Many swaps markets participants that actively trade large swap notionals are aware that the CFTC and U.S. banking regulators are set to begin phasing in requirements to exchange margin on non-cleared swaps, starting September 1, 2016. As a result of these new margin rules, ISDA published on April 13, 2016, a new variation margin rule-compliant Credit Support Annex (CSA). Understanding key differences between this new regulatory-compliant CSA and any existing CSAs that you have in place will be an important action item for any financial market participants caught by the rule.
In particular, swaps market participants should pay careful attention to the following areas that are most impacted by the new variation margin CSA.
- Transaction scope and netting across multiple transactions
- Scope of margining
- Minimum transfer amounts
- Eligible collateral
- Valuation of collateral and haircuts
- Transfer timing
- Treatment of negative interest
- Offset of credit support due under other CSAs
- Dispute resolution timing
Please click here for a detailed elaboration of these issues and how the new variation margin CSA differs from many existing CSAs.
The new CSA has broad implications for the derivatives market and the margin relationship for non-cleared swaps. Swap market participants will need to consider potential changes in operational practices to facilitate compliance with the new CSA, which are a response to the CFTC and banking regulators’ rulemaking requiring the exchange of margin, as mandated by Dodd-Frank.