Prudential Regulators Amend Non-Cleared Swap Margin Requirements

June 30, 2020

On June 25, 2020, the Board of Governors of the Federal Reserve, the Farm Credit Administration, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, and the Office of the Comptroller of the Currency approved final amendments to their margin requirements for non-cleared swaps and security-based swaps for swap dealers, security-based swap dealers, major swap participants and major security-based swap participants regulated by the Prudential Regulators.

The Final Rule (1) mostly eliminates initial margin requirements for swaps between affiliates; (2) preserves legacy status for swaps that are amended to replace certain interest rate provisions or due to technical amendments, notional reductions, or portfolio compression exercises; (3) adds a sixth compliance phase for IM requirements; (4) clarifies the time at which IM trading documentation must be in place; and (5) finalizes, as initially adopted, the interim final rule dealing with Brexit-related issues. The Final Rule will take effect 60 days after publication in the Federal Register.

The Prudential Regulators also published an interim final rule providing Swap Entities with an additional year to comply with the IM requirements for counterparties in phases 5 and 6, which will take effect 61 days after publication in the Federal Register.

This memorandum provides an overview of the Final Rule and the Interim Final Rule.