The US Commodity Futures Trading Commission has given the market an extra six months to comply with the new variation margin requirements.
The regulator issued late Monday a time-limited no-action letter stating that, though the deadline for compliance with the variation margin rules is still March 1, the swaps regulator will not enforce action against swap dealers for failure to comply with the requirements until after September 1.
According to the CFTC’s swap dealer division, the delay is important because there could be a significant impact to the ability of various buy side firms to hedge their positions without a proper period of transition.
The interim head of the CFTC Christopher Giancarlo said that as much as 90% of financial end users are not ready to meet the new requirements:
“Global systemic risk is not reduced by the abrupt cessation of risk hedging activity by American life insurance companies and retirement funds at a time of enormous changes in financial rates and global asset values. This action by the CFTC does not change the scheduled time of arrival for the agreed margin implementation. It just foams the runway to ensure a safe landing,” Giancarlo said in a statement.
The news comes after a group of seven financial trade bodies, including the International Swaps and Derivatives Association and the Global Financial Markets Association, wrote a letter this month to twenty regulators including the CFTC and the UK’s Financial Conduct Authority to request a period of leniency following the March 1 variation deadline.
According to the trade bodies, the scale of the regulatory changes and the complexity of implementations would force firms to prioritise re-negotiation relationships with their most actively trading derivatives clients.
Experts warned in December the March deadline for compliance with the variation margin requirements would be a major challenge for many participants.