On February 7, 2017, multiple organizations — The International Swaps and Derivatives Association (ISDA), the Global Financial Markets Association, The Investment Association, Financial Services Roundtable, The ABA Securities Association, and The American Council of Life Insurers — sent a letter to a number of regulators (including OSFI in Canada) on behalf of their members to request regulatory forbearance in respect of the March 1, 2017 compliance date for the exchange of variation margin (VM) under the new regulations (the VM regulations).
The letter cites a number of reasons for making this request. These reasons include:
- the scale of initiative (thousands of market participants would be subject to the new VM regulations)
- complexity of implementation (e.g., the terms of existing Credit Support Annexes (CSAs) with buy-side market participants and smaller clients are highly variable, meaning the negotiations are more complex and time consuming)
- operational risk (e.g., the new CSAs terms have to be updated in firms’ systems and activated)
- potential for market disruption (e.g., buy-side market participants and smaller clients that rely on derivatives to hedge their exposures may not able to complete their documentation and, as a result, will be cut-off from trading with firms that are subject to the VM regulations)
The letter requests an extension until September 1, 2017 (this is consistent with the transition period granted by the regulators in Hong Kong, Singapore and Australia). The letter also requests that any relief conditions (including any retrospective application of VM terms) be uniform across regions.