Investment Operations

BCBS/IOSCO Offer Guidance on Final Phases of New Margin Requirements


Although significant progress has been made to implement the framework for margin requirements for non-centrally-cleared derivatives, based on its monitoring of the implementation of the framework across products, jurisdictions and market participants, the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) has provided the following guidance to support implementation of the framework and clarify its requirements.

BCBS and IOSCO said they realize that market participants may need to amend derivatives contracts in response to interest rate benchmark reforms. Amendments to legacy derivative contracts pursued solely for the purpose of addressing interest rate benchmark reforms, they confirm, do not require the application of the margin requirements for the purposes of the BCBS/IOSCO framework, although the position may be different under relevant implementing laws.

In the remaining phases of the framework’s implementation in 2019 and 2020, initial margin requirements will apply to a large number of entities for the first time, potentially involving documentation, custodial and operational arrangements. The Basel Committee and IOSCO noted that the framework does not specify documentation, custodial or operational requirements if the bilateral initial margin amount does not exceed the framework’s €50 million initial margin threshold. They expect, however, that covered entities will act diligently when their exposures approach the threshold to ensure that the relevant arrangements needed are in place if the threshold is exceeded.

The Basel Committee and IOSCO say they will continue to monitor the effect of meeting the final stage of phase-in, scheduled for 2020.