ISDA CEO Touts Progress in Variation Margin Preparation

ISDA CEO Scott O'Malia touted the progress the financial industry has made in implementing the regulatory variation margin requirements for derivatives, and noted that, as September 1 approaches, the swaps industry is in a "much better position than it was earlier [in 2017]."

In a recent blog post, Mr. O'Malia explained that the regulatory timeline that was set initially for the "big-bang" implementation of variation margin requirements for over-the-counter derivatives created the risk of significant market disruption. At the end of February 2017, only about one third of the credit support annexes ("CSA") requiring amendment for compliance for new variation margin regulations had been amended. Although the rules became effective on March 1, 2017, regulators provided forbearance until September 1, 2017 in order to allow parties to prepare for a transition to the new rules. Mr. O'Malia announced that as of early August, the estimated percentage of required CSA amendments that had been completed stood at over ninety percent.

Mr. O'Malia expressed his gratitude to regulators for the forbearance they provided, and lauded the industry for its progress over the last several months in preparing for the upcoming transition:

"[T]here's little doubt the extra six months was absolutely vital and averted what could have been a big problem on March 1. Regulators deserve credit for addressing the concerns by providing forbearance – and the industry has worked diligently to make the necessary changes during that time."

Mr. O'Malia also drew attention to the question of trades executed after March 1 and their regulatory treatment. He noted that the industry is operating on the assumption that those trades will have to be unwound if required CSA amendments are not in place by September 1, 2017.

Mr. O'Malia noted that, as compliance challenges continue to arise, ISDA will keep working with the industry throughout the implementation period. He also announced that ISDA is preparing to launch the next iteration of its Standard Initial Margin Model, "ISDA SIMM 2.0."

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