Margin Requirements for Non-Centrally Cleared Derivatives – Initial Margin Models
Summary
SIFMA, SIFMA AMG, International Swaps and Derivatives Association, Inc. (ISDA) and Association of the Luxembourg Fund Industry (ALFI) provide comments to European authorities – European Securities and Markets Authority (ESMA), European Banking Authority (EBA), and European Insurance and Occupational Pensions Authority (EIOPA) in support the efforts of regulators to help the industry in the implementation of the initial margin (IM) rules applicable to non-centrally cleared derivatives.
The Associations welcome the 5 March 2019 BCBS IOSCO statement noting that the uncleared margin framework “does not specify documentation, custodial or operational requirements if the bilateral initial margin amount does not exceed the framework’s €50 million initial margin threshold…” but advise that regardless of whether counterparties coming into scope of the IM requirements in 2019 (phase 4) and 2020 (phase 5) are able to delay some of their documentation, custodial and operational requirements because they will not immediately have to exchange IM, these counterparties will still face substantial burden to implement and maintain an IM calculation method in order to monitor their IM amounts and/or calculate IM for exchange. This burden is due primarily to regulatory requirements for the approval to use a quantitative IM model and the governance requirements associated with its initial and ongoing use.
Excerpt
May 17, 2019
Mr Steven MAIJOOR
Chairman, European Securities and Markets Authority
CS 60747
103 rue de Grenelle
75345 Paris Cedex 07, France
Mr José-Manuel CAMPA
Chairman, European Banking Authority
DEFENSE 4 – EUROPLAZA 20 Avenue André Prothin CS 30154 92927 Paris La Défense CEDEX
Mr Gabriel BERNARDINO
Chairman, European Insurance and Occupational Pensions Authority
Westhafenplatz 1
60327 Frankfurt am Main
Germany
Re: Margin Requirements for Non-Centrally Cleared Derivatives – Initial Margin Models
Dear Sirs,
The International Swaps and Derivatives Association, Inc. (ISDA), the Securities Industry and Financial Markets Association (SIFMA), the Securities Industry and Financial Markets Association’s Asset Management Group (SIFMA AMG) and the Association of the Luxembourg Fund Industry (ALFI) (hereinafter the Associations) support the efforts of regulators to help the industry in the implementation of the initial margin (IM) rules applicable to non-centrally cleared derivatives.
In September 2018, ISDA, SIFMA and other industry associations submitted a letter to the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) to raise issues associated with the final stages of the uncleared margin rules1, particularly with the introduction of IM requirements for a large universe of counterparties as of September 1, 2020.
1 September 2018 letter sent by ISDA, SIFMA, American Bankers Association, the Global Foreign Exchange Division of the Global Financial Markets Association and the Institute of International Bankers: 20180912-Initial-Margin-Phase-In-Implementation-Joint-Trade-Association-Comments.pdf.