The three banking agencies, joined by the Farm Credit Administration and Federal Housing Finance Agency, have finalized major rules governing minimum margin and capital requirements for the registered swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants under their jurisdiction. The SEC and CFTC have yet to do so and, given the scope of their jurisdiction in this arena, their rules will be critical in determining the final margin/capital framework for the U.S. non-cleared-derivatives market. However, even after several significant revisions to the joint rule analyzed here, the rise in required margins will be very large, altering the structure of the U.S. derivatives markets in part by creating a strong incentive for more central clearing, but also by widening the way OTC transactions are structured based not on market forces, but rather on regulatory treatment of the counterparties involved. Large U.S. banks will face significant challenges because, while the final rule partially addresses concerns about inter-affiliate transactions, significantly higher volumes of initial margin will nonetheless be required.

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