Navigating the New Margin Requirements HKMA CR-G-14

Managing Risk while Maximizing Liquidity in the OTC Non-Centrally Cleared Derivatives Market

Aug 2017

The Non Cleared derivatives margin rules which were based on the BCBS/IOSCO framework went live for the biggest financial institutions as of September 2016, requiring them to exchange both variation and initial margin collateral for their OTC derivative exposures. March 2017 saw other derivative users in US, EU and Japan implementing the variation margin requirements whilst most of the Asian regulators, including Hong Kong and Singapore, have allowed for a 6 month roll out period until September 2017. 

The Hong Kong margin rules do not differ materially to other jurisdictions and in summary:

  • Set out the minimum standards that the HKMA expects Authorized Institutions (AIs) to adopt in respect of margin and other Risk Mitigation Standards (RMS) for non-centrally cleared OTC derivatives transactions.
  • Set Variation Margin (VM) requirements at zero threshold for all covered entities from 1 March 2017 (subject to a 6 month transition period) and exchange of Initial Margin (IM) will commence on 1 September 2017 determined by a phase-in schedule through 2020.
  • HKMA expects AIs to apply RMS in a proportionate manner depending on the level of risk concentration or activity undertaken by an AI, which will take into account the nature of the transactions and counterparty.

Institutions should ensure that they are already updating their legal agreements (ISDA and CSA) to the agreed regulatory compliant format and are developing their capabilities to calculate and exchange variation and initial margin.

PwC can help you successfully implement those regulatory requirements and advise you on your future operating model, legal agreement planning, model development and validation and integration with third party providers.

Contact us

Albert Lo

Partner, PwC Hong Kong

Tel: +[852] 2289 1925

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