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EUROPEAN

DERIVATIVES

REGULATION: WHAT’S

IN STORE FOR 2017

AND WHAT IS THIS

MARGIN “BIG BANG”

EVERYONE IS TALKING

ABOUT?

By Karen Stretch

Karen Stretch is a Senior Associate

focussing on advisory and transactional

derivatives in the Structured Products

Team of the London office of Paul Hast-

ings (Europe) LLP. With thanks to

Shanel Hassan, Oliver Elsaesser, Chris-

tian Parker and Karina Bielkowicz from

the same London team, who assisted

Karen in the preparation of this article.

EMIR—the story so far

Prompted by the same 2009 G20 Pitts-

burgh summit and with largely the same

fundamental obligations as the Dodd

Frank Act (the “DFA”) and other similar

worldwide initiatives, Europe has been

implementing the European equivalent,

EMIR1 since March 2013 when the

“timely confirmation” requirement en-

tered into force. After various delays, late

Q4 2016, specifically 15 December 2016

marked the start of the implementation of

the final key outstanding EMIR obligation

when the European Commission (the

“Commission”) published in the Official

Journal of the European Union (the “OJ”)

the agreed version of a new delegated

regulation on risk mitigation techniques

(“RMT”) for over the counter (“OTC”)

derivative contracts not cleared by a cen-

tral counterparty (the “Margin DR”)2.

The EMIR marginrequirements: The big bang

It has been impossible to ignore the big

bang references used when introducing

the forthcoming regulatory margin re-

quirements and Scott O’Malia (Chief Ex-

ecutive Officer, ISDA) himself has de-

scribed the margin changes as “A

Derivatives Revolution”3. Although for

those readers with an astrological affec-

tion familiar with the origins of the term

“big bang,” meaning “The rapid expan-

sion of matter from a state of extremely

high density and temperature which ac-

cording to current cosmological theories

marked the origin of the universe”4 the use

of such a comparison may seem hyper-

bolic, the new margin rules are unprece-

dented, touching “virtually every aspect

of the non-cleared derivatives space: pric-

ing, funding, legal, IT, custody arrange-

ments, and margin calculation, exchange

and management”5. Therefore for those in

the derivatives world, not such an extreme

comparison but, what are the rules and

who must comply with them?

Reprinted with permission from Futures and Derivatives Law Report, Vol-ume 37, Issue 2, K2017 Thomson Reuters. Further reproduction withoutpermission of the publisher is prohibited. For additional information aboutthis publication, please visit www.legalsolutions.thomsonreuters.com.

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February 2017 ▪ Volume 37 ▪ Issue 2

Although this article focuses on EMIR, steps

have been and are still being taken across the

globe to implement similar initiatives. The United

States, Japan and Canada were first to go-live

with the new margin requirements and from 1

September 2016, in the United States, those big-

gest counterparties (using USD thresholds con-

sistent with EMIR i.e. US in-scope entities with

notional above USD 3 trillion) were required to

post both initial and variation margin. To the ap-

parent dismay of the international derivatives’

community, Europe lagged behind. However, af-

ter various delays and exchanges between the

European Supervisory Authorities (comprising

the European Banking Authority (the “EBA”),

ESMA and the European Insurance and Oc-

cupational Pensions Authority (“EIOPA”)) and

the Commission throughout 2016, following the

publication in the OJ on 15 December 2016 of

the Margin DR, the EMIR margin requirements

entered into force 20 days later, on 4 January

2017.

The EMIR Margin requirements

Which EMIR entities?

Only FCs and NFC+s (each as defined below)

are in-scope for the EMIR initial (upfront) and

variation (marked to market) margin

requirements.

Our EMIR Glossary at the foot of this article

explains more but in summary “FCs” are finan-

cial counterparties including banks, credit institu-

tions and other regulated European entities such

as investment firms, certain AIFs and insurance

companies. “NFC+s” are all other relevant Euro-

pean undertakings so called non-financial coun-

terparties (NFCs) whose non-hedging deriva-

tives’ activities together, where relevant with the

derivatives activities of members of such entity’s

group, exceed certain thresholds prescribed by

EMIR (the “clearing threshold,” see EMIR Glos-

sary below).

Seeking international harmonisation, the origi-

Futures and Derivatives Law ReportFebruary 2017 | Volume 37 | Issue 2

2 K 2017 Thomson Reuters

nal intention was for the EMIR margin require-

ments to take effect on dates ranging from 1

September 2016 (for certain entities, with a non-

cleared OTC derivatives’ portfolio above EUR 3

trillion) to 1 September 2020 (for certain entities

with a non-cleared OTC derivatives portfolio

above EUR 8 billion). Following the December

2016 publication of the Margin DR, for those

entities with the biggest relevant derivatives’

portfolios i.e. above EUR 3 trillion, the EMIR

margin requirements (both initial and variation

margin) will take effect from 4 February 2017.

Initial margin requirements will otherwise be

phased in by reference to outstanding relevant

uncleared derivatives until 1 September 2020 and

the EMIR variation margin requirements will

now generally take effect on 1 March 2017, fol-

lowing the same timeline as the corresponding

United States, Japanese and Canadian

requirements.

International reach

Similarly to other corresponding international

regulatory initiatives, EMIR only applies to

TCEs (see EMIR Glossary below) in certain

prescribed circumstances. Where the specific

requirements of the Margin DR for transactions

with TCEs are met, the margin requirements will

apply on 4 January 2020 if there is no equivalence

decision in respect of the relevant third country

or, where an equivalence decision has been

adopted, the in-scope European entity will be

required to post margin from the later of the date

falling 4 months after that equivalence decision

takes effect and the date the requirements of the

Margin DR are satisfied6.

Timing of the margin requirements

Counterparty type(both parties for requirements

to apply)Initial MarginGo-live date

Variation MarginGo-live date

AANA7 exceeds EUR 3 trillion 4 February 2017 4 February 2017

AANA exceeds EUR 2.25 trillion 1 September 2017 1 March 2017

AANA exceeds EUR 1.5 trillion 1 September 2018 1 March 2017

AANA exceeds EUR 7.5 billion 1 September 2019 1 March 2017

AANA exceeds EUR 8 billion 1 September 2020 1 March 2017

All other in-scope entities N/A 1 March 2017

Do the EMIR margin requirements apply to me?

Trading Party Counterparty Do the margin rules apply

FC/ NFC+

FC6

NFC+

TCE FC 6(directly to the FC, indirectly to

the TCE FC/ TCE NFC+)TCE NFC+

NFC-x

TCE NFC-

Futures and Derivatives Law Report February 2017 | Volume 37 | Issue 2

3K 2017 Thomson Reuters

Trading Party Counterparty Do the margin rules apply

TCE FC/ TCE NFC+

FC 6(directly to the FC and NFC+,indirectly to the TCE FC/ TCE

NFC+)NFC+

TCE FC6

(directly applicable to both partieswhere there is a “direct substantial

and foreseeable effect in theUnion”8)

TCE NFC+

NFC-x

TCE NFC-

Which transactions?

With limited exceptions (summarised below),

for those in-scope entities, the EMIR margin

requirements apply to all OTC derivative con-

tracts9 that are not centrally cleared.

For derivative contracts entered into between

16 August 2012 and the relevant dates the new

regulation applies (so called “legacy trades”), af-

fected counterparties may continue to apply

existing related risk management procedures.

There is therefore no formal grandfathering, al-

though since the margin requirements are framed

in terms of “netting sets”10, unless carefully and

clearly excluded it is possible that legacy transac-

tions are caught in the same netting set and

subject to the margin requirements. It is of course

also open to the parties to agree that notwith-

standing the formal rules of application a given

transaction or set of transactions are all subject to

the new margin requirements.

Areas of relief:

E intra-group derivative contracts where cer-

tain requirements are met and the relevant

competent authority has either received a

notification or granted an exemption (as ap-

plicable)11 and, in any event, no initial or

variation margin for intra-group transac-

tions until the later of 4 July 2017 or the

date specified in the Margin DR12;

E neither covered bond issuers nor cover

pools are obliged to post either variation

margin or initial margin. Any variation

margin must be collected in cash13;

E no variation or initial margin with TCEs

where there are legal enforceability issues

relating to netting, collateral agreements or

(for initial margin) segregation14;

E no variation margin for physically settled

OTC derivative contracts until the earlier

of 31 December 2018 and the date the

Delegated Regulation15 supplementing Mi-

FID II applies (the “MiFID II DR”)16, the

rationale being that the MiFID II DR is

expected to bring certainty to the definition

of financial instruments with regard to

physically settled foreign exchange (“FX”)

forwards by harmonising the definition of

FX forwards across the EU. Certain FX

contracts are also excluded from the initial

margin requirement17;

E no initial or variation margin for single

stock equity options or index options until

4 January 202018; and



E no exchange of collateral for derivatives

entered into with CCPs nor NFC-s or TCE

NFC-s (see EMIR Glossary below)19.

General collateral requirements

E all collateral must comprise “Eligible Col-

lateral”20;

E minimum transfer amount (“MTA”) must

not exceed EUR 500,000, separate MTAs

can be agreed for initial and variation mar-

gin but the sum of those MTAs must be

equal or lower than EUR 500,00021; and

E where parties are required to transfer both

initial and variation margin, the amount of

collateral due shall be calculated as the sum

of both the initial and variation margin and

to the extent total collateral exceeds the

MTA agreed, the full amount of collateral

shall be due without deducting the MTA22.

Initial margin

E no initial margin is required unless AANA

for both parties exceeds EUR 8 billion23

(see also “Timing of the margin require-

ments” above);

E concentration limits are imposed for certain

types of Eligible Collateral24;

E must be calculated at least every 10 busi-

ness days or, if earlier, on the business day

following the occurrence of certain pre-

scribed events including a new uncleared

OTC derivative being added to or removed

from the netting set25;

E must be calculated using an agreed initial

margin model or the standardised approach

set out in the Margin DR, the most widely

known model being the ISDA proprietary

Standard Initial Margin Model (ISDA

SIMM)26;

E generally collected the same day as the

request and in the event of a dispute over

amounts due, any agreed amounts must still

be transferred on the same day as the origi-

nal request27;

E initial margin must be segregated and the

collecting party must not re-hypothecate,

repledge nor otherwise reuse the collateral

collected as initial margin28; and

E parties can agree bilaterally to include an

initial margin threshold of up to EUR 50

million (or EUR 10 million for intra-group

transactions), below which no initial margin

needs to be transferred29.

Variation margin

E must also be calculated daily and is gener-

ally collected the same day as requested.

Similarly to initial margin, in the event of a

dispute over amounts due, any agreed

amounts must still be transferred on the

same day as the original request30.

Addressing the big bang

EMIR not only requires parties to document

their risk management procedures for the ex-

change of collateral for relevant transactions but

also prescribes minimum requirements for those

agreements. Ultimately this means that to enter

into in-scope transactions on or after 1 March

2017, collateral agreements must comply with

the new margin rules: Parties must either there-

fore enter into new collateral agreements or

ensure that existing arrangements are updated to



reflect the new requirements. To the extent trans-

actions are not currently collateralised, new col-

lateral agreements must be agreed.

In an OTC derivatives world which widely

relies on two of the ISDA suite of collateral docu-

ments, the 1995 English law governed Credit

Support Annex (title transfer) and the 1994 New

York law governed Credit Support Annex (secu-

rity interest), each over twenty years old, ensur-

ing documentation is ready, especially for fre-

quent and heavy derivatives users is a mammoth

task. Similarly to implementation of the EMIR

obligations already in effect, to comply with the

requirements, parties ultimately have two op-

tions, adopt industry standard documents/

protocols or agree amendments bilaterally. Of

course the optimal route is subjective and largely

depends on volume of derivatives and appetite to

engage in an active dialogue regarding the

changes. Irrespective of the exact route, action

must be taken and parties are being widely en-

couraged to act now. Consistent with the imple-

mentation of other EMIR obligations, those buy

side smaller entities that are not themselves

directly subject to the margin requirements

should be prepared for their dealer counterparties

to request updates to existing collateral arrange-

ments to pre-empt any future changes in status

and protect their position.

Documentation Developments

The market has been preparing for the new col-

lateral requirements for some time and, on 14

April 2016, ISDA published what was the first in

a series of various documents to facilitate compli-

ance with the new margining techniques, the

2016 Credit Support Annex for Variation Margin

(New York law). Corresponding English law and

Japanese law versions have now followed. Au-

gust 2016 marked the launch of the ISDA 2016

Variation Margin Protocol (“ISDA 2016 VMP”)

and for those systemically important entities al-

ready subject to (or about to be for EMIR) initial

margin requirements, ISDA has also published

initial margin related Credit Support Annexes

(“CSAs”). Given the initial margin requirements

only apply to a narrow subset of counterparties,

most parties will be focussed on the variation

margin related documents.

Whilst dealer and bigger market players have

been preparing for these changes for some time,

it will take time to consider any new agreements

and the exact changes required. The key first step

is to ascertain which rules may apply and the rel-

evant counterparty category type. ISDA has also

provided a means to assist with this, the ISDA

Self-Disclosure Letter. As regards the new mar-

ket documentation, the new CSAs work as before

but the new ISDA 2016 VMP adopts a new

approach. Whilst entities who have adhered or

considered adherence to the DFA related ISDA

Protocols will be familiar with the questionnaire

approach, the ISDA 2016 VMP does use a ques-

tionnaire approach but adopts a unique form,

providing counterparties a means to update either

one or multiple “Protocol Covered Agreements”

across United States (CFTC and SEC), European,

Japanese and Canadian requirements. By com-

pleting the pro-forma questionnaire which makes

certain elections and applies/disapplies certain

new exhibits, adhering parties can elect to either

amend or replicate and amend an existing CSA,

create a new CSA or create both a new master

agreement and CSA across multiple counterpar-

ties and regulatory regimes, provided of course

their counterparties are also adhering parties.

Whilst many of the variation margin related



amendments/initiatives are regime specific and

assume an initial determination has been made of

an entity’s status and which (if any) of the rules

apply, the 2016 ISDA VMP also provides for a

so-called “regime agnostic” approach. This ap-

proach does not commit either party to comply-

ing with a particular set of margin requirements

and is used by ISDA to allow parties to comply

with variation margin requirements of one or

more jurisdictions that are similar to the regula-

tions covered by the ISDA 2016 VMP but not

expressly identified as “Covered Margin

Regimes”. Such a general regime agnostic ap-

proach is also one we have seen adopted in bilat-

eral amendments ahead of the variation margin

requirements taking effect. In particular where

the buy side entity is not itself directly subject to

the margin requirements but provision is made in

an amendment to existing collateral arrange-

ments for the exclusion of any collateral which is

or may become legally ineligible (pursuant to a

wide group of applicable laws) as well as other

amendments to generally conform with the new

margin requirements such as same day transfer

and valuation percentages. Moreover, such re-

quirements are applied to all transactions, irre-

spective of whether they are legacy transactions

or not.

What else does 2017 promise?

Given the scale, implementation of the new

margin requirements will necessarily be priori-

tised and continue to demand attention through-

out the new year, but the margin requirements

are not the only EMIR events expected and other

EMIR areas remain active. Set out below are

some key aspects for the year to come and

beyond.

EMIR clearing

With limited exception, the EMIR mandatory

clearing obligation applies to (i) all trades be-

tween FCs and NFC+s, (ii) all trades between

FCs or NFC+s and certain Hypothetical Counter-

parties (as defined in the EMIR Glossary below),

and (iii) on a limited basis to trades between two

Hypothetical Counterparties. In response to

concern relating to their ability to post suf-

ficiently liquid collateral, pension schemes were

originally exempted from the EMIR clearing

obligation until 15 August 2015. EMIR provides

that the transitional exemption can be delayed for

a further 2 years and, most recently on 20 Decem-

ber 2016, the Commission extended the exemp-

tion by one additional year to August 2018. As

set out below in “EMIR review,” it is expected

that as part of the review process the Commis-

sion will consider if such exemption should be

afforded permanent status.

The EMIR mandatory clearing obligation has

been phased in, both generally by its product

class approach and specifically, where any prod-

ucts are declared subject to the clearing obliga-

tion, on an EMIR Category by Category basis,

starting with the largest market players. For ma-

jor market participants grouped under “Category

1” and “Category 2,” in respect of certain interest

rate OTC derivative contracts denominated in the

G4 currencies (EUR, GBP, USD and JPY), the

first clearing obligation took effect from 21 June

2016 and 21 December 2016 respectively and

will take effect for other entities on a phased in

timeline, next following 21 June 2017 for Cate-

gory 3 entities and finally 21 December 2018 (for

“Category 4” entities). Following closely behind

are the clearing go-live dates for certain index

credit default swaps and interest rate swaps



denominated in certain non-G4 European curren-

cies, which also adopt a phased-in approach

across counterparty type and will apply for Cate-

gory 1 entities from 9 February 2017. For those

classes of OTC derivatives currently being con-

sidered for the clearing obligation, the ESMA

website summarises the current status31.

A report published by ESMA in November

201632 highlighted the difficulties for smaller

counterparties to comply with the clearing obliga-

tion and as a consequence the date for Category 3

entities may, based on recommendations made in

that report, be postponed further, possibly until

21 June 2019. Such delay would harmonise the

go-live date for all categories of derivative cur-

rently or about to be subject to the clearing

obligation.

MIFID/MIFIR

As set out above, in the absence of clarity

across the EU as to what constitutes an FX for-

ward, the Margin DR provides physically settled

FX forwards interim relief from the collateral

requirements. To summarise the general EMIR

position regarding FX products, there is consen-

sus that FX spot transactions are not derivatives

but due to the lack of harmonisation of MiFID

across the EU and different home regulators

across European countries adopting different

definitions of derivatives, there has been long-

standing uncertainty about which other FX de-

rivatives are in-scope for the purposes of the

EMIR obligations, with most focus on different

definitions and interpretations of an FX forward.

As reported in our July 2016 Stay Current33,

the MiFID II DR, which is expected to apply

from 3 January 2018, the same date as MiFID II,

directly addresses derivatives contracts and in

particular Article 10 (Characteristics of other

derivatives contracts relating to currencies)

provides guidance on what will constitute a (i)

spot contract and (ii) a “means of payment.” If

the relevant criteria are satisfied the derivative in

question will not be a financial instrument and

ultimately therefore not caught by the EMIR

requirements. Although the drafting is broad, the

MiFID II DR should provide much needed direc-

tion to the market; in particular, Article 10 1. (b)

sets out parameters relating to “a means of pay-

ment” for the consideration of financial instru-

ments including forwards which are used to ef-

fect payments.

EMIR review

In accordance with Article 85(1) EMIR, the

Commission is required to review and prepare a

report on EMIR. On 23 November 2016, the

Commission published a report based on their re-

view34, itself based on a public consultation and

4 ESMA reports on various aspects of EMIR.

This report is part of a process that may result in

targeted amendments of EMIR later on this year

and included a formal proposal from the Com-

mission to review EMIR during 2017. Following

a late January speech by Commission Vice Presi-

dent Valdis Dombrovskis35, it is expected that the

Commission will publish its EMIR legislative

proposal in Spring 2017.

The report makes it clear that no fundamental

changes should be made to the core requirements

of EMIR, as these are integral to its main aims of

improving transparency and mitigating risk in the

derivatives market. The report recommends that

amendments should be made to (i) simplify rules

and (ii) reduce any disproportionate costs and

burdens.



It is proposed that simplifying the rules could

be achieved by various methods, namely, intro-

ducing a mechanism to suspend the clearing

obligation, facilitating the predictability of mar-

gin requirements and streamlining trade

reporting. Regarding disproportionate costs and

burdens, the report highlighted that the scope of

transactions and entities currently covered by

EMIR could be considered unnecessary and

disproportionate to its objectives.

In particular in relation to the scope of transac-

tions, further consideration should be given as to

the extent transactions which are (i) entered into

before the clearing obligation comes into force

and (ii) intragroup transactions should fall within

the clearing and RMT obligations respectively.

Furthermore, in relation to the scope of entities it

was noted that NFCs faced more stringent re-

quirements under EMIR than in many compara-

ble third country regulatory regimes. The report

suggests that it may be appropriate to assess

whether the scope of core requirements should

be adjusted and whether only some NFCs should

be captured by the clearing and margin require-

ments based on the volume and nature of their

derivatives activities. For pension scheme ar-

rangements, the report suggests that extension or

giving permanence to the current exemption

should be assessed and highlights that pension

scheme arrangements would remain subject to

the margin requirements for OTC derivatives that

are not cleared.

Brexit—EMIR and the UK36

The UK’s exit route from the EU following last

June’s referendum remains subject to much

debate. As has been widely reported, it is however

expected that Q1 2017 should bring some clarity.

Most importantly though it remains the case that

currently the referendum result has no legal ef-

fect on EMIR. Until the Article 50 notice has

been served and then, only following the earlier

of two years from the date of the notice and the

date that the legal agreement (if any) entered into

between the UK and the EU pursuant to which

the UK’s Article 50 withdrawal takes effect, the

referendum result has no legal effect on the ap-

plication of EMIR or indeed any other European

legislation effective in the UK. The legal position

is the same today as it was prior to the referen-

dum and EMIR will continue to apply until the

end of any such exit negotiations. It remains

likely therefore to be some time until the exact

effects of Brexit and indeed the implications for

any EMIR or ISDA related analysis become

clear.

EMIR and the CRR

On 18 January 2017, the EBA and ESMA

published a report on the functioning of the

Capital Requirements Regulation (“CRR”)37

with related EMIR obligations38. The report

analyses CRR and EMIR requirements which

may be duplicative and inconsistent with a par-

ticular focus on the position of firms regulated

under the CRR that operate as CCPs.

So, what now?

At the time of writing and as the 1 March

deadline looms, speculation and indeed activity

in this area remains rife: Likely prompted by

moves in Australia, Hong Kong and Singapore to

provide 6 months transitional relief until 1 Sep-

tember 2017 and doubtless the letter dated 7 Feb-

ruary 2017 sent to multiple international regula-

tory bodies from ISDA and 5 other major

associations requesting “forbearance” in respect

of the 1 March 2017 deadline which identified



the various challenges to implementation as well

as the results of a “Variation Margin Readiness

Survey” undertaken based on data at the end of

January, on 13 February 2017 the CFTC an-

nounced39, a consistent grace period for imple-

mentation, also until 1 September 2017.

Since 13 February it has been very much a case

of watch this space and indeed, as we proceed to

publication of this article, on 23 February 2017,

statements regarding the 1 March compliance

date were made by IOSCO (the International Or-

ganization of Securities Commission), the Fed-

eral Reserve Board and the Office of the Comp-

troller of the Currency (OCC) in the United

States, the European Supervisory Authorities and

in the UK, by the FCA40.

No formal grace period or statutory updates

for the European requirements were made but the

consistent message across the statements is that

all relevant parties are expected to try to fulfil the

applicable requirements. Specifically for Europe

and the EMIR requirements, it was clarified by

the European Supervisory Authorities that the

directly applicable EU legal text was not in any

way being disapplied and indeed could not be in

the time available. Rather it was indicated that

the competent authorities should apply their risk

based supervisory powers in their day-to-day

enforcement of applicable legislation and the

FCA made clear that it will expect firms to dem-

onstrate that best efforts to achieve compliance

have been made and that firms will come into

compliance within the next few months. Adopt-

ing a seemingly similar approach but in contrast

expressly referencing 1 September 2017, for the

United States, as detailed in the joint statement

and related guidance, it is explained that compli-

ance by swap entities with counterparties that

present significant credit and market risk expo-

sures is expected to be in place on 1 March 2017

but for other counterparties that do not present

significant credit and market risks, compliance in

a timely manner using good faith efforts is ex-

pected but no later than 1 September 2017.

In the meantime, alongside the margin imple-

mentation discussions, the EMIR machine

continues. 21 January 2017 saw the publication

in the OJ of a Delegated Regulation and Imple-

menting Regulation relating to the EMIR report-

ing standards41. Both standards will apply from 1

November 2017, except for the delay to the

EMIR reporting obligation backloading require-

ment42, which has applied since 10 February

2017 and pushes back the existing 12 February

2017 deadline to 12 February 2019. More gener-

ally, on 2 February 2017, ESMA published an

updated version of its Questions and Answers on

the implementation of EMIR43.



ENDNOTES:

1Regulation (EU) No 648/2012 of the Euro-pean Parliament and of the Council of 4 July2012 on OTC derivatives, central counterparties(CCPs) and trade repositories (TRs). See endnote6 regarding a recent correction. See also our re-lated Paul Hastings EMIR related Stay Currents,the “2013 EMIR Stay Current” (https://www.paulhastings.com/docs/default-source/PDFs/staycurrent-emir-september-2013.pdf), the “2015EMIR Stay Current” (https://www.paulhastings.com/docs/default-source/PDFs/stay-current-european-derivatives-regulation-spotlight-on-european-markets-and-infrastructur-regulation-emir.pdf) and the “2016 EMIR Stay Current” (https://www.paulhastings.com/docs/default-source/PDFs/stay-current-emir-and-eu-derivatives-regulatory-reform-european-deriva.pdf).

2Commission Delegated Regulation (EU)2016/2251 of 4 October 2016 supplementingEMIR with regard to regulatory technical stan-dards for risk-mitigation techniques for OTC de-rivative contracts not cleared by a centralcounterparty: http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016R2251&from=EN.

3IQ: ISDA Quarterly, Volume 2, Issue 4,October 2016, “Margin Rules: Light at the Endof the Tunnel,” Letter from the CEO (page 6): “ADerivatives Revolution.”

4 https://en.oxforddictionaries.com/definition/big_bang.

5Ibid (3).

6On 20 January 2017, the Commission ad-opted a new Delegated Regulation correcting theMargin DR (http://ec.europa.eu/transparency/regdoc/rep/3/2017/EN/C-2017-149-F1-EN-MAIN-PART-1.PDF) to clarify that the phase-in require-ments for intragroup transactions involving TCEsapply in the same way to both variation marginand initial margin (the Margin DR had limitedthis to initial margin only). The amended del-egated regulation will be sent to the EuropeanParliament and to the European Council for aone-month scrutiny period and is drafted to applyfrom 4 January 2017.

7“AANA” the metric used for initial marginthresholds being the aggregate [month-end] aver-age notional amount calculated by reference tothe amount of all non-centrally cleared OTC de-rivative contracts of any given entity (including,where applicable those non centrally clearedOTC derivative contracts of its group and intra-group transactions) calculated in accordance withArticle 39 (Calculation of aggregate averagenotional amount) of the Margin DR.

8There is a “direct substantial and foresee-able effect in the Union” where (i) both entitiesare TCE FCs and trade through a branch in theEU; (ii) either benefits from a guarantee providedby an EU established FC and such guarantee cov-ers an aggregate notional amount over EUR 8 bil-lion and is at least equal to 5 per cent. of theguarantor FC’s total exposures to OTC deriva-tives; or (iii) such determination is necessary orappropriate to prevent the EMIR rules and obliga-tions being evaded.

9EMIR defines an “OTC derivative” as a de-rivative contract, the execution of which does nottake place on a regulated market. “Derivative orderivative contract” (Article 2(5) EMIR) is de-fined by reference to the MiFID definition of“Financial Instruments” (The Markets in Finan-cial Instruments Directive, Directive 2004/39/EC), which includes a very general definition ofderivatives instruments, including “options,futures, swaps, forward rate agreements and anyother derivatives contracts relating to securities,currencies, interest rates or yields, or otherderivatives instruments, financial indices orfinancial measures, which may be settled physi-cally or in cash.”

10Defined in Article 1(3) of the Margin DR as“a set of non-centrally cleared over the counter(“OTC”) derivative contracts between two coun-terparties that is subject to a legally enforceablebilateral netting agreement”.

11Chapter III Margin DR (Intragroup Deriva-tive Contracts). In the UK, the Financial ConductAuthority (the “FCA”) started to accept applica-tions for the intragroup exemption from 4 Janu-ary 2017 and on its webpage the FCA providesan explanation on the various intragroup transac-



tion types and the process to apply for the exemp-tion, if deemed necessary. https://www.fca.org.uk/markets/european-market-infrastructure-regulation-emir/notifications-exemptions.

12Article 38(2) Margin DR.

13Article 30 Margin DR.


15C(2016) 2398 final. https://ec.europa.eu/transparency/regdoc/rep/3/2016/EN/3-2016-2398-EN-F1-1.PDF.




19Article 23 Margin DR (CCPs) and Article24 Margin DR (NFCs and TCEs).












31 https://www.esma.europa.eu/regulation/post-trading/otc-derivatives-and-clearing-obligation.

32ESMA, Final Report on the clearing obliga-tion for financial counterparties with a limitedvolume of activity, 14 November 2016, ESMA/2016/1565, https://www.esma.europa.eu/sites/default/files/library/2016-1565_final_report_on_clearing_obligation.pdf.

33 https://www.paulhastings.com/docs/default-source/PDFs/stay-current-emir-and-eu-derivatives-regulatory-reform—-european-deriva.pdf.

34Brussels, 23.11.2016, Report from theCommission to the European Parliament and the

Council, under Article 85(1) of Regulation (EU)No 648/2012 of the European Parliament and ofthe Council of 4 July 2012 on OTC derivatives,central counterparties and trade repositories: http://ec.europa.eu/finance/financial-markets/docs/derivatives/161123-report_en.pdf.

35Commission Vice president Valdis Dom-brovskis, keynote speech on finance for growthin manufacturing, Brussels, 31 January 2017: https://ec.europa.eu/commission/commissioners/2014-2019/dombrovskis/announcements/vice-president-keynote-speech-finance-growth-manufacturing_en.

36In December 2016, ISDA launched a newBrexit page and for ISDA Members, a long formaccompanying Q&A paper or ISDA Members.

37Regulation (EU) No 575/2013 of the Euro-pean Parliament and of the Council of 26 June2013 on prudential requirements for credit insti-tutions and investment firms and amending Regu-lation (EU) No 648/2012.

38EBA and ESMA report on the functioningof the Regulation (EU) No 575/2013 (CRR) withthe related obligations under Regulation (EU) No648/2012 (EMIR), ESAs-2017-82, 18 January2017 http://www.eba.europa.eu/documents/10180/1720738/Report+on+the+interaction+with+EMIR+%28ESAS-2017-82+%29.pdf.

39CFTC Release: pr7531-17, February 13,2017, “CFTC’s Division of Swap Dealer andIntermediary Oversight Issues Time Limited No-Action Transition for March 1, 2017 ComplianceDate for Variation Margin and No-Action Relieffrom Minimum Transfer Amount Provisions”:http://www.cftc.gov/PressRoom/PressReleases/pr7531-17.

40IOSCO statement: http://www.iosco.org/library/pubdocs/pdf/IOSCOPD556.pdf, FederalReserve Board and OCC joint statement: https://www.federalreserve.gov/newsevents/press/bcreg/20170223a.htm, European Supervisory Au-thorities statement: https://www.esma.europa.eu/sites/default/files/library/esas_communication_on_industry_request_on_forbearance_variation_margin_implementation.docx_0.pdf and thefollow-up statement by the FCA: https://www.fca.org.uk/news/news-stories/fca-statement-emir-



1-march-2017-variation-margin-deadline.41Commission Delegated Regulation (EU)

2017/104 amending Delegated Regulation (EU)No 148/2013 supplementing Regulation (EU) No648/2012 of the European Parliament and of theCouncil on OTC derivatives, central counterpar-ties and trade repositories with regard to regula-tory technical standards on the minimum detailsof the data to be reported to trade repositories andCommission Implementing Regulation (EU)2017/105 amending Implementing Regulation(EU) No 1247/2012 laying down implementingtechnical standards with regard to the format andfrequency of trade reports to trade repositories

according to Regulation (EU) No 648/2012 of

the European Parliament and of the Council on

OTC derivatives, central counterparties and trade

repositories: http://eur-lex.europa.eu/legal-conte

nt/EN/TXT/PDF/?uri=OJ:L:2017:017:FULL&fr

om=EN.

42I.e. the obligation to report details of trades

terminated between 16 August 2012 and 12 Feb-

ruary 2014.

43 https://www.esma.europa.eu/system/files_

force/library/esma70-1861941480-52_qa_on_e

mir_implementation.pdf?download=1.



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