RBI Consults on Variation Margin Requirements for OTC Derivatives
RBI is consulting on the draft for Variation Margin (Reserve Bank) Directions for 2020. The draft provides directions for calculation and exchange of variation margin, eligible collateral and haircuts, treatment of cash collateral as variation margin, margin requirements for cross-border non-centrally cleared derivative transactions, and dispute resolution. A schedule of minimum haircuts, to be applied on the collateral exchanged as variation margin, has been set out in Annex 1 of the draft directions. Comments on the draft directions are invited from banks, market participants, and other interested parties by October 15, 2020.
In February 2020, RBI announced that it will issue the directions on the exchange of variation margin for non-centrally cleared derivatives, following the G-20 recommendations. The aim is to improve safety of settlement of over-the-counter (OTC) derivatives that are not centrally cleared. The following are the key highlights of the recently published draft directions:
- These directions shall be applicable to Domestic Covered Entities. In these directions, the term Domestic Covered Entities means financial entities regulated by RBI, Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India, and Pension Fund Regulatory and Development Authority of India; these also include International Financial Services Centre (IFSC) Banking Units (IBUs) and certain other entities with average aggregate notional amount of outstanding non-centrally cleared derivatives of INR 50,000 crore and above, on a consolidated group-wide basis.
- Variation margin shall be calculated on a daily basis and exchanged at the earliest possible after the transaction date (T) or margin recalculation date (R), but no later than the end of the next local business day (T+1 or R+1).
- Variation margin shall be exchanged to fully collateralize to market or settle to market, the mark-to-market exposure of a non-centrally cleared derivative contract. If the exposures cannot be marked-to-market, a pre-agreed alternative process or fallback mechanism shall be used.
- Variation margin shall be calculated and collected on an aggregate net basis, across all non-centrally cleared derivative contracts that are executed under a single, legally enforceable netting agreement.
- A minimum threshold of INR 0.50 million will be applicable for the exchange of variation margin. The participants may agree to not exchange margin if the variation margin amount due, since the last exchange of margin, is lower than the minimum threshold. The entire margin amount will need to be mandatorily exchanged if the variation margin amount is equal to or more than INR 0.50 million.
Comment Due Date: October 15, 2020
Keywords: Asia Pacific, India, Banking, Securities, Margin Requirements, Non-Currently Cleared Derivatives, OTC Derivatives, Variation Margin, RBI
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Trevor Howes
IFRS 17 technical advisor; AXIS actuarial modeling system expert; extensive experience in life insurance and life reinsurance, with focus on modeling, valuation, and financial reporting
Previous Article
RBI Circular Sets Out Financial Parameters for Resolution FrameworkNext Article
CMF Announces Strategic Initiatives for 2020-2022Related Articles
EBA Proposes Standards for IRRBB Reporting Under Basel Framework
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
FED Issues Further Details on Pilot Climate Scenario Analysis Exercise
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.