Non-Centrally Cleared Derivatives – More Time to Implement Margin Requirements

By way of background, the BCBS and IOSCO published a policy framework (Policy Framework) establishing minimum standards for margin requirements for non-centrally cleared derivatives in September 2013. These standards pursue a dual aim. First, to reduce the systemic risk associated with non-centrally cleared derivatives by ensuring that collateral is available to offset losses caused by the default of a derivatives counterparty. Secondly, to promote central clearing by ensuring that the margin requirements for non-centrally cleared derivatives reflect the generally higher risk associated with them.

Recognising that the new margin requirements will represent a significant policy change for most market participants, the Policy Framework set out a phased implementation schedule for collecting and posting initial margin on non-centrally cleared trades, starting from 1 December 2015 for the largest derivative users and extending through to December 2019. Variation margins were scheduled to come into force for all covered entities on 1 December 2015.  

On 18 March 2015, the BCBS and IOSCO published revisions to the Policy Framework, which delay the implementation of the margin requirements. Relative to the earlier version of the Policy Framework, those revisions delay the beginning of the phase-in period for initial margin on non-centrally cleared trades from 1 December 2015 to 1 September 2016 and adjust the full phase-in schedule to reflect this nine-month delay. The revisions also institute a six-month phase-in of the requirement to exchange variation margin, beginning 1 September 2016.