Debevoise & Plimpton

Final CFTC rules on protection of collateral for uncleared swaps and treatment of portfolio margining account in bankruptcy

Section 724(c) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) amended the Commodity Exchange Act (CEA) by adding section 4s(l) of the CEA, which sets forth certain requirements concerning the rights of a counterparty of a swap dealer (SD) or major swap participant (MSP) with respect to the segregation of money, securities or other property used to margin, guarantee or otherwise secure uncleared swaps. These requirements apply only to initial margin.

Section 713(c) of the Dodd-Frank Act amended the CEA by adding section 20(c) of the CEA, which requires the Commodity Futures Trading Commission (CTFC) to exercise its authority to ensure that, in the event of a commodity broker bankruptcy, the securities held in a portfolio margining account carried as a futures account will constitute ‘customer property’ and the owners of such an account will constitute ‘customers’ for purposes of subchapter IV of chapter 7 of the US Bankruptcy Code.

On 30 October 2013, the CFTC adopted a number of rules…

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