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
APRA announced the standardization of quarterly reporting due dates for authorized deposit-taking institutions.
EBA published the phase 1 of its reporting framework 3.1, with the technical package covering the new reporting requirements for investment firms (under the implementing technical standards on investment firms reporting).
HM Treasury notified that, after considering all responses, the government intends to bring forward further legislation, when the Parliamentary time allows, to address issues identified in the consultation on supporting the wind-down of critical benchmarks.
EIOPA launched the 2021 stress test for the insurance sector in EU.
UK authorities jointly published the third edition of Regulatory Initiatives Grid setting out the planned regulatory initiatives for the next 24 months.
EC is requesting feedback on the proposed Commission Delegated Regulation on the content, methodology, and presentation of information that large financial and non-financial undertakings should disclose about their environmentally sustainable economic activities under the Taxonomy Regulation.
OSFI has set out the near-term priorities for federally regulated financial institutions and federally regulated private pension plans for the coming months until March 31, 2022.
Under the Italian G20 Presidency, BIS Innovation Hub and the Italian central bank BDI launched the second edition of the G20 TechSprint on the lookout for innovative solutions to resolve operational problems in green and sustainable finance.
ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.
EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.