April 25, 2017 / 1:26 PM / 3 months ago

DERIVATIVES-Seven jurisdictions yet to write swaps margin rules

LONDON, April 25 (IFR) - Seven member-jurisdictions of the Basel Committee on Banking Supervision are yet to issue final or draft rules on margin requirements for uncleared derivatives, despite the passing of the first implementation deadline last September.

According to the committee's latest progress report on adoption of the Basel regulatory framework, Argentina, Brazil, China, Indonesia, Mexico, Russia and Turkey are yet to finalise uncleared margin rules, which were scheduled for international implementation from September 2016 for the largest dealers.

All other derivatives participants were due to begin exchanging daily margin starting March 2017 against over-the counter derivatives that are not cleared through central counterparties.

Brazil is expected to publish rules in June, though implementation could be revised, pending the results of a public consultation. Mexican regulators aim to have rules before Mexican covered entities are brought into scope for initial margin requirements. Based on average notional amounts outstanding, those entities would be required to post IM from 2020, according to the globally agreed implementation timeline.

Two further jurisdictions - India and South Africa - have published draft legislation for the new requirements, though they are yet to implement the new rules. The Reserve Bank of India published a discussion paper in March 2016, but implementation has been deferred for the time being.

Uncleared margin rules form a key strand of post-crisis reforms that aim to reduce counterparty risk in the US$544trn over-the-counter swaps market by encouraging more activity into central counterparty clearinghouses.

Many jurisdictions struggled meet the globally agreed deadlines. Regulators in Hong Kong, Singapore and Australia joined the European Union in delaying implementation for key dealers last September, instead going live with the rules early this year, just ahead of "big bang" implementation that cast VM rules across all participants.

The US stuck to the deadline, albeit with the support of exemptive relief that provided an additional six months for full compliance.

Rules requiring all participants to begin exchanging variation margin became effective in March 2017, though regulators around the world have bowed to industry pressure, providing a six-month grace period for full compliance.

The 12th progress report on the Basel III framework shows that all 27 member jurisdictions have final risk-based capital rules, liquidity coverage ratios and capital conservation buffers in force. Most also have issued final rules for countercyclical capital buffers and have published final or draft rules for domestic systemically important banks. All five jurisdictions that are home to global systemically important banks have a G-SIB framework in place.

"Members are now turning to the implementation of other Basel III standards, including those on TLAC holdings, the market risk framework, the leverage ratio and the net stable funding ratio," said the progress report.

Significant challenges remain, however, particularly surrounding capital requirements for CCP exposures, where only 17 of the 27 member jurisdictions have published draft or final rules, while 19 have issued rules for standardised counterparty credit risk calculation methods. (Reporting by Helen Bartholomew)

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