MARKET INFRASTRUCTURE

CFTC grants six month relief for VM rules

The delay will help ease fears among buy-side firms, many which were reportedly nowhere near ready to comply with the 1 March go-live.

By Joe Parsons joe.parsons@strategic-i.com February 14, 2017 11:57 AM GMT

 

The US derivatives regulator will delay enforcement of strict rules for asset managers and pension funds by six months.

The delay will help ease fears among buy-side firms, many which were reportedly nowhere near ready to comply with the variation margin rules set to come into force globally on 1 March.

“The facts on the ground cannot be ignored that as much as 90% of those end-users are not ready to meet the new requirements despite their best efforts to do so,” said Christopher Giancarlo, acting chairman of the Commodity Futures and Trading Commission (CFTC).

The ‘no-action’ relief from the CFTC will mean it will not punish pension funds, asset managers and insurance companies for failing to post and exchange variation margin (VM) for bilaterally traded derivatives until 1 September.

Many buy-side firms have been unable to get ready for the rules due to the huge challenge of rewriting contracts to exchange collateral, or credit support annexes (CSAs).

According to estimates from the Securities Industry and Financial Markets Association’s Asset Management Group (SIFMA AMG) and the Investment Adviser Association (IAA) last month, of 42 asset managers it surveyed, 39 firms said they had completed 10 or fewer regulatory compliant CSAs, while 28 firms said they have completed zero.

Last week, a group of derivatives trading associations called for global regulators to implement a transitional period from 1 March, to allow buy-side firms to continue executing derivatives transactions while they complete the necessary steps for compliance.

The decision by the CFTC will put added pressure on regulators in Europe and Japan to also delay enforcement of the VM rules.

Giancarlo added: “This action by the CFTC does not change the scheduled time of arrival for the agreed margin implementation. It just foams the runway to ensure a safe landing.”