CFTC Delays Phase 5 Initial Margin Implementation Date

June 05, 2020

The US Commodity Futures Trading Commission has approved an interim final rule extending the Phase 5 initial margin compliance deadline for uncleared swaps by one year.

At an open meeting on May 28, 2020, the US Commodity Futures Trading Commission (CFTC) approved an interim final rule amending Regulation 23.161 to extend by one year, until September 1, 2021, the initial swap margin compliance deadline for Phase 5 financial entities that was set for September 1, 2020 by a CFTC rule that just became effective on May 11.[1] The CFTC’s decision follows the lead of the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO), whose actions were taken earlier this year in response to the coronavirus (COVID-19) pandemic.

The CFTC, however, declined at this time to take the other action recommended by BCBS and IOSCO, namely a similar one-year deferral of the initial margin compliance date for all remaining CSEs (i.e., swap dealers and major swap participants for which there is no prudential regulator, combined with their margin affiliates) and their counterparties (i.e., those CSEs and their counterparties with AANA of $50 billion or less (the Phase 6 entities)). As a result, Phase 5 and Phase 6 entities will, at least temporarily, have the same compliance date of September 1, 2021.

However, the CFTC noted that it intends to address deferral of the Phase 6 compliance date through a notice of proposed rulemaking and public comment process.

What’s Next?

The interim final rule will take effect upon publication in the Federal Register. Comments on the Phase 5 initial margin interim final rule must be filed with the CFTC within 60 days following publication in the Federal Register.

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Michael M. Philipp 

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Mana Behbin
Laura E. Flores

[1] Currently, Phase 5 entities are (1) covered swap entities (CSEs) (i.e., swap dealers and major swap participants for which there is no prudential regulator, combined with their margin affiliates); and (2) their counterparties, combined with their respective margin affiliates, that have a daily average aggregate notional amount (AANA) of uncleared swaps, uncleared security-based swaps, foreign exchange forwards, and foreign exchange swaps in March, April, and May 2020 that exceeds $50 billion. The interim final rule defers both the measurement period and the compliance date for Phase 5 entities so that an entity with AANA exceeding $50 billion for March, April, and May 2021 must comply with the initial margin rules starting on September 1, 2021.