ESAs consult on margin requirements for non centrally cleared derivatives

10 June 2015

The European Supervisory Authorities (ESAs) launched today a second consultation on draft Regulatory Technical Standards (RTS) outlining the framework of the European Market Infrastructure Regulation (EMIR). This second consultation document is the result of an intense engagement with other authorities and the industry stakeholders in order to identify all the operation issues that may arise from the implementation of such framework. Therefore, the consultation focuses only on a narrow set of topics as most of the decisions have already been agreed following the first consultation held in April 2014. The consultation runs until 10 July 2015.

For those over-the-counter (OTC) derivative transactions that will not be subject to central clearing, these draft RTS prescribe the regulatory amount of initial and variation margin that counterparties should exchange as well as the methodologies for their calculations. In addition, these draft RTS outline the criteria for the eligible collateral and establish the criteria to ensure that such collateral is sufficiently diversified and not subject to wrong-way risk.

With respect to the first consultation paper, the ESAs reviewed or clarified several aspects of the proposed rules. These include: the exchange of margins with third countries entities and the treatment of non-financial counterparties; the treatment of covered bonds swaps; the timing of margin exchanges; concentration limits for sovereign debt securities; the requirements on trading documentation; minimum credit quality of collateral; initial margin models; haircuts for foreign exchange (FX) mismatch; the treatment of cash collateral for initial margin; reviewed criteria on intragroup exemptions.

Furthermore, following the amendments of the standards issued by the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) in March 2015, these RTS include a revised phase-in for initial margin requirements and a new phase-in for variation margin.

All the responses to the first consultation paper were considered when developing this new version of the standards. A comprehensive feedback statement including industry stakeholders' comments to the first and the second consultation paper will accompany the final draft RTS.

Legal framework

These draft RTS on risk-mitigation techniques for OTC derivative contracts not cleared by a CCP are developed on the basis of Article 11(15) of Regulation (EU) No 648/2012 (EMIR), which establishes provisions aimed at increasing the safety and transparency of the over-the-counter (OTC) derivatives markets in the EU.

Consultation process

Comments to this consultation can be sent clicking on the "send your comments" button. Please note that the deadline for the submission of comments is 10 July 2015.

All contributions received will be published following the close of the consultation, unless requested otherwise.

The ESAs will hold a public hearing on the draft RTS, which will take place at the EBA premises in London on 18 June 2015 from 12:00 to 14:30 UK time.

Note to the editors

In order to address risks related to the derivative markets, the European Parliament and the Council have adopted the European Market Infrastructure Regulation (EMIR) –  formally known as Regulation EU No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (EMIR) as amended by Regulation (EU) No 575/2013 of the European Parliament and of The Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (CRR).

The EMIR establishes provisions aimed at increasing the safety and transparency of the OTC derivatives markets and requires OTC derivative contracts to be cleared, derivative transactions to be reported to trade repositories and sets a framework to enhance the safety of central counterparties (CCP).

The EMIR was published on 4 July 2012 and entered into force on 16 August 2012. It is directly applicable in all EU Member States.