In a push of year end activity, the CFTC recently approved rules for uncleared swaps transactions between financial insitutions, swap dealers and other major swaps market participants, governing both initial and variation margin. These rules do not govern transaction subject to the Dodd Frank End User Clearing Exception.
The CFTC approved a final rule for margin on uncleared swaps, part of its efforts to drive down excessive risk-taking in the $710 trillion global market. In a 2-1 vote, the Commodity Futures Trading Commission endorsed the rule for those swaps that are traded outside of clearing houses. "While there are costs to this rule...it focuses "on those entities that create the greatest risks to our system through uncleared swaps: the large financial institutions with the greatest amount of swap activity." Under the final rule, initial margin would need to be posted by both parties for all trades between dealers, major swaps participants and covered swaps entities. The collateral could include cash or sovereign or government-sponsored debt, as well as investment-grade debt such as corporate bonds. For those swaps, only cash payments could serve as the variation, or daily, margin.