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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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