On 8 March 2016, the three European Supervisory Authorities (ESAs) published their final draft regulatory technical standards in relation to the collateralisation of non-centrally cleared derivatives. The standards are to become binding on some counterparties as from 1 September 2016 and thereafter will be phased in for other counterparties. Apart from compulsory clearing requirements, the provisions for mandatory collateralisation of uncleared derivatives represent the biggest change to derivatives markets since the financial crisis, entailing the posting of billions of dollars worth of collateral, much of which will have to remain segregated and therefore not re-usable. The draft Regulatory Technical Standards (RTS) will, inter alia, need to be adopted by the European Commission before they can become effective, but when they do, they will affect not only EU parties engaging in uncleared OTC derivatives, but also non-EU counterparties.
Background -
Article 11(3) of the EMIR Regulation requires that financial counterparties, and non-financial counterparties whose OTC derivatives trades exceed one or more clearing thresholds (NFC+s), must put in place risk management procedures in relation to the timely, accurate and appropriately segregated exchange of collateral, or “margin”, and Article 11(15) mandates the three ESAs to draft regulatory technical standards, specifying further details of these obligations.
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