CFTC Approves Margin Comparability Determination for Australia

Despite some differences between its own rules and Australia’s regime for uncleared swaps margining, the CFTC has determined that the end result is the same.

The CFTC (Commodity Futures Trading Commission) has approved a comparability determination finding the margin requirements for uncleared swaps in Australia are comparable to its own rules.

“This means that market participants can rely on one set of rules – in their totality – without fear that another jurisdiction will seek to selectively impose an additional layer of regulatory obligations,” said CFTC chairman J. Christopher Giancarlo.

“This comparability determination is another example of how the [CFTC] is committed to showing deference to foreign jurisdictions that have comparable regulatory and supervisory regimes. Such an approach is essential to ensuring strong and stable derivatives markets that support economic growth both within the United States and around the globe.”

Despite some differences between the CFTC’s rules and Australia’s regime – for example, in the requirement for initial margin to be segregated at a third party custodian, where Australia also allows it to be held in some other bankruptcy-remote manner such as a trust account – the CFTC has determined that the end result is the same.

Commissioner Dan Berkovitz noted that unlike the CFTC margin rule, APRA (the Australian Prudential Regulation Authority) only requires variation margin to be exchanged between counterparties whose average notional amount of uncleared swaps exceeds a certain threshold. However, Australia’s non-centrally cleared swaps market is highly concentrated in large entities that exceed the threshold, therefore subjecting the large majority of transactions to variation margin, he explained.

The determination finds APRA rules on uncleared swap margin requirements comparable in relation to CFTC rules on:

  • entities subject to uncleared swap margin requirements;
  • treatment of inter-affiliate swaps;
  • methodologies for calculating initial and variation margin amounts;
  • process and standards for approving models for calculating initial margin;
  • timing and manner of collection and payment of margin
  • threshold levels or amounts;
  • risk management controls for calculation of initial and variation margin;
  • eligible collateral;
  • custodial arrangements, segregation and rehypothecation;
  • margin documentation; and
  • cross-border application/reciprocity.

The announcement comes on the heels of an amended comparability determination for Japan with respect to margin requirements for uncleared swaps, which found comparability regarding the scope of entities subject to the requirements and the treatment of margining for inter-affiliate transactions.

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