The MFA submitted a comment letter to the IOSCO and the Basel Working Group on Margining Requirements (“WGMR”) on margin requirements for non-centrally cleared derivatives in response to a consultative document published by the groups. The comment letter specifically addresses the four areas below:
- Physically-settled FX forwards and swaps: The MFA supported the bilateral exchange of variation margin with respect to these derivatives, but did not support them from being exempt from initial margin requirements (although it did suggest that initial margin on certain of such transactions might be set at a low level in light of the products’ liquidity).
- Re-hypothecation: The MFA supported the segregation of initial margin, unless a customer made a deliberate decision to waive the protection. In such a case, it supported allowing re-hypothecation of initial margin by a customer’s counterparty without restriction.
- Phase-in arrangements: The MFA strongly supported the WGMR’s proposed single effective date for systemically important non-financial entities to comply with the requirement to exchange variation margin.
- Quantitative impact study results: Finally, while the MFA had no specific concerns with the WGMR’s study, it noted that the study highlighted the need for initial margin models to be sufficiently replicable and transparent to enhance their utility to both parties to an uncleared derivative.
View letter in full here (links externally to MFA website).
Related News Item: Basel Committee and IOSCO Issue Near-Final Proposal on Margin Requirements for Non-Centrally Cleared Derivatives.