Final framework for non-centrally cleared derivatives released

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Final framework for non-centrally cleared derivatives released

(Xinhua) 11:14, September 03, 2013

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The Basel Committee on Banking Supervision and the International Organization of Securities Commissions (IOSCO) Monday released the final framework for margin requirements for non-centrally cleared derivatives.

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, the Basel Committee noted in a statement.

The final requirements were released after having taken into account the feedback from two rounds of consultation, namely a July 2012 consultative paper and a February 2013 near-final proposal, as well as a quantitative impact study that helped inform the policy deliberations.

According to the Basel Committee, the framework exempts physically settled foreign exchange (FX) forwards and swaps from initial margin requirements, and variation margin on these derivatives should be exchanged in accordance with standards developed after considering the Basel Committee supervisory guidance for managing settlement risk in FX transactions.

It was pointed out that a number of other features of the framework are also intended to manage the liquidity impact of the margin requirements on financial market participants, and in particular, the requirements allow for the introduction of a universal initial margin threshold of 50 million euros (66 million U.S. dollars) below which a firm would have the option of not collecting initial margin.

The Basel Committee and IOSCO acknowledged that the margin requirements are new to the market and that their precise impact will depend on a number of factors and market conditions that will only be realized over time as the requirements are put into practice.

（Editor：LiXiang、Liang Jun）