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US - Proposal of amendments to Swap Margin Rules

18/01/2018

On 5 January 2018, Five US prudential regulators have proposed amendments to conform their swap margin rules to the recently adopted rules restricting the cancellation rights of qualified financial contracts ("QFCs") in the event of certain resolution or bankruptcy proceedings (the "QFC Rules").

On 5 January 2018, Five US prudential regulators have proposed amendments to conform their swap margin rules to the recently adopted rules restricting the cancellation rights of qualified financial contracts ("QFCs") in the event of certain resolution or bankruptcy proceedings (the "QFC Rules"). Under the Agencies' swap margin rules, "netting" is permitted for variation and initial margin for covered swaps and security-based swaps (collectively, "covered swaps"), provided that the covered swaps are subject to an "eligible master netting agreement." "Legacy" swaps entered into before the compliance date are not subject to the margin requirements, provided that they are not amended or novated.

Under the proposed amendment, an agreement would not cease to be an "eligible master netting agreement" if it includes restrictions on close-out netting required to comply with the QFC Rules. The agencies are proposing that legacy swaps, subject to the agreements that are amended to conform to the QFC Rules, would not be new swaps captured by the swaps margin rule by virtue of the amendment.

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