Swaps counterparties, including corporate end users, would face increased risks under banking regulators’ swaps margin proposal, according to a study by the International Swaps and Derivatives Association (ISDA).
Global regulators have recommended requiring initial and variation margin on derivatives trades from all financial institutions and systemically important non-financial firms, while exempting other non-financial end users. The rules are still in the works and there is concern they may vary from U.S. regulations, presenting global companies with two sets of initial margin requirements.
A bill that would ensure that corporates are exempt from margin requirements passed the House of Representatives by a wide margin in March, Crooks notes. The sponsors of the Senate version of the bill, introduced in August, are “hoping to push it over the finish line by year-end, or next year they’ll have to hit the reset button” when the new Congress arrives, she adds.
Should that legislation fail and corporates be required to post margin, they will face additional margin-related risks, according to the ISDA study. It notes, for example, that initial margin requirements can become up to three times larger during stressful periods, so that a $100 million requirement becomes a $300 million.