European Regulators Finalize Margin Technicalities for OTC Derivatives
- The European Supervisory Authorities (ESAs) finalize margin related details for non-CCP cleared OTC derivatives under EMIR.
The group of regulatory agencies with authority over various parts of the financial system and markets throughout the EU, under the Joint Committee of the European Supervisory Authorities (EBA, EIOPA, ESMA) known together as the ESAs, have today published their final draft for Regulatory Technical Standards (RTS) which outline framework related to the European Market Infrastructure Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term (EMIR).
The publications included several documents as part of the update, and are aimed to cover the risk mitigation approaches related to the Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term of margin collateral to cover exposure that arises from non-centrally cleared derivatives (i.e. traded over-the-counter ) in OTC markets.
The ESAs also detailed the criteria related to intragroup exemptions and outlined the definitions of practical and legal impediments to the prompt transfer of funds between counterparties, according to the press release.
The standards were described to help increase the safety of the OTC derivatives markets in the EU, and provided technical standards across derivatives not centrally cleared by a CCP. Counterparties have to exchange both initial and variation margins, and other regulatory standards were outlined to help reduce counterparty credit risk. Among other instruments FX was noted, and as seen in an excerpt below:
Source: ESAs
Overall the goals of the initiatives are to also mitigate any potential systemic risk and ensure alignment with international standards, from a larger perspective. 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.
The many pages of legal jargon and technical details will need to be reviewed and analyzed by firms' compliance, legal, and outside consultants, with regard to requirements and any effect on related businesses.
Some of the major points relate to the diversification of collateral to avoid wrong-way risk, and how to determine collateral haircuts, and an outline of operational procedures and administration including agreement enforce-ability and timeframe for collateral exchanges. Lastly, the RTS draft covers how counterparties and the applicable authorities will handle the treatment of intragroup derivatives contracts. An excerpt from one document referenced in the release can be seen below:
Source: ESAs
The group of regulatory agencies with authority over various parts of the financial system and markets throughout the EU, under the Joint Committee of the European Supervisory Authorities (EBA, EIOPA, ESMA) known together as the ESAs, have today published their final draft for Regulatory Technical Standards (RTS) which outline framework related to the European Market Infrastructure Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term (EMIR).
The publications included several documents as part of the update, and are aimed to cover the risk mitigation approaches related to the Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term of margin collateral to cover exposure that arises from non-centrally cleared derivatives (i.e. traded over-the-counter ) in OTC markets.
The ESAs also detailed the criteria related to intragroup exemptions and outlined the definitions of practical and legal impediments to the prompt transfer of funds between counterparties, according to the press release.
The standards were described to help increase the safety of the OTC derivatives markets in the EU, and provided technical standards across derivatives not centrally cleared by a CCP. Counterparties have to exchange both initial and variation margins, and other regulatory standards were outlined to help reduce counterparty credit risk. Among other instruments FX was noted, and as seen in an excerpt below:
Source: ESAs
Overall the goals of the initiatives are to also mitigate any potential systemic risk and ensure alignment with international standards, from a larger perspective. 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.
The many pages of legal jargon and technical details will need to be reviewed and analyzed by firms' compliance, legal, and outside consultants, with regard to requirements and any effect on related businesses.
Some of the major points relate to the diversification of collateral to avoid wrong-way risk, and how to determine collateral haircuts, and an outline of operational procedures and administration including agreement enforce-ability and timeframe for collateral exchanges. Lastly, the RTS draft covers how counterparties and the applicable authorities will handle the treatment of intragroup derivatives contracts. An excerpt from one document referenced in the release can be seen below:
Source: ESAs