Derivatives — Margin requirements

Most standardised OTC derivatives across Europe and the US are now centrally cleared. However, uncleared derivatives still represent a significant portion of the market. These uncleared derivatives are increasingly subject to margin requirements.

The terms “collateral” and “margin” are often used interchangeably. However, technically, collateral refers to the asset posted that represents the margin amount. Margin is the amount that is posted to address the risk of a transaction or counterparty failing.

Posting margin is a risk mitigation tool. It has an effect on a party's liquidity and increases the liquidity burden on all parties who have to post margin since those parties have less assets freely available to them if those assets are posted with their counterparty.

This guidance note sets out the margin requirements for uncleared derivatives, explaining why these requirements are necessary and how the requirements are being implemented. It describes the exchange of initial margin (IM) and variation margin (VM) and summarises recent international developments.

See Margin requirements for uncleared derivatives.

BCBS/IOSCO margin requirements for uncleared derivatives

Following the credit crunch in 2007, the G20 asked the Basel Committee on Banking Supervision (BCBS) (part of the Bank of International Settlements (BIS)) and the International Organization of Securities Commissions (IOSCO) to produce a framework for margin requirements for non-centrally cleared derivatives.

This guidance note summarises the eight elements that are detailed in the BCBS/IOSCO report.

See BCBS/IOSCO margin requirements for uncleared derivatives.

EMIR margin requirements for uncleared derivatives

European Market Infrastructure Regulation (EU) 648/2012 on the European Market Infrastructure Regulation (EMIR) was adopted in the European Union.

This guidance note discusses the regulatory technical standards on risk mitigation techniques for uncleared derivatives under EMIR.

See EMIR margin requirements for uncleared derivatives.

ISDA margin requirements for uncleared derivatives

ISDA has published a number of documents in relation to the margin requirements for non-cleared derivatives.

This guidance note provides an overview of ISDA SIMM, ISDA 2016 Variation Margin Protocol, the ISDA regulatory margin self-disclosure letter, and ISDA credit support documentation for VM and IM.

See ISDA margin requirements for uncleared derivatives.