On 8 March 2016, the Joint Committee of the European Supervisory Authorities (ESAs) published a press release and final draft regulatory technical standards (RTS) on risk mitigation techniques for OTC derivative contracts not cleared by a central counterparty (CCP) under Article 11(15) of EMIR (the Regulation on OTC derivatives, CCPs and trade repositories. Article 11(15) of EMIR requires the ESAs to develop RTS specifying the risk-management procedures for non-centrally cleared OTC derivatives, the procedures for counterparties and competent authorities concerning intra-group exemptions for this type of contract and the criteria for the identification of practical or legal impediment to the prompt transfer of funds between counterparties. The final draft RTS:
- Prescribe that, for OTC derivatives not cleared by a CCP, counterparties must exchange both initial and variation margins.
- Outline the list of eligible collateral for the exchange of margins, the criteria to ensure the collateral is sufficiently diversified and not subject to wrong-way risk, as well as the methods to determine appropriate collateral haircuts.
- Set out the operational procedures related to documentation, legal assessments of the enforceability of the agreements and the timing of the collateral exchange.
- Set out the procedures for counterparties and competent authorities related to the treatment of intra-group derivative contracts.