Margin Requirements Likely for Affiliate Swaps

The CFTC is considering amending swap rules to exempt inter-affiliate swaps from mandatory clearing on the condition that they comply with margin requirements, said sources familiar with the matter.

While industry groups will likely welcome the clearing exemption, which would enable large firms to manage their exposure more easily, the margin requirement is likely to face opposition. A bill passed by the House of Representatives in March takes a looser approach, exempting inter-affiliate transactions from most swap rules, including margin and capital requirements.

“Applying swap rules to inter-affiliate transactions could have the unintended and counterproductive effect of lessening market transparency, increasing costs generally, and increasing risk both within individual institutions as well as to the overall market,” said Keith Bailey, a managing director at Barclays, at an October hearing before the House Financial Services Committee.

The measure is in line with CFTC Chairman Gary Gensler’s general approach to regulation, including far-reaching extraterritoriality provisions, which he was forced to tone down after opposition from other commissioners. It remains to be seen whether he can make margin required for inter-affiliate swaps.

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