Regulators release final OTC derivatives margin rules & exempt FX swap/forwards
by Kylene Casanova
The Basel Committee on Banking Supervision and the International Organization of Securities Commissions have finally decided that, “Under the globally agreed standards published today, all financial firms and systemically important non-financial entities that engage in non-centrally cleared derivatives will have to exchange initial and variation margin commensurate with the counterparty risks arising from such transactions.
The framework has been designed to reduce systemic risks related to over-the-counter (OTC) derivatives markets, as well as to provide firms with appropriate incentives for central clearing while managing the overall liquidity impact of the requirements.“
Basically they have stuck by their general crackdown that will make it a lot more expensive to buy derivatives that are not centrally cleared.
However, the final rules, which phase in over four years starting in 2014, exempt FX swaps and forwards from initial margin requirements (as the US Dodd-Frank rules do) and allow banks and brokers to reuse margin assets to finance a second transaction, instead of banning it, as US regulators wanted.
Under the globally agreed standards published today, all financial firms and systemically important non-financial entities that engage in non-centrally cleared derivatives will have to exchange initial and variation margin commensurate with the counterparty risks arising from such transactions.
Full report here.
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