Regulatory initial margin – the obligations on the buy-side

To date, the firms subject to the regulatory obligation to exchange initial margin on uncleared over-the-counter (OTC) derivatives have been the heaviest users, predominantly on the sell-side.

However, over the next two years a large number of buy-side firms will be caught as the threshold for compliance drops to include entities with uncleared OTC derivatives portfolios of €50bn or greater from September 2021 and of €8bn or greater from September 2022.

These timings reflect a number of deferrals of the implementation that follow the recommendations of The Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO), most recently in response to coronavirus challenges.

In this note, which is an update of our earlier note published in 2019 to reflect the delays in implementation, we set out the steps that affected buy-side firms should be taking to prepare for the exchange of initial margin.