# CFTC Letter No. 19-13: No-action relief granted to swap dealers from the uncleared swap margin requirements under Part 23 of the Commission's regulations with respect to certain amendments to legacy swaps

> Federal · Agency guidance · In force

URL: https://www.frixlaw.com/law-library/statutes/CFTC_L19_13

## Section

- **Citation:** CFTC Letter No. 19-13
- **Heading:** No-action relief granted to swap dealers from the uncleared swap margin requirements under Part 23 of the Commission's regulations with respect to certain amendments to legacy swaps
- **Jurisdiction:** Federal
- **Kind:** Agency guidance
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** CFTC Staff Letters (2008-present) / No-action relief granted to swap dealers from the uncleared swap margin requirements under Part 23 of the Commission's regulations with respect to certain amendments to legacy swaps.

## Text

Summary: No-action relief granted to swap dealers from the uncleared swap margin requirements under Part 23 of the Commission's regulations with respect to certain amendments to legacy swaps.

CFTC Letter No. 19-13 No-Action June 06, 2019

Division of Swap Dealer and

Matthew B. Kulkin
Intermediary Oversight

Director

Re:
No-Action Position: Application of Uncleared Swap Margin Rules to
Immaterial Amendments, Swaption Exercises, Partial Terminations,
Partial Novations, or Multilateral Compression of Legacy Swaps
Ladies and Gentlemen:
This letter is in response to a request for a no-action position received by the Division of
Swap Dealer and Intermediary Oversight (“DSIO”) of the Commodity Futures Trading
Commission (“Commission”) from the International Swaps and Derivatives
Association (“ISDA”) on behalf of its members that are swap dealers (“SDs”) registered
with the Commission and subject to the Commission’s rules regarding margin
requirements for uncleared swaps.1 For the reasons discussed below, ISDA requests a
position of no-action for failure of an SD to comply with the Commission’s uncleared
swap margin requirements with respect to certain amendments to Legacy Swaps.
For purposes of this letter, “Legacy Swap” means a swap executed prior to the
applicable compliance date prescribed in Commission regulation 23.161. Where a swap
is executed after the compliance date for variation margin (i.e., March 1, 2017) but
before the applicable compliance date for initial margin (see infra for a description of
initial margin compliance dates), the swap is a Legacy Swap for the initial margin
requirements only.

1 The Commission’s margin requirements for uncleared swaps apply only to SDs and major swap
participants for which there is not a prudential regulator. See 7 U.S.C. 6s(e)(1)(B)
mpliance date for initial margin (see infra for a description of
initial margin compliance dates), the swap is a Legacy Swap for the initial margin
requirements only.

1 The Commission’s margin requirements for uncleared swaps apply only to SDs and major swap
participants for which there is not a prudential regulator. See 7 U.S.C. 6s(e)(1)(B). SDs and major swap
participants for which there is a prudential regulator must meet the margin requirements for uncleared
swaps established by the applicable prudential regulator. 7 U.S.C. 6s(e)(1)(A). See also 7 U.S.C. 1a(39)
(defining the term “Prudential Regulator” to include the Board of Governors of the Federal Reserve
System; the Office of the Comptroller of the Currency; the Federal Deposit Insurance Corporation; the
Farm Credit Administration; and the Federal Housing Finance Agency). The Prudential Regulators
published final margin requirements in November 2015. See Margin and Capital Requirements for
Covered Swap Entities, 80 FR 74840 (Nov. 30, 2015). Although requested by ISDA on behalf of its
members that are SDs, the relief provided by this letter is available to all SDs subject to the Commission’s
rules regarding margin requirements for uncleared swaps.

U.S. COMMODITY FUTURES TRADING COMMISSION
Three Lafayette Centre
1155 21st Street, NW, Washington, DC 20581
Telephone: (202) 418-5000
p Entities, 80 FR 74840 (Nov. 30, 2015). Although requested by ISDA on behalf of its
members that are SDs, the relief provided by this letter is available to all SDs subject to the Commission’s
rules regarding margin requirements for uncleared swaps.

U.S. COMMODITY FUTURES TRADING COMMISSION
Three Lafayette Centre
1155 21st Street, NW, Washington, DC 20581
Telephone: (202) 418-5000

Uncleared Swap Margin No-Action
Page 2

The Commission’s Office of the Chief Economist (“OCE”) recently conducted an analysis
to estimate, among other things, the population of uncleared swap positions that
constitute Legacy Swaps.2 In particular, OCE analyzed the notional of uncleared swaps
outstanding as of December 2018. Focusing strictly on the entity pairs covered in
phases 1 through 3 of the uncleared margin rule, the three phases implemented as of the
December 2018 reference date, OCE estimated that approximately 41% of credit default
swaps (“CDS”), 5% of forex products, and 40% of interest rate swaps (“IRS”) were
Legacy Swaps. DSIO notes that many of these Legacy Swaps will be terminated prior to
maturity for a variety of reasons. Swaps executed by SDs with counterparties not yet
subject to the initial margin requirements (i.e., phases 4 and 5) may become Legacy
Swaps as defined above to the extent such are still in effect on the compliance dates for
those phases.
ISDA seeks a no-action position for the following types of amendments to Legacy
Swaps: (i) an immaterial amendment to a Legacy Swap, (ii) a swap resulting from the
exercise of a swaption that is a Legacy Swap, (iii) the remaining portion of a swap
resulting from a partial termination of a Legacy Swap, (iv) the remaining portion of a
swap resulting from a partial novation of a Legacy Swap, and (v) new swaps resulting
from a multilateral compression exercise consisting solely of Legacy Swaps
terial amendment to a Legacy Swap, (ii) a swap resulting from the
exercise of a swaption that is a Legacy Swap, (iii) the remaining portion of a swap
resulting from a partial termination of a Legacy Swap, (iv) the remaining portion of a
swap resulting from a partial novation of a Legacy Swap, and (v) new swaps resulting
from a multilateral compression exercise consisting solely of Legacy Swaps. For
purposes of the relief provided by this letter, “Legacy Swap” also includes any swap that
results from the exercise of a swaption that is a Legacy Swap and any swap that results
from an immaterial amendment, partial termination, partial novation, or multilateral
compression of a Legacy Swap in accordance with the terms and conditions of this
letter.
I.
Regulatory Background
Pursuant to section 4s(e) of the Commodity Exchange Act (“CEA”),3 the Commission is
required to promulgate margin requirements for uncleared swaps applicable to each SD
for which there is no Prudential Regulator.4 The Commission published final margin
requirements for such SDs in January 2016 (the “CFTC Margin Rule”).5

2 See Legacy Swaps under the CFTC’s Uncleared Margin and Clearing Rules (May 22, 2019), available at:
https://www.cftc.gov/node/216426.

3 7 U.S.C. § 1 et. seq.

4 See 7 U.S.C. § 6s(e)(1)(B).

5 See Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 81 FR
636 (Jan. 6, 2016). The CFTC Margin Rule, which became effective April 1, 2016, is codified in part 23 of
the Commission’s regulations. See §§ 23.150-159, 161.
Rules (May 22, 2019), available at:
https://www.cftc.gov/node/216426.

3 7 U.S.C. § 1 et. seq.

4 See 7 U.S.C. § 6s(e)(1)(B).

5 See Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 81 FR
636 (Jan. 6, 2016). The CFTC Margin Rule, which became effective April 1, 2016, is codified in part 23 of
the Commission’s regulations. See §§ 23.150-159, 161.

Uncleared Swap Margin No-Action
Page 3

The CFTC Margin Rule applies only to swaps of SDs executed after the applicable
compliance date set forth in Commission regulation 23.161.6 Pursuant to Commission
regulation 23.161, compliance dates for the CFTC Margin Rule are staggered such that
SDs must come into compliance in a series of phases over four years with counterparties
depending on the aggregate outstanding notional amounts of uncleared swaps and
certain other financial products. The first phase began on September 1, 2016, and
required SDs to comply with both the initial and variation margin requirements with
counterparties that have the largest aggregate outstanding notional amounts. The
second phase began March 1, 2017, and required SDs to comply with the variation
margin requirements of Commission regulation 23.153 with all relevant counterparties
not covered in the first phase. The third phase began on September 1, 2018, with the
fourth and fifth phases beginning on Sept 1, 2019 and 2020 respectively
arties that have the largest aggregate outstanding notional amounts. The
second phase began March 1, 2017, and required SDs to comply with the variation
margin requirements of Commission regulation 23.153 with all relevant counterparties
not covered in the first phase. The third phase began on September 1, 2018, with the
fourth and fifth phases beginning on Sept 1, 2019 and 2020 respectively. Each phase
requires SDs to begin complying with the initial margin requirements with
counterparties with successively lesser outstanding notional amounts.7
Generally, pursuant to the CFTC Margin Rule, amendments to Legacy Swaps following
the compliance date applicable to an SD and its counterparty would cause such swaps to
be brought into scope and require compliance with the CFTC Margin Rule.8 However,
subsequent to implementation of the rule, DSIO has become aware of discrepancies in
the treatment by SDs of amendments that have an economic impact and those that
reduce risk or are administrative in nature. In addition, other major swap trading
centers have made the distinction between economically significant amendments and
risk reducing or administrative amendments.9
II.
Summary of Request for No-Action Position
A.
Immaterial Amendments to Legacy Swaps.
ISDA argues that immaterial amendments to Legacy Swaps should not require such
swaps to be deemed “new” swaps subject to the CFTC Margin Rule. For example,
changing the contact information for an SD’s counterparty or the account number under
the SD’s payment instructions do not materially alter the economic rights or obligations

6 See Commission regulation 23.150(a), 17 CFR § 23.150(a).

7 See Commission regulation 23.161, 17 CFR § 23.161.

8 See CFTC Margin Rule, 81 FR at 675
. For example,
changing the contact information for an SD’s counterparty or the account number under
the SD’s payment instructions do not materially alter the economic rights or obligations

6 See Commission regulation 23.150(a), 17 CFR § 23.150(a).

7 See Commission regulation 23.161, 17 CFR § 23.161.

8 See CFTC Margin Rule, 81 FR at 675.

9 See, e.g., Australia Prudential Regulation Authority, Prudential Standard CPS 226 recognizing swaps
resulting from compression of Legacy Swaps as not subject to margin requirements; Hong Kong Monetary
Authority, Margin and other Risk Mitigation Standards, recognizing that only material amendments
require recognition of a new transaction; Office of the Superintendent of Financial Institutions Canada,
Margin Requirements for Non-Centrally Cleared Derivatives, recognizing that novations of grandfathered
trades as well as trades resulting from compression of grandfathered trades do not qualify as a new
derivatives contract.

Uncleared Swap Margin No-Action
Page 4

of the parties to the swap and thus should not require the swap to be brought into scope
for purposes the CFTC Margin Rule.
DSIO recognizes that certain amendments are often not a choice of swap counterparties.
For example, administrative changes within firms unconnected to the economics of a
swap portfolio will inevitably occur and will necessitate amendments in order to
maintain operational processes. Accordingly, DSIO does not believe SDs should be
concerned that such changes will bring Legacy Swaps into scope of the CFTC Margin
Rule
ain amendments are often not a choice of swap counterparties.
For example, administrative changes within firms unconnected to the economics of a
swap portfolio will inevitably occur and will necessitate amendments in order to
maintain operational processes. Accordingly, DSIO does not believe SDs should be
concerned that such changes will bring Legacy Swaps into scope of the CFTC Margin
Rule. With respect to defining what would constitute an “immaterial amendment,”
DSIO notes that the Commission has recently updated a definition of the “material
terms” of a swap in connection with its portfolio reconciliation rule, Commission
regulation 23.502.10 For purposes of that rule, the Commission permitted the exclusion
of a number of data fields11 that the Commission determined were not relevant to the
mutual obligations and valuation of swaps.12 In keeping with this rationale, DSIO
believes that a no-action position for amendments to Legacy Swaps that do not amend
any term that would affect the economic obligations of the parties to the swaps or the
valuation of the swaps should allay concerns that SDs would use the exception to evade
the margin requirements of the CFTC Margin Rule.
B.
Swaps Resulting from Exercise of Swaptions that are Legacy Swaps
In the most basic terms, a “swaption” is an option to enter into a specified swap upon
exercise of the option. The exercise of a swaption involves one party exercising its right
to require the other party to enter into a swap on pre-agreed terms.
ISDA argues that although the swap resulting from the exercise of a swaption is
processed in the same way as a new swap, the economic effect of the exercise is
determined by the terms of the swaption transaction, which are agreed by the parties
when they entered into the swaption, not when the swaption is exercised
s right
to require the other party to enter into a swap on pre-agreed terms.
ISDA argues that although the swap resulting from the exercise of a swaption is
processed in the same way as a new swap, the economic effect of the exercise is
determined by the terms of the swaption transaction, which are agreed by the parties
when they entered into the swaption, not when the swaption is exercised. ISDA argues
that because the terms of the swap that results from the exercise of a swaption that is a
Legacy Swap were set prior to the compliance date for the requirements of the CFTC
Margin Rule, such terms would not have “priced in” such requirements and thus such
swap should be treated as a Legacy Swap for purposes of the CFTC Margin Rule. The

10 See Definitions of ‘‘Portfolio Reconciliation’’ and ‘‘Material Terms’’ for Purposes of Swap Portfolio
Reconciliation, 81 FR 27309 (May 6, 2016) (hereinafter, “Material Terms in Portfolio
Reconciliation”).

11 See Commission regulation 23.500(g), 17 CFR § 23.500(g).

12 See Material Terms in Portfolio Reconciliation, 81 FR at 27311, where the Commission determined that
such excluded terms:
(i) pertain to static items about entering into the swap; (ii) pertain to static data fields about a
party’s status; (iii) are only relevant to cleared transactions; (iv) are data which is not agreed,
exchanged, or confirmed between the parties; or (v) are not relevant to the swap’s daily valuation.
Reconciliation, 81 FR at 27311, where the Commission determined that
such excluded terms:
(i) pertain to static items about entering into the swap; (ii) pertain to static data fields about a
party’s status; (iii) are only relevant to cleared transactions; (iv) are data which is not agreed,
exchanged, or confirmed between the parties; or (v) are not relevant to the swap’s daily valuation.

Uncleared Swap Margin No-Action
Page 5

Commission previously recognized the logic of this position in the context of the clearing
mandate.13
C.
Partial Terminations and Partial Novations of Legacy Swaps
ISDA explains that when the original counterparties to a swap wish to novate or
terminate an original swap in part, they may agree to an amendment that reduces the
notional amount of the swap by terminating a portion of the swap (a “partial
termination”) or by novating a portion of the swap to another counterparty (a “partial
novation”). The remaining portion of the swap between the original counterparties after
such reduction by a partial novation or partial termination is referred to as the “stub.”
ISDA represents that the terms of an original swap, including the terms that define the
remaining cash flows, continue to govern the stub (apart from the reduction in the
notional amount of that swap).
Under a partial termination, all terms of the stub, apart from the reduction of the
notional amount, remain the same. The original counterparties remain the same and no
third parties are involved in the transaction. Under a partial novation, one of the two
original counterparties novates part of the original swap to a third party (the “novated
swap”). As with partial terminations, for the remainder of the original swap (i.e., the
stub), all terms, apart from the reduction of the notional amount, remain the same
original counterparties remain the same and no
third parties are involved in the transaction. Under a partial novation, one of the two
original counterparties novates part of the original swap to a third party (the “novated
swap”). As with partial terminations, for the remainder of the original swap (i.e., the
stub), all terms, apart from the reduction of the notional amount, remain the same.
According to ISDA, where the original swap is a Legacy Swap, imposing margin
requirements pursuant to the CFTC Margin Rule on the stub, under either a partial
novation or a partial termination, would create distorted incentives for risk and
investment management decisions. For example, an SD that seeks to reduce its
exposure under a swap with a partial termination (i.e., a reduction in notional amount,
which reduces both market and credit risk) may be incentivized not to do so if the stub
loses its status as a Legacy Swap and becomes subject to the additional costs and
operational burdens associated with compliance with the CFTC Margin Rule.
ISDA states that it does not request relief from DSIO for circumstances where the
original counterparties enter into and book a new swap that fully or partially offsets the
risk of a Legacy Swap and thereby achieves a similar economic result to a partial
termination. ISDA further acknowledges that in the context of partial novations, the
novated swap, which was executed between one of the original counterparties and a

13 “The Commission agrees that the cost of clearing may not be reflected in the pricing of the swaption or
extendible swap if the clearing requirement for the underlying swap or the extendable swap arises after
the execution of the swaption or extendible swap
the
novated swap, which was executed between one of the original counterparties and a

13 “The Commission agrees that the cost of clearing may not be reflected in the pricing of the swaption or
extendible swap if the clearing requirement for the underlying swap or the extendable swap arises after
the execution of the swaption or extendible swap. The Commission is thus clarifying that the clearing
requirement only applies to swaps resulting from the exercise of a swaption or extendible swap extension
if the clearing requirement would have been applicable to the underlying swap or the extended swap at
the time the counterparties executed the swaption or extendible swap.” See “Clearing Requirement
Determination Under Section 2(h) of the CEA; Final Rule,” 77 FR 74284, 74316 (Dec. 13, 2012).

Uncleared Swap Margin No-Action
Page 6

third party, may be subject to the CFTC Margin Rule.14 ISDA does not seek relief for
such novated swap.
ISDA notes that the Commission’s Division of Clearing and Risk provided relief from the
clearing requirement under section 2(h)(1)(A) of the CEA for partial termination and
partial novations of swaps entered into prior to implementation of the Commission’s
clearing requirement.15 ISDA therefore requests that DSIO take a similar no-action
position, subject to the same conditions, such that Legacy Swaps do not lose their legacy
status solely due to a reduction of notional amount by way of partial termination or
partial novation of such swaps.
D.
Multilateral Compression of Legacy Swaps
Multilateral portfolio compression allows swap market participants to decrease the
number of outstanding swaps or the aggregate notional value of such swaps, thereby
reducing operational risk and, in some instances, reducing counterparty credit risk
e to a reduction of notional amount by way of partial termination or
partial novation of such swaps.
D.
Multilateral Compression of Legacy Swaps
Multilateral portfolio compression allows swap market participants to decrease the
number of outstanding swaps or the aggregate notional value of such swaps, thereby
reducing operational risk and, in some instances, reducing counterparty credit risk. For
purposes of this letter, the term “multilateral portfolio compression exercise” has the
meaning given to the term in Commission regulation § 23.500(h).16 Commission
regulation § 23.500(h) defines the term to mean “an exercise in which multiple swap
counterparties wholly terminate or change the notional value of some or all of the swaps
submitted by the counterparties for inclusion in the portfolio compression exercise and,
depending on the methodology employed, replace the terminated swaps with other
swaps whose combined notional value (or some other measure of risk) is less than the
combined notional value (or some other measure of risk) of the terminated swaps in the
compression exercise.”
In a multilateral portfolio compression exercise for uncleared swaps, the compression
service provider analyzes the uncleared swap portfolios of multiple swap market
participants and publishes the optimal solution for the compression cycle based on one
of two methods. Under the first method, the outstanding notional value of the original
swap between two counterparties is reduced by amending the original swap. This
“amended swap” method is the predominant method used in compressions of uncleared
interest rate swaps
wap portfolios of multiple swap market
participants and publishes the optimal solution for the compression cycle based on one
of two methods. Under the first method, the outstanding notional value of the original
swap between two counterparties is reduced by amending the original swap. This
“amended swap” method is the predominant method used in compressions of uncleared
interest rate swaps. Under the second method, one or more existing swaps are

14 The part of the Legacy Swap novated to a third party would be a new swap for the third party, and,
depending on the status of the new counterparty (i.e., an SD, a financial end user, or a non-financial end
user) and the applicable compliance date under Commission regulation 23.161, ISDA acknowledges that
such swap may be subject to the variation and/or initial margin requirements of the CFTC Margin Rule.

15 See No-Action Relief from Required Clearing for Partial Novation and Partial Termination of Swaps,
CFTC Letter No. 13-02 (March 20, 2013), available on the Commission’s website www.cftc.gov.

16 See Confirmation, Portfolio Reconciliation, Portfolio Compression, and Swap Trading Relationship
Documentation Requirements for Swap Dealers and Major Swap Participants, 77 FR 55904, 55960 (Sept.
11, 2012).

Uncleared Swap Margin No-Action
Page 7

terminated and replaced by new swaps that reflect a netting down of existing notional
exposure between the counterparties.17 This “replacement swap” method is
predominantly used in compression exercises for uncleared credit default swaps, but it
can also be used for interest rate swap compression exercises. Counterparties have the
option of electing either of the two methods of compression.
Under the rules of the compression exercise, for either method of compression —
amended swap or replacement swap — the counterparties to the original swap do not
change. In addition, the reference entity and the maximum maturity do not change
it
can also be used for interest rate swap compression exercises. Counterparties have the
option of electing either of the two methods of compression.
Under the rules of the compression exercise, for either method of compression —
amended swap or replacement swap — the counterparties to the original swap do not
change. In addition, the reference entity and the maximum maturity do not change.
Finally, the overall market risk of the portfolios of the market participants in the
compression exercise does not change or is reduced.
ISDA notes that the Commission’s Division of Clearing and Risk provided relief from the
clearing requirement under section 2(h)(1)(A) of the CEA for amended and replacement
swaps resulting from multilateral compression exercises consisting only of swaps
entered into prior to implementation of the Commission’s clearing requirement.18 ISDA
therefore requests that DSIO take a similar no-action position, subject to the same
conditions, such that the amended and replacement swaps of SDs, where the original
swap was a Legacy Swap at the time of execution but that is subsequently amended or
replaced in connection with a multilateral portfolio compression exercise after the
applicable compliance date for the CFTC Margin Rule set forth in Commission
regulation 23.161, do not lose their status as Legacy Swaps solely by virtue of being
amended or replaced through a multilateral portfolio compression exercise.
ISDA represents that requiring amended swaps or replacement swaps resulting from a
multilateral compression exercise consisting of Legacy Swaps to be subject to the CFTC
Margin Rule would alter the credit risk profile for those participating in the compression
exercise because counterparties to the amended or replacement swaps may be required
to comply with the variation and initial margin requirements of the CFTC Margin Rule
with respect to such swaps
waps resulting from a
multilateral compression exercise consisting of Legacy Swaps to be subject to the CFTC
Margin Rule would alter the credit risk profile for those participating in the compression
exercise because counterparties to the amended or replacement swaps may be required
to comply with the variation and initial margin requirements of the CFTC Margin Rule
with respect to such swaps. Further, ISDA represents that because participants would
not know in advance which swaps may be subject to an amendment or replacement, or
the notional amount to be amended or replaced, market participants likely would
reconsider their participation in these industry-wide risk reduction exercises. As a
result, ISDA represents that changing the legacy status of the Legacy Swaps would
discourage participation in compression exercises and inhibit the risk reduction benefits
that such exercises provide.

17 In the vast majority of compression exercises there is a reduction in the notional exposures due to
netting. However, in some exercises there is merely an aggregation of outstanding gross exposures arising
from multiple swaps into one replacement swap with no net reduction in notional exposures.

18 See No-Action Relief from Required Clearing of Swaps Resulting from Multilateral Compression
Exercises, CFTC Letter No. 13-01 (March 18, 2013), available on the Commission’s website www.cftc.gov.
tting. However, in some exercises there is merely an aggregation of outstanding gross exposures arising
from multiple swaps into one replacement swap with no net reduction in notional exposures.

18 See No-Action Relief from Required Clearing of Swaps Resulting from Multilateral Compression
Exercises, CFTC Letter No. 13-01 (March 18, 2013), available on the Commission’s website www.cftc.gov.

Uncleared Swap Margin No-Action
Page 8

III.
DSIO No-Action Position
Based on the foregoing, DSIO believes that a no-action position is warranted, subject to
the conditions set forth below.
A.
Immaterial
Amendments,
Partial
Terminations,
and
Partial
Novations of Legacy Swaps
DSIO will not recommend that the Commission take an enforcement action against an
SD for a failure to comply with the CFTC Margin Rule with respect to a Legacy Swap
that is:
1.
Amended, provided that no term is amended that would affect the economic
obligations of the parties or the valuation of the Legacy Swap;19 or
2.
Partially terminated or partially novated by such SD, subject to the following
conditions:
a.
The records of the Legacy Swap that exist in the trading and/or
recordkeeping systems of the SD are amended solely to reflect the reduced
notional amount of the Legacy Swap;
b.
The stated portion of the Legacy Swap that is terminated or novated by
such SD is fully terminated between the SD and its original counterparty,
apart from the stated portion that is the stub; and
c.
All other material terms (as such term is defined in Commission regulation
23.500(g)) of the stub remain the same as the terms of the Legacy Swap.
B
ced
notional amount of the Legacy Swap;
b.
The stated portion of the Legacy Swap that is terminated or novated by
such SD is fully terminated between the SD and its original counterparty,
apart from the stated portion that is the stub; and
c.
All other material terms (as such term is defined in Commission regulation
23.500(g)) of the stub remain the same as the terms of the Legacy Swap.
B.
Swaps Resulting from Exercise of Swaptions that are Legacy Swaps
DSIO will not recommend that the Commission take an enforcement action against an
SD for a failure to comply with the CFTC Margin Rule with respect to swaps resulting
from the exercise of swaptions, provided that the swaption is a Legacy Swap as defined
in this letter and all terms of the swap were established upon execution of the
swaption.20

19 For the avoidance of doubt, DSIO believes that an extension of the maturity date, expiration date, or
termination date of a Legacy Swap will always affect the economic obligations of the parties and the
valuation of the swap.

20 This relief for swaptions in particular and the remaining relief more generally is not available for
market participants who may seek to use the relief to enter into large volumes of swaps or swaptions prior
to the applicable initial margin compliance date with only the intention to evade the uncleared swap
margin requirements.
c obligations of the parties and the
valuation of the swap.

20 This relief for swaptions in particular and the remaining relief more generally is not available for
market participants who may seek to use the relief to enter into large volumes of swaps or swaptions prior
to the applicable initial margin compliance date with only the intention to evade the uncleared swap
margin requirements.

Uncleared Swap Margin No-Action
Page 9

C.
Swaps Resulting from Multilateral Portfolio Compression Exercises
DSIO will not recommend that the Commission take an enforcement action against an
SD for a failure to comply with the CFTC Margin Rule with respect to an amended swap
or a replacement swap that is generated as part of a multilateral portfolio compression
exercise, subject to the following conditions:
1.
The “multilateral portfolio compression exercise” generating the amended and
replacement swaps must meet the definition set forth in Commission regulation
23.500(h) and must involve more than two market participants;
2.
All swaps submitted by market participants as part of the “multilateral portfolio
compression exercise” generating the amended and replacement swaps must be
Legacy Swaps as defined in this letter;
3.
The amended or replacement swaps generated by the multilateral portfolio
compression exercise must:
a.
Be generated in accordance with a multilateral portfolio compression
service provider’s established rules and parameters for multilateral
portfolio compression exercises;
b.
Be entered into between the same counterparties as the Legacy Swaps that
are amended or replaced;
c.
With the exception of reducing the notional amount, have the same
material terms (as such term is defined in Commission regulation
23.500(g)) as the Legacy Swaps that are amended or replaced; and
d.
Be entered into for the sole purpose of reducing operational or
counterparty credit risk; and
4
tered into between the same counterparties as the Legacy Swaps that
are amended or replaced;
c.
With the exception of reducing the notional amount, have the same
material terms (as such term is defined in Commission regulation
23.500(g)) as the Legacy Swaps that are amended or replaced; and
d.
Be entered into for the sole purpose of reducing operational or
counterparty credit risk; and
4.
Once the Legacy Swaps have been selected and submitted by market participants
as part of the multilateral portfolio compression exercise, the multilateral
portfolio compression methodology does not permit participants to specify which
swaps may be amended or replaced.
This letter, and the positions taken herein, represent the views of DSIO only, and do not
necessarily represent the position or view of the Commission or of any other office or
division of the Commission. The relief issued by this letter does not excuse persons
relying on it from compliance with any other applicable requirements contained in the
CEA or in Commission Regulations. Further, this letter, and the positions taken herein,
is based upon the representations made to DSIO. Any different, changed, or omitted
material facts or circumstances might render this no-action position void.

Uncleared Swap Margin No-Action
Page 10

Questions concerning this letter may be directed to me at (202) 418-5213; or Frank
Fisanich, Chief Counsel, at (202) 418-5949.
Very truly yours,

Matthew B. Kulkin
Director
Division of Swap Dealer and Intermediary Oversight

cc:
Regina Thoele, Compliance
National Futures Association, Chicago

Jamila A. Piracci, OTC Derivatives
National Futures Association, New York

## Nearby sections

- [CFTC Letter No. 08-03 Eurex Deutschlands Request for No-Action Relief in Connection with the Offer and Sale in the United States of Eight Futures Contracts Based on Security Indices Derived from the Dow Jones STOXX 600 Index.](https://www.frixlaw.com/law-library/statutes/CFTC_L08_03.md)
- [CFTC Letter No. 08-05 Eurex Deutschlands Request for No-Action Relief in Connection with the Offer and Sale in the United States of its Futures Contract Based on the RDXxt USD-RDX Extended Index.](https://www.frixlaw.com/law-library/statutes/CFTC_L08_05.md)
- [CFTC Letter No. 08-11 Euronext Paris SAs request for no-action relief in connection with the offer and sale in the United States of its futures contracts based on the FTSE EPRA/NAREIT Europe Index and the FTSE EPRA/NAREIT Euro Zone Index.](https://www.frixlaw.com/law-library/statutes/CFTC_L08_11.md)
- [CFTC Letter No. 08-13 Eurex Deutschlands Request for No-Action Relief in Connection with the Offer and Sale in the United States of its Futures Contracts Based on the SLI Swiss Leader Index, the Swiss Market Index Midcap, the Dow Jones Eur...](https://www.frixlaw.com/law-library/statutes/CFTC_L08_13.md)
- [CFTC Letter No. 08-15 The Division of Clearing and Intermediary Oversight granted exemptive relief from certain of the Part 4 regulations to the registered CPO of a commodity pool, whose shares the CPO intended to publicly offer and to lis...](https://www.frixlaw.com/law-library/statutes/CFTC_L08_15.md)
- [CFTC Letter No. 08-17 DCIO received a request for guidance from the Joint Audit Committee concerning FCM regulatory reporting requirements for investments in a money market mutual fund. The fund had announced that its net asset value per s...](https://www.frixlaw.com/law-library/statutes/CFTC_L08_17.md)
- [CFTC Letter No. 08-18 The Division of Market Oversight issued a letter granting no-action relief to permit the Brazilian Derivatives Exchange, BM&F Bovespa S.A. – Bolsa de Valores, Mercadorias e Futuros (BM&F), to make its electronic tradi...](https://www.frixlaw.com/law-library/statutes/CFTC_L08_18.md)
- [CFTC Letter No. 08-19 Thailand Futures Exchange Pcls Request for No-Action Relief in Connection with the Offer and Sale in the United States of its Futures Contract Based on the SET50 Index Futures Contract.](https://www.frixlaw.com/law-library/statutes/CFTC_L08_19.md)
- [CFTC Letter No. 08-21 The Division of Market Oversight issued a no-action letter to BNP Paribas confirming that the Division will not recommend that the Commission initiate enforcement action against BNP Paribas or Fortis Bank S.A./N.V., o...](https://www.frixlaw.com/law-library/statutes/CFTC_L08_21.md)
- [CFTC Letter No. 09-02 The Division of Clearing and Intermediary Oversight provided no-action relief to the general partner of a commodity pool from registering as a CPO under Section 4m(1) of the Commodity Exchange Act, and allowed an affi...](https://www.frixlaw.com/law-library/statutes/CFTC_L09_02.md)
- [CFTC Letter No. 09-06 The CPO of a commodity pool requested that DCIO agree to accept the Annual Report for the period from January 1, 2008 through October 31, 2008 as the Pool’s final annual report despite the fact that the Pool had not f...](https://www.frixlaw.com/law-library/statutes/CFTC_L09_06.md)
- [CFTC Letter No. 09-07 The CPO of a commodity pool with a de minimus amount of its assets embroiled in a bankruptcy requested relief from the ongoing reporting requirements under Part 4. The CPO filed an Annual Report for the Pool for the 2...](https://www.frixlaw.com/law-library/statutes/CFTC_L09_07.md)
- [CFTC Letter No. 09-11 The CPO of two commodity pools requested relief to use IFRS in lieu of US GAAP. DCIO granted relief pursuant to Commission Regulations 140.93 and 4.12(a).](https://www.frixlaw.com/law-library/statutes/CFTC_L09_11.md)
- [CFTC Letter No. 09-13 The CPO of commodity pool requested relief to use IFRS in lieu of US GAAP. DCIO granted relief pursuant to Commission Regulations 140.93 and 4.12(a).](https://www.frixlaw.com/law-library/statutes/CFTC_L09_13.md)

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/CFTC_L19_13. Check the current official text before relying on it. Not legal advice.