Global regulators have issued what they are calling a “near-final” proposal setting margin requirements for derivatives that are not centrally cleared.
The Basel Committee on Banking Supervision and the International Organization of Securities Commissions (IOSCO) have published a second consultative paper, which they say represents a “near-final” proposal on derivatives margin requirements. Certain aspects of the proposal aim to minimize the impact of the requirements on financial firms.
The proposal incorporates a gradual phase-in, starting in 2015, to provide firms with sufficient time to adjust to the requirements. The requirement to collect and post initial margin on non-centrally cleared trades would be phased in over four years, beginning with the largest, most active and most systemically risky derivative market participants.
It also tries to soften the liquidity impact of the margin requirements on financial market participants by introducing an initial margin threshold of €50 million. The regulators say that a quantitative impact study conducted last year found that such a threshold could reduce the total liquidity costs by 56%, compared with a zero initial margin threshold (which was initially proposed in a July 2012 paper).
The regulators say that the latest proposal takes account of the results of that study, which was conducted to quantify the liquidity costs associated with margin requirements; as well as comments received in connection with the first paper.
The Basel Committee and IOSCO are seeking comment on the latest version of the proposal. In particular, they are looking for comment on issues concerning the proposed phase-in, the adequacy of the quantitative impact study, and the treatment of physically-settled foreign exchange contracts, among other things.
Comments are due March 15.