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
PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.
EBA published a report that sets out the final draft regulatory technical standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation (CRR).
EBA updated the list of other systemically important institutions (O-SIIs) in EU.
BCBS published two reports that discuss transmission channels of climate-related risks to the banking system and the measurement methodologies of climate-related financial risks.
UK Authorities (FCA and PRA) welcomed the findings of FSB peer review on the implementation of financial sector remuneration reforms in the UK.
PRA and FCA jointly issued a letter that highlights risks associated with the increasing volumes of deposits that are placed with banks and building societies via deposit aggregators and how to mitigate these risks.
MFSA announced that amendments to the Banking Act, Subsidiary Legislation, and Banking Rules will be issued in the coming months, to transpose the Capital Requirements Directive (CRD5) into the national regulatory framework.
EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures.
OSFI launched a consultation to explore ways to enhance the OSFI assurance over capital, leverage, and liquidity returns for banks and insurers, given the increasing complexity arising from the evolving regulatory reporting framework due to IFRS 17 (Insurance Contracts) standard and Basel III reforms.
ECB published results of the benchmarking analysis of the recovery plan cycle for 2019.