On 4 October 2016 the European Commission approved the draft rules on margin requirements for non-cleared OTC derivatives contracts (Margin RTS). It would appear that the European Parliament and the Council have 3 months to object to the Margin RTS. If no objections are raised then the Margin RTS will be published in the Official Journal and will enter into force 20 days later. So the margin rules are expected to apply as early as mid-January 2017 for some counterparties.
The timetable for implementation of the margin rules is as follows:
- the variation margin rules to apply: (a) 1 month following the entry into force of the Margin RTS, for counterparties whose aggregate average notional amount of OTC derivatives exceeds the €3 trillion threshold; and (b) from 1 March 2017 for all other qualifying counterparties or 1 month following the entry into force of the margin rules (whichever is the latest); and
- the initial margin rules will be phased in as follows: (a) 1 month following entry into force of the Margin RTS, for counterparties whose aggregate average notional amount of OTC derivatives exceeds the €3 trillion threshold; (b) from 1 September 2017, for counterparties whose trading activity exceeds €2,250 billion; and (c) from 1 September each year (i.e. 2018, 2019, 2020) for other qualifying counterparties, depending on whether their trading activity exceeds the relevant threshold.
The assessment period for the above thresholds is the last business day of March, April and May of the preceding year and should include the positions of all entities within the group (with group positions counted once).
Following feedback from the European Supervisory Authorities, there will be 6 months reprieve for intragroup transactions, which will hopefully provide counterparties with sufficient time to submit their intragroup exemption application to, and (where relevant) obtain approval from, their regulator. Counterparties must then publicly disclose details relating to their reliance on the intragroup exemption.
It is critical that counterparties understand whether they meet the requirements to qualify for the intragroup exemption from the margin requirements and that they submit the application to the relevant Member State regulator using the relevant final application form. The UK's FCA has published a draft intragroup exemption application form. It is hoped that the final version of the form will become available soon.