Final derivatives rule approved

(May 21, 2021) Also at its Thursday meeting, a final rule on derivatives was approved unanimously by the NCUA Board, making three changes from the proposal issued last December.

The rule, which affects a limited number of federal credit unions directly (NCUA estimates about 30 FCUs are engaged with derivatives now), generally offers more flexibility for credit union involvement in the investment vehicles, primarily to manage interest rate risk. State-chartered credit unions follow rules set by their individual regulators.

Under the changes made in the final rule, NCUA:

  • Removed specific collateral requirements for “clear derivatives;”
  • Continued with current counterparty requirements (that is, those that are swap dealers, introducing brokers, and/or futures commission merchants that are current registrants of the CFTC); and,
  • Removed the prohibition on written options.

NASCUS had urged the agency, in its comment on the proposal, to eliminate redundant supervisory notice requirements where applicable by providing an exemption from its notice requirement for FISCUs in states where pre-approval or pre-notification is required to be given to the state regulator.

NCUA declined to provide the exemption, stating that “the current burden to a FISCU is unchanged as the FISCU is only notifying the applicable (NCUA) Regional Director after entering into its first Derivative transaction compared to the current requirement of notifying the Regional Director at least 30 days before it begins engaging in Derivatives.” The agency said the final rule retains the provisions of the proposed rule for the timing of notification to five days after entering its first derivative transaction.

The final rule takes effect 30 days after publication in the federal register.

Final Rule, Parts 701, 703, 741, and 746, Derivatives