What is non-cleared margin rules?

The Non-Cleared Margin Rules require counterparties in non-cleared over-the-counter (OTC) derivative trades to exchange initial margin (IM) and variation margin (VM) with each other.

What is a non-centrally cleared derivative?

Non-centrally cleared derivatives are defined as derivatives that are not cleared through a central counterparty. Non-centrally cleared derivatives between a Covered FRFI and its affiliates (i.e. intra-group trades) are not subject to the margin requirements of this Guideline.

What is margin requirement in derivatives?

Initial margin requirements are based on 99% value at risk over a one day time horizon….Extreme Loss Margins.

What are cleared and non-cleared derivatives?

When an OTC derivative has been cleared, margin must also be posted to the CCP, and the clearing member is required to collect margin from its client. Non-cleared transactions are agreed bilaterally between a buyer and seller.

What are non-centrally cleared OTC derivatives?

Non-centrally cleared derivative refers to an over-the-counter (OTC) derivative product that is not cleared through a central counterparty as defined in section 2 of the BCR. OTC derivative product as defined in section 1B, Part 1 of Schedule 1 of the Securities and Futures Ordinance.

What is centrally cleared derivatives?

Centrally-cleared derivatives are negotiated between the counterparties but contain standardized terms and are traded through a central clearing house. As a result, derivatives have increasingly been executed through clearing houses rather than transacted bilaterally in an OTC market.

What is margin in derivative trading?

When you trade in derivative products, you are not required to pay the total value of your position up front. This is called margin trading and results in a high leverage factor in derivative trades, i.e., with a small deposit, you are able to maintain a large outstanding position.

What is cleared margin?

Clearing margins are financial safeguards that ensure clearing members (usually companies or corporations) perform on their customers’ open futures and options contracts.

What is margin requirements RBI?

Margin requirement refers to the difference between the current value of the security offered for loan (called collateral) and the value of loan granted. It is a qualitative method of credit control adopted by the central bank in order to stabilize the economy from inflation or deflation.

Which derivatives do not require initial margin to be collected?

Derivatives for which a Covered Entity faces no (i.e. zero) counterparty risk do not require initial margin to be collected and may be excluded from the initial margin calculation. 44.

What is the margin phasing in the derivatives market?

The requirement to collect and post initial margin on non-centrally cleared trades is proposed to be phased in over a four year period beginning 2015 and begin with the largest, most active and most systemically risky derivative market participants.

How is the initial margin amount calculated?

The required initial margin amount is calculated in two steps. First, the margin rate in the provided schedule is multiplied by the gross notional size of the derivatives contract, and then this calculation is repeated for each derivatives contract. This amount is referred to as the gross initial margin.

What are the margin requirements for NCCDS?

Margin requirements for these instruments are covered by the BCBS supervisory guidance for managing settlement risk in FX transactions . 2 For example, systemically important non-financial entities could include firms with sizeable positions in NCCDs.