APRA CPS 226: Margining & Risk for Non-Cleared Derivatives

This Prudential Standard requires an APRA covered entity to have appropriate margining practices in relation to non-centrally cleared derivatives. An APRA covered entity must exchange variation margin and post and collect initial margin
with a covered counterparty, subject to certain criteria.
The key requirements of this Prudential Standard are that an APRA covered entity must:

• exchange variation margin and post and collect initial margin in transactions with a covered counterparty subject to certain criteria and the implementation timetables;
• use a zero threshold in the exchange of variation margin;
• post and collect initial margin on a gross basis calculated by either the standardised schedule or an approved model approach;
• ensure that initial margin is held in a manner that provides legal certainty to both counterparties in the event ofinsolvency or bankruptcy; and
• collect eligible collateral to satisfy margin requirements and apply appropriate risk-sensitive haircuts to collateral collected.

This Prudential Standard also requires an APRA covered entity to apply risk mitigation practices in the areas of trading relationship documentation, trade confirmation, portfolio reconciliation, portfolio compression, valuation processes
and dispute resolution processes.