Part: / PART 624 - MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP ENTITIES /
Subpart: / No Subpart /
Date Created: / 4/4/2016
Date Modified: / 4/7/2016
§ 624.9Cross-border application of margin requirements.
(a)Transactions to whichthis rule does not apply. Therequirements of §§ 624.3through624.8and§§ 624.10through624.12 shall not applyto anyforeign non-cleared swapor foreignnon-clearedsecurity-based swap ofa foreigncovered swap entity.
(b)For purposes of this section, a foreign non-clearedswap orforeign non-clearedsecurity-based swap is anynon-cleared swap or non-cleared security-based swap with respect towhichneither the counterpartyto theforeigncoveredswap entitynor anypartythat provides a guarantee of eitherparty’sobligationsunder thenon-cleared swapornon-clearedsecurity-basedswap is:
(1)An entityorganized under thelaws of theUnited States oranyState(includinga U.S. branch,agency, or subsidiaryof aforeign bank) or anaturalpersonwho is a resident of theUnited States;
(2)A branchoroffice of anentityorganized under the laws of theUnited States oranyState; or
(3)A swap entitythat is asubsidiaryofan entitythatis organized under thelaws ofthe UnitedStates or anyState.
(c)For purposes of this section, a foreign covered swap entityis anycovered swapentitythat is not:
(1)An entityorganized under thelaws of theUnited States oranyState,includinga U.S. branch,agency, or subsidiaryof aforeign bank;
(2)A branchoroffice of anentityorganized under the laws of theUnited States oranyState; or
(3)An entitythat is asubsidiaryof anentitythat is organized under thelawsof theUnited States oranyState.
(d)Transactions for which substitutedcompliancedetermination mayapply—
(1)Determinations and reliance. For non-cleared swaps andnon-clearedsecurity-basedswapsentered into bycovered swap entitiesdescribed in paragraph (d)(3)of this section, a coveredswap entitymaysatisfythe provisions of this part 624 bycomplyingwith theforeign regulatoryframeworkfor non-cleared swapsand non-cleared security-basedswaps that the prudentialregulatorsjointly, conditionallyor unconditionally,determine bypublicorder satisfythecorrespondingrequirements of §§ 624.3through624.8and§§ 624.10through624.12.
(2)Standard. In determiningwhetherto makea determinationunderparagraph(d)(1)of this section, the prudentialregulatorswill considerwhether therequirements of suchforeign regulatoryframework fornon-cleared swaps andnon-clearedsecurity-basedswapsapplicable to such covered swapentitiesarecomparable to the otherwiseapplicablerequirementsofthis part 624andappropriatefor the safe and sound operation ofthecovered swapentity, takinginto account the risksassociated with non-clearedswapsandnon-clearedsecurity-based swaps.
(3)Covered swap entities eligible for substituted compliance. A covered swapentitymayrelyon adetermination underparagraph(d)(1) of this section onlyif:
(i)Thecoveredswapentity’sobligationsunder thenon-cleared swapornon-clearedsecurity-basedswap do not haveaguarantee from:
(A)An entityorganized under thelaws of theUnited States oranyState(otherthan a U.S. branch oragencyof a foreign bank) ora naturalperson who is aresident of the UnitedStates; or
(B)A branchoroffice of anentityorganized under the laws of theUnited States oranyState;and
(ii)Thecoveredswapentityis:
(A)A foreigncoveredswapentity;
(B)A U.S.branch oragencyofa foreign bank; or
(C)An entitythat isnot organizedunder thelaws of theUnited States oranyStateand is asubsidiaryof adepositoryinstitution, Edgecorporation, or agreementcorporation.
(4)Compliancewith foreignmargin collectionrequirement. A coveredswapentitysatisfies its requirementto post initialmargin under§ 624.3(b) bypostingtoits counterpartyinitialmargin in the formandamount,andat suchtimes, that its counterpartyis required tocollectpursuant to a foreign regulatoryframework, providedthat thecounterpartyis subject tothe foreign regulatoryframeworkand the prudential regulators havemade adeterminationunderparagraph (d)(1)of this section, unless otherwise stated in that determination, and thecounterparty’s obligations under thenon-cleared swap or non-clearedsecurity-basedswap do nothave aguarantee from:
(i)An entityorganized under thelaws of theUnited States oranyState(includinga U.S. branch,agency, or subsidiaryof aforeign bank) or anaturalpersonwho is a resident of theUnitedStates; or
(ii)A branchoroffice of anentityorganized under the laws of theUnited States oranyState.
(e)Requests for determinations.
(1)A coveredswapentitydescribed inparagraph (d)(3)of this section mayrequestthat the prudentialregulatorsmakea determinationpursuant to this section. A request for adetermination must include adescription of:
(i)Thescopeandobjectivesof the foreignregulatoryframeworkfor non-clearedswapsandnon-clearedsecurity-based swaps;
(ii)Thespecificprovisions of the foreign regulatoryframework for non-clearedswapsandnon-clearedsecurity-based swaps thatgovern:
(A)Thescope of transactionscovered;
(B)Thedetermination oftheamount of initial marginandvariationmargin requiredand how that amount is calculated;
(C)Thetimingof marginrequirements;
(D)Anydocumentation requirements;
(E)Theforms ofeligible collateral;
(F)Anysegregationandrehypothecationrequirements;and
(G)Theapprovalprocessand standardsfor models used in calculatinginitialmarginandvariationmargin;
(iii)Thesupervisorycompliance program and enforcement authorityexercised byaforeignfinancialregulatoryauthorityorauthorities in suchsystemto support its oversight of theapplication ofthe non-cleared swap or non-cleared security-basedswap regulatoryframeworkand how thatframeworkapplies to the non-clearedswaps or non-clearedsecurity-basedswaps ofthe coveredswapentity;and
(iv)Anyother descriptionsanddocumentation that the prudentialregulatorsdetermine areappropriate.
(2)A coveredswapentitydescribed in paragraph(d)(3) of this sectionmaymakearequestunder this section onlyif the non-cleared swap or non-clearedsecurity-basedswapactivities ofthe covered swap entityaredirectlysupervised bythe authoritiesadministeringtheforeign regulatoryframework fornon-cleared swaps andnon-clearedsecurity-basedswaps.
(f)Segregationunavailable. Sections624.3(b)and624.7 do not applyto a non-clearedswap or non-clearedsecurity-basedswapentered into by:
(1)A foreignbranch of a covered swap entitythatis a depositoryinstitution; or
(2)A covered swap entitythat is not organized under thelawsof theUnited States oranyState and is asubsidiaryofadepositoryinstitution, Edgecorporation, or agreementcorporation,if:
(i)Inherentlimitations in the legal or operationalinfrastructurein theforeignjurisdiction makeit impracticableforthe coveredswapentityand the counterpartyto post anyform of eligible initialmargincollateralrecognizedpursuant to §624.6(b)incompliance with thesegregationrequirementsof §624.7;
(ii)Thecoveredswapentityis subject to foreignregulatoryrestrictions thatrequirethe coveredswapentitytotransact in the non-clearedswapornon-clearedsecurity-basedswapwith the counterpartythroughanestablishment within the foreignjurisdictionand do notaccommodate theposting of collateral forthe non-clearedswap ornon-cleared security-basedswap outside the jurisdiction;
(iii)Thecounterpartyto the non-clearedswapornon-clearedsecurity-based swap isnot, and the counterparty’sobligationsunder thenon-cleared swapornon-clearedsecurity-basedswap do not have aguaranteefrom:
(A)An entityorganized under thelaws of theUnited States oranyState(includinga U.S. branch,agency, or subsidiaryof aforeign bank) or anaturalpersonwho is a resident of theUnited States; or
(B)A branchor officeof anentityorganized under the laws of theUnited States oranyState;
(iv)Thecoveredswapentitycollects initial margin forthe non-cleared swap ornon-clearedsecurity-based swap in accordance with §624.3(a) in theform ofcash pursuant to §624.6(b)(1),and posts and collectsvariationmargin in accordancewith § 624.4(a) in theform ofcashpursuant to §624.6(b)(1); and
(v)FCAprovides the coveredswapentitywith prior writtenapprovalfor thecovered swap entity’sreliance on thisparagraph(f) for the foreignjurisdiction.
(g)Guaranteemeansanarrangementpursuant to which onepartyto a non-clearedswap or non-clearedsecurity-basedswap has rights of recourseagainst athird-partyguarantor,with respect to its counterparty’sobligations under thenon-cleared swap ornon-clearedsecurity-basedswap. For thesepurposes, apartytoa non-clearedswap or non-clearedsecurity-basedswaphasrights of recourse against aguarantor if thepartyhasaconditional or unconditionallegallyenforceableright to receive or otherwise collect, inwholeor in part,paymentsfrom theguarantorwithrespect toits counterparty’s obligations under thenon-cleared swap or non-clearedsecurity-based swap. Inaddition,anyarrangement pursuant to which the guarantorhasa conditional orunconditional legallyenforceableright to receive or otherwisecollect, in wholeorin part,paymentsfromanyother third partyguarantorwithrespect to thecounterparty’sobligationsunder thenon-clearedswapornon-clearedsecurity-based swap, such arrangementwill be deemed a guarantee of the counterparty’sobligationsunder thenon-cleared swap or non-clearedsecurity-based swap bythe otherguarantor.
[80 FR 74907, Nov. 30, 2015]