Banks get extra 9 months for swap margin rules

Riverside view of the Gherkin and neighbouring skyscrapers in London, UK.Banks have secured additional time to comply with new rules for non-centrally cleared derivatives.

Regulators pushed back the date for introducing minimum collateral rules for swaps and other over-the-counter derivatives by nine months.

The Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) said they will begin phasing in the changes from September 2016, having initially set December 2015 as the start date.

“Taking into account the operational and legal complexities of implementing the final framework, the BCBS and IOSCO have agreed to delay the implementation of the margin requirements,” the regulators said.

“The requirement to collect and post initial margin will be delayed by nine months. The requirement to exchange variation margin will also be delayed by nine months, and will be subject to a six month phase-in period.”

The rules call for financial firms and systemically important non-financial entities (covered entities) that engage in non-centrally cleared derivatives to exchange initial and variation margin. In addition, they set standards for the level of collateral that is required to back trades.

Assets used as collateral for initial and variation margin purposes should be highly liquid and be able to hold their value in a time of financial stress.

The International Swaps and Derivatives Association (ISDA) welcomed the delayed implementation schedule, saying the changes would have been “all but impossible” to complete by the original December 2015 effective date.

Final rules are yet to be published by US, European and Japanese authorities.

“While still challenging without final rules, the revised implementation date should give firms additional time to develop, implement and test new systems,” said Scott O’Malia, ISDA chief executive officer.

“We are grateful that regulators have listened to concerns expressed by ISDA and other market participants on this issue. We urge the national regulators to publish the final rules as soon as possible, and we look forward to working closely with the regulators over the coming months.”

The final framework for non-cleared derivatives margining was published in September 2013 by the BCBS/IOSCO Working Group on Margining Requirements.