Alert November 13, 2012

CFTC Issues Interpretive Guidance on Cleared Swaps Segregation Rules

The CFTC issued interpretive guidance addressing CFTC regulations that govern the treatment of cleared swaps customer contracts by futures commission merchants (“FCMs”) and derivatives clearing organizations (“DCOs”).  Among other things, the guidance, which was provided in a question and answer format, clarifies that “cleared swaps customer collateral” includes all of a cleared swaps customer’s property that margins, guarantees, or secures cleared swaps, even if the value of such collateral exceeds that customer’s margin requirement.  The guidance reiterates that FCMs are prohibited from using one cleared swaps customer’s collateral to meet a margin call for another customer’s cleared swaps, even if the value of the collateral exceeds that required, while stating that an FCM must use its own assets to cover a margin call attributable to an undermargined cleared swaps customer.  In addition, the guidance clarifies which funds may be tapped by a DCO to cover losses in the event of an FCM default, and in what order.