U.S. and E.U. regulators continue to phase in the application of initial margin (IM) requirements applicable to uncleared over-the-counter (OTC) derivatives transactions. September 1, 2020, is the date when most funds that are in scope of the IM rules in the U.S. and the E.U. (together, the IM Rules) will be required to post and collect IM to/from their dealer counterparties. Many swap dealers are currently contacting their clients to determine which of them will be in scope and when. All fund managers that trade uncleared OTC derivatives, therefore, will need to understand the IM Rules and how they affect the funds that they manage in order to engage in productive conversations with their dealer counterparties and amend their swaps trading documentation. In this guest article, the second in a two-part series, Sidley Austin partners Elizabeth Schubert and Leonard Ng, along with associate Kate Lashley, explore which funds will be in scope of the IM Rules and review the timing for the implementation of the IM Rules. The first article
provided an overview of the IM Rules and discussed the IM threshold that affected parties may adopt; the requirement to segregate IM; the changes an affected fund will be required to implement to accommodate compliance; and the models and methodologies available to calculate IM. See our two-part series on how the final margin rules will affect hedge funds: “Increased Margin Requirements
” (Feb. 18, 2016); and “Increased Trading Costs
” (Feb. 26, 2016). For additional insight from Ng, see “Hedge Fund Legal Personnel May Fall Under U.K. Senior Managers Regime
” (Feb. 4, 2016).