Amid ongoing reforms to derivatives markets and financial benchmarks, global banking and securities published new guidance today.
In a joint statement, the Basel Committee on Banking Supervision and the International Organization of Securities Commissions (IOSCO) issued guidance regarding the final implementation of margin requirements for non-centrally cleared derivatives, which will take place in 2019 and 2020.
In particular, the regulators note that the final implementation will mean that initial margin requirements “will apply to a large number of entities for the first time, potentially involving documentation, custodial and operational arrangements.”
The new guidance also addresses the impact of ongoing reforms to interest rate benchmarks, such as LIBOR. Specifically, the regulators clarify that amendments to existing derivatives contracts that are required solely to accommodate reforms to benchmark rates won’t trigger margin requirements.
The regulators note that “significant progress” has been made to implement the final margin rules. Their added guidance is designed to “support timely and smooth implementation of the framework and clarify its requirements,” they say.
In response to today’s added guidance, U.S. trade group, the Securities Industry and Financial Markets Association (SIFMA), is calling on regulators to provide even more support to the implementation process.
“SIFMA appreciates the guidance offered today, which recognizes the significant challenges market participants will encounter during the final phases of [initial margin] implementation. We believe further action is needed, however, to avoid disruption to the functioning of the derivatives market and we urge regulators to lift the phase five threshold and remove physically settled FX from the calculation,” said Kenneth Bentsen, Jr., president and CEO of SIFMA, in a statement.