Public consultation on foreign margin requirements

Date 13 July 2017

Reserve Bank and MBIE open public consultation on foreign margin requirements for OTC derivatives

The Reserve Bank of New Zealand and the Ministry of Business, Innovation and Employment have started a public consultation on the implications for New Zealand of foreign margin requirements for over-the-counter derivatives.

New Zealand has no margin requirements in over-the-counter derivatives, but several banks registered to operate in New Zealand will likely have to comply with margin rules being implemented in foreign jurisdictions. Margins is collateral exchanged by derivative market participants in order to protect against the risk posed by credit exposures and to reduce the risks of financial market contagion if a derivative contract counter-party defaults.

Some features in New Zealand laws that cover statutory management and creditor priorities could impede the prompt and free availability of margin provided by New Zealand banks, potentially impairing banks’ access to derivative products and markets they use for funding and hedging. Addressing the issue can help to protect and promote the soundness, efficiency and global integration of New Zealand’s financial sector.

The consultation identifies specific impediments in New Zealand insolvency laws and proposes a number of targeted legislative amendments to address them. The consultation seeks stakeholder’s views on the scope of the issues identified, and the adequacy and effect of the amendments proposed.

The consultation closes on Thursday 24th August.

Consultation paper: NZ Response to Foreign Margin Requirements for OTC Derivatives

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