- The CFTC exempted qualifying seeded funds from certain initial margin requirements for up to three years.
- The rule expands eligible collateral by removing restrictions on qualifying pooled fund securities.
- Updated haircut schedules and collateral rules aim to improve liquidity without changing risk management standards.
The Commodity Futures Trading Commission approved a final rule amending margin requirements for uncleared swaps on Tuesday. The changes apply to swap dealers and major swap participants outside prudential regulator margin rules.
CFTC Chairman Mike Selig said the rule supports responsible innovation by expanding eligible collateral, improving liquidity for capital allocators, and maintaining existing risk management standards.
Seeded Funds Receive New Margin Treatment
According to the CFTC, the final rule changes how seeded funds are treated under uncleared swaps margin requirements. The Commission revised the definition of “margin affiliate” for certain collective investment vehicles that receive startup capital from sponsor entities.
As a result, qualifying seeded funds will neither count as margin affiliates nor create affiliate relationships when firms calculate initial margin thresholds. Consequently, swap dealers and major swap participants covered by the Commission’s rules will not exchange initial margin with eligible seeded funds.
That exemption remains available for up to three years after the asset manager starts investing on behalf of the fund. According to the CFTC, the amendment specifically applies to eligible seeded funds defined under the final rule.
Eligible Collateral List Expands
The Commission also removed an existing restriction affecting securities issued by certain pooled investment funds. Previously, some money market and similar fund securities lost eligibility as initial margin collateral after asset managers transferred assets through securities lending or related transactions.
Notably, the amendment removes that disqualification. Therefore, more assets now qualify as eligible collateral for uncleared swaps under the Commission’s framework.
The revised rule also covers securities transferred through securities borrowing, repurchase agreements, reverse repurchase agreements, and similar arrangements. Those transactions no longer automatically prevent qualifying securities from serving as eligible collateral.
Haircut Schedule Also Changes
Alongside the collateral revisions, the Commission updated the haircut schedule for eligible margin collateral. The final rule adopts specific percentage haircuts for money market and similar funds. Mike Selig said he had consistently prioritized responsible innovation during his leadership.
He stated that the seeded funds rule unlocks liquidity for capital allocators while expanding eligible collateral for certain derivatives transactions. He also said the Commission sought to streamline regulation without changing the risk management standards governing U.S. commodities markets.
