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ISDA prays BCBS and IOSCO for a grace period

On 18 August 2014, ISDA sent a letter to BCBS and IOSCO requesting a two year extension to international implementation of the margin rules for uncleared derivatives. BCBS-IOSCO Framework was finalised in September 2013 and favours international implementation in December 2015, with phase-in until December 2019.

The letter is the latest outgrowth of coordinated efforts aimed simultaneously at specific jurisdictions, in particular the US, the EU and Japan. One of the fundamental concerns is that different implementation deadlines of margin rules would lead to significant market dislocation and competitive disparities. In this vein, ISDA renews its request to include a phase-in period for the variation margin.

United States

On 12 March 2014, SIFMA sent a letter to the US regulators concerning the margin proposals under Dodd-Frank, raising key issues in the US proposals and in the BCBS-IOSCO Framework itself. A first set of rule proposals was published in 2011 and 2012 (before the Framework), but revised rule proposals are expected to be released as to achieve better alignment.

European Union

On 14 July 2014, ISDA / SIFMA sent a 38 page answer to the European Securities Authorities’ consultation paper regarding the draft RTS on risk-mitigation techniques for OTC-derivatives contracts not cleared by a CCP, boldly underscoring the key concerns expressed by its members.

ISDA puts forward three examples of how a lack of clarity for some proposals makes it difficult for market participants to apply the rules:

  • FX Haircut would impose additional risk on the market and it is unclear how it would be implemented
  • Concentration limits would pose significant operational complexity and would potentially increase risk in certain contexts
  • The scope of ESAs’ proposal is problematic, in particular the absence of an exemption for NFC-s outside the EU.  It would impact the ability of EU firms to trade with non-EU corporates.

Japan

On 4 August 2014, ISDA submitted comments to the Japanese FSA on the draft amendments regarding margin requirements for non-centrally cleared derivatives.

The latest Progress Report of the FSB on derivatives market reforms shows that only the US, the EU and South Africa actually have legislation in place, while the implementing regulation remains a work in progress.

A delay vetted at the top by BCBS and IOSCO would certainly be a decisive win for the industry, although the implementation timeline is ultimately a matter that only national regulators can alter.

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