ISDA Studies Variation in Global Implementation of Margin Requirements
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.
Related Links
Keywords: International, Banking, Securities, Margin Requirements, Counterparty Credit Risk, OTC Derivatives, ISDA
Previous Article
IMF Publishes Reports Assessing Financial System Stability in FranceRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
