AUSTRALIA: Prudential Standard CPS 226 on Margining and Risk Mitigation for Non-Centrally Cleared Derivatives Published

Wednesday August 16 2017

The Australian Prudential Regulation Authority (APRA) has released the final revised Prudential Standard CPS 226 Margining and risk mitigation for non-centrally cleared derivatives.

This Prudential Standard requires an APRA covered entity to have appropriate margining practices in relation to non-centrally cleared derivatives. An APRA covered entity must exchange variation margin and post and collect initial margin with a covered counterparty, subject to certain criteria.
The key requirements of this Prudential Standard are that an APRA covered entity must:

• exchange variation margin and post and collect initial margin in transactions with a covered counterparty subject to certain criteria and the implementation timetables;
• use a zero threshold in the exchange of variation margin;
• post and collect initial margin on a gross basis calculated by either the standardised schedule or an approved model approach;
• ensure that initial margin is held in a manner that provides legal certainty to both counterparties in the event of insolvency or bankruptcy; and
• collect eligible collateral to satisfy margin requirements and apply appropriate risk-sensitive haircuts to collateral collected.

This Prudential Standard also requires an APRA covered entity to apply risk mitigation practices in the areas of trading relationship documentation, trade confirmation, portfolio reconciliation, portfolio compression, valuation processes and dispute resolution processes.

Please click on the above link for more information.