New Swaps Margin Rules Coming Into Effect |

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New Swaps Margin Rules Coming Into Effect

Staggered compliance dates begin in September

US regulators have finalised rules requiring counterparties to uncleared over-the-counter (OTC) swap trades to collect and post initial and variation margin. An outgrowth of the Dodd-Frank Act as well as OTC industry reform commitments by G-20 leaders, the margin requirements will have staggered compliance dates beginning with September 1, 2016 and ending on September 1, 2020. The rules will apply to trades between “financial end users,” on the one hand, and swap dealers and major swap participants, on the other. Hedge funds operating both within and outside the US will likely fall under the definition of “financial end users” pursuant to these rules.

The obligation to collect margin will apply to swap dealers and not to hedge funds, unless they are themselves ‘swap dealers’. Nevertheless, swap dealers will require as a condition to trading with funds caught within the rules, that such funds agree to post margin that the swap dealers are required to request. Accordingly, it is important for hedge fund managers to learn about and prepare for the roll-out of the requirements as dealers reach out to their swap counterparties over the coming months in order to negotiate additional or amended agreements that comply with the new margin rules and establish or revise collateral and control arrangements. It is also important to understand when funds may be aggregated for purposes of the thresholds in the rules and if trades by a single investment manager on behalf of a family of funds may be aggregated.

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About The Hedge Fund Journal

INFORMING THE HEDGE FUND COMMUNITY With access to some of the industry’s biggest names and an astute and talented group of writers and contributors, The Hedge Fund Journal has established itself as a trusted source of information on the hedge fund industry.