Featured Product

    ISDA Issues Guide on Application of Margin Rules in US, EU, and Japan

    January 06, 2020

    ISDA published a guide to the cross-border application margin rules for non-cleared derivatives in US, EU, and Japan. The guide describes the cross-border and substituted compliance rules under different margin regimes and uses that framework to examine the applicable rules for US, EU, and Japan. The guide focuses on the position of an entity that is not a swap dealer but is either directly subject to margin rules or is obliged to comply with the margin requirements of its counterparties.

    A large number of counterparties will come into the scope of initial margin requirements for non-cleared derivatives in 2020 and 2021. This has increased the focus on the applicability of the rules to cross-border trading relationships. However, practical challenges exist in analyzing multiple foreign rule sets and identifying situations in which different rules will apply as well as in understanding whether substituted compliance is available to reduce the compliance burden. Firms will need to understand the different aggregate average notional amount (AANA) calculations that are relevant to them, the initial margin thresholds that apply to their trading relationships, and the substantive requirements they will have to meet. This ISDA guide is intended to facilitate understanding of these rules. The guide looks strictly at the legal entity level to determine whether an institution is domestic or foreign. So, if a US group has a trading subsidiary that is established in France and registered with the CFTC as a swap dealer, then EU would be the domestic jurisdiction for that French legal entity and the US would be a foreign jurisdiction. Note that both regulated entities and covered counterparties under a jurisdiction’s margin rules may be domestic or foreign

    The guide covers the three separate sets of margin rules from SEC, CFTC, and the prudential regulators (comprising Farm Credit Administration, FDIC, FED, FHFA, and OCC) in the United States. The US margin regimes define regulated entities by registration requirements under the Dodd-Frank Act for swap dealers, major swap participants, security based swap dealers, and major security based swap participants. The starting point for analyzing the cross-border application of the US rules is that they apply to domestic and foreign regulated entities when facing domestic or foreign covered counterparties, unless a cross-border exclusion applies or substituted compliance is available.

    Additionally, the guide explains that margin regimes in EU and Japan are similar in that regulated entities are generally limited to entities organized or established in the jurisdiction, although with some exceptions. An alternative investment fund established outside EU and managed by an EU alternative investment fund manager (AIFM) that is authorized or registered in accordance with the Alternative Investment Fund Managers Directive (AIFMD) is a regulated entity for EU rules. Similarly, a Japanese branch of a foreign country entity that is registered in Japan as a financial instruments business operator and a Japanese branch of a foreign bank or foreign insurance company that is registered in Japan as a registered financial institution) is a regulated entity for the Japan rules. The EU and Japan rules apply to domestic regulated entities (and to this limited scope of foreign regulated entities) when facing any covered counterparty, regardless of location.


    Related Link: Guide (PDF)


    Keywords: International, Europe, Asia Pacific, Americas, EU, Japan, US, Banking, Securities, Insurance, Swaps, OTC Derivatives, Margin Rules, AANA, ISDA

    Related Articles

    EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis

    The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.

    November 28, 2023 WebPage Regulatory News

    EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules

    The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.

    October 31, 2023 WebPage Regulatory News

    BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks

    As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.

    October 19, 2023 WebPage Regulatory News

    BCBS and EBA Publish Results of Basel III Monitoring Exercise

    The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.

    October 18, 2023 WebPage Regulatory News

    PRA Updates Timeline for Final Basel III Rules, Issues Other Updates

    The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.

    October 18, 2023 WebPage Regulatory News

    US Treasury Sets Out Principles for Net-Zero Financing

    The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.

    October 17, 2023 WebPage Regulatory News

    EC Launches Survey on G7 Principles on Generative AI

    The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.

    October 14, 2023 WebPage Regulatory News

    ISSB Sustainability Standards Expected to Become Global Baseline

    The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.

    September 18, 2023 WebPage Regulatory News

    IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance

    Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.

    September 18, 2023 WebPage Regulatory News

    BCBS Assesses NSFR and Large Exposures Rules in US

    The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.

    September 14, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8938