ISDA has prepared and published an informational document to assist market participants that may be subject to the phase-five initial margin requirements in the U.S. This document summarizes and explains the requirements for calculating the average aggregate notional amount (AANA) for phase-five between June 01 and August 31, 2019, for a compliance date of September 01, 2020. The phase-five initial margin calculation period in the U.S. is June-August 2019—not March-May 2020 as in other jurisdictions. The U.S. non-cleared margin regulations require an earlier calculation period than other jurisdictions to determine whether a party is in-scope for initial margin.
Under the regulations for the margining of non-cleared derivatives, which have been established by the CFTC and U.S. prudential regulators (the U.S. rules), a party trading derivatives products covered by these rules may be subject to requirements to exchange variation margin and initial margin. The U.S. rules apply directly to registered swap dealers and major swap participants and indirectly to “financial end users.” If a financial end user has an AANA of in-scope, non-cleared derivatives transactions greater than USD 8 billion, then the initial margin requirements will apply (in addition to variation margin). The U.S. rules use the term “material swaps exposure” to refer to an AANA greater than USD 8 billion. The definition of “financial end user” includes various types of financial entities and both U.S. and non U.S. entities.
A party that is already exchanging variation margin with counterparties that are swap dealers subject to the U.S. rules, may also be indirectly subject to U.S. regulatory initial margin requirements. Therefore, it is necessary for that party to calculate the AANA for its consolidated group of entities to determine whether it exceeds the U.S. threshold for Phase 5. The AANA calculation must be conducted at the principal level—that is, aggregated across investment managers, if applicable.
Keywords: Americas, US, Banking, Securities, OTC Derivatives, Margin Requirements, Notional Amount, AANA, ISDA
Previous ArticleDNB Publishes Banking and Insurance Newsletters for May 2019
Next ArticleEBA Publishes Annual Report for 2018
APRA issued a letter to authorized deposit-taking institutions announcing its intent to formalize the capital measures and reporting requirements for COVID-19 loans through temporary legislative instruments.
EBA is inviting relevant stakeholders, such as financial institutions and information and communication technology (ICT) third-party providers, to share their views and experience on the use of regtech solutions through its regtech industry survey.
FCA finalized the guidance extending measures to help customers that hold insurance and premium finance products and are in temporary financial difficulty because of COVID-19 crisis.
BoE published a statistical notice (Notice 2020/9) explaining the approach for treatment of payment holidays on the profit and loss return or Form PL.
FASB announced the launch of its new Post-Implementation Review (PIR) web portal.
EBA revised the draft implementing technical standards on supervisory reporting as part of the reporting framework 3.0.
ECB published report that presents a summary of the analysis conducted on the internal capital adequacy assessment process (ICAAP) practices of a sample of 37 "significant" banks.
EC published a proposal for a regulation that amends the Benchmarks Regulation (2016/1011) regarding the exemption of certain third-country foreign-exchange benchmarks and the designation of replacement benchmarks for certain benchmarks in cessation.
PRA published a letter from Mel Beaman, the Director for UK Deposit Takers, to suspend the relevant guidance levels on fixed rate lending limits in the “Specialist Sourcebook” for an initial period of six months, running from August 01, 2020 to January 31, 2021.
BoE updated the known issues document for the statistical reporting Forms AS and FV.