Prior to the 2008 financial crisis, parties to over-the-counter derivatives negotiated the level of collateralization or margin that would apply to their trades. Due to the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) in 2010 and the promulgation of rules under that law by the relevant regulators during the intervening years, margin levels will be imposed by regulation and the use of individually negotiated margin levels will decline.
This article describes the new margin regime that will apply to the sell-side derivatives dealers and, through them, to their buy-side counterparties.