The Bank of Russia published its consultation paper on mandatory margining of non-centrally cleared OTC derivatives

The Bank of Russia released for public discussion the consultation paper on mandatory margining of non-centrally cleared OTC derivatives.

The purpose of introducing mandatory margining of non-centrally cleared derivatives is to reduce systemic risk. A great deal of derivatives are not standardised and, therefore, cannot be cleared through a CCP. In cases when one of the parties to a derivative fails to discharge its obligations margining requirements are meant to prevent a series of defaults (cross-defaults) by using collateral to repay the debt. Margin requirements should also reduce the financial system's vulnerability to destabilizing procyclicality and limit the build-up of uncollateralised exposures in the financial market.

The consultation paper contains, inter alia, the following key propositions of the Bank of Russia:

• To start phase-in of the requirement for mandatory margining of non-centrally cleared derivatives from 1 July 2018, depending on the category of financial market participants and the threshold values based on the volume of transactions.
• To set basic requirements to the initial and variation margin in respect of their calculation and transfer as well as  to eligible collateral for margin;
• To create a special regime for non-centrally cleared derivatives with foreign participants which would enable the avoidance of duplicate regulatory requirements or regulatory arbitrage.