According to recent news reports, on March 8, 2013, the SEC sent a proposal (which was not publicly released) to seven swap clearing broker-dealers that would substantially increase the cost of clearing trades in the credit default swap (CDS) market. In some cases, the amount of margin collateral that customers would be required to post in connection with their cleared CDS contracts could double. The purpose of the proposal is to limit the ability of traders to engage in portfolio margining on trades tied to indexes and individual borrowers. The SEC is attempting to limit the risk to traders from customer defaults. Under Title VII of the Dodd-Frank Act, single-name CDS and CDS on narrow-based indices are security-based swaps (SBS) that are regulated by the SEC.

The proposal gives temporary approval for clearing brokers to collect margin from their CDS customers that is at least equal to either:

The proposal is related to a December 2012 SEC exemptive order permitting portfolio margining for index and single-name CDS, subject to certain conditions, including the SEC's approval of margining methodologies for banks that clear CDS (see Legal Update, Regulators Permit Cleared CDS Portfolio Margining). Because the SEC has not yet granted any approvals, the proposal is temporarily allowing portfolio margining to begin, but with the high margin requirements.

Buy-side firms (primarily end users and funds) and ICE are currently urging the SEC to reconsider its proposal. ICE has discontinued its plans to clear single-name CDS as a result of the high margin requirements in the proposal.