ISDA submitted a letter to BCBS and IOSCO requesting a delay in implementation of margin collection rules for uncleared swaps to April 2017. ISDA further requested that the requirements for variation margin be subject to a phase-in schedule.
On August 18, 2014, ISDA® submitted a letter requesting a delay in the implementation of global margin rules for uncleared swaps as proposed by the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commission (IOSCO). In the letter, ISDA asserts that the market is not able to meet the planned implementation date of December 2015 for these rules. The letter further requests that the requirements for variation margin be phased in over time rather than being implemented on a single compliance date.
ISDA notes that implementation is constrained until the rules are finalized, which is unlikely to occur until mid-2015. Until the rules are finalized, market participants are unable to develop systems and infrastructure, prepare clients or draft complete documentation for the margin requirements. Once the rules are finalized, ISDA asserts, a significant period of time will be required to put the margin arrangements in place. ISDA requests a period of two years from the time the rules are finalized in Europe, the US and Japan. Based on this, the practical start date of the uncleared swap margin collateral collection requirements would be April 2017.
ISDA also requests a phase-in schedule for variation margin collection rules rather than a single compliance date, arguing that implementation should not take place on a single compliance date for three reasons:
It would be unnecessary because many of the parties required to post variation margin would be trading in low volumes and would pose very little risk to the system.
It would be systemically dangerous to implement the variation margin requirements simultaneously for a large population of swaps market participants.
The likely result of imposing variation margin requirements on smaller market participants is that they would be forced out of the market because they would not be able to meet variation margin operational and documentation requirements.
Finally, ISDA requests that the implementation date not fall in December or January or, for Japanese firms, at the end of March. Financial institutions generally prohibit technological changes to their systems between early December and mid-January in an annual code freeze. According to ISDA, implementing any new procedures that would require system changes is extremely difficult during the code freeze or at year-end.
Until the final uncleared swap margin collateral rules are adopted in the US, parties may continue to negotiate margin collateral arrangements for their uncleared swaps and derivatives transactions as they do now, using the ISDA Credit Support Annex (CSA).
"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.