Margin for non-cleared - €8bn or €50m?

08 March 2019

Phil LloydHead of Market Structure & Regulatory Customer Engagement

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Following on from my recent Margin & Clearing note there seems to be signs of pragmatism through an IOSCO statement yesterday.

As the final phase of the Margin for Non-cleared rules bring more market participants into scope, it’s becoming clear that it will not have the desired impact of the original rules due to the secondary thresholds not being breached.

With the threshold for scope reducing to €8bn for phase 5, the actual €50m threshold that triggers an Initial Margin (IM) exchange remains the same, therefore mandating a huge set up without real purpose.

The BIS press release yesterday is certainly welcome, however naturally the devil will be in the detail and specific jurisdictional interpretation.

Key point I would highlight from the press release:

"In the remaining phases of the framework's implementation in 2019 and 2020, initial margin requirements will apply to a large number of entities for the first time, potentially involving documentation, custodial and operational arrangements. The Basel Committee and IOSCO note that the framework does not specify documentation, custodial or operational requirements if the bilateral initial margin amount does not exceed the framework's €50m million initial margin threshold."

One thing remains crystal clear: we need to keep talking and together have the ability to monitor proximity to the €50m threshold, only putting documentation in place when required.

Market infrastructure & regulation
Initial Margin and EMIR Clearing
Derivatives
Risk


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