Partners Barney Reynolds (London-FIA&FR) and Donna Parisi (New York-Investment Funds) wrote an article, titled “The Effects of Trans-Atlantic Reform on Margin for Uncleared Swaps: Balancing the Risks and Benefits of Uncleared Swaps,” that was published by the Journal of International Banking Law and Regulation. New rules on margin requirements for uncleared swaps sharply tighten counterparty risk management in the uncleared space whilst serving further to mitigate system-wide risk. The new regime, however, is not without a number of significant issues for market participants. It has the potential to result in several negative outcomes, such as regulatory arbitrage, pressure on sourcing good quality collateral and legal uncertainty in the cross-border transactional environment. As industry begins to implement the new requirements, further unintended consequences may become apparent. This article discusses some of the more significant commercial, operational and legal challenges.
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