Public Statements & Remarks

Statement of Chairman Heath P. Tarbert in Support of Margin Relief for the European Stability Mechanism

April 14, 2020

I am pleased to support today’s final rule codifying relief from the Margin Rule for the European Stability Mechanism (“ESM”).[1]  The Margin Rule requires the posting of initial and variation margin for uncleared swaps entered into by certain swap dealers, major swap participants, and “financial end user[s].”[2]  Today’s final rule will amend the definition of “financial end user” in Regulation 23.151 to exclude the ESM from the requirements of the Margin Rule. 

As I explained when this amendment was proposed last October,[3] the ESM provides financing and bond purchases to support Eurozone member states, serving similar functions as a multilateral development bank.  Given that multilateral development banks and related entities[4] are excluded from the Margin Rule, it makes good sense to codify the same relief for the ESM.[5]  This is especially true given the ESM’s role in the market.  As its name suggests, the ESM is an agent of stability and does not raise concerns about risk in the derivatives markets.  Codifying the ESM’s relief from the Margin Rule is particularly important as Europe responds to the financial fallout of the global coronavirus pandemic.

Erasmus observed long ago that “humility is wisdom.”  Keeping that perspective is especially important when it comes to financial regulatory areas where nations have implemented a common set of core principles internationally.  Those internationally-shared frameworks serve as a baseline, and national regulators have necessarily tailored their specific rules to the unique attributes of their own domestic markets.  But we should be humble, and indeed wise enough, to resist the temptation to insist that a foreign counterpart adopt domestic regulations on a rule-by-rule basis.  Cross-border derivatives regulation that utilizes comity and deference can enable the effective implementation of the post-crisis G20 derivatives regulatory reforms. 

As I have stated before, were financial regulators to insist that their counterparts overseas import each other’s specific rules wholesale, it would lead to an absurd result ad infinitum.[6]  Just as the G20, Financial Stability Board, and various standard-setting bodies were established to prevent a global race to the bottom, their work is also meant to prevent nations from forcing the complete strictures of their domestic regimes onto others.  For example, the Principles for Financial Markets Infrastructure (“PFMI”) represent international standards for, among other things, central counterparties and trade repositories.  All of the G20 nations have adopted the PFMI, providing an opportunity for meaningful dialogue with both the European Commission and the European Securities and Markets Authority regarding the status of American and European central counterparties.

Those discussions are ongoing and have been productive.  In particular, we are working toward a potential cooperative framework for the supervision of central counterparties engaged in international markets.  With an eye to this progress, I believe today’s final amendments to the Margin Rule are appropriate.  I am encouraged by the tone of the dialogue and the commitment of our EU counterparts to reach a mutually beneficial arrangement that will stand the test of time.  I believe such an arrangement for the supervision of third country central counterparties would entail a great degree of regulatory deference and international comity alongside extensive information sharing and regular communications between supervisory authorities.  I look forward to continuing to engage with our European colleagues to advance our shared interests in a robust and resilient transatlantic derivatives market.  In that context, I am pleased to support today’s final rule to exclude the ESM from the Margin Rule.[7]



[1] The Margin Rule is codified at Commission Regulations 23.150 through 23.161, 17 C.F.R. § 23.150-23.161 (2019). 

[2] Regulation 23.151 applies to swap dealers, major swap participants, and financial end users that are not subject to regulation by a “Prudential Regulator,” which term our laws use as shorthand to mean what is essentially a banking regulator.

[3] See Statement of Chairman Heath P. Tarbert Before the Open Commission Meeting on October 16, 2019 (Oct. 16, 2019), available at

[4] The Margin Rule excludes from the definition of “financial end user” sovereign entities, multilateral development banks, and the Bank for International Settlements, among other entities.  See Regulation 23.151.

[5] The ESM has had no-action relief from the Margin Rule since July 24, 2017.  See CFTC Letter 17-34 (July 24, 2017); see also CFTC Letter 19-22 (Oct. 16, 2019).

[6] See Statement of Chairman Heath P. Tarbert in Support of the Cross-Border Swaps Proposal (Dec. 18, 2019), available at (“If we impose our regulations on non-U.S. persons whenever they have a remote nexus to the United States, then we should be willing for all other jurisdictions to do the same.  The end result would be absurdity, with everyone trying to regulate everyone else.  And the duplicative and overlapping regulations would inevitably lead to fragmentation in the global swaps market—itself a potential source of systemic risk.”).

[7] Today the Commission is also voting on a proposal to codify the ESM’s relief from the Clearing Requirement under Part 50 of the CFTC’s rules.