Margin requirements for uncleared derivatives

Find out more about the margin requirements for uncleared derivatives under UK EMIR.

If you’re a counterparty in scope of the margin requirements under UK EMIR, you must exchange margin on your over-the-counter (OTC) derivatives contracts that aren’t cleared through a central counterparty (CCP).

These requirements first took effect from 4 February 2017 under EMIR, and will continue to apply under UK EMIR, subject to phase-ins that are based on your categorisation and derivatives volumes. The implementation timetables below provide more detail on phase-ins.

The margin requirements under UK EMIR provide 2 types of margin that you must exchange. The first is variation margin (VM), which covers current exposure and is 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

If you’re a financial counterparty or non-financial counterparty above the clearing threshold, you 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 don’t apply to existing deals. It applies to all OTC derivatives contracts that are not cleared through a central counterparty, 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 (eg options) – one-way margin
  • intragroup exemptions – conditions need to be met

Firm categorisation

Your categorisation is used to determine when the margin requirements apply. It is also used to determine if IM applies at all. The implementation timetable below has more details on the phase-in dates dependent on your categorisation.

To determine your categorisation, you should calculate your average aggregate notional amount on a group level (UK and non-UK). You 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. You should 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 2021 Entities with group notional amount above EUR 50 billion
September 2022 Entities with group notional amount above EUR 8 billion

Intragroup exemptions from the margin requirements

Under UK EMIR, there are exemptions from the margin requirements for intragroup transactions (provided certain conditions are met).
You must also consider the points raised below under the Temporary Intragroup Exemption Regime to understand the treatment of intragroup exemptions under UK EMIR. 

Temporary intragroup exemptions regime (TIGER)

The UK EMIR framework creates a temporary regime for intragroup exemptions from the clearing and margin requirements that were obtained before the end of the transition period in respect of OTC derivative contracts between UK and third country group entities (where no equivalence determination has been made in respect of the third country).

Under TIGER, these exemptions will continue to apply until 3 years after the end of the transition period (unless an equivalence determination is made in respect of the relevant third country before then). 

Any new application to benefit from an intragroup exemption from the clearing and margin requirements for non-cleared OTC derivatives between UK and third-country group entities (where no equivalence determination has been made in respect of the third country) which are obtained after the end of the transition period will also be subject to TIGER. They will apply from the day they are granted until 3 years after the end of the transition period (unless an equivalence determination is made in respect of the relevant third country before then). 

The duration of TIGER may be extended by the Treasury in certain circumstances.

The Treasury equivalence direction for UK to EEA intragroup transactions 

In November 2020, the Treasury made an equivalence decision (the European Market Infrastructure Regulation (Article 13) Equivalence Directions 2020) which grants equivalence to the EEA States under article 13 UK EMIR in relation to intragroup exemptions from the clearing obligation and margin requirements for uncleared derivative transactions.  

This means that temporary exemptions we have already granted under TIGER for intragroup trade between UK and EEA group entities will expire on 1 March 2021 (for clearing exemption) and 1 May 2021 (for margin exemptions). To benefit from a new intragroup exemption under the equivalence direction, UK firms must notify us. More information can be found in this statement