The TRADE 51 | Page 61

[ D E R I V AT I V E S R E V I E W | V A R I AT I O N M A R G I N S ] “They [buy-side] have had to put the documentation and infrastructure in place very quickly or face being shut off from certain dealers.” JOHN SOUTHGATE, HEAD OF DERIVATIVES AND COLLATERAL PRODUCT MANAGEMENT, EMEA NORTHERN TRUST do a limited amount of derivatives business may have struggled to re- negotiate their documents in time,” says Kruse. This documentation challenge was compounded by the short amount of time between finalisa- tion of the rules and implementa- tion. While the first version of the international policy framework was published in September 2013, it was revised in March 2015 and national and regional regulators then had to transpose the stan- dards into binding rules in their own jurisdictions. In Europe, for example, the three pan-European supervisory author- ities published draft regulatory technical standards in March 2016, but they were not approved by the European Commission until December 2016. This put European participants a step behind their peers in the US as they prepared to post variation margin this year, as the final approved rules had been in-hand for only a few months. “We have all known this was coming for some time but there is only a limited amount of work one can do before the final rules are published. This has been the big- gest re-documentation exercise the market has ever had to go through, and the short timeframe has cer- tainly made it extremely challeng- ing,” says Barry Hadingham, head of derivatives and counterparty risk at Aviva Investors. While regulators had always agreed on the importance of inter- national alignment and consistent implementation of the rules, differences have emerged that made the margin framework even tougher to implement. In Hong Kong, Singapore and Australia, regulators decided in December to allow a six-month transition to variation margin posting between 1 March and 1 September to ease the pressure on firms, but other juris- dictions declined to follow suit. In a speech on 18 January, the US Commodity Futures Trading Commission’s (CFTC) Christopher Giancarlo raised concerns that smaller US pension funds may not be able to get their documenta- tion finalised in time and could be forced to stop hedging, criticising regulators for sticking to the 1 March deadline. US regulators take action “In the past few years, we have witnessed how market disrup- tion, fragmentation and reduced liquidity occurs when cross-border regulatory harmonisation is not achieved. Making market reform work for America means working cooperatively with fellow foreign regulators,” said Giancarlo. Subsequently, just before going to press, the US derivatives regulator announced it would delay the en- forcement of strict rules for asset managers and pension funds by six months. The delay will help ease fears among buy-side firms, many of which were reportedly nowhere near ready to comply with the vari- ation margin rules set to come into force globally on 1 March. Issue 51 TheTradeNews.com 61