A large number of counterparties will come into scope of initial margin (IM) requirements for non-cleared derivatives in 2020 and 2021. This has increased the focus on the applicability of the rules to cross-border trading relationships.
However, there are practical challenges in analyzing multiple foreign rule sets and identifying situations in which different rules will apply, as well as understanding whether substituted compliance is available to reduce the compliance burden. Firms will need to understand the different aggregate average notional amount calculations that are relevant to them, the IM thresholds that apply to their trading relationships, and the substantive requirements they will have to meet.
This guide describes the cross-border and substituted compliance rules under different margin regimes, and uses that framework to examine the applicable rules for the US, the European Union and Japan. It focuses on the position of an entity that is not a swap dealer but is either directly subject to margin rules or is obliged to comply with the margin requirements of its counterparties.