CFTC proposes elimination of securities lending trade restrictions
27 July 2023 US
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The Commodity Futures Trading Commission (CFTC) has proposed to eliminate a provision disqualifying securities issued by certain pooled investment funds that transfer assets through securities lending, securities borrowing, repurchase agreements and reverse repo.
This also eliminates the disqualification of similar arrangements being used as eligible initial margin (IM) collateral, thereby expanding the scope of assets that qualify as eligible collateral.
Among this proposed rule, which was approved in a recent CFTC meeting, the Commission also proposed to amend margin requirements for uncleared swaps for swap dealers and major swap participants, for which there is no prudential regulator.
This amendment would revise the definition of ‘margin affiliate’. On revision it would mean that certain collective investment vehicles that receive all of their start-up capital, or a portion thereof, from a sponsor entity, would be deemed not to have any margin affiliates.
This would be for the purposes of calculating certain thresholds that trigger the requirement to exchange IM for uncleared swaps, the CFTC states.
The CFTC says the amendment would “effectively relieve” swap dealers and major swap participants from the requirement to post and collect IM with certain eligible seeded funds for their uncleared swaps for a period of up to three years.
The three-year period would begin from the date on which the eligible seeded fund’s asset manager first begins making investments on behalf of the fund.
The proposed rule has a 60-day comment period after publication in the Federal Register.
This also eliminates the disqualification of similar arrangements being used as eligible initial margin (IM) collateral, thereby expanding the scope of assets that qualify as eligible collateral.
Among this proposed rule, which was approved in a recent CFTC meeting, the Commission also proposed to amend margin requirements for uncleared swaps for swap dealers and major swap participants, for which there is no prudential regulator.
This amendment would revise the definition of ‘margin affiliate’. On revision it would mean that certain collective investment vehicles that receive all of their start-up capital, or a portion thereof, from a sponsor entity, would be deemed not to have any margin affiliates.
This would be for the purposes of calculating certain thresholds that trigger the requirement to exchange IM for uncleared swaps, the CFTC states.
The CFTC says the amendment would “effectively relieve” swap dealers and major swap participants from the requirement to post and collect IM with certain eligible seeded funds for their uncleared swaps for a period of up to three years.
The three-year period would begin from the date on which the eligible seeded fund’s asset manager first begins making investments on behalf of the fund.
The proposed rule has a 60-day comment period after publication in the Federal Register.
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