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ISDA® and IHS Markit Announce 2016 Variation Margin Protocol on ISDA Amend; ISDA Releases Protocol Guide and Fact Sheet
Practical Law Legal Update w-004-7375 (Approx. 5 pages)
ISDA® and IHS Markit Announce 2016 Variation Margin Protocol on ISDA Amend; ISDA Releases Protocol Guide and Fact Sheet
by Practical Law Finance
| Published on 30 Nov 2016 • USA (National/Federal) |
ISDA and IHS Markit announced the launch of the 2016 Variation Margin Protocol on ISDA Amend, enabling market participants to manage documentation ahead of global variation margin (VM) requirements for uncleared swaps which become effective March 1, 2017. ISDA also released a related protocol guide and fact sheet.
On November 28, 2016, ISDA® and IHS Markit announced the launch of the 2016 Variation Margin Protocol (VM protocol) on ISDA Amend, which will enable adherents to centrally manage documentation in anticipation of variation margin (VM) requirements for uncleared derivatives scheduled to come into effect globally on March 1, 2017.
In addition, ISDA also published a guide on adherence to the VM protocol and a fact sheet on steps it recommends market participants take in preparation for the VM rules.
ISDA Amend and the 2016 Variation Margin Protocol
ISDA Amend 2.0 and the VM protocol were both released in August 2016 to facilitate compliance with global VM requirements. The VM protocol, which was not originally included in ISDA Amend, may now be accessed on ISDA Amend.
ISDA Amend allows market participants to amend multiple ISDA Master Agreements using a single online tool (see Legal Updates, ISDA and IHS Markit Launch ISDA Amend 2.0 to Assist with Margin Compliance and Resolution Stay). The VM protocol enables compliance with global rules on VM for uncleared swaps by permitting parties to make standardized amendments to their credit support documentation, such as ISDA credit support annexes (CSAs), with multiple counterparties at once (see Legal Update, ISDA Publishes 2016 Variation Margin Protocol to Help Parties Comply with Margin Rules for Uncleared Swaps). VM protocol questionnaires are exchanged primarily on ISDA Amend.
The VM protocol was supplemented on November 17, 2016 with new terms designed to comply with EU margin rules. These terms can be found on the ISDA 2016 Variation Margin webpage.
ISDA Protocol Guide and Fact Sheet
ISDA also published a protocol guide and fact sheet in conjunction with the launch of the VM protocol on ISDA Amend.
ISDA's guide to the VM protocol includes step-by-step instructions for market participants on how to adhere to the VM protocol. It instructs adhering parties to:
- Visit the Protocol Management page on the ISDA website to submit an adherence letter for the protocol the party seeks to adhere to.
- Fill out the information required on the adherence letter, such as contact details, point of contact, adhering organization logo, DTCC account number if listed, and other elections depending on the protocol selected, and select the adherence type from the dropdown menu.
- Preview and submit the form. The information provided will automatically fill out the adherence letter and it will be available to print by the point of contact listed on the form.
- Submit payment and upload the signed adherence letter.
After the above steps are completed, ISDA will review the letter and then will either accept it or contact the adhering party with a request for corrections.
In addition, ISDA's fact sheet outlines four steps that market participants should consider when preparing for the March 1, 2017 VM deadline. The steps include:
- Determining which rules apply by:
- identifying all legal entities under control of the market participant that have entered or will be entering into non-cleared derivatives;
- setting up each entity on ISDA Amend;
- identifying counterparties; and
- exchanging relevant information, including responding to counterparties' requests for ISDA Self-Disclosure Letter (SDL) information (see Practice Note, The New ISDA® Credit Support Annexes and Global Margin Compliance for Uncleared Swaps: ISDA Margin Compliance Self-Disclosure Letter (SDL)). The SDL has been available on ISDA Amend since October 28, 2016.
- Determining documentation strategy and whether documentation needs to be amended in order to be in compliance with applicable rules.
- Implementing documentation through adherence to the VM protocol and sharing protocol questionnaires with counterparties on ISDA Amend.
Implementing necessary operational changes that are needed to comply with the updated documents, such as changes in collateral types, haircuts, settlement timelines, and collateral call workflow.
For more detail on the VM protocol, see Practice Note, The New ISDA® Credit Support Annexes and Global Margin Compliance for Uncleared Swaps: ISDA 2016 Variation Margin Protocol.
For further information on the VM rules for uncleared swaps and timeline for implementation, see Practice Note, The New ISDA® Credit Support Annexes and Global Margin Compliance for Uncleared Swaps: Applicable Rules and Phase-in Dates.
"ISDA" is a registered trademark of the International Swaps and Derivatives Association, Inc. (ISDA). ISDA is not a sponsor of Practical Law and had no part in the development of this resource.