Dealers at odds with Fed on variation margin relief

Significant exposure test should be applied on a gross basis, has learned

US Federal Reserve building
Dealers complain about a lack of guidance from the Federal Reserve

Swap dealers and US prudential regulators have differing interpretations of the non-cleared margin relief granted on February 23 – a mix-up that may have resulted in large derivatives users continuing to trade under old collateral agreements, contrary to the wishes of the Federal Reserve.

The guidance from the Fed allowed banks to continue trading with non-compliant counterparties that are deemed not to have ‘significant exposures’ – but did not stipulate what amounts to a significant exposure,