In our recent article for the Futures & Derivatives Law Report, we reflect on what to expect in 2017 for the implementation of the European Markets and Infrastructure Regulation (Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories, ‘EMIR’), and provide a guide for EMIR’s margin requirements, which include, for the first time, the obligation for a huge subset of the derivatives market to provide variation margin for derivatives not centrally cleared.
Avid OBLB readers will recall our EMIR related post of last August, which, as well as considering the impact of Brexit, also provided a snap-shot (including then faltering progress) of the current status of these requirements. Progress was finally made and the margin related final Regulatory Technical Standards were published on 15 December 2016.
Concentrating only on EMIR, our latest article considers these requirements: who and which transactions will be affected. In summary, for those entities with the biggest relevant derivatives portfolios, ie above €3 trillion, the EMIR margin requirements, both initial (ie, upfront) and variation (ie, mark to market) margin, took effect from 4 February 2017. Initial margin requirements will otherwise be phased in by reference to outstanding relevant uncleared derivatives until 1 September 2020. 1 March 2017 marked the go-live date for most entities affected by the EMIR variation margin requirements, Europe following the same general timeline as the corresponding US, Japanese and Canadian requirements.
As the ‘big bang’ implementation day loomed, regulatory announcements worldwide served to suppress the fear that due to large backlogs of documents to update, affected parties would widely not be ready and trading would have to cease where arrangements were not in place.
In Europe and the UK, the European Supervisory Authorities and the FCA made announcements, although, in contrast to certain other jurisdictions, no formal grace period or relief (until 1 September 2017 or otherwise) was granted. Rather, affected parties are expected to continue to use best efforts to comply with the rules. Other announcements were made internationally by IOSCO and in the US, Ireland, Australia, Singapore, Hong Kong and Canada. Immediate pressure to comply has therefore been lifted but there remains a lot of work to be done.
The final section of our article is dedicated to other aspects of EMIR. Although overshadowed by the margin discussions, progress on other EMIR obligations does continue. Key to the future of EMIR is the EMIR review, which was expected to occur in spring 2017. Latest indications are that this will be delayed by the European Commission until early June, to follow the UK’s triggering of Article 50, all of which ultimately leads us to conclude that there is another busy year for EMIR ahead.