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To discuss the US Commodity Futures Trading Commission’s (CFTC’s) final rule regarding margin for uncleared swaps (the CFTC margin rule) and an interim final rule exempting non-financial and certain other end-users who are eligible for the end-user clearing exception from the scope of the CFTC margin rule, both adopted in December 2015.

Compares the CFTC margin rule to the similar “Bank margin rule”; explains what trades and types of entities are covered, the treatment of inter-affiliate swaps, the initial margin and the variation margin requirements, the types of collateral that can be posted, the required documentation, how netting is applied, the custodian requirements and the compliance dates.

The margin rules apply to uncleared swaps including cross-currency swaps, non-deliverable foreign exchange forwards and currency options. Exempt foreign exchange swaps and deliverable foreign exchange forwards are not required to be margined. Non-financial end-users who rely on the end-user exception are exempt from margin requirements.

Practical guidance from experienced financial services lawyers.

Many recently enacted financial regulations exempt smaller entities. While the literature on systemic risk provides efficiency justifications for certain exemptions, the efficiency rationale depends on measuring size appropriately. This paper aims to argue that notional amount, the metric used in derivatives regulations, is a flawed measure of an entity’s contribution to systemic risk. This study discusses an alternative size measure – entity-netted notionals or ENNs – which better reflects risk exposure as discussed in that literature and provides empirical evidence on these two metrics.

This study first discusses the relationship between the systemic risk literature and size-based exemptions. This study then describes the current metric and our risk-based alternative. Finally, this paper presents regulatory data on US interest rate swaps (IRS) and uses this to characterize some features of risk exposure.

The unique data set provides empirical insight into how well the size metric used in current regulations corresponds to a more theoretically oriented measure. This study finds the relationship between the metrics is fairly weak for entities for whom the size-based exemption will soon be ending, and provide an empirical basis for understanding why they differ. This study also provides evidence on the correlation of risk within this group of entities.

The paper has important implications for regulation of derivatives and financial markets more generally. To the extent exemptions for small entities make good policy, having the appropriate metric is critical. As such, the metric could be a valuable tool for regulators.

This paper examines the likely objectives of size-based exemptions from financial regulations and relates them to the systemic risk literature. It provides a unique empirical description of IRS positions, which allows us to examine the relationship between the metric used by regulators and our alternative.

The purpose of this paper is to explain legislative and regulatory changes and related developments that will be of interest to hedge funds and other private funds as they traverse the shifting regulatory landscape in 2012.

The paper provides a general overview of the new regulatory regime that the Dodd‐Frank Act imposes on over‐the‐counter (OTC) derivatives; describes the rescission of a regulatory exclusion from the commodity pool operator (CPO) definition that was previously available to registered investment companies and the repeal of an exemption from CPO registration requirements for operators of funds whose shares are exempt from registration under the Securities Act of 1933; discusses proposed changes to CPO and commodity trading advisor (CTA) compliance requirements; discusses Dodd‐Frank Act changes to existing securities laws and regulations, including with respect to large trader reporting and investment advisers; highlights some of the concerns raised by MF Global, Inc.’s collapse; and describes recent tax law developments.

The paper reveals that the Dodd‐Frank Act significantly alters the space within which hedge funds and other private funds currently operate.

Whereas the majority of the regulations to implement the Dodd‐Frank Act have yet to become effective, federal regulators are working diligently to implement their mandates and hedge funds and other private funds should begin preparing to comply with the new Dodd‐Frank Act requirements now.

The paper provides expert guidance by experienced securities, derivatives and tax lawyers.

The paper's aim is to explain the rules the Commodity Futures Trading Commission has adopted for the segregation of cleared swaps customers' collateral as mandated by the Dodd‐Frank Act.

The paper discusses: the deliberations that led the commission to arrive at the legal separation with operational commingling model (“LSOC”) as the regulatory standard; the characteristics of the LSOC model; and the possible future enhancements to the segregation framework under consideration by the commission, including the guaranteed clearing participant model.

Although the commission has adopted the final rules that will implement LSOC as the segregation model for cleared swaps, a number of significant issues remain open and are likely to be revisited by the commission. Additional changes to the segregation framework may be proposed as the lessons of the MF Global Bankruptcy proceedings become evident.

Practical guidance from experienced financial services lawyers is provided by the paper.

The purpose of this paper is to demonstrate that certain rules, implemented as a result of the Dodd-Frank Act (DFA) of 2010, should be harmonized between economically equivalent products in swap and futures markets to prevent regulatory arbitrage.

The paper focuses on rules surrounding margin requirements and block size thresholds. As such, a background of clearing and exchange systems is presented to familiarize the reader with the risk management objectives of the regulation. Viewpoints of several leading commentators taken from a Commodity Futures Trading Commission roundtable and comment letters are then analysed to support the argument that margin requirements and block size thresholds should be the same for similar financial products.

Based on the review and analysis of several commentators and industry participants, harmonization of rules for swaps and economically equivalent futures contract should be achieved to prevent regulatory arbitrage.

To the best of the author's knowledge, there are no articles that address the swap futurization debate in this detail. This paper will be of interest to readers who would like to learn more about how the DFA has impacted the derivatives market leading to the recent trend of swap “futurization”. It is also ideal for those who are unfamiliar with current clearing and exchange systems, as it presents background detail of this framework to supplement the debate on swap rules.

To analyze the differences between the SEC’s newly adopted final business conduct rules for security-based swap dealers and major security-based swap participants under Section 15F(h) of the Securities Exchange Act of 1934 and the parallel rules promulgated under the Commodity Exchange Act by the CFTC with respect to swap dealers and major swap participants.

This article discusses select rules under each regulatory regime and highlights the major differences and potential effects of each.

This article concludes that while the SEC’s intent was to harmonize its final rules with the parallel CFTC rules, there are substantive differences between the two sets of rules that firms should consider when deciding how to structure their security-based swap dealer activities.

This article contains insightful analysis of the newly adopted SEC Business Conduct Rules and highlights some of the ways firms will likely be affected moving forward.

The Dodd-Frank Act added a number of prohibited trading practices on futures markets and swap execution facilities. In May 2013, the CFTC issued guidance on how it intends to interpret these prohibitions. Persons trading on these facilities should understand the guidance and how it affects their trading activities. This article aims to focus on the issues.

The article analyzes the prohibitions and the CFTC's related guidance using a question and answer format to make it accessible to affected market participants.

The new trading prohibitions include spoofing, violating bids and offers, and recklessly disregarding an orderly close. Different standards of scienter (state of mind) apply to each. Intent is required to violate the anti “spoofing” provision; recklessness is required to violate the disregarding the orderly close provision, but no finding of intent is required for violating bids or offers. The CFTC will evaluate the facts and circumstances at the time of the conduct and look at the available information and what the person knew or should have known.

The Guidance is applicable to all persons who trade on futures markets or on the coming swap execution facilities (SEFs). In particular, persons trading on these facilities should be aware that certain trading practice prohibitions may be violated without a finding of intent.

The antidisruptive prohibitions and guidance are new. Market participants will need to understand and take care to ensure that their trading conduct does not run afoul of these new provisions of the Act and the Commission's interpretive guidance thereunder.

The purpose of this paper is to answer a specific research question: How have EU and US regulators translated the idea of central clearing into law?

A meticulous legal research is carried out. First, the pre‐crisis regulatory regime for credit default swap (CDS) is reviewed, from a securities law angle as well as from a comparative Euro‐American perspective. Next, the regulatory processes leading to the adoption of the central clearing regulations are discussed. Thereafter, a material comparative analysis is made of the provisions related to central clearing in the EU and US regulatory initiatives. Finally, the paper is concluded with an evaluation of both legislations in the light of all previous analyses.

The research first shows that central clearing regulations rely on a series of presumptions, both concerning the gravity of counterparty risk threats and the necessity of central clearing. Additionally, the EU and US clearing regulations are similar with regard to the broad innovations they introduce, i.e. the mandatory central clearing of a variety of over‐the‐counter derivatives and counterparty risk management requirements for central clearing institutions and for non‐cleared swaps. However, the specific content of the provisions often differs. Furthermore, both legislations are limited to enouncing broad principles. This is also the case for the crucial provisions related to counterparty risk management. Therefore, these provisions in se do not guarantee the proper regulation of counterparty risk management practices. Consequently, much is to be expected from the implementing measures adopted by regulatory institutions.

The paper provides an overview of those provisions in the European and US regulations that specifically concern central clearing for CDS. It is one of the first papers which does this in a very well‐structured and clearly written manner. Also it is one of the first to provide a clear comparison between the provisions in the EU and the US regulations.

Risk-based clearing has been proposed by Rausser et al. (2010) for over-the-counter (OTC) derivatives. This paper aims to illustrate the application of risk-based margins to a case study of the mortgage-backed securities derivative portfolio of the American International Group (AIG) during the period 2005-2008. There exists sufficient publicly available information to examine AIG’s derivative portfolio and how that portfolio would depend on conjectural changes in margin requirements imposed on its OTC derivative positions. Generally, such data on OTC derivative portfolio positions are unavailable in the public domain, and thus, the AIG data provide a unique opportunity for an objective evaluation.

This paper uses modern financial methodology to evaluate risk-based margining and collateralization for the major OTC derivative portfolio of the AIG.

This analysis reveals that a risk-based margin procedure would have led to earlier margin calls of greater magnitude initially than the collateral calls actually faced by AIG Financial Products (AIGFP). The total margin ultimately required by the risk-based procedure, however, is similar in magnitude to the collateral calls faced by AIGFP by August 2008. It is likely that a risk-based clearing procedure applied to AIG’s OTC contracts would have led to the AIG undertaking significant hedging and liquidation of their OTC positions well before the losses built up to the point they had, perhaps avoiding the federal government’s orchestrated restructuring that occurred in September 2008.

There has been no published risk-based evaluations of a major OTC portfolio of derivatives for any company, let alone the AIG.

The purpose of this paper is to propose the parametric bootstrap method for valuation of over-the-counter derivative (OTCD) initial margin (IM) in the financial market with low outstanding notional amounts. That is, an aggregate outstanding gross notional amount of OTC derivative instruments not exceeding R20bn.

The OTCD market is assumed to have a Gaussian probability distribution with the mean and standard deviation parameters. The bootstrap value at risk model is applied as a risk measure that generates bootstrap initial margins (BIM).

The proposed parametric bootstrap method is in favour of the BIM amounts for the simulated and real data sets. These BIM amounts are reasonably exceeding the IM amounts whenever the significance level increases.

This paper only assumed that the OTCD returns only come from a normal probability distribution.

The OTCD IM requirement in respect to transactions done by counterparties may affect the entire financial market participants under uncleared OTCD, while reducing systemic risk. Thus, reducing spillover effects by ensuring that collateral (IM) is available to offset losses caused by the default of a OTCDs counterparty.

This paper contributes to the literature by presenting a valuation of IM for the financial market with low outstanding notional amounts by using the parametric bootstrap method.