Initial margin - delayed

The Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) have proposed a one-year deferral to the implementation of Phases 5 and 6 of the regulatory initial margin (IM) requirements (available here).

BCBS/IOSCO performs an advisory role and therefore confirmation of the extension by local regulators will be required. In the U.S. this would be effected by the U.S. Commodity Futures Trading Commission and in the EU by the three European Supervisory Authorities. We would expect these local regulators to follow the guidance of BCBS/IOSCO and therefore, assuming that this is the case the implementation dates will be deferred as follows:

• Phase 5 ($/€50bn Average Aggregate Notional Amount (AANA)). Deferral from 1 September 2020 to 1 September 2021; and
• Phase 6 ($/€8bn AANA). Deferral from 1 September 2021 to 1 September 2022.

In justifying the need for the deferral BCBS/IOSCO noted that: "In light of the significant challenges posed by Covid-19, including the displacement of staff and the need for firms to focus resources on managing risks associated with current market volatility, the Committee and IOSCO have agreed to extend the deadline for completing the final two implementation phases of the margin requirements for non-centrally cleared derivatives, by one year. This extension will provide additional operational capacity for firms to respond to the immediate impact of Covid-19 and at the same time, facilitate covered entities to act diligently to comply with the requirements by the revised deadline."

The delay follows from the letter recently submitted by ISDA on behalf of 21 industry associations and their members requesting the delay (which we covered in our previous post).