The Commodity Futures Trading Commission (CFTC) approved a final rule on Tuesday amending margin requirements for uncleared swaps, introducing significant relief for certain investment funds and expanding the pool of eligible collateral. The changes target swap dealers and major swap participants not under the purview of U.S. banking regulators, aiming to improve market efficiency while preserving core risk management standards.
Seeded funds receive three-year margin exemption. Under the revised rules, qualifying “seeded funds”—investment vehicles initially capitalized by a sponsor—will no longer be treated as margin affiliates during their early stages. This classification previously forced funds to count uncleared swap exposure toward initial margin thresholds. Now, for up to three years after an asset manager begins investing on behalf of the fund, swap dealers and major swap participants are not required to exchange initial margin with these entities, effectively reducing the capital burden at launch.
Collateral eligibility broadened. The CFTC removed a restriction that disqualified securities issued by certain money market and pooled investment funds from serving as initial margin if those funds engaged in securities lending, repos, reverse repos, or similar transactions. With this amendment, a wider range of money market fund shares can now be pledged as collateral. To account for varying risk profiles, the Commission also introduced new percentage haircuts for these instruments.
Chairman emphasizes balance. CFTC Chairman Michael S. Selig stated the rule “unlocks liquidity for capital allocators and expanding the types of assets that qualify as eligible collateral for certain derivatives transactions, striking 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.” The amendments are the latest step in a broader recalibration of post-2008 derivatives rules, aligning U.S. standards more closely with international practices without dismantling systemic safeguards.
