Tag: Variation Margin

Variation Margin

ESAs Review on Variation Margin Challenges for FX Forwards

The European Supervisory Authorities (ESAs) today released a statement acknowledging challenges for certain counterparties to exchange variation margin for physically settled FX forwards under EMIR by January 3, 2018.

Based on the material presented to the ESAs, it notes the implementation appears to mainly pose a challenge regarding transactions with certain end users.

The requirement to exchange variation margin for physically settled FX forwards is part of a globally agreed framework that aims to ensure safer derivatives markets by limiting the counterparty risk from derivatives trading partners, notes ESAs. The international standards state that variation margining of physically settled FX forwards is both an established practice among significant market participants and that it is a prudent risk management tool that limits the build-up of systemic risk, and thus that variation margining should apply to physically settled FX forwards. 

ISDA: Markets Likely to Avoid Disruption from VM Rules

The derivatives industry can breathe a sigh of relief regarding new variation margin (VM) requirements, as it now looks like majority of market participants will be ready for them, according to the International Swaps and Derivatives Association (ISDA).

In a posting on the ISDA website, the association’s CEO, Scott O’Malia, notes that as recently as six months ago “the industry was facing the possibility of real disruption”.

“With the variation margin ‘big bang’ set for implementation on March 1, but with only a fraction of the necessary changes to documentation completed, there was a very material risk that a large part of the market wouldn’t be able to trade,” he comments.

ISDA: Time Ticking on Margin Deadlines

The new variation margin deadlines still pose a substantial challenge to financial services firms, despite the “substantial progress” that many of these firms have made in their compliance efforts, according to Scott O’Malia, CEO of the International Swaps and Derivatives Association (ISDA).

The variation margin requirements came into effect for swap dealers on March 1, 2017, but the Commodity Futures Trading Commission (CFTC) issued a no-action letter in February, which stated that it would not enforce the new rules for the first six months after this date.

CloudMargin, SmartDX Partner to Tackle VM Rules

CloudMargin has partnered with SmartDX to produce a new offering aimed at helping firms comply with the new daily variation margin (VM) Rule that go into effect March 1.

CloudMargin provides web-based collateral and margin management solutions, while SmartDX offers automated trade and relationship document generation, collaboration and processing in the capital markets.

The two firms have now teamed up to produce an offering designed to enable buy-side investors and other over-the-counter (OTC) derivatives market participants to quickly and comprehensively sign new ISDA Documentation or “repaper” their OTC agreements with existing or new counterparties.

Margin Rule Works in TriOptima’s Favour

TriOptima has announced that 60 clients have adopted its triResolve Margin service since it launched in June 2016 as firms push to meet the new variation margin regulations coming into effect on March 1.

The new margin rules for non-cleared trades will increase the volume and complexity of margin calls. Therefore, TriOptima says that the existing fragmented and manual solutions will not be equipped to meet the new demands.

Unlike the initial margin rules that were introduced in September and are phased so that different market participants have different compliance dates, the variation margin rules will instantly affect the vast majority of firms trading OTC derivatives globally.

ISDA and IHS Markit Collaborate on VM Protocol Tool

The International Swaps and Derivatives Association (ISDA) and IHS Markit have announced the launch of the ISDA 2016 Variation Margin Protocol on ISDA Amend.
The protocol automates the process for amending existing collateral documents or setting up new agreements in order to comply with new variation margin requirements going into effect on March 1 2017.
The ISDA Amend platform enables counterparties to electronically share specially designed questionnaires through a centralised online platform, removing the need for bilateral negotiations. Counterparties can make elections under the protocol, including which regulatory regimes apply and which method they will use to make the required changes to their documentation. The service also automates the reconciliation of questionnaires between counterparties.