The Basel Committee on Banking Supervision and the International Organisation of Securities Commissions (IOSCO) have released a near-final proposal on margin requirements for non-centrally cleared derivatives.
In a statement from the IOSCO Secretariat, the two global financial markets regulatory bodies stated that several features of the near-final proposal are intended to manage the liquidity impact of the margin requirements on financial market participants.
They noted that the proposed requirements would allow for the introduction of a universal initial margin threshold of €50 million.
According to the statement, the results of a quantitative impact study (QIS) conducted in 2012 indicate that application of the threshold could reduce the total liquidity costs by 56 per cent relative to a margining framework with a zero initial margin threshold, which was initially proposed in the July 2012 consultative paper on margin requirements for non-centrally cleared derivatives.
The proposal also envisaged a gradual phase-in to provide market participants with sufficient time to adjust to the requirements.
The requirement to collect and post initial margin on non-centrally cleared trades is proposed to be phased in over a four-year period beginning from 2015 while this initial phase will start with the largest, most active and most systemically risky derivative market participants.
These policy proposals are articulated through a set of key principles that primarily seek to ensure that appropriate margining practices will be established for all non-centrally cleared over-the-counter (OTC) derivative transactions. These principles will apply to all transactions that involve either financial firms or systemically important non-financial entities.
The proposal takes into account the results of the last year’s QIS, which was conducted to quantify the liquidity costs associated with margin requirements for non-centrally cleared derivatives, as well as comments received in connection with the first consultative paper.
The Basel Committee and IOSCO would be taking public comments on the near-final proposal up till March 15, 2013. Specifically, stakeholders in the global financial industry are expected to provide inputs on the treatment of physically-settled foreign exchange forwards and swaps under the framework, ability to engage in limited re-hypothecation of collected initial margin, proposed phase-in framework, and the adequacy of the conducted quantitative impact study (QIS).
Stakeholders’ comments on the near-final proposal would be considered in formulating the final joint proposal on margin requirements on non-centrally cleared derivatives.©Standard Gazette, 2021. Unauthorized use and/or duplication of this material without express and written permission from this site’s publisher is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Standard Gazette with appropriate and specific direction to the original content.