CFTC Expands Margin Comparability Determination for Japan

The amended determination for Japan finds comparability regarding the scope of entities subject to the margin requirements, and the treatment of margining for inter-affiliate transactions.

The CFTC (Commodity Futures Trading Commission) has amended its 2016 comparability determination for Japan with respect to margin requirements for unclear swaps.

“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,” said CFTC chairman J. Christopher Giancarlo, referring to the regulator’s framework for reducing duplicative and overlapping regulatory requirements where effective comparable regulation exists.

“Today’s comparability determination is further evidence that the Commission is committed to showing deference to foreign jurisdictions that have comparable regulatory and supervisory regimes,” he added.

The amended determination finds comparability regarding the scope of entities subject to the margin requirements, and the treatment of margining for inter-affiliate transactions.

The original 2016 determination did not find comparability in these areas, which caused some confusion and sometimes requiring the CFTC to provide additional no-action relief to address relatively minor differences between regimes.

For example, after the 2016 Japan Determination was issued, swap dealers requested relief from the requirement to post and collect variation margin on a T+1 timeframe with certain counterparties, requesting instead a T+3 standard to accommodate the use of JGBs (Japanese Government Bonds), a common form of collateral in Japan which settle in two or three days, said CFTC commissioner Brian Quintenz.

“The relief was needed in order to allow swap dealers to continue transacting with smaller Japanese counterparties. I am pleased that under the comprehensive Determination issued today, further no-action relief will not be necessary because the Determination appropriately accounts for swap dealers’ various types of counterparties and the timing of collateral exchange,” he said.

 

 

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