European Union: European Commission Publishes Correcting Amendment To Regulatory Technical Standards On Margin Requirements For Uncleared Transactions

On January 20, 2017, the European Commission published a draft Commission Delegated Regulation amending the RTS on margin requirements for uncleared derivatives. The amending RTS relate to the phase-in of the variation margin requirements for intra-group transactions and supplement EMIR. The original RTS on risk mitigation techniques for uncleared OTC derivatives was published in the Official Journal of the European Union on December 15, 2016. The correction is due to a technical error in the adoption process which resulted in the two paragraphs on the phase-in of the variation margin requirements to intra-group transactions being omitted.

EMIR requires counterparties to uncleared OTC derivative transactions to implement risk mitigation techniques to reduce counterparty credit risk. The original RTS prescribe how margin is 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 specifying a 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 amending RTS update the original RTS by inserting two new paragraphs specifying the phase-in schedule for variation margin requirements for intra-group transactions. Where an intra-group transaction takes place between a Member State entity and a third country entity, the exchange of variation margin is not required until three years after entry into force of the amended RTS but only where there is no equivalence decision for that third country. Where there is an equivalence decision the variation margin requirements will apply either four months after the entry into force of the equivalence decision, or according to the timeline outlined in the original RTS, whichever is later. The amending RTS will enter into force on the day of its publication in the Official Journal of the European Union and will apply retroactively from January 4, 2017 so as to coincide with the dates of the original RTS.

The amending RTS is available at: http://ec.europa.eu/transparency/regdoc/rep/3/2017/EN/C-2017-149-F1-EN-MAINPART-1.PDF?_sm_au_=iVVLpS18qJJN0T1Q; and the original RTS is available at http://eur-lex.europa.eu/legalcontent/EN/TXT/?qid=1485801630726&uri=CELEX:32016R2251  .

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