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
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