ISDA Publishes New Margin-Rule-Compliant Collateral Document

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 Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Read this Term 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 Margin Requirements A margin requirement is defined as the minimum equity sum that investors must keep in their margin account preceding a trading transaction. Margin requirements may be referred to as maintenance margin, minimum maintenance, or maintenance requirement. This is a requirement for broker trading in any asset class.In terms of equities, the New York Stock Exchange (NYSE) and Financial Industry Regulatory Authority (FINRA) have a fixed margin requirement of 25% of the sum value of the securities presen A margin requirement is defined as the minimum equity sum that investors must keep in their margin account preceding a trading transaction. Margin requirements may be referred to as maintenance margin, minimum maintenance, or maintenance requirement. This is a requirement for broker trading in any asset class.In terms of equities, the New York Stock Exchange (NYSE) and Financial Industry Regulatory Authority (FINRA) have a fixed margin requirement of 25% of the sum value of the securities presen Read this Term under the new rules.

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.

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.