Margin For Uncleared Swaps: A Critical Look At The CFTC And Prudential Regulators Proposals

Last fall both the Commodity Futures Trading Commission ("CFTC") and five U.S. prudential banking regulatorshere, we summarized the Proposals. In this Client Alert, we take a deeper look at the Proposals and highlight some of the many challenges that they would pose for market participants if implemented in their proposed form. ¹ (the "Prudential Regulators") released proposed rules for margin requirements for uncleared swap transactions for the entities subject to their regulation (the proposed rules of the CFTC, the "CFTC Proposal,"² the proposed rules of the Prudential Regulators, the "Prudential Regulators Proposal,"³ and the proposed rules, collectively, the "Proposals"). The margin requirements, when finalized, will play a significant role in determining the economics of the post-Dodd-Frank uncleared⁴ swaps market, including the extent to which market participants may favor or disfavor uncleared swaps in comparison with other types of transactions. In a