Agencies Propose Harmonizing Swap Margin, QFC Rules

To facilitate compliance with their rules regarding qualified financial contracts of systemically important banks, the federal banking agencies today proposed a rule clarifying that legacy swaps — those entered into before the margin rules’ compliance dates — do not become subject to margin requirements provided they are amended solely to comply with QFC rules. The agencies also proposed to harmonize the definition of “eligible master netting agreement” in the swap margin rule with recent changes to the definition of “qualifying master netting agreement” in their respective capital and liquidity regulations.

The new rule — proposed jointly with the Federal Housing Finance Agency and the Farm Credit Administration — is intended to bring the agencies’ margin rules into conformance with restrictions on QFCs finalized last year. The agencies modified QFCs to facilitate the orderly resolution of a failed institution by limiting the ability of the firm’s QFC counterparties to terminate contracts immediately upon the entry of the covered entity or one of its affiliates into resolution.

Under the margin rule, requirements for initial margin are phased in from Sept. 1, 2016, to Sept. 1, 2020, while variation margin was phased in from Sept. 1, 2016 to March 1, 2017. Comments on today’s proposed rule are due 60 days after it is published in the Federal Register.