The ESAs published their co-authored draft Regulatory Technical Standards (RTS) on the 19 December 2017, amending the framework of the European Market Infrastructure Regulation (EMIR) in relation to physically settled foreign exchange (FX) forwards in order to align the treatment of variation margin for physically settled FX forwards with the supervisory guidance applicable in other key jurisdictions.

The EMIR margin requirements relating to physically settled FX forwards are due to come into force on 3 January 2018.

The draft RTS limit the requirement to collect variation margin for physically settled FX forwards to only transactions conducted between “institutions”, within the meaning of the Capital Requirements Regulation (CRR), i.e., credit institutions and investment firms, or with an equivalent entity located in a third country that would meet the definition of “institution” if located in the EU. As a consequence, UCITS and alternative investment funds will not be required to exchange variation margin in relation to physically settled FX forwards from January 2018.

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