Margin requirements for uncleared derivatives

Find out more about the margin requirements for uncleared derivatives under EMIR that take effect from 4 February 2017.

The margin requirements under EMIR require counterparties who are in scope to exchange margin on their over-the-counter (OTC) derivatives contracts that are not cleared through a central counterparty (CCP).
These requirements take effect from 4 February 2017, subject to phase-ins that are based on firms’ categorisation and derivatives volumes. The implementation timetables below provides more detailed information on phase-ins.

We have produced a video that provides a more in-depth overview of the margin requirements under EMIR. It shows details on implementation timing and scope, along with advice on what firms need to do in order to meet the requirements.

 

Margin requirements

The Regulatory Technical Standards detailing the margin requirements under EMIR provide two types of margin that firms are required to exchange. The first is variation margin (VM), which covers current exposure and calculated using a mark-to-market position. 

The second is initial margin (IM), which covers potential future exposure for the expected time between the last VM exchange and the liquidation of positions on the default of a counterparty.

Counterparties subject to margin requirements

Financial counterparties and non-financial counterparties above the clearing threshold are covered by the margin requirements. This is the same scope of market participants as for the clearing obligation.

Transactions subject to margin requirements

The margin requirements apply only to new transactions, they do not apply to existing deals. It applies to all OTC derivatives contracts that are not cleared through a central counterparty but with some exceptions:

  • FX forwards (simple, physically-settled); not FX swaps – delayed implementation 
  • FX forwards and FX swaps (physically-settled) and currency exchanges – VM only, no IM
  • equity options – delayed implementation
  • covered bond swaps – conditions need to be met – if so, only VM to covered bond entity
  • one-way obligations (e.g. options) – one-way margin
  • intragroup exemptions – conditions need to be met

Firm categorisation

A firm’s categorisation is important for two purposes. First, it is used to determine when the margin requirements will apply and secondly, to determine if IM applies at all. The implementation timetable below has further details on the phase-in dates dependent on a firm’s categorisation.

To determine a firm’s categorisation, a firm should calculate its average aggregate notional amount on a group level (EU and non-EU). It must include all OTC derivative contracts that are not cleared (including FX forwards). The calculation must be made using the outstanding notional amounts on the last business day of March, April and May of each year. Then find the average of those amounts.

Timetable for implementation

Variation margin

Date of Phase-in Category
4 February 2017 Entities with group notional amount above EUR 3 trillion 
(entities with the largest portfolios on a group basis)
1 March 2017 All other entities (in scope)

Initial margin

Date of Phase-in Category
4 February 2017 Entities with group notional amount above EUR 3 trillion 
(entities with the largest portfolios on a group basis)
September 2017 Entities with group notional amount above EUR 2.25 trillion
September 2018 Entities with group notional amount above EUR 1.5 trillion
September 2019 Entities with group notional amount above EUR 0.75 trillion
September 2020 Entities with group notional amount above EUR 8 billion

Intragroup exemptions from the margin requirements

Under EMIR there are exemptions from the margin requirements for intragroup transactions (provided certain conditions are met).

We have produced a video that provides more information on intragroup exemptions from margin and the application process firms are expected to follow in order to benefit from the exemption.