Margin Requirements for Non-Centrally Cleared Derivatives Transactions

The Indonesian Financial Services Authority (OJK) issued Circular Letter No. 17/SEOJK.03/2023 to implement Basel Committee standards requiring banks to provide adequate margin for non-centrally cleared derivatives (NCCD) to mitigate counterparty risk. The regulation mandates that conventional commercial banks, including branches of foreign banks, adhere to eight principles governing initial and variation margin management and data administration. Implementation of these margin requirements applies to NCCD contracts agreed upon starting from September 1 of the year following the first qualifying Central Counterparty's operation in Indonesia.

Indonesia

Otoritas Jasa Keuangan (Financial Services Authority)

Regulation / Regulation Search / Margin Requirements for Non-Centrally Cleared Derivatives Transactions through Central Counterparty Institutions

Sector: Banking

Sub-Sector: Commercial Banks

Regulation Type: OJK Circular Letter

Regulation Number: 17/SEOJK.03/2023

Effective Date: 10/19/2023

Appendix 1 SEOJK 17-SEOJK.03-2023 Margin Requirements for Non-Centrally Cleared Derivatives Transactions through Central Counterparty Institutions.pdf Abstract SEOJK 17-SEOJK.03-2023 Margin Requirements for Non-Centrally Cleared Derivatives Transactions through Central Counterparty Institutions.pdf FAQ SEOJK 17-SEOJK.03-2023 Margin Requirements for Non-Centrally Cleared Derivatives Transactions through Central Counterparty Institutions.pdf

Page Content OJK Circular Letter Number 17/SEOJK.03/2023 concerning Margin Requirements for Non-Centrally Cleared Derivatives Transactions through Central Counterparty Institutions. ABSTRACT: The standards regarding Margin Requirements for Non-Centrally Cleared Derivatives (NCCD) issued by the Basel Committee on Banking Supervision (BCBS) are a response to the 2007-2008 crisis, which demonstrated the weak resilience of banks and other market participants against shocks. Therefore, the G20 initiated a reform program that, among other things, encouraged over-the-counter (OTC) derivative transactions to be cleared through central counterparties (CCP), as well as the need to provide sufficient margin for derivative transactions not cleared through a CCP (NCCD transactions) for risk mitigation. In this regard, standards are needed for banking in Indonesia that can serve as the basis for regulating the aforementioned margin requirements. The legal umbrella for this OJK Circular Letter is mandated in Article 42B of OJK Regulation Number 27 of 2022 concerning the Second Amendment to OJK Regulation Number 11/POJK.03/2016 concerning Minimum Capital Provision Requirements for Commercial Banks. NOTE: This OJK Circular Letter takes effect on the date of establishment, namely October 19, 2023. This OJK Circular Letter applies to conventional commercial banks, including branches of banks located outside the country. This OJK Circular Letter regulates, among other things: a. General provisions regarding margin requirements for derivative transactions not cleared through central counterparty institutions, which include 8 (eight) principles. b. Regulations on margin management, both initial margin and variation margin, including agreements between parties conducting NCCD transactions and also data administration within the Bank. The obligation to apply margin requirements in accordance with this OJK Circular Letter takes effect for NCCD transaction contracts agreed upon since September 1 of the year following the first qualifying CCP begins operations in Indonesia.