Cash variation margin received in the same currency of settlement of the derivative contract

Second sub para. of Art. 429a(3) of the leverage ratio Delegated Regulation indicates that: "For the purposes of point (c) of the first subparagraph, where the derivative contract is subject to a qualifying master netting agreement, the currency of settlement means any currency of settlement specified in the derivative contract, the governing qualifying master netting agreement or the credit support annex to the qualifying master netting agreement.” As "currency of settlement" is not sufficiently specified and differs from standard market documentation terminology, we we would request to provide further explanation on the interpretation of “currency of settlement”.

The leverage ratio framework refers to the “currency of settlement”, whose concept is not sufficiently clarified. This concept may result in confusion when applied to financial markets practice because the terminology does not match/fit the terminology used in standard market documentation. As far as the ISDA Credit Support Annex (CSA) is concerned, the documentation does not refer to “currency of settlement” but to “Eligible Currencies” or Base Currency. We currently see three possible interpretations of the settlement currency: 1) The transaction currency (USD in case of a USD IRS) 2) The Base Currency (the currency all obligations are converted to for Mark to Market purposes) 3) Eligible Currencies, which are the currency or currencies pre-agreed between the parties to the CSA which may be posted for variation margin purposes. For example, for a USD interest rate swap, parties may agree to post for variation margin purposes other currencies than USD, for instance EUR, GBP and/or JPY. We believe that any doubt in interpretation should be avoided. Clarity on the definition of settlement currency is required to ensure that all parties apply, calculate and publish the leverage ratio based on the same criteria.