Final directions for IM is out!
Brief Overview:
Final directions for IM have been issued. While the norms are effective November 2024, the market will need to gear up to have systems in place to comply with the mandatory IM requirements stipulated.
IM posting involves posting of margin via a collateral service provider (akin to a third-party custodian in the rest of the world). CCIL or any Scheduled Commercial Bank can offer such services.
Other provisions like substituted compliance and posting of collateral offshore for onshore transactions applicable in case of VM exchange is also provided for IM.
Technical Details:
Collateral Service Providers
Collateral service providers of foreign jurisdiction can be used.
Entities need to satisfy themselves on the ability of these service providers to safeguard the IM.
Widening the type of Collateral for VM
Certificate of Deposits & Commercial Papers (subject to credit rating) added now to the eligible margin list for the purpose of VM to the existing list of cash and securities.
Once the new norms are effective, it will replace the current VM Norms.
JC takeaway:
Globally, the exchange of IM has been in place for quite some time, due to which most banks have been exchanging margin on the offshore third-party custodian. With the new norms coming into effect, such entities can take the benefit of already existing systems in place to exchange IM.
The recent pronouncements of RBI on margining mark a big step forward as regards Ease of Doing Business and leveraging global best practices. Further liberalisation of Financial Services can be expected!
For further details, please see:
Master Direction – Reserve Bank of India (Margining for Non-Centrally Cleared
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