European Union: Marginally Clearer With The Final Draft EU Rules

Last Updated: 1 April 2016
Article by Edward Miller, Guy Usher, Azad Ali, Luke Whitmore and Emma Spiers

The final draft regulatory technical standards (RTS) for margining uncleared OTC derivatives under EMIR have now been published.  Those of you who came to our recent seminar on this subject will know that the derivatives industry has been hoping that this final draft would resolve many areas of uncertainty arising from previous drafts of the RTS.  There has been some welcome clarification but there are perhaps as many new questions raised by the new text.  

A comparison of the final draft RTS and the previous draft can be viewed on this version.
In this alerter, we highlight key changes and clarifications made in the final draft RTS.

  • Collateral haircuts for currency mismatch. It is now clear that in valuing any cash variation margin, an FX haircut need not be applied when it is collected in a currency other than the currency agreed in the relevant master agreement or CSA. The final draft RTS are, unfortunately, not totally clear where such a currency mismatch would arise: they only refer to currencies other than those agreed in an individual derivatives agreement, the relevant master netting agreement or the relevant credit support annex.  This should allow "silo" CSAs, with different variation margin requirements for transactions denominated in different currencies, but it is unclear how much wider the scope of agreed currencies should be.  The previous draft of the RTS referred merely to the transfer currency.  All initial margin, cash and non-cash, attracts an 8% haircut where it is denominated in a different currency from the currency agreed for termination payments under the relevant master agreement or CSA.
  • Forward FX. The inclusion of physically-settled FX forward transactions both in the universe of transactions for which variation margin is to be calculated and collected and for calculation of threshold notional amounts is likely to be the most significant change that the RTS will impose on institutional buy-side participants.  This was a thorny issue given that variances across the EU in the way physically-settled FX forward contracts are currently defined have meant that there is no harmonised approach across the EU as to whether FX forwards fall within the definition of an OTC derivative.  As there will in due course be  EU-wide clarification on what is an FX forward, which will be set out in Level 2 measures under MiFID II, the inclusion of physically-settled FX forwards for variation margin purposes is deferred until these Level 2 measures are in force or 31 December 2018, if earlier.
  • Assessing Notional Amounts. The final draft RTS have now clarified how entities should calculate their group-wide aggregate notional amount of uncleared OTC derivatives for the purposes of various thresholds in the RTS.  It is now clear that intra-group OTC derivatives are included only once (in other words, each end of an OTC derivative is not counted separately).  However, as physical FX forwards still need to be taken into account when calculating the aggregate threshold notional amount, the differing interpretation of what amounts to a  physical FX forward remains, until the MiFID II Level 2 measures on the point are issued.
  • Timing of Delivery of Variation Margin. In the previous draft RTS, variation margin had to be collected on a T+1 basis, with parties who were providing initial  margin under the RTS being able to extend to T+3 if the mandatory initial  margin requirement was adjusted to allow for such longer period of  risk.  In the final draft RTS, T+1 remains but this can be extended to T+2 if the risk period for the initial margin requirement is adjusted (as per the previous draft RTS) or, where the parties are not subject to  mandatory initial margin, variation margin previously collected has been calculated in the same way as initial margin, but only based on a risk period of the number of days between calculation and collection of the variation margin.  Increased variation margin resulting from T+2 collection will, of course, create credit risk, not reduce it.
  • Intra-group Initial Margin Thresholds. Where mandatory initial margin applies to a trade with a group entity, initial margin need not be collected from such entity up to an amount of EUR 10 million. Initial margin above this amount will have to be collected.
  • Counterparties in Non-Netting Jurisdictions. If a non-EU counterparty is domiciled in a jurisdiction where netting arrangements are not enforceable, there is no requirement to post either initial or variation margin to that counterparty.  A covered entity is also not required to collect initial or variation margin if the aggregate notional of trades with such non-EU counterparties is less than 2.5% of the gross notional of all its trades (excluding intra-group trades).
  • Segregation of Initial Margin. The final draft RTS acknowledges that margin held in custody cannot be insulated from custodian credit risk. The insolvency-remoteness requirement is therefore now limited to protection from insolvency of the collecting counterparty rather than also that of the custodian. Where collateral is provided by title transfer, the collecting counterparty would still have to segregate such collateral from its other assets. Where this is the case, insolvency-remoteness of the segregated margin could require a "charge-back" or similar structure in favour of the posting counterparty.  Further, cash initial margin cannot be held by a custodian that is within the same group as either party.  For non-cash collateral, there is no express prohibition on custodians to be part of the same group as either party, although query whether the use of affiliated custodians would meet the requirements of the final draft RTS in relation to timely return of collateral, for example.
  • Custodian Liens. As with the previous draft, the final draft RTS make it clear that   custodian liens on segregated non-cash initial margin must be limited to fees and expenses incurred in providing the custodial accounts or otherwise be a routine type of lien imposed on securities held in clearing systems.  Custodians who require a lien for other amounts due to them may therefore need to be secured in other ways.
  • Equity Options. There is a 3-year delay before single-stock and equity index options are  to be taken into account in the calculation of initial margin and  variation margin requirements. This reflects the lack of any international standards for margining these types of trades. Again, in this 3-year period, such options are still to be included when determining the aggregate threshold notional amounts of uncleared OTC derivatives.
  • Legal Review. The final draft RTS retain the requirement that all covered entities carry out an independent legal review of the enforceability of their bilateral netting agreements and of their initial margin segregation  requirements.  Legal review need only be continuously assessed upon request rather than be refreshed annually as was prescribed in the previous draft RTS.

We will be issuing further alerters which look in more detail at particular aspects of the final draft RTS on margining uncleared OTC derivatives. If you have any questions in the meantime, please get in touch with any member of the Fieldfisher derivatives team.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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.

Luke Whitmore
In association with
Related Video
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.