Content of the Regulation

The Delegated Regulation defines the amount of collateral to be provided and the types of eligible collateral.

Variation margin and initial margin are designated as collateralisation instruments. Variation margin is used for the daily compensation of fluctuations in the value of derivative contracts.

Initial margin, on the other hand, is intended to cover current and potential future fluctuations in value which can occur between the last exchange of margins and the re-coverage of risk or the liquidation of positions if one counterparty cannot fulfil their contractual obligations, i.e. defaults. The counterparties may use a standardised approach or an internal model to calculate the initial margin.

The Delegated Regulation contains requirements for these models and for the timing of the posting of collateral. It also defines which assets may be considered collateral and contains provisions on their valuation. Furthermore, it contains requirements for the segregation of the initial margins from other assets of the counterparties. Initial margins may not be rehypothecated, repledged nor otherwise reused. There are also concentration limits for collected initial margins.

Who do the requirements apply to?

The requirements apply to all financial counterparties and non-financial counterparties who exceed the clearing threshold pursuant to Article 10 of EMIR. Transactions with other financial or non-financial counterparties are not affected.

In the interests of proportionality, the Delegated Regulation defines thresholds at group level, below which specific requirements do not apply, and exceptions for products in specific cases. In addition, the Delegated Regulation contains product exceptions for physically settled foreign exchange forwards (FX forwards), foreign exchange swaps (FX swaps) and for the principal amount of cross-currency swaps. For these contracts, no initial margin has to be exchanged.

As of when do these requirements apply?

For market participants (financial counterparties and non-financial counterparties that exceed the clearing threshold pursuant to Article 4a or 10 of EMIR) with a nominal volume of non-centrally cleared OTC derivatives of more than € 3 billion at group level, the obligation to exchange initial and variation margins started on 4 February 2017, provided that they are trading in derivatives not subject to the clearing obligation with other counterparties that also exceed the threshold. Counterparties with lower volumes have more time to prepare for the application of the rules, since they are being introduced in several stages. The requirement to exchange variation margins have been applicable to them since 1 March 2017. The requirement to exchange initial margins is divided into five stages: