FDIC swap margin changes analysed

Author: Edward Price | Published: 30 Oct 2015
It’s a race against time to update documentation

Last month's Federal Deposit Insurance Corporation (FDIC) approval of a new rule establishing margin requirements for swaps transactions indicates a softening from the regulator. But the changes will have a major impact on costs, documentation and systems.

The rule will require banks to hold greater margins, or collateral, against swaps transactions that don't go through a clearinghouse. Counsel expect it to pose additional costs for market participants, and require changes in established documentation and practices.

The Dodd-Frank Act mandated new rules be written on swaps transactions. For one, the Act required all sufficiently standardised swaps to be cleared through a registered derivatives clearing organisation or clearing agency. However, some swaps are non-cleared. Dodd-Frank required new rules be written on initial and variation margin requirements for such swaps.

The new FDIC rule, issued jointly with the Office of the Comptroller...