The margin required for uncleared swaps in the US will be revealed early next year, according to a new Dodd-Frank Act implementation timeline released by the Commodity Futures Trading Commission (CFTC).
In a speech to the Financial Markets Law Committee Seminar at the Bank of England, CFTC chairman Gary Gensler said the agency was collaborating with European and other international regulators to coordinate a global approach for uncleared swaps margin.
As the G-20’s January 2013 deadline for OTC derivatives reform nears, the CFTC has completed 39 of the 60 rules it was mandated to create. The rules require swaps to be standardised, traded on newly created platforms and centrally cleared.
Gensler said by the end of the month the CFTC could decide which instruments must initially be cleared. They are expected to include interest rate swaps in US dollars, euros, British pounds and Japanese yen, as well as a number of CDS indices in Europe and US.
“This would lead to required clearing by swap dealers and the largest hedge funds as early as the end of January,” said Gensler. “Compliance would be phased in for other market participants through the summer of 2013.”
The CFTC is also finalising rules on minimum block sizes and swap execution facilities – a new type of market for cleared swaps, created by Dodd-Frank – which it expects to complete this fall.
Meantime, derivatives trade bodies, the Futures Industry Association and International Swaps and Derivatives Association, have published a new version of the agreement which underpins cleared swaps.
Version 1.1 of the agreement, which ensures transactions are compliant with the CFTC’s rules on clearing, became effective on 1 October. The new version includes a deletion of optional tri-party annexes which permitted clearing members to set credit limits for their customers. The amendment prevents clearing brokers from discovering the identity of a customer’s original executing counterparty.
Other changes include additional language to clarify that clearing brokers must accept trades as soon as technologically possible and clarity on the cut-off times used to determine which counterparty is responsible for breakage costs.