Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

Commodity Futures Trading Commission

Office of Public Affairs

Three Lafayette Centre

1155 21st Street, NW

Washington, DC 20581

cftc.gov

October 13, 2023

Fact Sheet and Q&A – Notice of Proposed Rulemaking to Amend the Margin 

Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants: Seeded 

Funds and Money Market Funds 

The Commodity Futures Trading Commission (“Commission” or “CFTC”) is proposing to amend Regulations 

23.151 and 23.156 to: (i) provide a limited exemption to swap dealers and major swap participants from the 

requirement to exchange initial margin on uncleared swaps with certain start-up investment funds; (ii) eliminate a 

provision that disqualifies certain money market and similar funds engaging in repurchase or similar transactions 

from being eligible as initial margin collateral for uncleared swaps; and (iii) add a footnote to the haircut schedule 

for eligible collateral to specify the discount rate applicable to money market and similar funds. 

Background

Regulations 23.150 through 23.161 (“CFTC Margin Rule”) impose margin requirements on uncleared swap contracts entered 

into by swap dealers and major swap participants for which there is no prudential regulator (“covered swap entities”). 

Among other requirements, the CFTC Margin Rule mandates that covered swap entities exchange initial margin with financial 

end users, including investment funds, with material swaps exposure. An investment fund has material swaps exposure if the 

fund and its margin affiliates have a month-end average aggregate notional amount of uncleared swaps and certain other 

financial contracts with all counterparties in excess of $8 billion. A covered swap entity is required to post and collect initial 

margin with an investment fund with material swaps exposure if the initial margin, calculated based on the credit exposure 

from uncleared swaps between the covered swap entity and its margin affiliates on the one hand, and the fund and its margin 

affiliates on the other, exceeds a $50 million initial margin threshold. 

Under the CFTC Margin Rule, initial margin obligations may be satisfied only with specified forms of collateral. The current 

list of eligible collateral includes interests in certain money market and similar funds that invest only in cash and securities 

issued, or unconditionally guaranteed, by the U.S. Department of the Treasury, the European Central Bank, or certain other 

sovereign entities (“government MMFs”), provided that such funds do not engage in repurchase or similar transactions with 

fund assets, among other restrictions. 

Based on its experience administering the CFTC Margin Rule since its promulgation in 2016 and in consideration of relevant 

market participants’ feedback, the Commission proposed for comment the following amendments to its margin requirements 

for uncleared swaps:

1. Revise the definition of “margin affiliate” in Regulation 23.151 to provide that an investment fund that receives startup capital from an affiliated sponsor meeting certain requirements (“seeded fund”) is deemed not to have margin 

affiliates for the purpose of calculating the seeded fund’s material swaps exposure and $50 million initial margin 

threshold amount. The proposal would exclude a seeded fund from initial margin requirements for a period not to 

exceed three years from the fund’s trading inception date to provide an opportunity for the seeded fund to develop a 

performance record and to attract outside investors (“eligible seeded fund exception”); 
Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

2. Define the term “eligible seeded fund” to set forth the conditions that a start-up investment fund must meet to qualify 

for the eligible seeded fund exception; 

3. Eliminate the restriction in Regulation 23.156(a)(1)(ix) that prohibits securities of government MMFs from qualifying 

as eligible margin collateral if the managers of the government MMFs are authorized to transfer fund assets through 

repurchase or similar arrangements (“asset transfer restriction”); and

4. Amend the haircut schedule for eligible collateral set forth in Regulation 23.156(a)(3)(i)(B) to specify the percentage 

discount applicable to the securities of government MMFs. 

Objective

The Commission is seeking to amend its margin requirement for uncleared swaps to address challenges identified in the 

implementation of the requirements and to further harmonize its requirements with those of other international markets that 

have adopted the Basel Committee on Banking Supervision and Board of the International Organization of Securities 

Commissions’ Framework for margin requirements for non-centrally cleared derivatives.1 

The Commission believes that the proposal supports the CFTC Margin Rule’s objective of imposing margin requirements that 

are commensurate with the risk of uncleared swaps entered into by covered swap entities, consistent with the Commodity 

Exchange Act’s mandate, set forth in Section 4s(e) of the Act, that the Commission adopt rules that are “appropriate for the 

risk associated with” the uncleared swaps held by swap dealers and major swap participants. 

Proposed Rulemaking Q & A

1. Who would be affected by the proposed changes?

Covered swap entities and counterparties that use, or intend to use, shares of government MMFs as initial margin 

collateral for uncleared swap transactions. 

• Covered swap entities that enter into swap transactions with counterparties that are eligible seeded funds. 

•

2. What policy considerations motivated the proposed changes? 

Under the current CFTC Margin Rule, seeded funds calculate the thresholds that trigger compliance with the initial 

margin requirements by including their sponsor’s and other consolidated affiliates’ exposures. As a result, even if 

seeded funds have limited swaps activity and related exposures, they may need to exchange initial margin with covered 

swap entities if the seeded funds cross the compliance thresholds on a consolidated group basis with their sponsor 

and other affiliates. In proposing the “eligible seeded fund exception,” the Commission intends to establish a 

consistent treatment of seeded funds that are consolidated within a group of entities that collectively exceed the initial 

margin compliance thresholds and similar funds that are not part of such a group or subject to such a requirement. 

In addition, the Commission believes that seeded funds do not pose significant risks to their swap counterparties or 

systemic risk to the financial system given that their typical capitalization does not exceed $50-100 million and the 

gross notional amount of their swaps is small. The Commission also believes that the proposal would promote capital 

formation. 

In proposing to eliminate the asset transfer restriction, the Commission is addressing the potential risk of 

concentration of margin collateral in the securities of a few government MMFs and contribute to more efficient 

collateral management practices. In connection with this proposal, the Commission considered the regulatory 

framework applicable to money market funds and the historic performance of money market funds in times of 

financial stress. In that regard, the U.S. Securities and Exchange Commission has noted in its recent reforms of 

money market funds that investors typically view U.S. government money market funds – a category that includes the 

type of funds that may qualify as eligible collateral under Regulation 23.156 – as relatively safe investments during 

 

1 See BCBS/IOSCO, Margin requirements for non-centrally cleared derivatives (April 2020), https://www.bis.org/bcbs/publ/d499.pdf.
Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

times of market turmoil.2 As a result, government money market funds, in contrast to prime money market funds 

that invest in short-term corporate securities, have generally experienced liquidity inflows during periods of stress. 

3. Would the proposal expand the categories of money market funds that are eligible as initial margin 

collateral?

No. Currently, the only money market fund shares that may be used as initial margin collateral under Regulation 

23.156 are shares issued by government MMFs. As noted above, to qualify as margin collateral, government MMFs 

may invest only in: (i) securities issued, or unconditionally guaranteed, by the U.S. Department of the Treasury, and 

cash denominated in U.S. dollars; or (ii) securities denominated in a common currency and issued by, or fully 

guaranteed by, the European Central Bank or a sovereign entity that is assigned no higher than a 20 percent risk 

weight, and cash denominated in the same currency. The Commission is not proposing to change these requirements. 

The Commission is not proposing, and is not contemplating in the proposal, any change in the CFTC Margin Rule

that would permit shares of money market funds that invest in short-term corporate securities (i.e., prime money 

market funds) to be used as initial margin collateral for uncleared swaps transactions.

4. Why is the Commission proposing to remove the restriction on government MMFs engaging in repurchase 

transactions with fund assets?

The Commission is proposing to remove the restriction on government MMFs engaging in repurchase transactions or 

similar transactions with fund assets to provide for more efficient collateral management practices by swap market 

participants and to address potential concentration risk that exists under the current rule. Specifically, only a small 

number of government MMFs do not engage in repurchase or similar transaction with fund assets, and removing the 

restriction would greatly expand the number of government MMFs available for use as initial margin collateral. In 

addition, money market funds generally engage in repurchase or similar transactions on a collateralized basis 

mitigating potential credit risk to a government MMF in the event of a counterparty default.

5. What safeguards exist to limit the uncollateralized credit exposure that would potentially result from 

applying the eligible seeded fund exception?

The proposed exception would apply only to initial margin. Covered swap entities and seeded funds would continue 

to be required to exchange variation margin on a daily basis, subject to a minimum transfer amount of $500,000 

currently set forth in the CFTC Margin Rule. The exchange of variation margin reduces overall counterparty 

exposure by ensuring that gains and losses on swap positions are settled between counterparties on a daily basis.

The exception is also narrowly tailored in that a covered swap entity may forgo collecting and posting initial margin 

with an eligible seeded fund for a maximum of three years from the date the fund starts trading. In addition, the 

proposed exception would only apply for purposes of calculating the material swaps exposure threshold and the initial 

margin threshold amount applicable to the fund; the sponsor entity and other affiliates that do not independently 

qualify for the exception would have to count the eligible seeded fund’s swap exposures when calculating their 

thresholds.

Separately, covered swap entities would continue to be subject to capital requirements based on their uncollateralized 

swap exposures, including swap exposures to eligible seeded funds. 

6. Why is the proposed eligible seeded fund exception limited to three years?

 

2 Money Market Fund Reforms; Form PF Reporting Requirements for Large Liquidity Fund Advisers, Technical Amendments to Form N-CSR 

and Form N-1A, 88 FR 51404 (Aug. 3, 2023) at 51417. The term “government money market fund” is defined in Rule 2a-7 

under the Investment Company Act of 1940 (“SEC Rule 2a-7”) as a money market fund that invests 99.5 percent or more of 

its total assets in cash, government securities, and/or repurchase agreements that are collateralized fully. “Government 

security” is in turn defined in 15 U.S.C. 80a-2(a)(16) as “any security issued or guaranteed as to principal or interest by the 

United States, or by a person controlled or supervised by and acting as instrumentality of the Government of the United States 

pursuant to authority granted by the Congress of the United States; or any certificate of deposit of any of the foregoing.” 

Therefore, government money market funds, as defined in SEC Rule 2a-7, may encompass the category of funds described in 

Regulation 23.156(a)(1)(ix)(A). 
Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

The three-year term is intended to provide an appropriate period of time for a seeded fund to establish a sufficient 

performance record to draw in third-party investors while also ensuring that there is a defined date for the termination 

of the seeded fund’s initial margin exception. 

7. To what extent do the proposed amendments follow the recommendations of the Global Markets Advisory 

Committee’s Subcommittee on Margin Requirements? 

The Commission has five active advisory committees that provide input and make recommendations to the 

Commission on a variety of regulatory and market issues that affect the integrity and competitiveness of the U.S. 

derivatives markets. Although the proposal originated in connection with a series of recommendations provided to 

the Commission in a report by a subcommittee of one of the five active advisory committees, the Global Markets 

Advisory Committee (“GMAC”),3 the Commission also conducted its own analysis in determining the proposed 

amendments for which the Commission is seeking public comment. With respect to the proposed eligible seeded 

fund exception, the proposal contains eight conditions designed to ensure that the proposed exception is narrowly 

tailored to the seeded funds identified by the GMAC Report. In addition, the Commission set forth proposed 

conditions that are stricter than the GMAC Report’s recommended parameters. For instance, one of the proposed 

conditions is that the seeded fund must not be collateralized, guaranteed, or otherwise supported, directly or 

indirectly, with respect to any of its obligations, by the sponsor or an affiliate of the sponsor, another fund, or the 

asset manager. This condition is stricter than the proposed condition in the GMAC Report, which suggested that the 

fund must not be collateralized, guaranteed, or otherwise supported in the event of bankruptcy.

8. Why is the Commission proposing the amendments at this time?

The GMAC Report was issued in May 2020. Subsequent to the issuance of the report, the Commission completed 

two rulemakings to address three of the ten recommendations in the GMAC Report that were time-sensitive due to 

pending compliance dates of the original rule and other factors.4 The recommendations regarding seeded funds and 

government MMFs, however, required further Commission staff review and analysis that was only completed 

recently. 

 

3 See Recommendations to Improve Scoping and Implementation of Initial Margin Requirements for Non-Cleared Swaps, Report to the CFTC’s 

Global Markets Advisory Committee by the Subcommittee on Margin Requirements for Non-Cleared Swaps (May 2020) (“GMAC Report”), 

https://www.cftc.gov/media/3886/ GMAC_051920MarginSubcommitteeReport/download.

4 See Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 86 FR 229 (Jan. 5, 2021) and Margin 

Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 86 FR 6850 (Jan. 25, 2021).