Margin requirements for non-centrally cleared derivatives

Report of the Basel Committee on Banking Supervision and the Board of IOSCO

18 Mar 2015

Executive Summary

This document presents the final policy framework that establishes minimum standards for margin requirements for non-centrally cleared derivatives as agreed by the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO). This final framework was developed in consultation with the Committee on Payment and Settlement Systems (CPSS) and the Committee on the Global Financial System (CGFS).

Background

The economic and financial crisis that began in 2007 exposed significant weaknesses in the resiliency of banks and other market participants to financial and economic shocks. In the context of over-the-counter (OTC) derivatives in particular, the recent financial crisis demonstrated that improved transparency in the OTC derivatives markets and further regulation of OTC derivatives and market participants would be necessary to limit excessive and opaque risk-taking through OTC derivatives and to mitigate the systemic risk posed by OTC derivatives transactions, markets, and practices.

In response, the Group of Twenty (G20) initiated a reform programme in 2009 to reduce the systemic risk from OTC derivatives. As initially agreed in 2009, the G20’s reform programme comprised four elements:

All standardised OTC derivatives should be traded on exchanges or electronic platforms, where appropriate.
All standardised OTC derivatives should be cleared through central counterparties (CCPs).
OTC derivatives contracts should be reported to trade repositories.
Non-centrally cleared derivatives contracts should be subject to higher capital requirements.

In 2011, the G20 agreed to add margin requirements on non-centrally cleared derivatives to the reform programme and called upon the BCBS and IOSCO to develop, for consultation, consistent global standards for these margin requirements. To this end, the BCBS and IOSCO, in consultation with the CPSS and CGFS, formed the Working Group on Margining Requirements (WGMR) in October 2011 to develop a proposal on margin requirements for non-centrally cleared derivatives for consultation by mid-2012.

In July 2012, an initial proposal was released for consultation. The initial proposal was followed by an invitation to comment on the proposal by 28 September 2012. Additionally, a quantitative impact study (QIS) was conducted to assess the potential liquidity and other quantitative impacts associated with mandatory margining requirements.

In February 2013, the BCBS and IOSCO released a second consultative document that reflected the near-final policy framework after careful consideration of the responses to the first consultative document as well as the QIS results. The consultative document sought comment on four questions relating to certain specific aspects of the near-final margin framework.

A large number of comments were received on the near-final margin framework. These comments have been considered in updating the proposal and specifying a final global framework for margining requirements on non-centrally cleared derivatives.

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 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 "Margin requirements for non-centrally cleared derivatives" report lays out the key objectives, elements and principles of the final margining framework for non-centrally cleared derivatives.