Presented as “procedural” by the European Commission, the delay would be more accurately described as “extremely material” as it will disrupt the internationally-agreed timeline set in the BCBS-IOSCO framework for margin requirements and will postpone substantial collateral payments.
From September 2016, covered entities with a notional amount of non-centrally cleared derivatives above €3.0 trillion were set to exchange both initial margin and variation margin, i.e. the 20 largest banks dealing with each other. At the time of writing, details remain sparse, but the EU could push back this deadline as late as mid-2017. It is unclear how this will affect the second wave.
International standards set out by BCBS-IOSCO are in the nature of a gentlemen`s agreement; nonetheless, the EU’s move is more than a serious breach of the etiquette. In March 2015, a precedent delay had to be approved at the BCBS-IOSCO level first.
It is also unclear how other jurisdictions will react, but CFTC`s Massad provisionally indicated that their September deadline remains intact. Compliance with margin requirements was always going to be challenging, but the injection of further cross-border disharmony will make it even more so.Contact Us