The margin exchange system for non-centrally cleared over-the-counter derivatives transactions will be extended for one year starting this September. As a result of this extension, the companies subject to the system include 138 for initial margin and 163 for variation margin.
The Financial Supervisory Service announced on the 13th that it will extend the guidelines on the margin exchange system for non-centrally cleared over-the-counter derivatives transactions.
The margin exchange system is a system that exchanges margin (collateral) between transaction parties in advance for over-the-counter derivatives transactions that are not cleared by a central counterparty (CCP). It has been in effect since 2017 to manage the system risks resulting from over-the-counter derivatives transactions.
Margins are classified into initial margin and variation margin. Initial margin is the collateral exchanged to manage the future default risk of the counterparty at the time of the transaction, while variation margin is exchanged to manage daily exposure.
The number of financial companies subject to initial margin has increased by 3 to 138 from last year (135), of which 11 belong to financial groups. Four companies including DAISHIN SECURITIES are newly subject to this, while KB Fintech is excluded from the application this time.
The number of financial companies subject to variation margin remains the same at 163, with 128 belonging to financial groups. The Baden-Württemberg State Bank has been designated as a new subject, and KB Fintech is excluded.
The target institutions are financial companies with an average nominal balance of non-centrally cleared derivatives transactions at the end of March, April, and May exceeding a specified amount, and these will be applied from September 1 of the year for one year. For financial companies belonging to a financial group, the nominal balance of non-centrally cleared derivatives transactions of all financial companies within the same group will be aggregated for assessment.
The FSS noted, "We will continuously monitor the implementation process of the existing system and the new applying financial companies to ensure successful establishment of the system," and added, "Considering the increasing possibility of volatility in the global financial market due to various external factors, we will review the implementation status."