Worldwide: ISDA Releases Self-disclosure Letter In Connection With Global Uncleared Swap Margin Rules

The Regulatory Margin Self-Disclosure Letter, published on June 30, 2016, by the International Swaps and Derivatives Association, Inc. ("ISDA") (the "Letter"), represents one of the first major steps taken by the derivatives industry towards facilitating compliance with the rules of various regulatory regimes for the exchange of margin for non-cleared derivatives. These rules have been proposed or adopted in the U.S., Canada, the EU, Japan and Switzerland, and are based on the framework jointly published by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions. Other regulators around the globe, such as those in Hong Kong and Australia, are expected to follow suit.

While these rules will not come into effect on the same timelines (notably given the recent announcement of a delay to implementation in the EU and Switzerland), compliance dates in the U.S. remain imminent for the time being and market participants need to prepare. Accordingly, with respect to each non-cleared swap (and each non-cleared swap's trading relationship more generally), each party to that non-cleared swap will need to determine if and when that swap will become subject to margin requirements. This determination will be based on which regime(s) will apply to that particular trading relationship.

Whether a regime is applicable (and which particular rules or exemptions are applicable under that regime) depends both on the status of the party making the determination as well as the status of its counterparty. Once these determinations are made, this will dictate the particular margin and segregation documentation that will need to be put in place to govern in scope non-cleared swaps. It is possible that a particular swap is subject to more than one margin regime, in which case the question of substituted compliance or equivalence would be relevant. At this stage regulators have made little progress, if any, on equivalence or substituted compliance determinations. Pending progress on this front, parties are considering applying the stricter version of the rules that would satisfy the rules of all applicable margin regimes.

These determinations will often be difficult to make given the complexity of OTC derivatives trading relationships that can arise as a result of, among other factors, booking entities within a group being organized in different jurisdictions (whether as a branch or a subsidiary), intra-group guarantees and back-to-back trades between group entities, consolidated groupings, and the location of booking of particular trades within a group. Accordingly, ISDA has been working with market participants to create a tool to facilitate the exchange of information between counterparties and, where necessary, the opening of a dialogue between parties to enable the parties to make these determinations.

To that end, ISDA has published the Letter as a standard form for the sharing of information regarding an entity's status under each applicable regime with that entity's non-cleared swaps trading counterparties. While market participants are not obliged to complete and deliver a Letter to any of its counterparties, the information disclosed in the Letter is likely to be necessary for determining if and when the rules under a particular margin regime will apply. The Letter is designed to be completed by a party to a non-cleared swap (as Principal) and delivered to each counterparty (a Recipient). For example, with respect to a non-U.S. investment fund trading non-cleared swaps with a CFTC-registered swap dealer, the investment fund will complete and provide a Letter as Principal to the CFTC-registered swap dealer as Recipient, and the CFTC-registered swap dealer will complete and provide a Letter as Principal to the investment fund as Recipient. In the first case, the CFTC-registered swap dealer will likely need the fund to complete the U.S. CFTC section of the Letter in order to determine whether and how the CFTC rules will apply to that relationship. In the second case, given that the regulatory requirements to collect and post initial and variation margin in the U.S. fall on the covered swap dealer, it is unlikely that the investment fund would need the CFTC-registered swap dealer to complete any sections of the Letter for the fund's purposes.

With respect to the structure of the Letter, the first section is intended to be completed by all market participants delivering a Letter as Principal, as it sets out general information for the Principal including contact information and whether the Principal is a multi-branch entity. The remaining sections set out jurisdiction or regulator-specific information about the Principal and are organized by jurisdiction. Separate sections are provided for Canada, the EU, Japan, Switzerland and the U.S. (both CFTC and U.S. prudential regulators). Each of these sections seeks to collect information on (1) a group's average aggregate notional amount (or "AANA") of OTC derivatives, which is necessary to determine whether an entity and/or group will be subject to a particular regime's margin requirements based on jurisdictional thresholds and calculation methodology; (2) the cross-border status of a party; and (3) the applicability of any available entity or transaction-specific exemptions (such as the hedging exemption in the U.S.). Definitions are included for each jurisdiction in order to guide a Principal completing a form, but it is likely that a party will have to perform additional commercial and legal analysis to complete the Letter. For example, under the CFTC rules, the Letter does not give guidance as to how the AANA calculation should be undertaken. For a more detailed explanation of the calculation of AANA in the U.S. and other related definitions and considerations, see our previous client alert.

While the parties can exchange paper versions of the Letter, the Letter will also be available on ISDA Amend. Both the Letter and the ISDA Amend build-out are structured in a modular fashion so that market participants can complete as much or as little of the Letter as they wish. A market participant will also be able to deliver a different version of the Letter to each of its counterparties if only portions of the Letter apply to a particular trading relationship. On ISDA Amend, it is expected that the Recipient will be able to identify which sections of the Letter should be completed by a Principal from which it expects to receive a Letter, but the Principal should complete all applicable sections. Returning to the previous example of a non-U.S. investment fund and a CFTC-registered swap dealer, the CFTC-registered swap dealer will be able to communicate to the investment fund via ISDA Amend which jurisdictional information it would like the fund to complete given the regimes which the dealer expects will apply to the trading relationship, and the fund should in any case consider whether any additional information should be provided. We understand that the ISDA Amend service will be available two to three months from publication of the Letter. This may miss the initial compliance date of September 1, at least for the U.S. regime, unless the timeline is postponed similar to the EU postponement. That said, it is only the largest swap dealers and their non-cleared swaps with other such dealers that will be subject to the September 1 compliance date. If bilateral communication is necessary between the parties outside of ISDA Amend, the Principal to each Letter should provide contact information in the general information section for such purpose.

Completion of the Letter is going to be time-consuming and less than straightforward for many market participants, particularly where multiple jurisdictional sections are relevant and/or where the organizational structures of the Principal and the Recipient are complex. Investment managers acting on behalf of multiple funds will, we think, be particularly challenged, as they will have to reach out separately to each of their fund clients in order to obtain the required information.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions