India’s margining rules for non-centrally cleared OTC derivatives are coming into effect on April 1.
Neil Murphy, director of triResolve Margin at OSTTRA, said in emailed commentary: “Since the launch of global margin rules in 2016, the industry has coalesced around standardized tools in terms of custody, reconciliation, and the use of the Standard Initial Margin Model (SIMM). The question for Indian firms is how much they want to leverage those industry standards, particularly with international counterparts who have a well-established approach to initial margin. This is particularly pertinent with regards to reconciliation of initial margin, where firms need to be able to quickly and accurately identify any issues driving IM differences.
“With the imminent regulatory deadline, there remain open questions around the Indian IM landscape, including not just reconciliation but also around the divergence of custodial arrangements across different regimes, for example, as well as the broader ‘readiness’ capabilities of local firms.”
Jo Burnham, margin expert at OpenGamma, said in emailed commentary: “Aside from helping to mitigate both counterparty and systemic risk, this new framework will enhance transparency of the market in terms of regulatory oversight. But complying with these new requirements has not been easy for Indian firms and counterparties brought into scope.
“Many had to take proactive steps to ensure their margining frameworks, operational workflows and collateral management practices were robust enough to meet the more stringent initial margin demands. Changes to compliance procedures always threaten to disrupt trading activities, particularly when firms lack automated processes in areas like margin. Levelling up the capabilities of market participants in these areas is one of the most important yet often overlooked benefits of regulatory harmonization, such as that implemented by the Reserve Bank of India.”