Singapore – Consultation On Margin Requirements For Non- Centrally Cleared Derivatives.

Scope of Proposed Margin Requirements

Deemed compliance for cross-border transactions. The MAS proposes to deem MAS Covered Entities as having complied with the margin rules when:

1. an MAS Covered Entity, established under the laws of, or that has a place of business in, a foreign jurisdiction with comparable margin requirements, is required to comply and has complied with the margin requirements of that relevant foreign jurisdiction; and

2. an MAS Covered Entity, trading with a foreign counterparty, is required to comply with and has complied with comparable home- or host- margin requirements imposed on the foreign counterparty.

There are no details on the comparable jurisdictions yet but the MAS proposes a comparability assessment that is outcome-based. However, residual requirements in relation to the collateral may still be imposed.

3.

When it Applies. A MAS Covered Entity will be subject to the initial margin ("IM") and variation margin ("VM") requirements where all the following conditions are met:

1. The MAS Covered Entity is a legal counterparty to the transaction (meaning that it was the signatory of the ISDA master agreement and collateral service agreement of the transaction);

2. The transaction is booked in Singapore; and

3. The transaction is entered into with a counterparty which is either: (i)

   an MAS Covered Entity; or (ii) an overseas regulated financial firm.

4.

Margin Requirements. The proposed requirements are as follows:

1. All MAS Covered Entities are to calculate their VM obligations on a

   daily basis.

2. The full amount of VM (i.e. a zero threshold) must be exchanged (if

   MAS adopts a post-and-collect regime) or collected (if MAS adopts a collect-only regime) from counterparties within 2 business days following the execution of a new uncleared derivative contract. (The MAS is considering imposing a collect-only requirement rather than a post-and-collect regime and is inviting feedback on the pros and cons of each).

3. All MAS Covered Entities are to calculate the gross amount of IM obligations (i.e. no netting of IM payments between the two counterparties) at least on a sufficiently regular basis to reflect changes in risk positions and market conditions.

4. IM is to be exchanged or collected from counterparties within 2 business days following the recalculation of the IM obligations.

5. Exchange or collection of IM shall only be required if the cumulative IM exposure from the counterparty exceeds S$80 million. The S$80 million is to be calculated at the group-consolidated level and is based on all uncleared derivatives between the two consolidated groups.

6. All margin transfers will be subject to a minimum transfer amount, which shall not be higher than S$800,000.

As a start, the IM requirements would only apply to transactions between two entities, each belonging to a group whose aggregate gross notional uncleared derivatives exposure (including physically-settled FX forwards and swaps) exceeds the applicable IM phase-in thresholds (see Phase-in Implementation table below). At the end of the phase-in period, the minimum level of uncleared derivative activity for the IM requirements to apply shall be S$13 billion.

5.

Margin Calculations and Methodologies. Some proposals in relation to the calculation of IM are as follows:

1. IM shall be exchanged or collected at the outset of a transaction, and exchanged or collected thereafter on a routine and consistent basis upon changes in the calculated potential future exposures.

2. At a minimum, IM shall be recalculated and exchanged or collected in any of the following circumstances: a new contract is executed with a counterparty; an existing contract with a counterparty expires; the IM model is recalibrated due to changes in market conditions; or no IM recalculation has been performed in the last 10 days.

3. MAS proposes to allow the required amount of IM to be calculated by

Scope of Proposed Margin Requirements

reference to either: (i) a quantitative portfolio margin model; or (ii) a standardised margin schedule. An MAS Covered Entity may opt for either approach, and not restrict itself to one approach for the entirety of its derivative activities.

For VM,

1. MAS Covered Entities must post or collect the full amount of VM

   necessary to fully collateralise the mark-to-market exposure of the

   uncleared derivatives

2. MAS Covered Entities shall calculate and post or collect VM

   requirements on an aggregate net basis across all uncleared derivatives that are executed under a single, legally enforceable netting agreement.

3. In the absence of legally enforceable netting agreements, MAS Covered Entities should calculate and post or collect the VM requirements for each uncleared derivative contract on a gross basis.

MAS Covered Entities must have rigorous and robust dispute resolution procedures in place with their counterparties and agree to the specified margin calculation method before the onset of a transaction. In the event that a margin dispute arises, the non-disputed amount shall first be posted or collected, while all necessary and appropriate efforts, including timely initiation of dispute resolution protocols, should be taken to resolve the dispute and post or collect the remaining required amount of margin in a timely fashion.

6.

Eligible Collateral, Haircuts and Treatment of Collateral. The MAS proposes to prescribe the range of eligible collateral, align the standardized schedule- based haircuts for permitted eligible collateral for IM and VM to the standard supervisory haircuts imposed for eligible financial collateral recognized under the MAS' capital framework for locally incorporated banks.

The MAS also proposes to impose requirements on the safekeeping of IM collateral and to require all collateral arrangements to be reviewed periodically with updated legal opinions to ensure that the arrangements continue to be legally enforceable. Further, non-cash IM shall only be rehypothecated to a third party in accordance with a prescribed list of conditions. Such rehypothecation can only happen once.

Obligation

MAS Covered Entity

Belonging to Group Exceeding Phase-in Threshold

Commencem ent Date

Variation Margin (VM)

Banks licensed under the Banking Act and conducting regulated activity under the SFA ("Commercial Banks")

S$4.8 trillion

1 Sept 2016

All other Commercial Banks and merchant banks approved under the MAS Act

–

1 Mar 2017

Initial Margin (IM)

Commercial Banks

S$4.8 trillion

1 Sept 2016

All other Commercial Banks and approved merchant banks

S$4.8 trillion

1 Mar 2017

S$3.6 trillion

1 Sept 2017

S$2.4 trillion

1 Sept 2018

S$1.2 trillion

1 Sept 2019

S$13 billion

1 Sept 2020