European Commission Proposes Amended Rules for Margin for Uncleared Swaps 

The European Commission published regulatory technical standards on margin for uncleared swaps and a letter to the European Supervisory Authorities notifying them of the Commission's intention to endorse (with amendments) the draft RTS submitted by the ESAs in March 2016. 

Under the European Market Infrastructure Regulation, counterparties to uncleared OTC derivative transactions are required to implement risk mitigation techniques to reduce counterparty credit risk. One of these risk mitigation techniques is the exchange of initial and variation margin in relation to uncleared OTC derivatives. These RTS provide greater detail of the requirements such as the margin amounts to be posted and collected, the methodologies by which the minimum amount of initial margin and variation margin should be calculated and the list of securities which are eligible as collateral and the ways in which margin should be segregated as well as various product and structural-based exemptions.

The letter summarizes the proposed changes to the RTS, including that cash initial margin may be held with EU credit institutions and their third country equivalents, the timing of applications for intragroup exemptions and the effective date of the requirements for FX derivatives, which will be after the implementation of the Markets in Financial Instruments II framework. The Commission is also proposing to delay implementation of the EU margin for uncleared swaps rules, which were due to apply from 1 September 2016. As the rules need to be finalized through the legislative process, the rules will not be in force before September this year. This delay means that the EU rules will not be implemented in line with the international standards and will apply after the equivalent rules in other jurisdictions, including the USA and Japan. 

The ESAs have six weeks to consider the revised RTS as adopted by the European Commission. 

View the Commission's letter.

View the Commission's adopted RTS.

View the annex to the adopted RTS.

View the addendum to the adopted RTS. 

View the ESA's final draft RTS.