EMIR: New amendments on bilateral margin requirements in view of international framework


EMIR: New amendments on bilateral margin requirements in view of international framework

9 December 2019

Regulatory News Alert

Context and objectives

The Basel Committee on Banking Supervision (BCBS) and International Organization of Securities Commissions (IOSCO) have agreed international standards for the exchange of bilateral margin along with a calendar to facilitate a consistent implementation across jurisdictions. In view of the progress made globally towards the implementation of the international framework, the European Supervisory Authorities (ESAs) have proposed to introduce a number of adjustments on bilateral margining in order to facilitate further international consistency.

In accordance with this proposal, on 5 December 2019, ESAs published the Final Report on the Regulatory Technical Standards (RTS) on various amendments to the bilateral margin requirements (Commission Delegated Regulation (EU) No 2016/2251). The proposed amendments are an adaptation of the timelines and rules to facilitate the current implementation of the Commission Delegated Regulation, and more broadly of the international framework.

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Proposed amendments and clarifications

This Final Report provides explanations on bilateral margining with respect to the treatment of physically settled FX forward and swap contracts, intragroup contracts, equity option contracts, and the implementation of the initial margin requirements. In particular, the report mainly clarifies:

  • The bilateral margin requirements in order for counterparties below the 50 million initial margin exchange threshold:
    Since the clarification of the relevant requirements can already be taken into account when applying them, the ESAs consider that there is no need to amend the Delegated Regulation on bilateral margin requirements in order for counterparties below the 50 million initial margin exchange threshold not to be required to have all the relevant operational and legal arrangements in place.
  • Extension of the last phase of the implementation of the initial margin requirements:
    There will be an additional implementation phase whereby, as of 1 September 2020 covered entities with an aggregate average notional amount of non-centrally cleared derivatives greater than €50 billion will be subject to the requirements. The amendment will also extend the implementation deadline by one year for those counterparties above the 8 billion threshold but below the new 50 billion threshold, which means from 1 September 2021
  • Physically settled FX forwards and swaps:
    Following the application of EMIR Refit, the amendment will cover a broader scope, which means that the counterparties may provide in their risk management procedures that variation margins are not required to be posted or collected for either physically settled foreign exchange (FX) forward contracts or physically settled foreign exchange swap contracts, except between institutions.
  • Temporary exemption for single-stock equity options and index options:
    In order to mitigate counterparty credit risk, the RTS will apply from 4 January 2021, extended by one year, regarding the margin requirements for single-stock equity options or index options transactions.
  • Temporary exemption for intragroup transactions:
    To align with the exemption for the clearing obligation, the application of the bilateral margin requirements relates to intragroup transactions with a third country entity in the absence of an equivalence decision will be extended to 21 December 2020.


Next steps

These amendments are submitted directly to the European Commission for review and endorsement. This RTS will need to go through the Commission for adoption before they can then be published in the Official Journal and subsequently enter into force.

In addition, some of the current deadlines are soon approaching, in particular the deferred date of application for intragroup transactions as well as for equity options, which is 4 January 2020, and market participants should prepare as early as possible for these requirements.

With regards to the above-mentioned deadlines, the bilateral margin requirements and the implementation of the last phase of the initial margin requirements as proposed in the draft RTS, the ESAs expect competent authorities to apply the EU framework in a risk-based and proportionate manner until the amended RTS enter into force.


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