Royal Bank of Scotland

Corporate & Institutional Banking

EMIR Margin Announcement

EMIR Margin Standards Published by ESAs

Information accurate as of 11 March 2016

On 9 March 2016 the European Supervisory Authorities published the final draft technical standards on margin requirements for non-centrally cleared OTC derivatives, a significant step towards Europe’s implementation of mandatory requirements to exchange Initial Margin (IM) and Variation Margin (VM).

This briefing note provides a general summary of the key points covered by the proposed rules.

Entities impacted

The rules will apply to covered transactions between entities classified as FC or NFC+ under EMIR where at least one party to the transaction is incorporated in the EU.

Covered transactions

Any derivative transaction that is not cleared at a CCP with the following exceptions, some of which are time bound:

  • Physically settled FX forwards (permitted to be excluded from IM, included in VM but discussion ongoing around potential temporary exclusion from VM past March 2017 until MiFID2 implementation)

  • Physically settled FX swaps and principal exchanges of cross-currency swaps (permitted to be excluded from IM, but included in VM)

  • Single stock and equity index options (excluded for both IM and VM until 2019)

Exemptions

The following exemptions are permissible under certain conditions:

  • Hedging transactions entered into by covered bond issuers (test applies)

  • Intragroup transactions where both entities are within the EU (based as approval from the relevant National Competent Authorities, e.g. FCA)

  • Intragroup transactions where one of the entities is outside of the EU (deferred until 2019)

Other points to note

  • IM and VM to be calculated daily

  • IM must be settled on a T+1 basis; VM may be settled up to T+3 subject to certain conditions

  • Certain concentration limits and eligibility criteria will apply in respect of IM collateral (certain EU pension schemes have additional requirements)

  • Group based threshold will apply in respect of non-netting friendly jurisdictions

  • Cash posted as IM collateral must be held in segregated third party accounts

  • An 8% FX haircut applies to mismatches between IM collateral and termination currency

  • EUR 500,000 Minimum Transfer Amount across IM and VM collectively

  • Provision to apply a threshold of up to EUR 50 million on an intergroup basis before IM needs to be exchanged

Timing

The rules are pending no objection from the European Commission, Council and Parliament and are expected to apply from 1 September 2016 and then be phased-in along the following timeframes:

  • 1 September 2016 - IM and VM for entities with an AMEANA* exceeding EUR 3 trillion

  • 1 March 2017 - VM for all other entities (not included in phase 1, above)

  • 1 September 2017 - IM for entities with an AMEANA exceeding EUR 2.25 trillion

  • 1 September 2018 - IM for entities with an AMEANA exceeding EUR 1.5 trillion

  • 1 September 2019 - IM for entities with an AMEANA exceeding EUR 0.75 trillion

  • 1 September 2020 - IM for entities with an AMEANA exceeding EUR 8 billion

* AMEANA is the Aggregate Month End Average Notional Amount of all non-cleared derivative exposures calculated on a group basis over March, April and May of the relevant year.

Further Information

For further information please see the links below or contact Markets Regulation team.

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