Funds News

UPDATE 1-U.S. regulator gives grace period for swaps collateral rule

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WASHINGTON, Feb 13 (Reuters) - The U.S. derivatives regulator on Monday gave swaps dealers a six-month grace period to comply with a variation margin rule that becomes effective March 1, saying most companies are unprepared for the change.

The Commodity Futures Trading Commission said it will not take an enforcement action against a swap dealer for failing to comply with the rule until Sept. 1, in what is known as a “no-action letter.”

This six-month period will give the dealers time to bring their systems in line with the new rule requirements, and the CFTC has provided similar grace periods for previous rules, according to an agency spokesman.

The acting CFTC chairman, J. Christopher Giancarlo said that the letter “does not change the scheduled time of arrival for the agreed margin implementation. It just foams the runway to ensure a safe landing.”

He also said 90 percent of the companies and funds that hedge risk with swaps are not ready to meet the new requirements despite their best efforts.

Asset managers last month had pleaded with regulators around the globe to delay their rules on variation margin, the collateral posted for swaps.

The U.S. rule, part of the Dodd-Frank reform law passed in 2010, is intended to require adequate collateral for covering positions in swaps that are not cleared by a third party. It sets limits on what can be used as variation, or daily, margin and who must post it.

The CFTC is sensitive about creating upheaval in its implementation of new rules. It stirred up derivatives markets around the world in September when it brought a different set of margin requirements for uncleared swaps online while other countries delayed implementing their rules. The agency then had to push back the compliance date for a month.

Giancarlo, who is often mentioned as a possible pick by President Donald Trump to become the permanent chair of the commission, has previously said that the regulator needs to coordinate better with international counterparts. (Reporting by Lisa Lambert; Editing by Chris Reese and Lisa Shumaker)