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ISDA Regulatory Margin Self-Disclosure Letter: one easy step

On 30 June 2016, ISDA published the Regulatory Margin Self-Disclosure Letter to facilitate compliance with the regulations on margin requirements for uncleared derivatives in the following jurisdictions:

  • Canada
  • The European Union
  • Japan
  • Switzerland
  • The United States

The letter allows parties to confirm basic information about their respective status in each jurisdiction (e.g. FC, NFC+ or NFC- in the EU). This initial exercise should be completed in order to determine which sets of rules need to be considered, before undertaking a more in-depth analysis to identify which rules should be ultimately applied.

Cross-jurisdictional transactions might be subject simultaneously to two different – and conflicting – sets of rules. The mechanisms around substituted compliance – where compliance with foreign rules is permitted by a local regulator – remain largely untested for margin requirements.

Until recently, it was expected that the EU would be easily recognised as substantially equivalent by other regulators, but the unforeseen delay by the Commission in vetting the rules will prevent any equivalence determination being made in time for the September 1 deadline.

The ESAs wrote to the Commission, asking for the delay to be kept as short as possible, but the harm is already done. It is difficult to see how this regulatory fracture will not be echoed by further liquidity fragmentation along geographical/jurisdictional lines.

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