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    MAS Revises Guide on Margin Requirements for OTC Derivatives Contracts

    February 11, 2020

    MAS revised the guidelines on margin requirements for non-centrally cleared over-the-counter (OTC) derivatives contracts. The document provides guidance on the scope of products and entities, margin calculations and methodologies, and eligible collateral and haircuts. MAS issued these guidelines pursuant to section 321 of the Securities and Futures Act (Cap. 289). These guidelines apply to the MAS Covered Entities. MAS has amended the list of uncleared derivatives contracts for which the exchange of margins does not apply. MAS made changes to Annex 1 of the guidelines, which provides a list of the MAS Covered Entities that need not undertake exchange of margins.

    As per the guideline, the amount of initial margin to be exchanged should be calculated by reference to either a quantitative portfolio margin model or a standardized margin schedule outlined in Annex 2. An MAS Covered Entity may opt for either approach and not restrict itself to one approach for all its uncleared derivatives contracts. However, the MAS Covered Entity should be consistent in its approach for all contracts within the same well-defined asset class. Reasons for the approach should be based on fundamental considerations, such as differing models approved in foreign jurisdictions or the inability of certain counterparties to use certain models or approaches.

    An MAS Covered Entity should commence the exchange of initial margin in respect of uncleared derivatives contracts entered into with a counterparty—that is, an MAS Covered Entity or a Foreign Covered Entity from the phase-in dates specified in the guidelines. The exchange of initial margin applies from each phase-in date where both the MAS Covered Entity and the counterparty each belong to a consolidation group whose aggregate notional amount of uncleared derivatives contracts exceeds the respective thresholds. The MAS Covered Entity means a person who is exempt from holding a capital markets services license under section 99(1)(a) or (b)3 of the Securities and Futures Act.

     

    Keywords: Asia Pacific, Singapore, Banking, Securities, OTC Derivatives, Margin Requirements, Guidelines, Initial Margin, MAS

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