At Joint Open Meeting, SEC and CFTC Approve Final Rule on Security Futures Margin and Request for Comment on Portfolio Margining

The Securities and Exchange Commission and the Commodity Futures Trading Commission, at their first joint open meeting to vote on rulemaking initiatives, today approved: (1) a joint final rule to harmonize the minimum margin level for security futures held in a futures account with the minimum margin level for security futures held in a securities portfolio margin account, and (2) the issuance of a joint request for comment on the portfolio margining of uncleared swaps and non-cleared security-based swaps. 

The joint final rule and request for comment are two components of the Commissions’ ongoing efforts to further harmonize their regulatory regimes to better serve the markets and investors. 

“Collaboration and coordination between the two Commissions are critical to achieving our shared regulatory objectives,” said SEC Chairman Jay Clayton. “I want to express my thanks to my colleagues at both the SEC and CFTC for their hard work, and I look forward to continuing to work together to improve our markets, including exploring potential opportunities for efficiencies in portfolio margining.”

“The markets the CFTC and SEC regulate are highly interconnected, so coordination is vital to regulatory effectiveness. The historic joint open meeting of our two agencies reflects our strong commitment to cooperation and harmonizing our efforts where appropriate,” said CFTC Chairman Heath P. Tarbert. “Today’s final rule represents an important example of our long history of cooperation regarding the joint regulation of security futures. I am pleased that the Commissions will continue this collaboration to examine potential ways to implement the portfolio margining of uncleared swaps and non-cleared security-based swaps.”

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FACT SHEET
Joint Final Rule: Customer Margin Rules Relating to Security Futures
October 22, 2020

Action

The joint final rule will harmonize the minimum margin level for security futures, whether they are held in a futures account, a securities portfolio margin account, or a securities account that is not approved for portfolio margining.

Highlights of the Action

The Commissions have joint rulemaking authority regarding margin requirements for security futures.  In 2002, the Commissions adopted rules establishing margin levels for unhedged security futures at 20 percent.  In light of the asymmetry in margin requirements resulting from the 15 percent margin level that has been established for security futures and comparable financial products held in a securities portfolio margin account, the Commissions are adopting the proposed margin requirement to set the required margin level for each long or short unhedged position in a security future at 15 percent of its current market value.

At this time, there are no security futures contracts listed for trading on U.S. exchanges.  The final rule amendments, however, would set a 15 percent level for security futures if an existing exchange were to resume operations or another exchange were to launch security futures contracts.

What’s Next?

This final rule is effective 30 days after publication in the Federal Register.

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FACT SHEET
Joint Request for Comment: Portfolio Margining of Uncleared Swaps and Non-Cleared Security-based Swaps
October 22, 2020

Action

The joint request for comment seeks public input on potential ways to implement portfolio margining of uncleared swaps and non-cleared security-based swaps, including whether there are opportunities to enhance efficiencies, reduce complexity, increase consistency and add resiliency to our financial system through adjustments to our current margin rules. 

Highlights of the Action

Portfolio Margining

Portfolio margining generally refers to the cross margining of related positions in a single account.  Portfolio margining of uncleared swaps, non-cleared security-based swaps, and related positions can offer benefits to customers and the markets, including promoting greater efficiencies in margin calculations with respect to offsetting positions.  At the same time, facilitating portfolio margining for uncleared swaps, non-cleared security-based swaps, and related positions requires careful consideration to ensure that any customer protection and applicable regulatory issues and potential impacts are appropriately considered and addressed.

Regulation of Non-Cleared Security-based Swaps and Uncleared Swaps

Under the Dodd-Frank Act, the CFTC has jurisdiction over uncleared swaps and the SEC has jurisdiction over non-cleared security-based swaps.  The CFTC has adopted margin rules (including minimum standards for the safekeeping of collateral) for uncleared swaps applicable to nonbank swap dealers and the SEC has adopted margin and segregation rules applicable to nonbank security-based swap dealers.  As discussed in the request for comment, the requirements of these rules differ in some ways that would be relevant to portfolio margining. 

The following table summarizes some of the similarities and differences between the agencies’ margin rules:

Specific Requests for Comment; Different Account Types

The request for comment solicits comment on various specific aspects of the margining of uncleared swaps, non-cleared security-based swaps, and related positions, including on the merits, benefits, and risks of portfolio margining these types of positions, and on any regulatory, legal, and operational issues associated with portfolio margining these various positions in different account types.

The following table, organized by account type and position type, summarizes the current margin and segregation requirements that apply and the types of positions subject to our requests for comment:

What’s Next

The public comment period will remain open for 30 days following publication in the Federal Register.  All comments will be posted on both the CFTC’s website and the SEC’s website.