Third, the Agencies note that the final product-level approach to initial margin rule’s explicitly allows for risk offsets though the precise form of these offsets differs from a “risk based approach. The Agencies believe that conceptually sound and empirically justified factor” risk offsets for initial margin are appropriate and have included such offsets in the final rule. In general, there are a large number of possible approaches that could be taken to allow for such offsets. The Agencies have considered the alternatives raised by the commenters and have adopted in the final rule an approach to recognizing risk offsets that provides for a significant amount of hedging and diversification benefits while also promoting transparency and simplicity in the margining framework. Product offsets. Some commenters suggested that for the purposes of calculating model-based initial margin amounts, portfolio offsets should be recognized between non-cleared swaps, cleared swaps and other products such as positions in securities. The authority under the Agencies’ Dodd-Frank Act for prescribing margin requirements on non-cleared swaps relates only to non- cleared swaps and not to other products even if those products are themselves, at times, traded in conjunction with non-cleared swaps. In particular, sections 731 and 764 of the Dodd-Frank Act require that the margin requirements be on all swaps that are not and that “imposed cleared” those requirements appropriate for the risk associated with non-cleared swaps held as a swap “be dealer or major swap The Agencies believe that it is appropriate for the margin participant.”178 requirements to be reflective of the risks in a covered swap portfolio of non-cleared entity’s
Third, the Agencies note that the final rule’s product-level approach to initial margin explicitly allows for risk offsets though the precise form of these offsets differs from a “risk factor” based approach. The Agencies believe that conceptually sound and empirically justified risk offsets for initial margin are appropriate and have included such offsets in the final rule. In general, there are a large number of possible approaches that could be taken to allow for such offsets. The Agencies have considered the alternatives raised by the commenters and have adopted in the final rule an approach to recognizing risk offsets that provides for a significant amount of hedging and diversification benefits while also promoting transparency and simplicity in the margining framework. Product offsets. Some commenters suggested that for the purposes of calculating model-based initial margin amounts, portfolio offsets should be recognized between non-cleared swaps, cleared swaps and other products such as positions in securities. The Agencies’ authority under the Dodd-Frank Act for prescribing margin requirements on non-cleared swaps relates only to non- cleared swaps and not to other products even if those products are themselves, at times, traded in conjunction with non-cleared swaps. In particular, sections 731 and 764 of the Dodd-Frank Act require that the margin requirements be “imposed on all swaps that are not cleared” and that those requirements “be appropriate for the risk associated with non-cleared swaps held as a swap dealer or major swap participant.”178 The Agencies believe that it is appropriate for the margin requirements to be reflective of the risks in a covered swap entity’s portfolio of non-cleared
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