In an expected move, the CFTC voted last week to close the "deguaranteeing" loophole and expand uncleared swap margin requirements to cover foreign subsidiaries of US banks whether the parent bank has guaranteed the obligations of that foreign affiliate or not.
The U.S. derivatives regulator on Tuesday said it had adopted a final rule on margins for uncleared swaps that cross national boundaries... In some cases, swap dealers and participants can comply with comparable requirements on margin, or collateral, from another country as an alternative to the rule and the CFTC laid out a process for reviewing when foreign margin requirements can be substituted. But the CFTC regime only applied to foreign units of U.S. firms that had financial guarantees from their parent companies. As a result, some firms stopped guaranteeing their foreign units and escaped U.S. rules for swaps, derivatives used to hedge risk. Massad said the rule or a comparable international measure would apply to foreign subsidiaries of a U.S. parent even without a guarantee.