On 17 February 2021, two delegated acts amending the European Market Infrastructure Regulation (EU) 648/2012 (EU EMIR) were published in the Official Journal of the European Union. The delegated acts (the Acts) give rise to changes to the EU requirements for margining non-cleared OTC derivatives (Margin Rules) and the requirements mandating the clearing of a range of interest rate and credit derivative classes (Clearing Rules).
The changes to the rules follow publication of the European Supervisory Authorities'* (ESAs) final report on the Margin Rules, which proposed updated amendments to the Margin Rules set out in EU Delegated Regulation 2016/2251, and their final report on the Clearing Rules, which proposed amendments to the Clearing Rules set out in EU delegated regulations 2015/2205, 2016/592 and 2016/1178. The changes introduced by the Acts largely follow the proposals set out in the ESAs' reports. The reports are covered in our briefing.
Overview of changes
In summary, the changes introduced by the Acts are:
- amendments to the initial margin phase-in timetable such that Phase 5 implementation will occur on 1 September 2021 and Phase 6 implementation will occur on 1 September 2022;
- the introduction of an "opt-out" from variation margin requirements applicable to physically-settled FX swaps and physically-settled FX forwards except where both counterparties are investment firms or credit institutions under the EU Capital Requirements Regulation, or third-country equivalents;
- an extension until 30 June 2022 of the temporary derogation from the requirement to clear or exchange margin for intragroup transactions where one counterparty is located in a third country in respect of which no equivalence decision has been made;
- an extension until 4 January 2024 of the temporary exemption from the requirement to exchange margin for single-stock equity options and index options;
- the introduction of transitional periods during which the novation of a transaction solely to replace a UK entity with an EU entity will not trigger new obligations under the Margin Rules or the Clearing Rules; and
- deletion of the provisions relating to "minimum remaining maturities" from the Clearing Rules, to reflect the removal of the frontloading requirement by the EU EMIR Refit Regulation.
Date of application and onshoring implications
The Acts, and the changes that they make, apply from 18 February 2021. As the Acts were not in force prior to 31 December 2020, the changes that they make have not been onshored into English law. However, the UK government announced in a policy statement (page 20) its intention to consult on potential amendments to the corresponding UK margin rules to implement similar changes under the onshored UK EMIR regime.
Authors: Kerion Ball, Amelia Howison and Kirsty McAllister-Jones.
*The European Securities and Markets Authority (ESMA), the European Banking Authority (the EBA), and the European Insurance and Occupational Pensions Authority (EIOPA).
