ESA’s Final Report on European Market Infrastructure Regulation and Regulatory Technical Standards on various amendments to the Bilateral Margin Requirements

The European Supervisory Authorities have released updated Joint Draft Regulatory Technical Standards to amend the Delegated Regulation on the Risk Mitigation Techniques for Non-Cleared Over The Counter Derivatives (bilateral margining), as well as a Joint Statement on the introduction of fall backs in Over The Counter Derivative Contracts and the requirement to exchange collateral.

Both ‘RTS’ and the Statement were developed to facilitate further international consistency in the implementation of the Global Framework and International Standards agreed by the Basel Committee on Banking Supervision and the International Organisation of Securities Commissions.

The Report details the proposed amendments:

Extension of the final implementation of the initial margin requirements
The ‘ESAs’ have identified the amendments necessary to the EU Framework to extend the implementation deadline by one year for those Counter-parties above the 8 billion threshold but below the new 50 billion threshold.

Physically settled FX Forwards and Swaps
The ‘ESAs’ propose a new amendment on ‘RTS’ to cover a broader scope, i.e. not only covering physically settled FX forwards, but covering both physically settled FX forwards and Swaps, with the same exemption for both. The draft ‘RTS’ can be found in the Annex of the Final Report.

Temporary exemption for Single-Stock Equity Options and Index Options
With the view to continue monitoring regulatory developments in other jurisdictions and ensuring that appropriate requirements are in place in the Union to mitigate Counter party Credit Risk in respect of such contracts whilst avoiding scope for regulatory arbitrage, the ‘ESAs’ proposed to extend, by one year. the current deferred application of the margin requirements for Single-Stock Equity Options, or Index Options transactions in the EU framework.

Temporary exemption for Intragroup Transactions
The ‘ESAs’ also propose to extend the temporary exemption for Bilateral Margin and to align it with the exemption for the Clearing Obligation, i.e. until 21 December 2020.

The ESAs have now submitted the draft RTS to the Commission for endorsement in the form of a Commission Delegated Regulation. Following the endorsement, they are then subject to non-objection by the European Parliament and the Council.

Although the ESAs cannot dis-apply EU law, the ESAs expect competent authorities to apply the EU framework in a risk-based and proportionate manner until the amended RTS enter into force.

Firms should monitor further updates and developments in this area.

Further information:
To read more, please follow this link:

Press Release
https://www.esma.europa.eu/press-news/esma-news/emir-rts-various-amendments-bilateral-margin-requirements-and-joint-statement

Final Report
https://www.esma.europa.eu/sites/default/files/library/esas_2019_20_-_final_report_-_bilateral_margin_amendments.pdf

Public Statement
https://www.esma.europa.eu/sites/default/files/library/esas_2019_19_statement_on_the_introduction_of_fallbacks_in_otc_derivative_contracts_to_increase_contract_robustness.pdf

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Please Note: This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions.

The European Supervisory Authorities (ESA's) Final Report on European Market Infrastructure Regulation ('EMIR') Regulatory Technical Standards ('RTS'), on various amendments to the Bilateral Margin Requirements