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EU Final Secondary Legislation on Margin for Uncleared Derivatives
12/15/2016
A Commission Delegated Regulation outlining Regulatory Technical Standards supplementing the European Market Infrastructure Regulation on risk mitigation techniques for uncleared OTC derivatives was published in the Official Journal. EMIR requires counterparties to uncleared OTC derivative transactions to implement risk mitigation techniques to reduce counterparty credit risk. These RTS prescribe the regulatory margin amounts to be posted and collected and the methodologies by which the minimum amount of initial margin and variation margin should be calculated as well as outlining a broad list of securities eligible as collateral for the exchange of margins, such as sovereign securities, covered bonds, specific securitizations, corporate bonds, gold and equities.
The RTS provide for the largest counterparties to begin providing and collecting margin one month after the RTS enter into force. The requirements relating to variation margin will apply from one month after the RTS enter into force where both counterparties have, or belong to groups each of which has, an aggregate average notional amount of uncleared OTC derivatives above EUR 3,000 billion. For all other counterparties, the variation margin requirements will apply from the latest of 1 March 2017 or one month after the RTS enter into force.
The requirements relating initial margin will be phased in according to the following timetable:- from one month after the RTS enter into force where both counterparties have, or belong to groups each of which has, an aggregate average notional amount of uncleared OTC derivatives above EUR 3,000 billion;
- from September 1, 2017, where both counterparties have, or belong to groups each of which has, an aggregate average notional amount of uncleared OTC derivatives above EUR 2,250 billion;
- from September 1, 2018, where both counterparties have, or belong to groups each of which has, an aggregate average notional amount of uncleared OTC derivatives above EUR 1,500 billion;
- from September 1, 2019, where both counterparties have, or belong to groups each of which has, an aggregate average notional amount of uncleared OTC derivatives above EUR 750 billion;
- from September 1, 2020, where both counterparties have, or belong to groups each of which has, an aggregate average notional amount of uncleared OTC derivatives above EUR 8 billion.
View the RTS.
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