US regulators approve VM route to capital savings

Guidance tips balance in debate over interest payments in settled-to-market swaps

US banks believe they have a green light to begin treating variation margin (VM) payments as settlement of a cleared swap – a step that could slash capital requirements – after long-awaited regulatory guidance was published on August 14.

The three-page note fails to address directly a key area of ambiguity – a payment known as price alignment interest (PAI) – that could suggest a margin payer is entitled to reclaim the transferred assets. But lawyers acknowledge the regulators’ focus on legal