ISDA chief in VM rules warning

Delays to variation margin rules could lead to greater cross-border fragmentation.
By None
The head of the international swaps trading body has warned banks and buy-side firms will see increased complexity in complying with collateral rules if regulators fail to coordinate.

Scott O’Malia, chief executive of the International Swaps and Derivatives Association (ISDA), has warned additional delays to the rules will create an unequal playing field for derivatives traders.

“The complexity will increase exponentially once variation margin rules come into effect in March, when more derivatives users will be subject to collateral posting requirements. It will also lead to greater fragmentation and disruption of cross-border trading,” said O’Malia in an online blog.

“If other regulators retain the March 2017 deadline and Europe does not, then it might encourage European market participants to trade with European dealers where possible.”

Last month the European Commission confirmed European rules for initial margin requirements will not be finalised in time for the September launch, and will instead be delayed until the end of the year.

However there has yet to be an announcement on the variation margin requirements, which is still set to come into force globally in March 2017.

“Clarity on this point is important from a readiness and operations standpoint – as is clarity on how other regulators will approach the March 2017 deadline,” O’Malia added.

Both banks and buy-side firms will be required post collateral for their uncleared swaps positions based on adverse price movements, a requirement buy-side firms have never had to comply with for listed derivatives.