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CFTC Provides Further Brexit-Related Market Certainty

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The US Commodity Futures Trading Commission (CTFC) stepped into the Brexit debate this week with a motion to provide greater certainty to the global marketplace in the event of a no-deal Brexit.

The concern is that in the event of the UK leaving the EU without a negotiated withdrawal agreement, affected swap dealers and major swap participants may need to effect legal transfers of uncleared swaps that were entered into before the relevant compliance dates under the CFTC Margin Rule or Prudential Margin Rule.

A unanimous vote passed by the Commission last week confirmed an interim final rule that would allow an uncleared swap to retain its legacy status under the CFTC Margin Rule or Prudential Margin Rule when transferred. Stakeholders have 60 days to return comments on this interim rule, through the Federal Register (the official journal of the federal government of the US, published daily).

“At a time of heightened market uncertainty caused by Brexit, this Commission has worked over the past several weeks to bring clarity to participants in global derivatives markets by a series of separate actions and statements with its regulatory counterparts in London, Brussels and Singapore,” said CFTC Chairman J. Christopher Giancarlo in an open meeting of the Commission on March 25, 2019.

“Today the Commission takes another important step to bring certainty to the global derivatives markets. Consistent with actions already taken by US prudential regulators, we are providing regulatory certainty regarding the transfer of uncleared legacy swaps to facilitate global swaps market participants’ needs in the event that the UK withdraws from the EU without a negotiated withdrawal agreement.

“These measures show that UK and US authorities are committed to taking measures to ensure the UK’s withdrawal from the EU, in whatever form it takes, will not create regulatory uncertainty regarding derivatives market activity between the UK and United States. These measures will help support financial stability and the sound functioning of financial markets. They also will give confidence to market participants about their ability to trade and manage risk through these markets.”

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