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

    ESAs Issue Multiple Regulatory Updates for Financial Sector Entities

    The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.

    November 15, 2022 WebPage Regulatory News
    News

    FSB and NGFS Publish Initial Findings from Climate Scenario Analyses

    The Financial Stability Board (FSB) and the Network for Greening the Financial System (NGFS) published a joint report that outlines the initial findings from climate scenario analyses undertaken by financial authorities to assess climate-related financial risks.

    November 15, 2022 WebPage Regulatory News
    News

    FSB Issues Reports on NBFI and Liquidity in Government Bonds

    The Financial Stability Board (FSB) published a letter intended for the G20 leaders, highlighting the work that it will undertake under the Indian G20 Presidency in 2023 to strengthen resilience of the financial system.

    November 14, 2022 WebPage Regulatory News
    News

    ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments

    The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.

    November 10, 2022 WebPage Regulatory News
    News

    IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets

    The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.

    November 09, 2022 WebPage Regulatory News
    News

    EBA Finalizes Methodology for Stress Tests, Issues Other Updates

    The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups

    November 09, 2022 WebPage Regulatory News
    News

    EU Finalizes Rules Under Crowdfunding Service Providers Regulation

    The European Union has finalized and published, in the Official Journal of the European Union, a set of 13 Delegated and Implementing Regulations applicable to the European crowdfunding service providers.

    November 08, 2022 WebPage Regulatory News
    News

    OSFI Sets Out Work Priorities and Reporting Updates for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.

    November 07, 2022 WebPage Regulatory News
    News

    APRA Finalizes Changes to Capital Framework, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.

    November 03, 2022 WebPage Regulatory News
    News

    BIS Hub and Central Banks Conduct CBDC and DeFI Pilots

    The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.

    November 03, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8596