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    ESAs Propose to Amend Standards for Bilateral Margin Requirements

    November 23, 2020

    ESAs published a report containing the draft regulatory technical standards proposing to amend the Commission Delegated Regulation (2016/2251) on the risk mitigation techniques for over-the-counter (OTC) derivatives not cleared by a central counterparty or CCP (bilateral margin requirements), under the European Market Infrastructure Regulation (EMIR). In their report, ESAs propose to adapt the EMIR implementation timelines for intragroup transactions, equity options, and novations to EU counterparties. Additionally, ESMA published a report containing the new draft regulatory technical standards proposing to amend the three Commission Delegated Regulations (2015/2205, 2016/592, and 2016/1178) on clearing obligation under EMIR.

    The following are the key highlights of the requirements proposed by ESAs:

    • The amendments included in these draft standards propose to extend the temporary exemption for intragroup transactions by 18 months. The bilateral margin Delegated Regulation and the clearing obligation Delegated Regulations originally introduced temporary exemptions for intragroup transactions with third-country group entities to facilitate centralized risk management-procedures for groups, while the relevant equivalence decisions are being assessed.
    • The amendments included in the draft standards on bilateral margin propose to extend the temporary exemption for single-stock equity options or index options (equity options) for three years. The bilateral margin Delegated Regulation originally introduced a temporary exemption for equity options to facilitate international regulatory convergence with regard to risk-management procedures. The new draft standards for intragroup transactions and equity options are proposing to extend these temporary exemptions to avoid undue costs and an unlevel playing field situation for EU counterparties.
    • These draft standards reintroduce a regulatory solution to support the preparations for the end of Brexit transition period. The draft standards allow UK counterparties to be replaced with EU counterparties without triggering the bilateral margin and clearing obligation requirements under certain conditions.  Counterparties should start negotiating as soon as possible the novation of their transactions that are in the scope of these amending regulations, given the twelve-month timeframe to benefit from this measure.

    ESAs have developed the draft regulatory technical standards on bilateral margining under Article 11(15) of EMIR, while ESMA has developed the draft regulatory technical standards on the clearing obligation under Article 5(2) of EMIR. ESAs have now submitted the new version of the draft standards on bilateral margin to EC for endorsement in the form of a Commission Delegated Regulation. This version replaces the version submitted and published on May 04, 2020. ESMA has also submitted to EC the draft standards on the clearing obligation for endorsement in the form of a Commission Delegated Regulation. Following their endorsement, the standards will be then subject to non-objection by the European Parliament and the Council.

     

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    Keywords: Europe, EU, Banking, Insurance, Securities, Regulatory Technical Standards, OTC Derivatives, Clearing Obligation, EMIR, Derivatives, Brexit Transition, Margin Requirements, ESMA, ESAs

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