On 5 February the five US Prudential Regulators jointly issued a proposal to ensure that certain mandatory amendments to legacy contracts would not trigger their inclusion under the margin regime.
The vast majority of jurisdictions contain anti-evasion measures in their margin rules, to the effect that material amendments to pre-margin, legacy trades will act to bring those trades within scope of that jurisdiction’s margin regulations. The intent is to prevent an entity creating new, non-margined trades by simply altering the primary economic terms of pre-existing transactions. On 1 September 2017, the Prudential Regulators adopted stay regulation roughly equivalent to the EU BRRD. The stay rule applies to US GSIBs and the US operations of “foreign” GSIBs. In-scope transactions or qualified financial transactions (“QFCs”) includes derivatives, securities lending, and short-term funding transactions such as repurchase agreements. Compliance begins on 1 January 2019, phased in by counterparty type. All QFCs will have to be amended to include stay language, such amendment may be effected bilaterally or via ISDAs 2015 Universal Stay Protocol.
The proposal seeks to distinguish and exempt these QFC amendments from those that would transform a legacy transaction into one subject to the margin rules. The comment period is the usual 60 days from publication, although since the proposal is simple Regulatory housekeeping, it is unlikely to elicit enough material objections to alter its proposed form.