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August 30, 2022
SD notice filing requirements under CFTC Regulation 23.154
CFTC Regulation 23.154 requires swap dealer (SD) Members that are subject to the CFTC Margin Rules and approved by NFA to use initial margin (IM) models to notify the CFTC and NFA of certain events related to an NFA-approved IM model. Starting September 1, 2022, SD Members must file these notices through NFA's WinJammer filing system and not via email.
The specific notices required are detailed below.
Modifications to an Approved Model
SD Members are required to notify the CFTC and NFA in writing 60 days prior to:
- Extending the use of a previously approved IM model to an additional product type;
- Making any change to any previously approved IM model that would result in a material change to the SD's assessment of IM requirements; or
- Making any material change to modeling assumptions used by the IM model.
This notification requirement does not apply to new releases of ISDA SIMM made by ISDA.
Material Issues with an Approved Model
SD Members must promptly notify the CFTC and NFA if the IM model validation process reveals any material problems with the model. The SD also must describe any remedial actions taken and adjust the model to ensure an appropriately conservative amount of required IM is being calculated. This requirement extends to material issues identified during ongoing monitoring and the validation activities of each new version of SIMM, in light of its application to the SD Member's specific portfolio. At a minimum, an SD Member must notify NFA and the CFTC when it identifies problems with its IM model exceeding internal remediation thresholds. The notice filing must include:
- Counterparty and portfolio IDs;
- When and how the problem was identified, including relevant thresholds and testing results;
- Detailed description of the model performance issue (e.g., risk factors causing exceedances, sensitivity amounts, market volatility relative to IM model calibration, nonlinear effects, risks-not-in-IM-model);
- Remediation plan, including associated compensating controls;
- Identified need for add-ons/multipliers, including amounts/values;
- Current status of negotiations with the counterparty; and
- Remediation timeline.
An SD Member should not delay filing the required notice due to incomplete information related to the remediation plan and timeline. The SD Member must amend its initial notice to provide updated information on remediation, if necessary.
Step-by-step notice filing instructions are available in the Margin Model WinJammer Notice User Guide.
If you have questions, please contact Rina Callisto, Senior Quantitative Risk Manager (email@example.com or 212-346-5603), Antonina Harden, Director, Models and Risk (firstname.lastname@example.org or 212-513-6040) or Alessandra Riccardi, Managing Director, Models and Risk (email@example.com or 212-513-6029).