ISDA published a paper that highlights the main areas of difference in the implementation of margin requirements for non-cleared derivatives across jurisdictions and makes recommendations on how to resolve these variations. The paper discusses differences in implementation in key areas such as eligible collateral requirements, initial margin model governance obligations, misalignments in initial margin product scope, settlement time frames, and treatment of inter-affiliate transactions.
Jurisdictions across the globe have implemented margin requirements for non-cleared derivatives, largely in line with the standards agreed by BCBS and IOSCO. Since implementation of the first phase of the requirements in 2016, the U.S., EU, Japan, and others have extended the requirements in line with the phase-in schedule agreed by BCBS and IOSCO. The consistency in requirements has enabled ISDA to develop and implement industry solutions to aid compliance, including standard initial margin and variation margin documentation, the ISDA Standard Initial Margin Model (ISDA SIMMTM), and ISDA Create—Initial Margin, an online tool for negotiating and executing initial margin documents. Nonetheless, differences in the implementation across jurisdictions still exist in certain key areas such as eligible collateral, settlement time frames, and treatment of inter-affiliate transactions. These inconsistencies create unnecessary complexity and costs for derivatives users and contribute to market fragmentation.
While initial margin and variation margin reduce counterparty credit risk and have the potential to mitigate systemic risk, divergence in the implementation of margin requirements across jurisdictions contributes to market fragmentation, increases the cost and complexity of cross-border trading, and decreases access to global liquidity pools. Aligning margin requirements in the mentioned key areas would significantly reduce these negative market effects without compromising overall policy objectives. By means of illustration, the paper outlines the requirements of the U.S., EU, UK, Japan, Singapore, Hong Kong, Australia, Switzerland, and Canada.
Keywords: International, Banking, Securities, Margin Requirements, Counterparty Credit Risk, OTC Derivatives, ISDA
Previous ArticleEP Approves Appointments of Christine Lagarde and Yves Mersch
The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.
The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.
The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.
The European Council published a draft Commission Delegated Regulation to amend the regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.
The Monetary Authority of Singapore (MAS) published amendments to Notice 635, which sets out requirements that a bank in Singapore has to comply with when granting an unsecured non-card credit facility to individuals.
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.
The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.
The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),