UK proposes amendments to EMIR Margin Rules

Key points

On 27 March 2025, the PRA and the FCA published Consultation Paper 5/25 on margin requirements for non-centrally cleared derivatives. The consultation proposes three amendments to assimilated EU Regulation 2016/2251, more commonly known as the UK Margin Rules.

If adopted, the proposed changes will:

• permanently exempt single-stock equity options and index options from the UK Margin Rules;
• remove the requirement to exchange initial margin on outstanding legacy transactions where one of the counterparties falls below the EUR 8 billion threshold, and require all previously collected initial margin to be released; and
• allow UK firms transacting with non-UK firms to use the threshold assessment periods and application dates of the non-UK jurisdiction to determine initial margin scoping for transactions with that counterparty.

The consultation closed on 27 June 2025. Amendments are expected to be made in the second half of 2025.

Assuming it is adopted, the permanent exemption for equity and index options will take effect when the current temporary exemption expires on 4 January 2026.

Background

The UK Margin Rules require in-scope market participants to exchange variation margin and initial margin in respect of certain non-cleared OTC derivative transactions. The rules were onshored into English law with very few substantive changes on 31 December 2020 as part of the UK's wider onshoring of applicable EU legislation.

Permanent exemption for single-stock equity options and index options

Single-stock equity options and index options have benefited from a rolling temporary exemption under both the EU and UK Margin Rules since their entry into force. If implemented, the proposed changes will make the UK exemption permanent from 4 January 2026, when the current temporary exemption expires.

This change would align the UK treatment of these products with that of other major jurisdictions, including the US and the EU, which introduced a permanent exemption from margining (subject to regular review) under EMIR 3. You can read more about EMIR 3 in our briefing.

Initial margin requirement to expire if either counterparty falls below EUR 8 billion

Under the UK Margin Rules, the requirement to exchange initial margin applies where both counterparties are (i) in scope of the margin rules generally (i.e. categorised as either a financial counterparty or a non-financial counterparty that exceeds one of the clearing thresholds) and (ii) have an average aggregate notional amount (AANA) of non-cleared OTC derivatives, on a group-wide basis, of EUR 8 billion or more.

Under the current regime, market participants perform their AANA calculations based on notional amounts for the months of March, April and May in a particular year. If both counterparties exceed the threshold, they need to exchange margin from the beginning of the next calendar year.

If one or both counterparties subsequently falls below the EUR 8 billion threshold, the transaction must continue to be margined, even if the counterparties remain below the threshold for the remainder of the transaction. As the consultation notes, this can persist for some time, imposing a significant operational burden on firms that must continue to exchange margin and maintain custodian relationships even though the transaction is no longer strictly in scope of the requirement.

The FCA and the PRA are proposing to change this so that, if one or both counterparties drop(s) below the EUR 8 billion threshold:

1. initial margin would no longer need to be exchanged from the beginning of the next calendar year; and

2. any previously exchanged initial margin would be returned.

If both parties later exceed the threshold again, they would need to re-commence margining.

The PRA and the FCA consider that this approach would more accurately reflect the lower systemic risk of market participants that undertake less trading activity.

UK firms to be permitted to use counterparty jurisdiction scoping rules and timing

The final proposed change would mean that a UK market participant transacting with a non-UK counterparty that was subject to margining requirements in its own jurisdiction would be able to align its own scoping calculations and timeframes with that of the other jurisdiction.

For example, UK firms currently calculate initial margin thresholds using notional amounts for March, April and May. Once a counterparty falls below the threshold, initial margin need not be exchanged in respect of new transactions from the start of the next calendar year.

However, the calculation periods and timeframes applicable in other major jurisdictions vary. This means that, for a certain period of time, a particular transaction can be in scope of the UK Margin Rules but not in scope of the corresponding rules in the other jurisdiction. In cross-border transactions, the operational and economic effect of this misalignment is significant. The proposed change would mean that if, for example, the non-UK jurisdiction has a scoping calculation period of June, July and August, the UK entity would be able to use this period too.

Similarly, where one of the counterparties falls below the threshold, if the initial margin requirement ceases earlier under the non-UK rules, the UK entity would also be able to use this earlier date.

Similar amendments are proposed for initial margin requirements in respect of legacy transactions.

In each case, firms would need to keep a record of the dates and timeframes applied to particular trading relationships.

Commentary

The proposed amendments are constructive, aligning the UK framework with other major jurisdictions and clarifying existing ambiguities. They would bring consistency to the market and reduce unnecessary costs and uncertainty.

In-scope firms are likely to welcome the changes, and we expect them to be implemented in due course.