June 17, 2019

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.

 

Related Links

Keywords: International, Banking, Securities, Margin Requirements, Counterparty Credit Risk, OTC Derivatives, ISDA

Related Articles
News

EBA Report Assesses Regulatory Framework for Fintech Activities

EBA published the findings of its analysis on the regulatory framework applicable to fintech firms when accessing the market.

July 18, 2019 WebPage Regulatory News
News

OSFI Revises Capital Requirements for Operational Risk for Banks

OSFI is revising its capital requirements for operational risk, in line with the final Basel III revisions published by BCBS in December 2017.

July 18, 2019 WebPage Regulatory News
News

OSFI Consults on Revised Principles for Management of Liquidity Risk

OSFI proposed revisions to Guideline B-6 on the principles for the management of liquidity risk.

July 18, 2019 WebPage Regulatory News
News

ESMA Guidance on Disclosures for Credit Rating Sustainability Issues

ESMA published the technical advice on sustainability considerations in the credit rating market, along with the final guidelines on disclosure requirements applicable to credit ratings.

July 18, 2019 WebPage Regulatory News
News

FASB Issues Q&A on Estimation of Expected Credit Losses by Firms

FASB issued a second question-and-answer (Q&A) document that addresses more than a dozen frequently asked questions related to the Accounting Standards Update No. 2016-13 titled “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”

July 17, 2019 WebPage Regulatory News
News

US Agencies Delay Enforcing Volcker Rule Restrictions on Foreign Funds

US Agencies (FDIC, FED, and OCC) announced that they will not take action related to restrictions under the Volcker Rule for certain foreign funds for an additional two years.

July 17, 2019 WebPage Regulatory News
News

SRB Announces SRF Receives Cash Injection, Grows to EUR 33 billion

SRB announced that the Single Resolution Fund (SRF or the Fund) received a cash injection of EUR 7.8 billion from 3,186 institutions in 2019, bringing the total amount in the Fund to about EUR 33 billion.

July 17, 2019 WebPage Regulatory News
News

FASB to Propose to Delay CECL Compliance Deadline for Certain Entities

FASB published a summary of the tentative decisions taken at its Board meeting in July 2019.

July 17, 2019 WebPage Regulatory News
News

IMF Publishes Report on 2019 Article IV Consultation with Vietnam

IMF published its staff report in context of the 2019 Article IV consultation with Vietnam.

July 16, 2019 WebPage Regulatory News
News

European Parliament Elects Next President of European Commission

European Parliament elected Ursula von der Leyen from Germany as the first female President of the next European Commission for a five-year term from November 01, 2019.

July 16, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3476