CFTC Approves Final Rule Amending Margin Requirements for Uncleared Swaps

The Commodity Futures Trading Commission (CFTC) has approved a final rule amending margin requirements for uncleared swaps. The updated framework applies to swap dealers and major swap participants that are not subject to prudential regulator margin rules, aiming to enhance market efficiency, foster global harmonization, and support financial innovation while preserving robust risk management standards. Under the final rule, the Commission revised the definition of "margin affiliate." As a result, certain collective investment vehicles receiving start-up capital from a sponsor entity—known as seeded funds—will not have margin affiliates or be treated as a margin affiliate of another entity when calculating thresholds that trigger initial margin exchange requirements. This change grants swap dealers and major swap participants relief from posting and collecting initial margin with eligible seeded funds for up to three years after an asset manager begins investing on the fund's behalf. In addition, the CFTC eliminated a restriction that previously disqualified securities issued by certain pooled investment funds, including money market and similar funds, from being used as eligible initial margin collateral for uncleared swaps if the fund assets were involved in securities lending, securities borrowing, repurchase agreements, or reverse repurchase agreements. By removing this barrier, the regulator has expanded the spectrum of assets eligible to serve as collateral. The final rule also updates the haircut schedule for eligible collateral by establishing specific percentage haircuts for money market and similar funds. CFTC Chairman Michael S. Selig noted that the rulemaking prioritizes responsible innovation by unlocking liquidity for capital allocators and broadening eligible collateral types for derivatives transactions, while maintaining critical market protections and risk standards across U.S. commodities and derivatives markets.