The Monetary Authority of Singapore (MAS)
has postponed the implementation of rules surrounding margin requirements for
non-centrally cleared derivatives.
The rules were due to be invoked on
September 1, however in a letter to market participants, MAS says it has been ...
New margin rules for uncleared swaps come into force in the US, Canada and Japan today, and CFTC commissioner Christopher Giancarlo is, for one, very unhappy about it.
The International Swaps and Derivatives Association (ISDA) last week announced the live launch of the ISDA Standard Initial Margin Model (SIMM), an industry standard methodology that it says is being widely adopted by market participants to calculate initial margin for non-cleared derivatives trades. The launch comes as the US granted a last minute reprieve from the non-cleared margin rules in the face of opposition from market participants and announcements from four major centres that they were delaying enforcement of the rules
In a move that might be seen as a little late, the National Futures Association (NFA) has instructed FX brokers to raise their margin requirements for clients trading sterling.
Under NFA rules the 10 most traded currencies have be subject to a 2% margin on the notional value of outstanding contracts, while currencies outside of that group have had a 5% requirement.
Noting that its rules allow the NFA to change margin requirements “under extraordinary market conditions”, the regulator says, “Given the recent events involving the UK exiting the European Union (Brexit) the executive committee has determined to increase the minimum security deposits required to be collected and maintained by FDMs [forex dealer members] under Section 12 for currency pairs involving the British pound to a minimum of 5%. This increase is effective as of 5 p.m. (CST) on November 7, 2016 and remains in effect until further notice.”
As 2016 comes to a close the regulatory agenda shows no signs of slowing. While the FX market itself has largely not been directly addressed by new regulations, it has been swept up in many of the broader OTC market reforms.
March 1 will mark the implementation of the variation margin requirements for non-cleared derivatives, meaning that thousands of counterparties – including asset managers, pension funds, insurance companies and hedge funds – will need to change their existing collateral support agreements, or set up new ones, before this date.
FX market participants face numerous challenges next year in adhering to regulatory deadlines, according to experts on a recent Profit & Loss webinar.
One of the more immediate regulatory deadlines that firms are currently preparing for is on March 1, 2017, when the new variation margin requirements for non-cleared derivatives come into force.
But as Gabriel Rosenberg, a partner at Davis Polk pointed out, there are a number of factors within these requirements that are making them difficult for firms to comply with, even in instances where they are already exchanging variation margin with their counterparties.
Christopher Giancarlo, soon to be acting chairman of the US Commodity Futures Trading Commission (CFTC), says that the commission will look at ways to ease the March 1 deadline for the new margin requirements for uncleared swaps.
These requirements will make posting variation margin compulsory for all non-cleared derivatives, and set strict requirements on the type of collateral that can be posted, the frequency of the margin calls, and the required timing for settlement.
When current chairman of the CFTC, Timothy Massad, steps down from his role on January 20, Giancarlo will become acting chair and, speaking at the SefCon VII event, which was organised by Profit & Loss, in New York yesterday, he was critical of the March 1 deadline for the new margin rules.
The swaps market could suffer disruption if buy side trading firms aren’t ready for the March 1 deadline for the implementation of new margin requirement rules, speakers at SefCon VII warned.
Although buy side firms will not have to post initial margin for uncleared swaps transactions until 2019 or 2020, from March 1, 2017 they will be required to post variation margin when trading these products.
The main challenge highlighted by buy side speakers at the SefCon VII conference in New York on January 18 was the administrative burden of having the correct paperwork and documentation agreed with various counterparties.
The US Commodity Futures Trading Commission (CFTC) has issued a no-action letter, providing relief for swap dealers from having to comply with margin rules due to go into effect on February 4.
The CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO) says that it will not recommend enforcement action against swap dealers (SDs) that are subject to the margin requirements for non-centrally cleared OTC derivatives in the European Union (EMIR RTS) or for failure to comply with the CFTC’s final margin rule (Final Margin Rule).
The US Commodity Futures Trading Commission (CFTC) has issued a no action letter stating that it will not enforce the variation margin requirements that come into effect for swap dealers (SD) on March 1 for six months.
The CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO) has issued a time-limited no-action letter stating that, from March 1, 2017 to September 1, 2017, it will not recommend an enforcement action against an SD for failure to comply with the variation margin requirements for swaps.
TriOptima has added margin valuation adjustment (MVA) analytics to its triCalculate X-Value Adjustment (XVA) service.
MVA calculations determine the lifetime costs of posting initial margin as part of the pricing of an OTC derivative.
TriOptima says that the introduction of an MVA service addresses the needs of firms subject to new initial margin rules for OTC derivatives, which affect both cleared and non-cleared trades.
Pricing trades correctly is critical to ensuring accurate credit risk, counterparty exposure and funding management. While the posting of initial margin has always been a part of the central clearing process, the new rules mandating the posting of initial margin for non-cleared OTC derivative trades are being phased in from this year through 2020 and will affect a wide range of market participants.
Firms will be able to use triCalculate in order to generate independent trade and netting, set level XVA calculations, as well as risk sensitivities. They can access the platform to check the MVA implications of a trade before execution without delaying trading activity.
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.
It’s no secret that recent regulatory requirements have put FXPB business models under increased pressure. But some firms also see regulation as an opportunity to change how their businesses operate in order to win new business, as Galen Stops reports.
When questioned about the extent to which a combination of the Basel III regulations and the SNB
event had caused a contraction in the FXPB space, there was some pushback from certain service providers.
“I think that there’s a misperception that there has been a wholesale contraction in the FXPB space,” says John O’Hara, global head of FXPB and FX clearing at Societe Generale.