July 24th saw a unanimous approval of the CFTC’s proposal to reduce the complexity surrounding segregation of assets held as collateral in uncleared swap transactions. Under the Dodd-Frank, a swap dealer was required to notify each counterparty that they (the counterparty) possessed the right to choose whether to keep their funds in a segregated account with an independent third party, separate from the assets and interests of the swap dealer. This legislation (implemented by CFTC regulations 23.700 through 23.704) has proved to be overly complex whilst adding little, or no benefit, according to the Division of Swap Dealer and Intermediary Oversight (DSIO). Matt Kulkin, DSIO CEO advocated the reformation of the process as he believes it will “encourage more end-user counterparties to elect to segregate their funds.” As part of the proposal, the CFTC will permit more flexibility in custodial arrangements and margin investment. Rather than the current prescriptive requirements of the regulation, it would leave it up to commercial negotiation by professional trading counterparties.
The move to simplify the notification is part of the K.I.S.S project, launched by the CFTC in 2017 with the aim of reducing regulatory burdens for market participants in the US.