11 February 2021
As the new year begins, the implementation period (September 1, 2021) of the fifth phase of the initial margin (Initial Margin) is getting closer.
We make the following briefing on recent important developments, and market participants should pay attention to:
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On September 11, 2020, the Hong Kong Monetary Authority (HKMA) issued the Margin Risk Mitigation Standard (Version 2) after the public consultation on the relevant amendments was completed. One of the important changes involves the addition of a number of alternative compliance conditions. An authorized institution established outside Hong Kong can be based on an alternative compliance system. As long as it fully complies with the regulatory requirements of the home country where it is established, it can be deemed to meet the compliance requirements of Hong Kong. However, if the scope of transactions covered by the home country's regulatory requirements is different from the scope of Hong Kong's local standards, this overseas authorized institution must extend its home country's regulatory requirements to all types of transactions covered by the HKMA margin rules.
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The Securities and Futures Commission (SFC) of Hong Kong officially announced its margin requirements in June 2020. For counterparties whose average notional amount of foreign exchange (AANA) reaches the threshold amount of HKD 375 billion, the fifth phase of initial margin implementation will start on September 1, 2021, and the time span will be from September 1, 2021 to September 1, 2021. August 31, 2022. For counterparties whose average notional amount (AANA) reaches the threshold amount of HK$60 billion, the sixth phase of the initial margin implementation will begin on September 1, 2022, and thereafter will be a 12-month cycle Calculation.
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Brexit, EU/UK European market infrastructure supervision rules (EU/UK EMIR rules). On December 31, 2020, the UK's Brexit transition period came to an end. According to the "Leaving the European Union Act of 2018" (as amended), the EMIR rules have been reflected in the domestic laws of the United Kingdom and have undergone specific specific amendments (UK EMIR). However, since only the EU regulations that have been implemented on the end of the transition period can be considered "implementation and application", the new amendments to the EU margin rules that are expected to be made in the near future cannot automatically become part of the UK EMIR rules. The amendments are expected to include: exemption of exchange margin for physical delivery of foreign exchange forward and swap products; exemption for exchange of initial margin for counterparties of AANA between EUR 8 billion and EUR 50 billion; exemption of exchange for single stock option and index option products Margin. Please consider whether the UK EMIR rules are relevant to you? How will the difference between it and the EU EMIR rules affect your implementation and implementation of the initial margin rules?
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US Securities and Exchange Commission margin rules: It is expected that in the fall of 2021, securities swap dealers will begin to register with the US Securities and Exchange Commission (SEC). The SEC margin requirements will apply to non-bank securities swap dealers' subsequent non-clearing securities swap transactions. Market participants in the Asian region, if they face securities swap dealers and their trading relationship is covered by the SEC margin rules, they may need to modify or supplement their trading documents and account opening documents to meet the requirements of the SEC margin rules.
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CFTC Margin Rules: The U.S. Commodity Futures Trading Commission (CFTC) has announced the final revision of the rules for the revision of the "significant swap risk exposure" (or the average of the total amount of notional foreign exchange (AANA) under the CFTC margin rules). Version, which will affect participants in the sixth phase of the initial margin. In order to better align with the BCBS/IOSCO framework, with regard to the compliance period of the sixth phase of the initial deposit starting from September 1, 2022, the observation period will be changed from June, July and August of the previous calendar year to March, April and May of the same year. In addition, during the calculation period of the AANA total notional amount, AANA no longer uses the daily average of the total notional amount of uncleared derivatives as the standard, but depends on the monthly total amount of the notional amount of uncleared derivatives. Average. The CFTC also revised its margin rules to allow swap dealers that have become counterparties of registered swap dealers to use a risk-based initial margin calculation model to determine the amount of initial margin that will be charged to the counterparty, and determine ( For the initial margin exchange) whether the initial margin threshold amount has been reached.
Linklaters Law Firm accepted the commission of the International Swaps and Derivatives Association ("ISDA") to assist in drafting the next generation of initial margin documents, and developed an online negotiation process for ISDA called "ISDA Create". Document management platform for margin documents. We are also providing legal services on initial deposit for a large number of Asian clients. We are happy to assist you in implementing the initial deposit. Click "Read more" to view frequently asked questions.
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For further information, please contact:
Sonia Lim, Linklaters
sonia.lim@linklaters.com