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    EC Amends Implementation Schedule for Collateral Exchange Requirements

    February 17, 2021

    EC published Regulation 2021/236, which amends the technical standards laid down in Regulation 2016/2251, with respect to the timing for application of certain risk management procedures for the exchange of collateral. The amended regulation addresses the one-year extension of the deadline for implementation of initial margin requirements for certain counterparties. Regulation 2021/236shall enter into force on the day following that of its publication in the Official Journal of the European Union.

    Regulation 2016/2251, which is being amended, provides for a phase-in of the initial margin requirements over a number of years based on the implementation schedule agreed by BCBS and IOSCO. BCBS and IOSCO recently amended their schedule for the implementation of requirements for the exchange of collateral. This amendment to the implementation schedule of BCBS and IOSCO should be reflected in the phase-in provided for in Regulation 2016/2251. In the interest of supporting a smooth and orderly implementation of margin requirements across members of BCBS and IOSCO and to avoid market fragmentation, the deadline for the implementation of the initial margin requirements has been extended by one year for counterparties with an aggregate average notional amount of non-centrally cleared derivatives between EUR 8 billion and EUR 50 billion. As part of the phase-in, counterparties with an aggregate average notional amount of non-centrally cleared derivatives above EUR 50 billion shall be subject to the initial margin requirements from September 01, 2021. Additionally, counterparties with an aggregate average notional amount of non-centrally cleared derivatives above EUR 8 billion shall be subject to the initial margin requirements from September 01, 2022.

    Regulation 2016/2251 provides for a deferred date of application of the bilateral margin requirements for non-centrally cleared over-the-counter (OTC) derivative contracts concluded between counterparties that are part of the same group and where one counterparty is established in a third country and the other counterparty is established in EU. UK became a third country on February 01, 2020. Counterparties cannot predict what the status of a counterparty established in UK might become or to what extent that counterparty would be able to continue providing certain services to the counterparties established in EU. To ensure a smooth functioning of the market and a level playing field between counterparties established in EU, counterparties should be able to replace counterparties established in UK with counterparties in a member state without being required to exchange collateral in respect of those novated contracts. In addition, counterparties should be given sufficient time to replace their counterparties established in UK. Thus, the date from which the requirement to exchange collateral may be triggered for the novation of those contracts has been deferred, as part of these amendments to Regulation 2016/2251.

     

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    Effective Date: February 18, 2021

    Keywords: Europe, EU, Banking, Securities, Implementation Schedule, Initial Margin, OTC Derivatives, Regulation 2016/2251, Counterparty Risk, Market Risk, Basel, Regulation 2021/236, BCBS, IOSCO, EC

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