The European Banking Authority (EBA), the European Insurance
and Occupational Pensions Authority (EIOPA) and the European Securities
and Markets Authority (ESMA), the European Supervisory Authorities
(ESAs), have today published a final report with draft regulatory technical standards (RTS) proposing to amend the Commission Delegated Regulation on the risk mitigation techniques for OTC derivatives not cleared by a CCP (bilateral margin requirements) under the European Market Infrastructure Regulation (EMIR).
ESMA has also published a final report with new draft RTS proposing to amend the three Commission Delegated Regulations on the clearing obligation under EMIR.
Intragroup transactions
The amendments included in these draft RTS propose to extend the temporary exemption for 18 months for intragroup transactions.
The bilateral margin Delegated Regulation and the clearing obligation
Delegated Regulations originally introduced temporary exemptions for
intragroup transactions with third-country group entities to facilitate
centralised risk management-procedures for groups, while the relevant
equivalence decisions are being assessed.
Equity options
The amendments included in the draft RTS on bilateral margin propose
to extend the temporary exemption for single-stock equity options or
index options (equity options) for three years.
The bilateral margin Delegated Regulation originally introduced a
temporary exemption for equity options so as to facilitate international
regulatory convergence with regard to risk-management procedures.
The new draft RTS for intragroup transactions and equity options are
proposing to extend the abovementioned temporary exemptions to avoid
undue costs and an unlevel playing field situation for EU
counterparties.
Novations from UK counterparties to EU counterparties
In the context of the withdrawal of the UK from the EU, the ESAs and
other EU authorities and institutions have highlighted the importance
for market participants to be prepared for the end of the transition
period. These draft RTS reintroduce a regulatory solution to support
these preparations.
The draft RTS allow UK counterparties to be replaced with EU
counterparties without triggering the bilateral margin and clearing
obligation requirements under certain conditions. This limited exemption
would ensure a level playing field between EU counterparties and the
preservation of the regulatory and economic conditions under which the
contracts were originally entered into. Counterparties should start
negotiating as soon as possible the novation of their transactions which
are in the scope of these amending regulations, given the twelve month
timeframe to benefit from this measure.
Next steps
The ESAs have developed the draft RTS on bilateral margining under
Article 11(15) of EMIR, while ESMA has developed the draft RTS on the
clearing obligation under Article 5(2) of EMIR.
The ESAs have now submitted this new version of the draft RTS on
bilateral margin to the Commission for endorsement in the form of a
Commission Delegated Regulation, i.e. a legally binding instrument
applicable in all Member States of the European Union. It replaces the
version submitted and published on 4 May 2020. ESMA has also submitted
to the Commission at the same time the draft RTS on the clearing
obligation, also for endorsement in the form of a Commission Delegated
Regulation. Following their endorsement, they are then subject to
non-objection by the European Parliament and the Council.