Skip to content

Interpretation of WGMR Haircut Means SCSA Lives To Fight Another Day

Risk Magazine is reporting that certain unnamed US and European regulators are hinting that the additional 8% haircut levied on collateral denominated in a different currency to that of the underlying, to be introduced pursuant to the Working Group on Margining Requirement’s (WGMR) “Margin requirements for non-centrally cleared derivatives”, may be applied only to initial margin, and not to variation margin.  If so, this would provide a genuine fillip to ISDA’s new Standard Credit Support Annex (SCSA).  Of course, the operational demands associated with 17 separate currency silos and 7 ‘transport’ currencies used by the SCSA should not be underestimated.  Anecdotally, it seems to be this aspect, rather than the 8% haircut, which is currently the main inhibitor to a more general adoption of the SCSA.  However, as the central clearing of derivatives becomes more widespread over time, so the benefits of a more standardised approach to collateralisation will become apparent.  Therefore, don’t be surprised if we see the SCSA loom ever larger in the rear view mirror over the next 18 months.

Contact Us
Press enter or esc to cancel