
ISDA Chief Executive Officer Scott O'Malia offers informal comments on important OTC derivatives issues in derivatiViews, reflecting ISDA's long-held commitment to making the market safer and more efficient.
Over the past week, regulators across the globe have responded to looming market disruption by providing flexibility to derivatives users in their attempts to meet a March 1 deadline for posting variation margin on their non-cleared derivatives trades. This flexibility was critical. With firms struggling to amend their collateral documents in time, there was a very real risk that derivatives users would have been unable to trade from tomorrow, as ISDA and others warned in a letter earlier this month.
Thanks to well-coordinated action taken by global regulators to provide forbearance, that danger has now receded. The exact nature of the relief differs jurisdiction to jurisdiction, but regulators have generally provided derivatives users with additional time to finish making the changes to their credit support annex (CSA) agreements.
Given most derivatives counterparties already exchange variation margin on their non-cleared trades, this additional flexibility will not lead to an increase in systemic risk. It will, however, ensure counterparties have more time to negotiate the complex changes to their outstanding CSAs to ensure these documents reflect new regulatory edicts on eligible collateral, settlement timing and haircuts.
That process of negotiation has been complicated and time-consuming, and the scale of the task has been overwhelming. The March 1 ‘big bang’ implementation date captures banks, asset managers, insurance companies and hedge funds, and involves updating more than 150,000 CSAs. The time scale in which to make those changes has also been impossibly short. Market participants had to wait for final rules from national authorities to know exactly what changes were needed and how to phrase the amendments to create legal certainty, but those rules were published a matter of months ago in some cases.
According to the most recent survey numbers from ISDA, only 15.31% of active and new CSAs had been executed by February 17. That represents a doubling from the week before, but indicated that a large proportion of the market wouldn’t have been ready by March 1.
The flexibility afforded by regulators gives the industry more time to get that work done, and will minimize market disruption and maintain market access for a variety of derivatives users. But that does not mean market participants will sit on their hands. The industry remains committed to completing the necessary work as quickly as possible, and ISDA will continue to monitor and report progress in the weeks ahead.
Summary of regulatory action:
Commodity Futures Trading Commission
European Supervisory Authorities
Australian Prudential Regulation Authority
Latest
ISDA Response to EC on Environmental Legislation
On September 10, ISDA, the Association for Financial Markets in Europe (AFME) and the European Fund and Asset Management Association (EFAMA) submitted a joint response to the European Commission’s (EC) call for evidence on reducing the administrative burden in environmental...
Credit Derivatives Trading Activity Q2 2025
This report analyzes credit derivatives trading activity reported in Europe. The analysis shows European credit derivatives transactions based on the location of reporting venues (EU versus UK) and product type. The report also compares European-reported credit derivatives trading activity to...
ISDA Trading and Treasury Forum: CEO Remarks
ISDA Derivatives Trading and Treasury Forum London, September 16, 2025 Opening Remarks Scott O’Malia ISDA Chief Executive Officer Good morning, and welcome to the ISDA Derivatives Trading and Treasury Forum. Thank you to CME Group for partnering with us...
Recognition of Cross-product Netting is Critical
US regulators are in the process of making important changes to the regulatory capital framework by proposing modifications to the enhanced supplementary leverage ratio, which should help stop it from acting as a non-risk-sensitive constraint on bank capacity – a...