OTC Derivatives Regulation - Paper - BIS/IOSCO - Margin requirements for non-centrally-cleared derivatives, final document, September 2013

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Gavel.png FINAL DOCUMENT: Released September 9, 2013.

September 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).

For more information, click HERE.

Key Points of the Paper[edit]

  • 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[edit]

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
Commodity 15
Equity 15
Foreign Exchange 6
Interest rate: 0–2 year duration 1
Interest rate: 2-5 year duration 2
Interest rate: 5+ year duration 4
Other 15

Standardized Haircutting Schedule[edit]

Asset class Haircut

(% 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
Gold 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[edit]


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