Non-Centrally Cleared OTC Derivatives Margin Exchange Regime Extended by One Year, More Entities to Be Covered

143 Entities Subject to Initial Margin, 165 to Variation Margin Starting in September

Starting in September, the number of financial institutions subject to the non-centrally cleared over-the-counter (OTC) derivatives margin exchange regime will rise, with the initial margin now covering 143 entities and the variation margin applying to 165 entities.

On August 20, the Financial Supervisory Service announced the extension of its 'Guideline on Margin Exchange Requirements for Non-Centrally Cleared OTC Derivatives Transactions.' This system requires counterparties in OTC derivatives trades that are not cleared through a central counterparty (CCP) to exchange collateral (margin) in advance. The initial margin is collateral intended to cover the counterparty’s risk of future default, while the variation margin is used to manage daily exposure.

Accordingly, beginning in September, the number of financial institutions subject to the initial margin requirement will increase by five, from the current 138 to 143 entities. Of these, 118 are affiliated with financial groups. Newly included institutions are Bank of China, Yuanta Securities, Hyundai Marine & Fire Insurance, Hyundai Investment Asset Management, SBI Savings Bank, Tongyang Life Insurance, and ABL Life Insurance, totaling seven. Meanwhile, two entities including Carrot General Insurance will be excluded from the list of entities subject to the regulation.

The number of institutions subject to the variation margin will also increase by two, from 163 to 165 entities. Of these, 130 are affiliated with financial groups. Four newly included institutions, such as Bank of Guangda China and Swiss Asia Pte. Ltd. Korea Branch, will be added to the list, while two entities including Carrot General Insurance will be removed from coverage.

The margin exchange regime is applied for one year from September 1 to financial institutions whose average notional amount of non-centrally cleared OTC derivatives during March, April, and May meets or exceeds the prescribed threshold. For affiliates of financial groups, the combined notional amount of non-centrally cleared OTC derivatives transactions across group companies is used to determine whether the requirement applies. General companies, central banks, public institutions, and international organizations are excluded from these requirements. Although asset management companies are subject to these guidelines, collective investment schemes, trust accounts of banks, and standalone credit card companies are not covered under the guideline.

An official from the Financial Supervisory Service stated, “In consideration of the potential increase in volatility in the global financial market due to various external factors, we will continue to monitor the status of margin exchanges for non-centrally cleared OTC derivatives transactions.” The official also added, “We intend to actively support financial institutions in complying with the margin requirements by gathering feedback on any difficulties they may be facing in the course of implementing the policy.”

This content was produced with the assistance of AI translation services.