosphate 

Test System 

AGENCY: Food and Drug Administration, 

HHS. 

ACTION: Final order. 

SUMMARY: The Food and Drug 

Administration (FDA or we) is 

classifying the organophosphate test 

system into class II (special controls). 

The special controls that apply to the 

device type are identified in this order 

and will be part of the codified language 

for the organophosphate test system’s 

classification. We are taking this action 

because we have determined that 

classifying the device into class II 

(special controls) will provide a 

reasonable assurance of safety and 

effectiveness of the device. We believe 

this action will also enhance patients’ 

access to beneficial innovative devices, 

in part by reducing regulatory burdens. 

DATES: This order is effective October 

18, 2017. The classification was 

applicable on August 8, 2013. 

FOR FURTHER INFORMATION CONTACT: 

Steven Tjoe, Center for Devices and 

Radiological Health, Food and Drug 

Administration, 10903 New Hampshire 

Ave., Bldg. 66, Rm. 4550, Silver Spring, 

MD, 20993–0002, 301–796–5866. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Upon request, FDA has classified the 

organophosphate test system as class II 

(special controls), which we have 

determined will provide a reasonable 

assurance of safety and effectiveness. In 

addition, we believe this action will 

enhance patients’ access to beneficial 

innovation, in part by reducing 

regulatory burdens by placing the 

device into a lower device class than the 

automatic class III assignment. 

The automatic assignment of class III 

occurs by operation of law and without 

any action by FDA, regardless of the 

level of risk posed by the new device. 

Any device that was not in commercial 

distribution before May 28, 1976, is 

automatically classified as, and remains 

within, class III and requires premarket 

approval unless and until FDA takes an 

action to classify or reclassify the device 

(see 21 U.S.C. 360c(f)(1)). We refer to 


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