Under the EU Delegated Regulation 2016/2251 dated 4 October 2016 on risk-mitigation measures for OTC non-cleared derivatives, counterparties are required to collect Initial Margin (IM – to cover potential future credit exposure of a party to its counterparty) and Variation Margin (VM – to cover trade exposure arising from market fluctuations). As an exemption to those margin requirements, counterparties may agree to exchange a Minimum Transfer Amount under which they will have no obligation to collect either IM and VM. Such Minimum Transfer Amount can be no more than EUR 500.000 and applies to both initial and variation margins.
Some of the new margin requirements will be phased in between February 2017 and September 2020. Regarding IM, there is a phase-in period linked to the counterparties’ OTC non-cleared derivatives’ volume and there are extended phase-in timings for certain transactions. Regarding VM requirements, such phase-in approach does not apply and counterparties are required to comply with such requirements by March 2017.
Both ISDA (International Swaps and Derivatives Association) and FBF (Fédération Bancaire Française) have adapted their standard forms to offer documents that comply with these new regulatory requirements. While most of such documents are standardized, some flexibility is given to counterparties to organize Minimum Transfer Amounts, their collection and exchange of IM and VM, the assets eligible as collateral, etc. Our firm can assist with the preparation of such documents involving a Monaco counterparty. Please contact us should you require further information.
The EU Delegated Regulation can be accessed with the following link: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2016.340.01.0009.01.ENG
Camille Doguet – Vincent de Bonnafos – Remi Delforge