Agencies announce final changes to swap margin rule, ‘harmonizing’ definitions

Legacy swaps entered into before the applicable compliance date will not become subject to swap margin requirements if they are amended solely to comply with the requirements of qualified financial contracts (QFCs) of systemically important banking organizations, according to final amendments approved Friday by the three federal banking agencies and two other federal regulators.

The amendments will take effect 30 days after publication in the Federal Register (which will probably occur next week).

The final amendments approved by the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) – in conjunction with the Farm Credit Administration (FCA) and the Federal Housing Finance Administration (FHFA) – are intended to conform with recent rule changes that impose new restrictions on certain QFCs by the qualified systemically important banking organizations (known as QFC rules).

“The amendments harmonize the definition of ‘Eligible Master Netting Agreement’ in the swap margin rule with recent changes to the definition of ‘Qualifying Master Netting Agreement’ in the respective capital and liquidity regulations of the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) by recognizing the restrictions that were adopted by these agencies with respect to the QFC Rules,” the banking agencies said in joint release.

The agencies also noted that the swap margin rule was issued in November 2015 by the five agencies announcing the amendments. The rule established minimum margin requirements for swaps and security-based swaps that are not cleared through a clearinghouse. “The margin requirements are designed to help ensure the safety and soundness of swap entities and reduce risks to the stability of the financial system associated with non-cleared swaps activity,” the agencies noted.

Agencies approve amendments to swap margin rule