CFTC Proposes Protecting Swaps User Margin From Peer Default

The Commodity Futures Trading Commission approved a proposal to allow swaps users who post collateral to a clearinghouse to have their margin protected against another investor’s bankruptcy, a move that may increase trading costs.

A clearinghouse “would have recourse against the collateral of defaulting customers, but not against the collateral of non-defaulting customers” should both a futures broker and one or more of its customers fail, the CFTC said in a proposal summary released today. BlackRock Inc., the world’s largest asset manager, advocated in a November letter to the CFTC for this approach because it afforded protection against “fellow customer risk.”