UPDATE: Swap margin rule changes final, conform with QFC rules

A final rule that conforms provisions of the Swap Margin Rule with banking agency rules limiting certain qualified financial contracts (QFCs) has been adopted as proposed and is set to take effect Nov. 9.

The final rule was issued jointly by the Federal Reserve Board, (Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corp. (FDIC), Farm Credit Administration (FCA), and Federal Housing Finance Agency (FHFA). There were no changes from the proposed rule issued for comment in February, the agencies said.

The Swap Margin Rule sets minimum margin requirements for registered swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants. The final rule amendments conform the definition of “eligible master netting agreement” (ENMA) to the definition of “qualifying master netting agreement” in the QFC rules published by the Fed, OCC, and FDIC.

According to the final rule notice, the changes:

  • ensure that netting agreements of firms subject to the Swap Margin Rule are not excluded from the definition of “eligible master netting agreement” based solely on their compliance with the QFC rules;
  • ensure that margin amounts required for non-cleared swaps covered by agreements that otherwise constitute ENMAs can continue to be calculated on a net portfolio basis, notwithstanding changes to those agreements that will be made in some instances by firms revising their netting agreements to achieve compliance with the QFC rules;
  • state that, for any non-cleared swaps that were “entered into” before the compliance dates of the Swap Margin Rules (and which are accordingly grandfathered from application of the rule’s margin requirements), any changes to netting agreements that are required to conform to the QFC rules will not render grandfathered swaps covered by that netting agreement as “new” swaps subject to the Swap Margin Rule.

The OCC has also issued a bulletin on the final rule.

Margin and Capital Requirements for Covered Swap Entities; Final Rule

OCC Bulletin 2018-37