Corporate Advisory

CFTC Approval provides a break on billions in swaps

Wednesdays regulator sign off brings some relief, freeing the industry’s U.S. banking units from having to post billions of dollars of collateral for certain derivatives trades.

The Commodity Futures Trading Commission’s rule endorses the move by banking regulators to soften requirements from an earlier proposal despite the objections by one commissioner and prominent supporters of tougher standards. The result of the CFTC measure, approved with a 2-1 vote, is a one-sided posting of margin when a swaps-trading division of a company trades with its banking unit, instead of making both sides collect collateral from each other.

The CFTC move ensures that banks affiliates such as U.K. brokerages aren’t required to exchange initial margin when trading with other affiliates at their company, though they must post margin to a deposit-taking bank unit overseen by U.S. banking regulators. Affiliates would still have to exchange variation margin.

The agency’s new rule is meant to match what the banking regulators already did, CFTC Chairman Timothy Massad said on Wednesday. He called the outcome “strong and sensible,” since it lets financial firms manage their affiliates’ risks in one hub without putting excessive costs on their internal transactions.

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