Over the past two weeks, the US banking regulators released their much anticipated final margin requirements for the uncleared portion of the derivatives market. This portion amounts to over $250 trillion of the global $630 trillion outstanding and has up to now been operating in “business as usual” mode while other derivatives have been pushed into clearing.
The good news for the industry is that the final rule is generally aligned with international standards and similar requirements proposed in major foreign jurisdictions. Most notably in this respect, the final rule increases the threshold of swap activity that would bring a financial end user (e.g., hedge fund) within the rule’s scope, from $3 billion to $8 billion. However, the final rule still includes an important requirement not incorporated into international standards - namely, mandating both IM and VM on transactions between affiliates.
With only one year until the earliest compliance date, “business as usual” is no longer an option.
This Regulatory brief analyzes the final rule, and provides our views on how market participants should respond.