On 4 January 2017, the FCA opened its application process
for the intra-group transaction ("IGT")
exemption to the EU's new requirements to exchange margin for
uncleared OTC derivative contracts (as set out in Commission
Delegated Regulation 2016/2251, the "Margin
RTS"). Firms must submit an application form
attaching supporting documents.
This will require granular information on the relevant
transaction types. It includes estimates of the anticipated size
and type of trades, and requires various supporting documents
(including historical trade data). All of this must be collated
before an application is considered "complete": the FCA
then has three months to consider it.
The variation margin ("VM")
"big-bang" application date of 1 March 2017, may be on
everyone's minds, but 4 July 2017, should be a close second for
any financial counterparty ("FC") or
non-financial counterparty above the EMIR clearing threshold
("NFC+") which conducts OTC derivative
contracts with other companies in its group1.
We have also included a summary of the key requirements of
the Margin RTS with tables showing phase-in of the relevant
requirements, potential exemptions, and the applicable process for
obtaining the intra-group exemption, depending on the
EMIR2 classification of group entities.
Is this relevant to me?
Yes, if you are an FC or NFC+ under EMIR and you enter into OTC
derivative transactions with other companies in your group.
This could apply if, for example, you act as a group risk
aggregator using derivatives to pass risk or benefit back to
operating companies in your group.
What do I need to do now?
Work out whether any of your group
companies are FC or NFC+ under EMIR.
If you have FC or NFC+ entities in
your group, check whether they enter into intra-group OTC
derivative contracts with group counterparties either inside or
outside the EU.
Map the pairs of in-scope entities
trading in OTC derivative contracts with each other.
Work out in which Member States you
need to apply for intra-group exemptions.
Work out whether the relevant pairs
of entities satisfy the conditions to apply for the intra-group
exemption, and collate the supporting documents.
Apply for relevant intra-group
exemptions by 4 April 2017, to give relevant
national competent authorities ("NCAs")
three months to consider applications before VM requirements apply
to most intra-group transactions.
How can we help you?
We have included tables below showing the available
intra-group transaction exemptions and how the application process
differs depending on the status and home jurisdiction of the
relevant entities within a group.
We can assist you in making an assessment whether the
conditions for the intra-group transaction exemption are met
(including verifying no legal impediments), reviewing or producing
supporting documentation, and making required applications to
If initial margin ("IM") or VM
requirements apply to any of your OTC derivative contracts, we can
assist you to put in place required risk-management procedures, put
in place required EMIR-compliant documentation, or explore other
1. There is a longer delay to the application of the IM
requirement to intra-group trades where one party is established
outside of the EU to give time for equivalence decisions to be
made; but as drafted, this does not extend to the VM requirements.
The delay is three years from 4 January 2017, where no equivalence
decision has been adopted. Where an equivalence decision has been
adopted, it is the later of four months after the date of entry
into force of that decision and the date on which the requirements
would apply to other in-scope entities in any event under the
2. Regulation (EU) No 648/2012
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.
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