ISDA Releases Guidance on Negotiating ISDA® 2016 Variation Margin CSA | Practical Law

ISDA Releases Guidance on Negotiating ISDA® 2016 Variation Margin CSA | Practical Law

ISDA released guidance designed to help market participants adopt standardized terms in negotiating their 2016 Variation Margin Credit Support Annexes (VM CSAs).

ISDA Releases Guidance on Negotiating ISDA® 2016 Variation Margin CSA

Practical Law Legal Update w-004-9423 (Approx. 3 pages)

ISDA Releases Guidance on Negotiating ISDA® 2016 Variation Margin CSA

by Practical Law Finance
Published on 13 Dec 2016 • USA (National/Federal)
ISDA released guidance designed to help market participants adopt standardized terms in negotiating their 2016 Variation Margin Credit Support Annexes (VM CSAs).
On December 5, 2016, ISDA® released guidance designed to encourage market participants to adopt standardized terms in the negotiation of their ISDA 2016 Variation Margin Credit Support Annex (VM CSAs).
The global implementation of variation margin (VM) and initial margin (IM) requirements for non-cleared derivatives will require counterparties to amend their existing CSAs or adopt new VM CSAs prior to the March 1, 2017 deadline for VM requirements in most major global jurisdictions, including the US, EU and Japan. For more information on the ISDA CSA, see Practice Note, The New ISDA® Credit Support Annexes and Global Margin Compliance for Uncleared Swaps.
The ISDA guidance encourages market participants to:
  • Limit the range of cash and securities used as eligible collateral, meaning cash should be denominated in a single currency or few international currencies, if possible.
  • Adopt a synchronized and standardized set of CSA terms between both cleared and non-cleared products to reduce the risk and cost of hedging while streamlining the documentation process.
  • Use market standard interest rates on posted collateral (note that negative interest rates can be accommodated through the VM protocol for new CSAs and through ISDA's Negative Rates Protocol for existing CSAs).
  • Fully collateralize currency exposure by removing VM thresholds (note that this is required by margin regulations, though a minimum transfer amount (MTA) can be used to prevent the transfer of de minimis amounts of margin).
  • Use daily valuation and notification of margin calls along with settlement procedures in accordance with margin regulations.
For details on the US margin rules for uncleared swaps, see Practice Note, The Dodd-Frank Act: Margin Posting and Collection Rules for Uncleared Swaps.
For information on EU margin rules for uncleared swaps, see Practice Note, EMIR: risk mitigation requirements for uncleared OTC derivatives.
For information on the 2016 VM CSA as well as ISDA's margin compliance tools, including documentation and protocols, see Practice Note, The New ISDA® Credit Support Annexes and Global Margin Compliance for Uncleared Swaps.
"ISDA" is a registered trademark of the International Swaps and Derivatives Association, Inc. (ISDA). ISDA is not a sponsor of Practical Law and had no part in the development of this resource.