Variation Margin

Of Relevance to:
Firms trading in OTC derivatives

A reminder that the EMIR Variation Margin Regulations (2016/2251) apply from 1 March 2017 in respect of uncleared OTC derivatives (although it was 4 February 2017 for those large players with uncleared derivatives in excess of €3 trillion).

The Regulations require a daily mark-to-market calculation of variation margin with exchange of margin within the same business day.

Statements issued by IOSCO and the European Supervisory Authorities acknowledge that this has presented firms with operational challenges.

Subsequently, the FCA has released its own statement to the effect that where a firm has not been able to comply fully with the requirements, it will expect the firm to demonstrate that it has made best efforts to achieve full compliance, concluding with “we expect firms to have come into compliance within the coming months”.

Note that the Regulations also contain an ‘Initial Margin’ requirement, although this will be phased in over a period of time ranging from 1 September 2017 (where the average notional amount of non-centrally cleared derivatives is above €2.25 trillion) to 1 September 2020 (derivatives above €8 billion).