ISDA CEO Cautions That Impending Variation Margin Deadline Could Pose "Material Risk"

In a recent blog post, ISDA CEO Scott O'Malia asserted that the March 1, 2017 variation margin deadline "looks extremely optimistic" despite industry progress made in amending credit support annexes. Mr. O'Malia expressed concern that the deadline could result in derivatives market access denial for a "vast swath" of market participants that have yet to update their collateral documentation.

Mr. O'Malia also highlighted a recent letter in which ISDA, SIFMA, the American Bankers Association, the American Council of Life Insurers and other trade associations urged regulators around the globe to adopt a "forbearance" period. During the proposed period, firms would have six additional months to complete their preparations for the new margin requirements, but would be required to apply the regulatory margin requirements to all trades entered into after the existing March 1 compliance date once the new documentation was completed.

Mr. O'Malia emphasized the major concern raised by the March 1 deadline absent such period or delay:

"As it stands, we think there is a material risk that a large proportion of firms won't be ready. That could result in fragmentation, market disruption, higher prices and the inability for end users to put on hedges."