OTC Derivatives Regulation - Paper - BIS/IOSCO - Margin requirements for non-centrally-cleared derivatives, final document, September 2013
|FINAL DOCUMENT: Released September 9, 2013.|
In September 2013 the the Basel Committee on Banking Supervision and the International Organization of Securities Commissions (IOSCO) published it final document that outlines the framework for non-centrally cleared derivatives.
In July 2012, Basel Committee and (IOSCO) published a consultative paper on margin requirements for non-centrally-cleared derivatives. The July document laid out the framework for margin and capital requirements for swaps and other derivatives that exist outside a centrally-cleared environment. The paper included a list of key principles under which the framework would be developed, and also included a list of questions on which market participants were asked to comment.
In February 2013, they issued the second consultation document as a "follow-up" to the July 2012 consultation that, among other things, sought input on four elements:
- the treatment of physically-settled foreign exchange (FX) forwards and swaps under the framework,
- the ability to engage in limited re-hypothecation of collected initial margin,
- the proposed phase-in framework, and
- the adequacy of a conducted quantitative impact study (QIS).
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Key Points of the Paper
- Other than physically settled foreign exchange forwards and swaps, which are exempt, all non-centrally cleared derivatives should be subject to initial and variation margin, and should be consistent across entities. A summary table of initial margin can be found below.
- Variation margin must be exchanged with "sufficient frequency" (e.g. daily) in an amount to fully collateralize mark-to-market exposure.
- Eligible forms of collateral include high-quality government, corporate and covered bonds, equities and gold. A summary table can be found below.
- "One-time" re-hypothecation of initial margin collateral is permitted subject to a number of strict conditions. This should help to mitigate the liquidity impact associated with the requirements.
- A de minimis margin threshold of EUR 50 million would be introduced, below which a firm would have the option of not collecting initial margin.
- The requirement to collect and post initial margin on non-centrally cleared trades will be phased in over a four-year period, beginning in December 2015 with the largest, most active and most systemically important derivatives market participants.<ref>Margin requirements for non-centrally cleared derivatives - final document. Bank for International Settlements. Retrieved on September 9, 2013.</ref>
Standardized Initial Margin Schedule
|Asset class||Initial margin requirement
(% of notional exposure)
|Credit: 0–2 year duration||2|
|Credit: 2–5 year duration||5|
|Credit 5+ year duration||10|
|Interest rate: 0–2 year duration||1|
|Interest rate: 2-5 year duration||2|
|Interest rate: 5+ year duration||4|
Standardized Haircutting Schedule
(% of Market Value)
|Cash in same currency||0|
|High-quality government and central bank securities: residual maturity less than 1 year||0.5|
|High-quality government and central bank securities: residual maturity between 1-5 years||2|
|High-quality government and central bank securities: residual maturity greater than 5 years||4|
|High-quality corporate\covered bonds: residual maturity less than 1 year||1|
|High-quality corporate\covered bonds: residual maturity between 1-5 years||4|
|High-quality corporate\covered bonds: residual maturity greater than 5 years||8|
|Equities included in major stock indices||15|
|Additional (additive) haircut on asset in which the currency of the derivatives obligation differs from
that of the collateral asset
Related Document: Final Document