Dodd-Frank Collateral Requirements Loosened for Traders

Bloomberg has reported that the strict requirements of collateral for credit-default swaps has been relaxed, signaling a win for clients who possess “portfolio accounts that hold credit swaps tied to single securities as well as indexes.”

In March, the Securities and Exchange Commission mandated that some posted deals that were put up at the Intercontinental Exchange Inc. (ICE) would be required to have client collateral doubled. ICE and other clearing firms have called for regulators to adopt the portfolio-margining system for traders. The SEC has discussed requiring banks to “collect from clients [the] collateral equivalent to what’s required under clearinghouse rules plus the level required by their own models.”

Both the Commodity Futures Trading Commission and the SEC have planned to reduce the required collateral for traders who possess swaps in their portfolios, leading a Republican member of the CFTC, Scott O’Malia, to call it one of the “very few cost-saving measures in Dodd-Frank.” This contrasts with the SEC’s March 8 request to swap dealers to double the collected collateral from clients.

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