US swap dealers would report uncleared margin under plan to give CFTC a window into systemic risk

Derivatives dealers would have to report the margin posted for uncleared transactions under a US Commodity Futures Trading Commission proposal that aims to improve identification of financial-stability threats.

The idea, an outgrowth of the financial crisis, drew some push-back from industry when floated in 2017.

But commissioners of both parties, led by Chairman Heath Tarbert, praised the plan when formally proposed yesterday for the first time. The current data-reporting system, Tarbert said, is "a black box of potential systemic risk."

"The CFTC must have visibility into uncleared margin data to monitor systemic risk accurately and to act quickly if cracks begin to appear in the system," he said.

Commissioner Dan Berkovitz, a Democrat, said: "The uncleared swaps margin rules are one of the most important risk-mitigation requirements added after the 2008 financial crisis, and collecting margin data is important for the commission to monitor risks and check compliance with the rules."

He questioned, though, whether the CFTC has adequate resources and tools to analyze margin data it might collect.

"Regrettably, the commission has yet to set forth with any specificity how it intends to use this swap data to evaluate or address systemic risk," Berkovitz said.

Under the CFTC proposal, dealers and companies that trade derivatives bilaterally rather than through clearinghouses would have to electronically send the daily value of the margin posted and received from counterparties.

The margin, including both initial and variation margin, would be reported to swap data repositories overseen by the CFTC. Current reporting requirements, which don't include margin, come from a 2012 rule implementing the Dodd-Frank Act.

— ESMA similarity —

The margin provision is part of broader proposals issued unanimously yesterday that seek to simplify and standardize reporting requirements for dealers, clearinghouses and swap data repositories.

The proposals also seek to harmonize CFTC requirements with those of other regulators.

The European Securities and Markets Authority requires reports of many of the same margin data elements as in the CFTC proposal.

"Sharing this information with other regulators will permit regulators to create a global picture of swaps risk," the CFTC's 261-page proposal said.

The US Securities and Exchange Commission does not impose similar requirements for security-based swaps.

— Industry push-back —

The CFTC got push-back from industry when it floated the idea of imposing uncleared margin reporting requirements in 2017.

An American Council of Life Insurers letter said margin data would not be "constructive" and the costs would outweigh the benefits, according to the CFTC proposal.

The International Swaps Dealers Association and Sifma, a Wall Street group, asked the CFTC to look for other ways to collect the margin data.