UNCLEARED MARGIN RULES BACKGROUND
Global regulators require a complex set of margin requirements for uncleared derivatives. Uncleared Margin Reform (UMR) began phasing in September 2016. In 2017, all firms became compliant with variation margin (VM) requirements. As part of Phases 1-4, approximately 60 of the largest firms are currently in compliance with Initial Margin (IM) rules. Before the effects of COVID-19, more than 200 phase 5 firms were expected to go live on September 1, 2020.
Since March 2020, market challenges related to COVID-19 have been impacting collateral processing for OTC derivatives. Margin calls for Regulatory IM have increased substantially during the current crisis. Processing volumes have increased by 250 percent in some parts of the market. The intense market volatility and continuous changes to trading practices due to COVID-19 (e.g., DTCC suspension of physical securities processing; following exchange circuit breaker processes; closures of trading floors, etc.) are preventing firms from completing all desired operational activities for a given trading day.
Basel and IOSCO Announcement: UMR Phases 5 and 6 Deferral
On April 2, 2020, Basel and IOSCO announced a deferral for the final phases of the Uncleared Margin Rules. BCBS highlights in a press release the displacement of staff and resources focused on the management of present risks as the rationale behind the delay. The extension will allow firms to focus on the impacts of COVID-19 while providing adequate time to comply with the delayed UMR requirements. Regional regulators are expected to adopt this new timeline soon, and most market participants welcomed the news. As of April 17, 5 regulatory jurisdictions have confirmed the delay MAS(Singapore), OSFI (Canada), JFSA (Japan), FIMA (Switzerland), APRA (Australia) with the US, and Europe expected to confirm the delay shortly.
Updated Timelines
EXPECTED IMPACT
UMR initiatives at market participants have been impacted by the market volatility related to COVID-19. Phase 5 and 6 firms can take advantage of the 12-month implementation delays.
Key Market-wide Impacts of COVID-19 Market Volatility on UMR
Advantages of 12-month Delay for Phase 5 & 6 Firms
If you would like to share ideas, please reach us at prabhat.singh@capco.com, justin.gonlag@capco.com, mark.demo@acadiasoft.com, and john.pucciarelli@acadiasoft.com
Note: Views on impacts in this document will be updated on a periodic basis due to the evolving nature of this issue
Authors: Prabhat Singh and Justin Gonlag from Capco. Mark Demo and John Pucciarelli from AcadiaSoft.
Contributors: Stephanie Colling and Joann Economou from Capco
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UNCLEARED MARGIN RULES BACKGROUND
Global regulators require a complex set of margin requirements for uncleared derivatives. Uncleared Margin Reform (UMR) began phasing in September 2016. In 2017, all firms became compliant with variation margin (VM) requirements. As part of Phases 1-4, approximately 60 of the largest firms are currently in compliance with Initial Margin (IM) rules. Before the effects of COVID-19, more than 200 phase 5 firms were expected to go live on September 1, 2020.
Since March 2020, market challenges related to COVID-19 have been impacting collateral processing for OTC derivatives. Margin calls for Regulatory IM have increased substantially during the current crisis. Processing volumes have increased by 250 percent in some parts of the market. The intense market volatility and continuous changes to trading practices due to COVID-19 (e.g., DTCC suspension of physical securities processing; following exchange circuit breaker processes; closures of trading floors, etc.) are preventing firms from completing all desired operational activities for a given trading day.
Basel and IOSCO Announcement: UMR Phases 5 and 6 Deferral
On April 2, 2020, Basel and IOSCO announced a deferral for the final phases of the Uncleared Margin Rules. BCBS highlights in a press release the displacement of staff and resources focused on the management of present risks as the rationale behind the delay. The extension will allow firms to focus on the impacts of COVID-19 while providing adequate time to comply with the delayed UMR requirements. Regional regulators are expected to adopt this new timeline soon, and most market participants welcomed the news. As of April 17, 5 regulatory jurisdictions have confirmed the delay MAS(Singapore), OSFI (Canada), JFSA (Japan), FIMA (Switzerland), APRA (Australia) with the US, and Europe expected to confirm the delay shortly.
Updated Timelines
EXPECTED IMPACT
UMR initiatives at market participants have been impacted by the market volatility related to COVID-19. Phase 5 and 6 firms can take advantage of the 12-month implementation delays.
Key Market-wide Impacts of COVID-19 Market Volatility on UMR
Advantages of 12-month Delay for Phase 5 & 6 Firms
If you would like to share ideas, please reach us at prabhat.singh@capco.com, justin.gonlag@capco.com, mark.demo@acadiasoft.com, and john.pucciarelli@acadiasoft.com
Note: Views on impacts in this document will be updated on a periodic basis due to the evolving nature of this issue
Authors: Prabhat Singh and Justin Gonlag from Capco. Mark Demo and John Pucciarelli from AcadiaSoft.
Contributors: Stephanie Colling and Joann Economou from Capco
UNCLEARED MARGIN RULES BACKGROUND
Global regulators require a complex set of margin requirements for uncleared derivatives. Uncleared Margin Reform (UMR) began phasing in September 2016. In 2017, all firms became compliant with variation margin (VM) requirements. As part of Phases 1-4, approximately 60 of the largest firms are currently in compliance with Initial Margin (IM) rules. Before the effects of COVID-19, more than 200 phase 5 firms were expected to go live on September 1, 2020.
Since March 2020, market challenges related to COVID-19 have been impacting collateral processing for OTC derivatives. Margin calls for Regulatory IM have increased substantially during the current crisis. Processing volumes have increased by 250 percent in some parts of the market. The intense market volatility and continuous changes to trading practices due to COVID-19 (e.g., DTCC suspension of physical securities processing; following exchange circuit breaker processes; closures of trading floors, etc.) are preventing firms from completing all desired operational activities for a given trading day.
Basel and IOSCO Announcement: UMR Phases 5 and 6 Deferral
On April 2, 2020, Basel and IOSCO announced a deferral for the final phases of the Uncleared Margin Rules. BCBS highlights in a press release the displacement of staff and resources focused on the management of present risks as the rationale behind the delay. The extension will allow firms to focus on the impacts of COVID-19 while providing adequate time to comply with the delayed UMR requirements. Regional regulators are expected to adopt this new timeline soon, and most market participants welcomed the news. As of April 17, 5 regulatory jurisdictions have confirmed the delay MAS(Singapore), OSFI (Canada), JFSA (Japan), FIMA (Switzerland), APRA (Australia) with the US, and Europe expected to confirm the delay shortly.
Updated Timelines
EXPECTED IMPACT
UMR initiatives at market participants have been impacted by the market volatility related to COVID-19. Phase 5 and 6 firms can take advantage of the 12-month implementation delays.
Key Market-wide Impacts of COVID-19 Market Volatility on UMR
Advantages of 12-month Delay for Phase 5 & 6 Firms
If you would like to share ideas, please reach us at prabhat.singh@capco.com, justin.gonlag@capco.com, mark.demo@acadiasoft.com, and john.pucciarelli@acadiasoft.com
Note: Views on impacts in this document will be updated on a periodic basis due to the evolving nature of this issue
Authors: Prabhat Singh and Justin Gonlag from Capco. Mark Demo and John Pucciarelli from AcadiaSoft.
Contributors: Stephanie Colling and Joann Economou from Capco
Blog
Article
February 25, 2022
Article
February 11, 2022
Blog
Article
February 25, 2022
Article
February 11, 2022