On February 1, 2017, the CFTC issued No-Action Letter 17-05 (No-Action 17-05) providing temporary relief through May 8, 2017 from compliance with the CFTC's uncleared swap margin requirements to swap dealers (SDs) that are also subject to, and in compliance with, analogous EU margin rules for non-centrally cleared OTC derivatives under EMIR. This relief extends from February 4, 2017 up to, but not including, May 8, 2017.

After some delay, EMIR entered into force on January 4, 2017, and on February 4, 2017, phase-one counterparties (those with notional amounts exceeding €3 trillion) will be required to comply with both the initial margin (IM) and variation margin (VM) requirements under EMIR (see Legal Update, EU Sets March 1, 2017 Deadline for Swap Variation Margin Compliance Under EMIR Aligning with Other Jurisdictions).

Some SDs have been in compliance with CFTC IM rules since September 1, 2016, which became effective for the largest covered swap entities on that date (see Practice Note, The Dodd-Frank Act: Margin Posting and Collection Rules for Uncleared Swaps: Compliance Dates for Prudential and CFTC Rules).

In November 2016, the European Commission (EC) submitted a request to the CFTC to issue a comparability determination between EMIR and CFTC margin rules, as part of the broader exterritorial application of swaps rules (see Practice Note, The Dodd-Frank Act: Cross-Border Application of Swaps Rules).

As noted in No-Action 17-05, the CFTC and EC have not yet established an equivalence determination with respect to their respective margin rules. In light of this fact and with EMIR margin requirements beginning on February 4, the CFTC has issued temporary relief in which no action will be recommended against SDs that are subject to, and in compliance with, EMIR margin rules but not in compliance with CFTC margin rules, from the time period of February 4, 2017 up to, but not including, May 8, 2017.

Note that this relief is likely to be extended until a final comparability determination is issued for these rules that would allow these parties to comply with one set of rules or the other. However, the CFTC also issued a warning to SDs in No-Action 17-05 that they should not assume that the CFTC's final determination on substituted compliance will be comparable with the relief granted in No-Action 17-05.