ISDA Publishes New Margin-Rule-Compliant Collateral Document

The first in a series of documents to help market participants comply with new margining requirements has been published.

A new series of documents designed to help market participants comply with new margining requirements for non-cleared derivatives is to be published by the International Swaps and Derivatives Association, Inc. (ISDA).

The first document in the series which was released today is entitled the 2016 Credit Support Annex for Variation Margin for use with New York law, and will allow parties to negotiate collateral terms that comply with variation margin requirements under the new rules.

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First Document Lays Out New Margining Requirements

ISDA’s legal working groups have been working on amendments to collateral documentation for the last two years in order to comply with new margining requirements. The recent publication of final rules by some national regulators has allowed the group to finalise the first document, allowing market participants to make the necessary changes ahead of implementation.

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Commenting on the new document, Scott O’Malia, ISDA’s Chief Executive, said: “Implementing the new margining requirements will be challenging and ISDA has helped smooth this process by addressing the legal, documentation and modelling issues faced by our members and the wider market.”

The margining framework for non-cleared derivatives was developed by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions, and will become effective for the largest derivatives users from 1 September, 2016. For other entities falling within the scope of the regulations, initial margin requirements will be phased in over a four-year period, although variation margin obligations will come into force on 1 March, 2017.

Further Documents And Initiatives Planned

ISDA is planning to publish further documents in the coming months, including an English and Japanese law version of the variation margin document, CSAs for initial margin, and a protocol to facilitate the amendment of existing contracts to comply with the new requirements.

In a further initiative designed to assist the industry with its implementation of margining requirements, the ISDA is involved in the development of a standard initial margin model called the ISDA SIMM. By adopting a standard framework to calculate the amount of initial margin that needs to be exchanged, licensed counterparties are able to reduce the potential for disputes.

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