Featured Product

    ISDA and Industry Request Delay in Timeline for Initial Margin Rules

    March 26, 2020

    Considering the challenges posed by the COVID-19 pandemic, ISDA submitted a letter on behalf of 21 industry associations and their members requesting BCBS, IOSCO, and global regulators to suspend the current timeline for the initial margin phase-in to allow market participants to focus their resources on ensuring continued access to the derivatives market. Given the uncertainty, ISDA recommends that revised deadlines for phase-five and phase-six implementation be set once the overall impact of COVID-19 is known. ISDA also stresses that it is essential that markets remain open, wherever possible, to ensure critical payments and transactions can be fulfilled and firms are able to manage their exposures—a position set out in a letter to FSB and IOSCO and in a joint letter to US authorities last week.

    Regulators have previously taken in recognition of the challenges that the initial margin rules will pose to smaller firms. Last July, for example, BCBS and IOSCO extended the phase-in timeline to give the smallest entities an extra year to comply. According to the ISDA analysis, that means 3,616 counterparty relationships will have to meet the requirements in September 2020, rather than the initial 9,059. Even with this change, though, the number of firms in scope for phase five is far in excess of the number that has had to comply so far—and this would have posed a compliance challenge even in normal times. In the current situation, meeting the documentation and operational requirements would be all but impossible in an environment of staff shortages, remote working, and extreme market volatility.

    The phase-five implementation date of September 2020 may seem a long way away, but much of the preparation needs to be done now. With the focus on business continuity, little or no spare capacity is available to deploy and test infrastructure, run average aggregate notional amount (AANA) calculations, and implement margin calculation systems. AANA calculations are necessary for hundreds of counterparties to determine whether they will be subject to the regulatory initial margin requirements. All in-scope counterparties also need to calculate and monitor initial margin amounts. That means the impact of keeping the current phase-in dates will extend far beyond the number of relationships that will actually need to exchange initial margin. In light of the unprecedented circumstances, ISDA is urging global regulators to announce a delay to phase five sooner rather than later. ISDA CEO also pointed out that the largest, most systemically important firms would still be required to meet initial margin requirements, thus mitigating risk in the derivatives market.

    While urging the authorities to keep markets open during this time, ISDA point out that it does have a well-established process in place to deal with market closures and the impact on derivatives. However, even with this process, working through the practical implications of a market closure is complex and time-consuming, especially at a time when most institutions have few resources to spare. It can also lead to fragmented, imperfect outcomes.

     

    Related Links

    Keywords: International, Banking, Insurance, Securities, OTC Derivatives, Initial Margin, Timeline, COVID-19, BCBS, IOSCO, ISDA

    Featured Experts
    Related Articles
    News

    HKMA Urges Early Action for Adherence to IBOR Fallbacks Protocol

    HKMA urged authorized institutions to take early action to adhere to the IBOR Fallbacks Protocol, which ISDA is expected to publish soon.

    October 16, 2020 WebPage Regulatory News
    News

    FSB Sets Out Roadmap for Transition to Alternative Reference Rates

    FSB published a global transition roadmap for London Inter-bank Offered Rate (LIBOR).

    October 16, 2020 WebPage Regulatory News
    News

    HM Treasury Publishes Response to Proposal on BRRD2 Transposition

    HM Treasury published a document that summarizes the responses received from a consultation on the approach of UK to transposition of the revised Bank Resolution and Recovery Directive (BRRD2).

    October 15, 2020 WebPage Regulatory News
    News

    HM Treasury Publishes Response to Proposal on CRD5 Transposition

    HM Treasury published the government response to the feedback received on the consultation for updating the prudential regime of UK before the end of the Brexit transition period.

    October 15, 2020 WebPage Regulatory News
    News

    PRA Updates Supervisory Statement on Counterparty Credit Risk

    PRA published the final policy statement PS22/20, which contains the updated supervisory statement SS12/13 on counterparty credit risk.

    October 14, 2020 WebPage Regulatory News
    News

    FSB Publishes Update on Work to Address Market Fragmentation

    FSB published an update on its work to address market fragmentation. FSB is working in this area in collaboration with the other standard-setting bodies.

    October 14, 2020 WebPage Regulatory News
    News

    EBA Proposes to Revise Guidelines on Incident Reporting Under PSD2

    EBA proposed revisions to the guidelines on major incident reporting under the second Payment Service Directive (PSD2).

    October 14, 2020 WebPage Regulatory News
    News

    EBA Finalizes Standards for Prudential Treatment of Software Assets

    EBA published the final draft regulatory technical standards specifying the methodology for prudential treatment of software assets by banks.

    October 14, 2020 WebPage Regulatory News
    News

    FSB Publishes Roadmap on Cross-Border Payments, Report on Stablecoins

    FSB published a report presenting the roadmap to enhance cross-border payments by providing a high-level plan that sets ambitious but achievable goals and milestones in the five focus areas.

    October 13, 2020 WebPage Regulatory News
    News

    EIOPA Urges Insurers to Prepare for End of Brexit Transition

    In a recent communication, EIOPA urged the insurance sector to complete its preparations for the end of the Brexit transition period on December 31, 2020.

    October 13, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5959