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Updated: ISDA® Publishes Security-Based Swap (SBS) Initial Margin "Bolt-On" Supplements
Practical Law Legal Update w-032-5887 (Approx. 5 pages)
Updated: ISDA® Publishes Security-Based Swap (SBS) Initial Margin "Bolt-On" Supplements
by Practical Law Finance
| Published on 13 Sep 2021 • USA (National/Federal) |
ISDA published the two supplements to existing ISDA credit support documentation, which are designed to facilitate compliance with the SEC’s initial margin (IM) segregation requirements for uncleared security-based swaps (SBS), which come into effect on October 6, 2021.
ISDA® has published the following two supplements (Bolt-on supplements) to existing ISDA credit support documentation, including the ISDA credit support annexes (CSAs), designed to facilitate compliance with the SEC’s initial margin (IM) segregation requirements for uncleared security-based swaps (SBS), which come into effect on October 6, 2021:
- The SEC IM Supplement (Third Party Segregation) is designed for use where parties will segregate their SEC IM with an independent custodian. It relies on the segregation terms contained in the existing ISDA IM documents, and can be used with any of the following: 2018 IM CSA, 2018 IM CSD, 2019 Bank Custodian CTA, 2019 Clearstream CTA, and 2019 Euroclear CTA. For details on the 2018 IM CSA (which assumes custodial segregation), used for US IM compliance, see Practice Note, Global Margin Compliance for Uncleared Swaps: ISDA 2018 Initial Margin CSA and Legal Update, ISDA Publishes 2018 Credit Support Annex for Initial Margin.
- The SEC IM Supplement ([Omnibus][No] Segregation) is designed for use where parties segregate their SEC IM with an independent custodian, including both where the IM is not subject to any segregation requirement and where the party receiving the IM is required to comply with SEC omnibus segregation regulations. Because these arrangements are similar to the non-segregated terms typically used for variation margin (VM), this supplement has been designed to work with the parties’ VM agreement. It can be used with any of the following ISDA collateral documents: 1994 New York Law CSA, 2016 New York Law VM CSA, 1995 English Law CSA, and 2016 English Law VM CSA. For details on the 1994 New York Law CSA, used for nonregulatory and legacy VM and IM, see The ISDA Master Agreement: Credit Support Annex (CSA) Paragraph 13 Negotiation Checklist. For details on the 2016 New York Law VM CSA, used for US VM compliance, see The ISDA Master Agreement: 2016 Variation Margin Credit Support Annex (New York Law) Paragraph 13 Checklist and Practice Note, Global Margin Compliance for Uncleared Swaps: ISDA 2016 Variation Margin CSA.
The Bolt-on supplements reflect certain features of the SEC’s rules that differ from other margin regimes covered by the existing ISDA IM documentation. In particular, the SEC rules permit, but do not require, IM to be held with an independent third-party custodian. As a result, the Bolt-on supplements have been designed to work with existing ISDA margin documents to capture these additional features. Note the SEC SBS IM rules apply only to security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs) that are not subject to regulation by US prudential bank regulators, which have their own margin rules for uncleared swaps and SBS (see Practice Note, US Derivatives Regulation: Margin Collection and Exchange Requirements for Uncleared Swaps: Prudential Margin Rules).
These documents are available for free on the ISDA website.
For details on the SBS margin rules, see Practice Note, US Derivatives Regulation: SEC Capital, Margin, and Segregation Requirements for Security-Based Swaps: Margin Requirements for Non-Cleared SBS.
For information on margin rules for uncleared swaps, see:
For further information on SBS compliance, including information on other ISDA SBS compliance tools, see US Derivatives Regulation: Security-Based Swaps (SBS) Toolkit.
Update: ISDA has published the SEC IM Supplement (Alternative Compliance Mechanism), which is designed for parties that are registered with the CFTC as swap dealers but also engage in limited amounts of SBS activity. These swap dealers are therefore subject to both SEC and CFTC IM requirements. The supplement provides a means to account for the SEC IM requirements for the SBS transactions. The supplement is available for free on the ISDA website.
"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 Update.