One-year Extension of the Final Implementation Phase of the Margin Requirements for Non-centrally Cleared Derivatives

Banking Policy Department Our Ref: B9/129C B1/15C 16 August 2019 The Chief Executive All Authorized Institutions Dear Sir/Madam, One-year Extension of the Final Implementation Phase of the Margin Requirements for Non-centrally Cleared Derivatives Further to the statement1 published in March 2019 which clarified certain aspects of the margin requirements for non-centrally cleared derivatives, the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) recently issued a joint statement 2 on extending the final implementation of the initial margin requirements by one year. Considering the initial margin requirements will be applied to a large number of entities for the first time in the final phase of implementation, the BCBS and IOSCO have agreed to the one-year extension to support a smooth and orderly implementation of the margin requirements which is consistent and harmonised across jurisdictions. With this extension, the final implementation phase will commence on 1 September 2021, at which point covered entities with an aggregate average notional amount (AANA) of non-centrally cleared derivatives greater than EUR 8 billion will be subject to the initial margin requirements. To facilitate the extension, the BCBS and IOSCO introduce an additional implementation phase whereby covered entities with an AANA of non-centrally cleared derivatives greater than EUR 50 billion will be subject to the initial margin requirements for the period from 1 September 2020 to 31 August 2021.

1 Please see https://www.bis.org/press/p190305a.htm. For the corresponding circular issued by the HKMA, please see https://www.hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2019/20190318e2.pdf. 2 Please see https://www.bis.org/press/p190723.htm.

• 2 - The HKMA intends to adopt the revised implementation schedule as announced by the BCBS and IOSCO. The current final phase of initial margin requirements originally scheduled on 1 September 2020 will be postponed to 1 September 2021. Additionally, an interim phase with an AANA threshold of HKD 375 billion will be introduced for the one-year period starting from 1 September 2020. The Supervisory Policy Manual module CR-G-14 will be amended accordingly before the end of this year. The HKMA expects that AIs will act diligently to make all relevant arrangements on a timely basis and comply with the requirements by this revised timeline. If you have any questions on the HKMA’s margin and risk mitigation standards for non-centrally cleared OTC derivatives, please contact Ms Eva Tung (2878 1228, eywtung@hkma.gov.hk) or Mr Lincoln Wong (2878 1271, llhwong@hkma.gov.hk). Yours faithfully, Daryl Ho Executive Director (Banking Policy) cc: The Chairperson, The Hong Kong Association of Banks The Chairman, The DTC Association FSTB (Attn: Ms Eureka Cheung)