The CFTC Division of Swap Dealer and Intermediary Oversight ("DSIO") granted relief to Cargill Incorporated, a limited purpose CFTC-registered swap dealer, from CFTC Rule 23.154 ("Calculation of Initial Margin") requirements.
CFTC Rule 23.154 requires covered swap entities to calculate the initial margin ("IM") to be collected from swap dealer counterparties on a daily basis. In CFTC Letter 19-29, the DSIO provides no-action relief for Cargill to rely on IM calculations of a swap dealer counterparty, subject to a number of conditions, including that: (i) the swaps entered into by Cargill that use the counterparty's IM model are hedging transactions for Cargill; and (ii) risk management and monitoring requirements relating to the IM amounts are calculated pursuant to the counterparty's model.
Commentary
Cargill's status as a "limited designation" dealer means that this letter likely won't have much impact for other firms. However, it's not obvious why the CFTC can't permit other similarly situated swap dealers (a small group) to take a similar approach, particularly given the relative standardization of calculations through the use of ISDA Standard Initial Margin Model (SIMM).
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