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August 5, 2019

Are two waves better than one??

BCBS/IOSCO HAVE RECOMMENDED THE INTRODUCTION OF A NEW INITIAL MARGIN PHASE WITHIN THEIR JULY-19 STATEMENT, MEANING WE’D SEE PHASES 5 AND 6. SEE OUR FIVE KEY TAKEAWAYS BELOW.

Thoughts on the re-timing of UMR by Chris Watts at MarginTonic.com

BCBS/IOSCO HAVE RECOMMENDED THE INTRODUCTION OF A NEW INITIAL MARGIN PHASE WITHIN THEIR JULY-19 STATEMENT, MEANING WE’D SEE PHASES 5 AND 6. 

The full BCBS/IOSCO statement issued on 23rd July 2019 can be seen here. In summary, BCBS/IOSCO have recommended:

  • Extending the last phase of Initial Margin by a year, via the creation of a Phase 6

  • As a result, the original tidal wave of Phase 5 groups – 1,100 based on ISDA’s estimates – would be split across newly organised Phases 5 and 6:

    • Phase 5 would go-live in Sept-20, but now with an increased AANA threshold of $/€50bn

    • Phase 6 would go-live in Sept-21, using the original Phase 5 AANA threshold of $/€8bn

    • No change has been suggested for Phase 4, which would continue to go-live Sept-19, with an AANA threshold of $/€750bn

We should start by saying that BCBS/IOSCO’s statement generally makes sense to us.

BCBS/IOSCO’s approach sees the benefit of avoiding a single tidal wave of firms and would give more time to the smaller firms to get ready. But at the same time it maintains the industry focus on IM compliance and sticks to its original principles.

All-in-all, BCBS/IOSCO’s recommendation seems a fair compromise.

The alternative approach heavily debated in the industry was to move back the entire Phase 5 by a year. A full delay for all firms would not have solved any of the recognised problems, with large numbers likely to have ‘kicked the Initial Margin can down the road’ for another year.

BCBS/IOSCO’s latest guidance therefore feels like the smarter option. Now the question is whether the global regulators will all back BCBS/IOSCO’s statement? The working assumption is that they will.


For all five takeaways on the UMR delay visit the MarginTonic website here: https://www.margintonic.com/news/2019/23/7/bcbsioscoinitialmargin-jul19-twowaves-fivekeytakeaways

 


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