Approaching Phase 6 of Uncleared Margin Rules? A reference guide to compliance, monitoring and exchanging initial margin

Introduction 

In response to the economic and financial crisis that began in 2007, the Banking Committee on Banking Supervision (BCBS) and the International Organization of Securities Commission (IOSCO) developed a framework around margin requirements for non-centrally cleared derivatives. The result was a set of regulatory guidelines known as Uncleared Margin Rules (UMR) that have been phased in annually since 2016. 

Phase 5 of UMR, which was delayed one year due to the COVID-19 pandemic, went live on September 1, 2021 with over 330 firms globally. The final wave, Phase 6, is by far the largest group, and is due to go live exactly a year later on September 1, 2022. 

Regulators unleashed a new approach to Regulatory Initial Margin (Reg IM) when they provided regulatory relief 

Intentional or not, when regulators granted Phase 4, 5 and 6 firms’ relief to delay becoming operationally ready to exchange Reg IM (until they exceeded the US$50 million threshold afforded by regulation) they unleashed a whole new set of market forces on the concept of regulatory initial margin monitoring. 

This paper will explain how firms can take advantage of this regulatory relief by monitoring their initial margin (IM). 

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