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Markets Regulation

January Newsletter

The purpose of this communication is to keep you up to date on the near-term regulatory changes which are impacting financial markets globally.


  • Q1 dominated by margin rules coming into force - IM for Europe and VM globally
  • However incoming CFTC chairman hints at potential relief for the VM timing of 1 March
  • Giancarlo also suggests that material revisions to Dodd-Frank are coming
  • In Europe, industry prepares for MiFID II and PRIIPs go-live in 2018, and FRTB in 2019

Information accurate as of 31 January 2017.

Margin and collateral

EMIR Phase 1 go live on 4 Feb: EU and Swiss banks where aggregate month-end average notional amount (AMEANA) is > €3 trillion over a three month period must start posting IM and VM for non cleared derivatives on 4 February. The industry is working hard to ensure necessary revisions to legal documents are updated in time.

Variation Margin (VM) go-live on 1 Mar: all FC and NFC+ counterparts (and their equivalents in US) will start posting VM bi-laterally from 1 March. Capturing a much larger population than IM, there is concern that industry will not be ready with the required legal re-papering. See recent notice from ISDA here on the upcoming deadline.

CFTC comment: whilst nothing is firm yet, acting Chairman to the CFTC Chris Giancarlo has recognised that the 1 March deadline is unrealistic, and is considering transitional measures, following the steps taken in Singapore, Hong Kong & Australia. There has been no equivalent statement from European regulators however.


The EU’s Dodd-Frank: MiFID II emulates the US rules by introducing new trading venues and obligations, price discovery mechanisms, heightened controls over automated trading and a higher standard of governance and control. Going live in Jan 2018, it will be a key focus for many EU firms during 2017 given the delivery scale.

Uncertainty reigns: despite the imminent timing, there remain many unknowns in the rules which will consume regulators’ time and make for difficult implementation for buy and sell-side firms.


Dodd Frank mandatory clearing: from 13 Dec 2016 additional products were mandated to clear under Dodd Frank as part of the expansion of the clearing mandate. IRS in AUD & MXN facing US Persons are to be cleared, aligning DF to the roll-out of clearing in other jurisdictions. 

EMIR mandatory clearing: from 9 Feb EMIR mandatory clearing starts for IRS in additional EEA currencies (SEK, PLN, and NOK) and CDS for Cat 1 counterparties (clearing members). This follows on from start of clearing for G4 IRS for Cat 2s last December.  G4 IRS clearing for Cat 3s is expected to be delayed by 2 years to Jun 2019, though this is yet to be confirmed by European Council & Parliament.


12 month delay confirmed: the delay was formalised in December 2016, however there continue to be issues with the implementation detail. The insurance regulator EIOPA rejected the proposed amendments from the EC, meaning implementation standards are still several months away.


New Market Risk measures: The Fundamental Review of the Trading Book or FRTB will overhaul market risk capital measures, to better reflect the actual market risk in trading books. New concepts of ‘modelable’ or ‘non-modelable’ instruments provide for higher capital charges for instruments that are more complex, and more illiquid.

Greater granularity: Internal models must be approved at individual desk level, so new processes and IT will demand significant management time over the coming two years.

CVA impact: FRTB will also change the CVA (credit valuation adjustment) charges, although the final rules are expected to be confirmed in the next few months. CVA adjusts the fair value of derivative instruments to account for counterparty credit risk. The resulting charge is designed to capitalise the risk of future changes in this valuation.

Other Capital Rules

Basel Rules postponed: BCBS’ plans to finalise Basel II capital requirements were dashed as bank supervisors could not agree on the final rules. A key area of contention is capital floors, limiting the benefits of banks using internal capital models over a standardised approach.

CCR Own Funds relief: the EC confirmed a 6 month extension of the transitional period related to own-funds requirements for exposures to non EC-qualified CCPs. This is due to the EC not being finished in their recognition process of 3rd country CCPs.

Debt Capital Markets

Revised Prospectus Rules: the Council concluded a provisional agreement with representatives of the European Parliament on new rules on prospectuses for the issuing and offering of securities. Part of the EU’s Capital Markets Union plan, the draft rules will replace the current EU Prospectus Directive, and are aimed at simplifying the rules and administrative obligations for companies wishing to issue shares or debt.

Securitisation: ECON MPs approved a proposal that would require one of the parties to the transaction to be a regulated entity and the possibility of the risk retention levels for originators increasing to 20% in certain instances, decreed by the EBA.

Further information

A list of regulatory acronyms is available here. For regulation milestones see the ISDA compliance calendar.  Additional information is available on our website.

For any questions please email MarketsRegulation@natwestmarkets.com.

The Royal Bank of Scotland © 2017