Element 1: Scope of Coverage – Instruments Subject to the Requirements
| No: 42008998 | Date(g): 5/10/2020 | Date(h): 18/2/1442 |
Effective from 2020-10-05 - Oct 04 2020
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| Appropriate margining practices should be in place with respect to all derivatives transactions that are not cleared by Central Counterparties (CCPs)1. | ||
| 5. | Except for physically settled foreign exchange (FX) forwards and swaps, these margin requirements apply to all non-centrally cleared derivatives. These margin requirements do not apply to physically settled FX forwards and swaps.2 | |
| 6. | Initial margin requirements for cross-currency swaps do not apply to the fixed physically settled FX transactions associated with the exchange of principal of crosscurrency swaps. In practice, the margin requirements for cross-currency swaps may be computed in one of two ways. Initial margin may be computed by reference to the “interest rate” portion of the standardised initial margin schedule that is described in Element 3 below and presented in the Appendix A. Alternatively, if initial margin is being calculated pursuant to an approved initial margin model, the initial margin model need not incorporate the risk associated with the fixed physically settled FX transactions associated with the exchange of principal. All other risks that affect crosscurrency swaps, however, must be considered in the calculation of the initial margin amount3. The variation margin requirements that are described below apply to all components of cross-currency swaps. | |
1 These margining practices only apply to derivatives transactions that are not cleared by CCPs and do not apply to other transactions, such as repurchase agreements and security lending transactions that are not themselves derivatives but share some attributes with derivatives. In addition, indirectly cleared derivatives transactions that are intermediated through a clearing member on behalf of a non-member customer are not subject to these requirements as long as (a) the non-member customer is subject to the margin requirements of the clearing house or (b) the non-member customer provides margin consistent with the relevant corresponding clearing house’s margin requirements.
2 Banks should, however, adhere to Supervisory Guidance for Managing Risks Associated with the Settlement of Foreign Exchange Transactions (as published by BCBS https://www.bis.org/publ/bcbs241.pdf)
3 The only payments to be excluded from initial margin requirements for a cross-currency swap are the fixed physically settled FX transactions associated with the exchange of principal (which have the same characteristics as FX forward contracts). All other payments or cash flows that occur during the life of the swap must be subject to initial margin requirements.