Secretariat of the Basel Committee on Banking Supervision
Bank for International Settlements
Centralbahnplatz 2
CH-4002 Basel
Switzerland

Secretariat of the International Organization of Securities Commissions
C/ Oquendo 12
28006 Madrid
Spain

Re: Margin Requirements for Non-Centrally Cleared Derivatives – Final Stages of Initial Margin Phase-In

Ladies and Gentlemen,

The International Swaps and Derivatives Association (ISDA), the Securities Industry and Financial Markets Association (SIFMA), the American Bankers Association (ABA), the Global Foreign Exchange Division (GFXD) of the Global Financial Markets Association
(GFMA) and the Institute of International Bankers (IIB) (together, the Associations1) appreciate the efforts of regulators towards developing and implementing margin requirements for non-centrally cleared derivatives. In accordance with the Basel Committee
on Bank Supervision and International Organization of Securities Commissions (BCBSIOSCO) Final Framework on Margin Requirements for Non-Centrally Cleared Derivatives

1 See Appendix for description of the Associations.

(Final Framework)2 regulators have established standards for margin requirements for noncentrally cleared derivatives (commonly referred to as the “Uncleared Margin Rules” or “UMR”), to be phased in over time.3 These requirements are a key aspect of the G20’s
financial regulatory reform agenda covering the over-the-counter derivatives markets and market participants, the goals of which our members fully support.4

We are writing to request the assistance of regulators around the globe to address impending substantive challenges associated with the final phases of UMR. In most jurisdictions, the final phases of these rules come into effect on September 1, 2019 (Phase 4)
and 2020 (Phase 5) with the introduction of initial margin (IM) requirements for a large universe of counterparties. As described in a white paper recently published by ISDA and SIFMA (the White Paper5), the final phases of UMR implementation will present significant obstacles and disruptions if applied as currently planned, given the large number of relatively smaller counterparties that will be brought within scope. In addition, a recent data gathering exercise conducted by ISDA (the Quantitative Analysis) demonstrates that the vast majority of these counterparties are firms whose inclusion in the UMR rules will provide little (if any) additional benefit towards meeting the policy objectives of regulators towards mitigating systemic risks. On the contrary, the low thresholds mean many of these Phase 5 entities may be dissuaded from engaging in transactions which help to manage their risk, given the
associated cost burdens of UMR.

Executive Summary:

The final phases of UMR implementation present serious logistical challenges. As described in greater detail in the White Paper, in-scope market participants face a number of major hurdles, which are exacerbated given the number of counterparties expected to come
into scope. These include large scale efforts to re-document every bilateral relationship in accordance with UMR, operationally set up third-party segregated accounts and adopt IM modeling to minimize the dispute resolution process, among other key tasks.

To better understand the scope of these challenges, ISDA undertook a data collection which served as the basis for the findings presented in the Quantitative Analysis, which has been provided in conjunction with this letter.6 The data covers 16,340 separate legal
counterparties, with 34,680 individual relationships.7 Based on the current regulatory requirements, we estimate the following impacts for Phase 5 of UMR:

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