UK:
FCA Says LIBOR Transition Won't Subject Legacy Swaps To Margin Rules
12 April 2018
Cadwalader, Wickersham & Taft LLP
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According to reports, the UK Financial Conduct Authority
("FCA") does not believe that moving a legacy swap
contract from LIBOR to an alternative reference rate would
represent a material amendment to the contract, and thus
would not "trigger application of margin
requirements."
A material amendment to a contract could cause it to be
classified as a new trade, which would require a firm to adhere to
both initial and variation margin requirements. The FCA's
reported assessment - that altering the reference rate will not
represent a material amendment - resolves uncertainty around
whether legacy swap contracts will be subjected to the new European
Market Infrastructure Regulation margin requirements.
As highlighted by Risk.net, the FCA intends to
"discuss with other relevant authorities how clarification on
this point can be provided."
Commentary / Lary Stromfeld
An official FCA statement that a change in index rate does not
represent a material amendment to swap terms, requiring the
collection of margin, would be a helpful step toward removing
unnecessary confusion and economic consequences of the transition
away from LIBOR.
The content of this article is intended to provide a general
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