​Margin Rules Reinforce European Variance Futures Necessity, CFTC Reprieve Questioned

The decline in liquidity in over-the-counter variance swaps on Sept. 1 when the U.S. Commodity Futures Trading Commission’s uncleared swap margin rules came in to force are another indication that investors should look to variance futures to build a position in European realised volatility, according to market participants in the region. On Sept. 2, the CFTC issued a no-action letter to swap dealers to extend the collateral rule deadline due to limitations with custodial accounts. Lawyers note, however, the CFTC relief to swap dealers only applies to custodial accounts, and further work needs to be done by some dealers surrounding margin calculations, systems and documentation.