
ISDA Chief Executive Officer Scott O'Malia offers informal comments on important OTC derivatives issues in derivatiViews, reflecting ISDA's long-held commitment to making the market safer and more efficient.
Over the past week, regulators across the globe have responded to looming market disruption by providing flexibility to derivatives users in their attempts to meet a March 1 deadline for posting variation margin on their non-cleared derivatives trades. This flexibility was critical. With firms struggling to amend their collateral documents in time, there was a very real risk that derivatives users would have been unable to trade from tomorrow, as ISDA and others warned in a letter earlier this month.
Thanks to well-coordinated action taken by global regulators to provide forbearance, that danger has now receded. The exact nature of the relief differs jurisdiction to jurisdiction, but regulators have generally provided derivatives users with additional time to finish making the changes to their credit support annex (CSA) agreements.
Given most derivatives counterparties already exchange variation margin on their non-cleared trades, this additional flexibility will not lead to an increase in systemic risk. It will, however, ensure counterparties have more time to negotiate the complex changes to their outstanding CSAs to ensure these documents reflect new regulatory edicts on eligible collateral, settlement timing and haircuts.
That process of negotiation has been complicated and time-consuming, and the scale of the task has been overwhelming. The March 1 ‘big bang’ implementation date captures banks, asset managers, insurance companies and hedge funds, and involves updating more than 150,000 CSAs. The time scale in which to make those changes has also been impossibly short. Market participants had to wait for final rules from national authorities to know exactly what changes were needed and how to phrase the amendments to create legal certainty, but those rules were published a matter of months ago in some cases.
According to the most recent survey numbers from ISDA, only 15.31% of active and new CSAs had been executed by February 17. That represents a doubling from the week before, but indicated that a large proportion of the market wouldn’t have been ready by March 1.
The flexibility afforded by regulators gives the industry more time to get that work done, and will minimize market disruption and maintain market access for a variety of derivatives users. But that does not mean market participants will sit on their hands. The industry remains committed to completing the necessary work as quickly as possible, and ISDA will continue to monitor and report progress in the weeks ahead.
Summary of regulatory action:
Commodity Futures Trading Commission
European Supervisory Authorities
Australian Prudential Regulation Authority
Latest
ISDA AGM Studio: Emmanuel Geinoz and Eleanor Kelly
Five jurisdictions went live with revised derivatives reporting rules in 2024, with more to follow in 2025 and beyond, putting reporting teams under extreme pressure to implement accurately and on time to avoid regulatory penalties. Emmanuel Geinoz, market infrastructure and...
ISDA AGM Studio: Tyler Wellensiek, Stephen Berger
The first phase of the Securities and Exchange Commission’s Treasury clearing mandate will come into effect in December 2026 – a requirement that will have a significant impact on both US and non-US market participants. Tyler Wellensiek, ISDA board member...
ISDA AGM Studio: Jacques Vigner, BNP Paribas
Jacques Vigner, ISDA board member and chief strategic oversight officer for global markets at BNP Paribas, speaks with Mark Gheerbrant, global head of risk and capital at ISDA, on the key obstacles to a consistent, risk-appropriate capital framework and how to...
ISDA AGM Studio: Future Leaders in Derivatives
Following publication of the latest whitepaper from the ISDA Future Leaders in Derivatives (IFLD) program, Collateral and Liquidity Efficiency in the Derivatives Market: Navigating Risk in a Fragile Ecosystem, Joel Clark talks to IFLD participants Koen Ottenheijm, senior treasury and...