Non-Cleared Derivatives Initial Margin (IM)

As part of the response to the 2008 financial crisis, members of the Group of Twenty (the G20) agreed to reforms to reduce the systemic risk of OTC derivatives, which include consistent global standards for the margining of uncleared derivatives. To this end, the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) established the Working Group on Margin Requirements (WGMR), which is comprised of representatives from 25 regulatory authorities across the globe. In 2013, the WGMR published standards for uncleared margin requirements (the “Uncleared Margin Requirements”), which were then adopted in local jurisdictions.

The Uncleared Margin Requirements require swap dealers, major swap participants, and certain financial end users with material swaps exposure to post both initial margin and variation margin with respect to uncleared derivatives. Implementation of the Uncleared Margin Requirements began in September 2016.  Variation margin was implemented over 2 phases from 2016-2017. The implementation of initial margin has been staggered across five phases based on a firms’ average notional amount of uncleared derivatives over specified three month periods as set forth in the rules. The final phase, Phase 5, which is scheduled for September 1, 2020, will include market participants whose aggregate average notional amount (“AANA”) of uncleared derivatives exceeds 8 billion and will include many clients of asset managers.

As the Uncleared Margin Requirements require AANA to be calculated at the client’s consolidated corporate group level, asset managers will need to determine their client’s overall AANA, which includes derivatives entered into by the client directly or through other asset managers. In order to assist with this effort, SIFMA AMG has prepared a client questionnaire for asset managers to use to help assess whether or not their clients may be in scope for the Uncleared Margin Requirements.

NOTE: The Non-Cleared Derivatives Initial Margin Questionnaire and Derivatives Initial Margin Questionnaire Annex have been revised to reflect the July 23, 2019 Basel Committee on Banking Supervision and the International Organization of Securities Commissions (BCBS-IOSCO) statement recommending the extension of the final phase of implementation by one-year, and splitting the final phase-in date. As local jurisdictions are in the process of codifying the BCBS-IOSCO recommendations, please be advised that AMG will need to further update the Questionnaire and Annex once the relevant jurisdictions have finalized their rules.