THE DELTA REPORT
As part of the G20’s global reform programme to reduce the systemic risk from over-the-counter ("OTC") derivatives, the Basel Committee on Banking Supervision ("BCBS") and the International Organization of Securities Commissions ("IOSCO") were called upon to establish global requirements for the margining of non-cleared OTC derivatives. In its March 2015 report (the "March Report"), BCBS-IOSCO outlined a comprehensive policy framework which, among other things, imposed requirements relating to the exchange of variation margin ("VM"), bilateral transfers of initial margin ("IM"), segregation of IM and limiting eligible collateral to only highly liquid assets. These requirements will impact a large number of financial institutions which are trading uncleared OTC derivatives globally and require them to make significant front-to-back infrastructure changes as well as negotiate collateral agreements to put in place the necessary margining arrangements.
The deadline for implementation of the margining requirements as set by BCBS-IOSCO was 1 September 2016. However, in June 2016 the European Commission announced that it was still reviewing the draft regulatory standards submitted by the European Supervisory Authorities and that the standards will not be finalised before the 1 September 2016 deadline. Soon after, regulators in Hong Kong, Singapore and Australia also announced their intentions to delay the collateral requirements for non-cleared OTC derivatives in their respective countries.
On 1 October 2015, the Monetary Authority of Singapore ("MAS") issued a consultation paper titled "Policy Consultation on Margin Requirements for Non-Centrally Cleared OTC Derivatives" (the "Consultation Paper"). The Consultation Paper sets out MAS’ policy proposals for the implementation of the margining regime in Singapore which will be effected via new rules. It is anticipated that MAS will release a subsequent consultation paper seeking feedback on the proposed new rules.
This article provides an overview of some of the key points raised in the Consultation Paper.
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