Derivatives Trading Obligations Specified by FINMA
In the notification of supervision carried out on 01/2020 of March 20, 2020, FINMA clearly stated that the changes to the existing derivative contracts do not derive collateral obligations if they are only made to counteract the adjustments to the interest rates benchmark interest due to LIBOR replacement. At the same time, it was stated that a reserve clause would not entail a clearing obligation for existing derivative contracts.
As part of the change to the new benchmark interest rates, additional clarification is now required. This relates entirely to the question under what conditions, in the sense described above, modified derivative contracts are considered contracts here that are not covered by the bilateral guarantee or central settlement obligations.
In its supervision notification 02/2021, FINMA states that adjustments to existing derivative contracts are not considered newly concluded derivative contracts and therefore do not imply any settlement or collateral obligation if the adjustments are made solely to make versus the LIBOR replacement.
The adjustments may result in changes in the term or the effective nominal value of existing derivative contracts, but must be necessary to replace the benchmark interest rate and correspond to current market practice for the new interest rates of reference.
This supervision notice refers exclusively to the obligations of supervisory derivatives following the Financial Market Infrastructure Law (FMIA).