CFTC chairman Timothy Massad will agree to requests from the derivatives industry to delay incoming rules for the posting of margin to back over-the-counter swaps that are not cleared through central counterparties. While offering some relief to industry participants, the delay looks set to be somewhat shorter than the industry had hoped for.
The rules were scheduled to first hit the market at the end of this year but industry organisations have flooded the agency with requests for more time. Massad had mentioned the possibility of a delay in prior discussions but added context to the decision today.
“There’s a good chance we will delay rules for uncleared margin…I would expect we would have a delay for a couple of months,” said Massad at a press briefing at the Futures Industry Association’s 2015 conference in Boca, Florida today.
The long-anticipated delay is unlikely to be enough to ease the overriding concern. Industry organisation ISDA had originally requested a delay of two years (“ISDA calls for uncleared swaps margin extension”).
“The industry wanted a two-year delay, I don’t see that that’s justified,” he said. “But I think it is important to have a reasonable amount of time between when rules are fully adopted to the when they are fully implemented.”
The derivatives industry has long feared the rising costs expected to hit the market for bespoke, uncleared swaps that are typically required by end-users to hedge the specific financial risks they face, as a result of the rules.
As part of the G-20 stated goals of shifting the majority of the US$691trn OTC derivatives market through central clearing houses, regulators want to impose stringent margin requirements on bespoke uncleared transactions. They are hopeful that the additional costs will incentivise clients towards the cleared market as much as possible.
But guidelines on uncleared margin laid out by the Basel Committee on Banking Supervision and International Organisation of Securities Commissions have not been eased up through the proposal process. A global plan was proposed in 2013, leaving it up to local regulators to implement the rules in their own jurisdictions – with the ability to make changes should they choose.
The expectation was for local regulators to implement final rules in April of this year, meaning firms with over US$3trn notional exposure to bespoke swaps would have to post initial and variation margin starting in December of this year.
A delay is not set in stone until the CFTC approves it formally. Massad did not provide guidance on when formal approval may come.
