Ireland: EMIR – Margin Rules For Uncleared Transactions

Last Updated: 23 November 2016
Article by Phil Cody and Aiden Small


The Level 2 Regulation under EMIR setting out the margining requirements for uncleared OTC derivatives (the Margin Rules) has been finalised by the Commission (here). It is expected that variation margin will be required from 1 March 2017.


Parties to OTC derivatives will be required to exchange variation margin and initial margin.

  • Variation Margin is calculated by reference to the current market value of the OTC derivative and is to be collected from the party that is 'out-of-the-money'.
  • Initial Margin is collateral collected by a counterparty to cover its exposure in the interval between the last collection of variation margin and the liquidation of positions or hedging of market risk following a default of the other counterparty.


Corporates If all OTC derivatives are hedging transactions (for EMIR purposes) or the non-hedging transactions do not exceed the applicable EMIR clearing threshold, the Margin Rules will not apply
Authorised investment funds The Margin Rules will apply to all UCITS and most AIFs
Banks, MiFID firms, insurance undertakings and pension funds The Margin Rules will apply
SPVs If all OTC derivatives are hedging transactions (for EMIR purposes) or the non-hedging transactions do not exceed the applicable EMIR clearing threshold, the Margin Rules will not apply


Provided that the Level 2 Regulation is not delayed, obligations in relation to variation margin will apply from 1 March 2017.

The obligations in relation to initial margin for entities with between €8 billion and €3,000 billion of uncleared OTC derivatives will be phased-in over the next 4 years. A table setting out those application dates is set out later in this Briefing.

For the largest users of OTC derivatives (i.e. those with > €3,000 billion of uncleared derivatives) the margin obligations will apply from an earlier date.


The impact of the Margin Rules will depend on the EMIR classification of the transacting parties. These classifications are summarised below:

FC (a Financial Counterparty) An entity authorised under certain EU Directives (i.e. credit institutions, MiFID firms, insurance undertakings, pension funds, UCITS and AIFs (where the manager is authorised/ registered under AIFMD))
NFC (a Non- Financial Counterparty) An entity established in the EU which is not an FC
NFC+ An NFC with uncleared OTC derivatives above certain thresholds
NFC- An NFC with uncleared OTC derivatives below certain thresholds
TCE A non-EU entity that would either be an FC or an NFC+ if it were established in the EU

FCs, NFC+s and TCEs (Affected Parties) are affected by the Margin Rules. The Margin Rules apply where the following transact with each other:

FC & FC -
NFC+ & NFC+ -
FC & NFC+ -
FC/NFC+ & TCE The obligation doesn't apply directly to the TCE but the FC/NFC+ must exchange, and not just collect, collateral
TCE & TCE The Margin Rules can apply to TCE & TCE transactions in certain circumstances involving an EU connection


The Margin Rules apply to all uncleared OTC derivatives which are entered into at a time when each Affected Party is subject to the margin obligation.


What is it?

A "netting set" is a "set of non-centrally cleared OTC derivative contracts between two counterparties that is subject to a legally enforceable bilateral netting agreement" (e.g. an ISDA Master Agreement).

Why is it relevant?

The Level 2 Regulation will require that variation margin be collected for all transactions within a "netting set". As a "netting set" could contain transactions entered into before and after the relevant phase-in date under the Level 2 Regulation, a party that wishes to avoid the application of the variation margin requirements to those legacy transactions needs to ensure that their contractual arrangements are updated.


FX forwards, FX swaps and cross-currency swaps are OTC derivatives under EMIR. As a result, they are within the scope of the Margin Rules.

Initial margin

No initial margin requirements apply to physically settled FX forwards or FX swaps or to exchange of principal in cross-currency swaps. However, initial margin is still required in respect of any exposures created by the interest rate element of cross-currency swaps.

Variation margin

Physically settled FX forwards (but not FX swaps) have a temporary exemption from variation margin requirements until the earlier of:

  • 31 December 2018; and
  • the later of:

    • the date from which MiFID II applies (currently expected to be 3 January 2018); and
    • the relevant phase-in date for variation margin.

As the application date for MiFID II is likely to be 3 January 2018, this seems to be the most likely date from which variation margin will be required to be exchanged for physically settled FX forwards.

Spot FX

The Margin Rules do not apply to spot FX.

A draft Level 2 Regulation under MiFID II provides that spot FX is limited to transactions which settle in T+2 or less. This Regulation is expected to take effect from the same date as MiFID II (most likely 3 January 2018). From then, subject to limited exceptions, physically settled FX transactions which settle T+3 or over will constitute FX forwards for EMIR purposes.

Commercial purpose exemption

The above draft Level 2 Regulation under MiFID II provides that a physically settled FX contract:

  • to which at least one of the parties is an NFC;
  • which is for identifiable goods, services or investment; and
  • which is not traded on a trading venue,

is not a MiFID II financial instrument (and accordingly will not be subject to the Margin Rules).


Amount of Variation Margin

A party must collect variation margin equal to the positive mark-to-market value of its OTC derivatives. The variation margin requirements must be calculated on each business day based on the prior day's values. Haircuts must be applied in calculating the amount of non-cash variation margin to be collected. Parties may agree a minimum transfer amount of margin (€500,000 in aggregate between variation margin and initial margin). There is no threshold for the collection of variation margin which means that, once the minimum amount is exceeded, the full amount of the collateral must be collected.

When must variation margin be provided?

The posting party must provide variation margin "within the same business day" of the date of the calculation of the amount of the variation margin.

Type of collateral

Eligible collateral includes:

  • cash;
  • gold (of a certain type);
  • certain debt securities (including issued by governments, central banks, credit institutions or investment firms);
  • corporate bonds; and
  • certain listed equities.

There are liquidity requirements in relation to collateral. Further, the collecting party must evaluate collateral for credit quality, concentration limits and "wrong-way risk" (i.e. the risk that the value of the collateral correlates with the creditworthiness of the collateral provider, arising for example if the collateral is issued by the posting counterparty group).


From when does the initial margin obligation apply?

The initial margin obligation is being phased-in over a number of years and its application depends on a party's Aggregate Average Notional Amount of uncleared derivatives (AANA). A party's AANA is calculated as the average across the last business days of the immediately preceding March, April and May.1

> €3,000 billion January 2017 (estimated)
> €2,250 billion 1 September 2017
> €1,500 billion 1 September 2018
> €750 billion 1 September 2019
> €8 billion 1 September 2020

Type of collateral

Eligible collateral is the same as for variation margin (see above).


Collateral posted as initial margin must be segregated from the collecting party's assets. Currently segregation is the exception (e.g. in the case of UCITS which use it to manage counterparty exposure restrictions). Under the Margin Rules, segregation of initial margin will become the norm. The collecting party will not be able to re-hypothecate initial margin collateral.

How much initial margin must be collected?

The Level 2 Regulation provides a standardised method for calculating initial margin but parties may instead use an initial margin model developed independently, jointly or by a third party agent. Where an initial margin model is used it must comply with the minimum requirements set out in the Level 2 Regulation. The collecting party remains responsible for ensuring that its model complies with the minimum requirements set out in the Level 2 Regulation.

When is initial margin calculated?

Initial margin is not just calculated on a one-off basis. It must be calculated within one business day of certain events including the entry into a new uncleared OTC derivative, the expiry or removal of an OTC derivative from the netting set, a payment or delivery (other than margin) on an existing OTC derivative, on certain reclassifications where the standardised method is used, and in any case where there has been no calculation in the preceding 10 business days.

When must initial margin be provided?

As with variation margin, the posting party must provide the initial margin "within the same business day" of the date of calculation of the amount of initial margin.


The Level 2 Regulation requires that each Affected Party performs an independent review of the enforceability of its netting and collateral agreements and must put certain other policies and procedures in place.


Where an Affected Party has not previously collateralised its trades, internal collateral processes and Credit Support Annexes (CSAs) will need to be put in place. Where an Affected Party already exchanges collateral, its existing CSAs will need to be amended or replaced so as to reflect the new requirements for variation margin.


1. This calculation includes all uncleared OTC derivatives in a counterparty's portfolio (including those not subject to the Margin Rules). For UCITS or alternative investment funds with a manager that is authorised or registered under AIFMD, AANA is calculated on a per fund (or sub-fund in the case of umbrellas) basis (provided certain conditions are met).

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.