The regulator says the move will unlock liquidity for capital allocators and expand the types of assets qualifying as eligible collateral for key derivatives.
Officials at the Commodity Futures Trading Commission (CFTC) say the regulator has approved a final rule on seeded funds that will unlock liquidity for capital allocators and expand the types of assets eligible as collateral for certain derivatives transactions.
Michael Selig
“In the final rule, the Commission revised the definition of ‘margin affiliate’ such that certain collective investment vehicles that receive start-up capital from a sponsor entity (seeded funds) will not have any margin affiliates or constitute margin affiliates of another entity when calculating thresholds that trigger the requirement to exchange initial margin for uncleared swaps,” according to the CFTC.
The amendment provides relief to “swap dealers and major swap participants subject to the Commission’s uncleared swaps margin rules from posting and collecting initial margin with eligible seeded funds, as defined in the final rule, for up to three years after the asset manager begins investing on behalf of the fund,” according to the regulator.
The final rule amends margin requirements for uncleared swaps for swap dealers and major swap participants “who are not subject to prudential regulator margin rules,” officials say. The amendments are intended to “enhance market efficiency, promote global harmonization, and support responsible financial innovation, while maintaining robust risk management standards.”
The rule strikes “the right balance between streamlining regulation and upholding the market protections and robust risk management standards that make America’s commodities markets the gold standard,” says Michael S. Selig, chairman of the CFTC, in a prepared statement.
The CFTC also “eliminated a provision that previously disqualified securities issued by certain pooled investment funds (money market and similar funds) from being used as eligible initial margin collateral for uncleared swaps if asset managers transferred fund assets through securities lending, securities borrowing, repurchase agreements, reverse repurchase agreements, and similar arrangements,” officials say
“This amendment expands the scope of assets that qualify as eligible collateral,” officials say. “Finally, the Commission revised the haircut schedule for eligible margin collateral by adopting specific percentage haircuts for money market and similar funds.”
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