Hedge funds and asset managers won relief from Dodd-Frank Act collateral requirements for credit-default swaps under a policy shift disclosed June 7 in letters posted on the U.S. Securities and Exchange Commission's (SEC's) website.
The letters to banks, including JPMorgan Chase & Co. and Goldman Sachs Group Inc., revised a measure released in March that called for some clients to put up double the collateral that dealers post for portfolio margin accounts at Atlanta-based IntercontinentalExchange Inc. (ICE). The banks instead will be able collect collateral from clients according to clearinghouse rules for six months.
During the six-month period, banks must design their own models for trading with clients that will then need SEC approval, the agency said in the letters dated today. The SEC suggested guidelines, including requiring enough margin to handle a 10-day liquidation with 99 percent confidence. The policy affects portfolio accounts with credit swaps tied to single securities offsetting those tied to indexes.
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