Global banking and securities regulators issued a new consultation paper on Friday on margin requirements for non-centrally-cleared derivatives.

The Basel Committee on Banking Supervision and the International Organization of Securities Commissions (IOSCO) published a consultation paper that sets out high-level principles on margining practices, the treatment of collateral, and proposes margin requirements for non-centrally-cleared derivatives.

The regulators say that the principles primarily seek to ensure that appropriate margining practices will be established for all non-centrally-cleared over-the-counter (OTC) derivative transactions, and will apply to all transactions that involve either financial firms or systemically important non-financial entities.

“To prevent regulatory arbitrage, international consistency with regard to margin requirements and their implementation is crucial,” the regulators say.

In response to the financial crisis, policymakers have pursued a number of regulatory reforms designed to reduce the systemic risk of OTC derivatives markets, including mandatory central clearing for standardized derivatives. However, non-standardized products will continue to be non-centrally cleared and will remain subject to bilateral counterparty risk management. So, policymakers have agreed to add margin requirements on non-centrally-cleared derivatives in an effort to mitigate systemic risk from these products.

The regulators stress that it is also important to consider the potential impact of margin requirements on financial markets and the broader financial system. “The potential benefits must be weighed against the liquidity impact arising from the need for derivative counterparties to provide liquid, high-quality collateral when meeting margin requirements,” they say. So, the Basel Committee and IOSCO plan to conduct a quantitative impact study during the consultation period.

Responses to the public consultation, along with the study’s results, will be considered in formulating a final joint proposal on margin requirements by year-end.

Comments on the proposals are due by September 28.