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Cross border issues on forthcoming uncleared derivatives rules

See this interesting article on the Reuters web site, which talks about potential issues between Asian and European regulators, on the handing of third country trades under the forthcoming rules on handling uncleared OTC derivatives.

As can be seen in the EBA consultation document, the proposals include a rule which states that any trade between an EU entity and an unrecognised third country will be subject to these rules, even NFCs below the threshold.

The rules introduce mandatory variation and initial margin on all covered OTC derivatives that have not been cleared, which could require significant capital.

As well as causing Asia/Europe issues, the currently proposal approach may well cause some issues for European trades that cross into an unrecognised country. This could in some cases affect the energy and commodities markets, if trades are covered by MiFID II and thus EMIR. This would include financial non spot trades and also physical forwards traded via an MTF (Multilateral Trading Facility). When MiFID II comes in this scope could widen further with the introduction of OTFs (Organised Trading Facility). We also await guidance on what constitutes a “physical” trade under MiFID Annex C.

About avivhandler

Aviv is the Managing Director of ETR Advisory, a niche consultancy focused on the regulation of the commodity, energy and financial markets. He has more than 23 years of experience in the financial, energy and commodity markets, covering regulatory compliance, credit, risk and financial technology. Prior to founding ETR, he was Partner at SunGard Global Services, where he built a Centre of Excellence in European Energy and Commodity Regulation. Before that, he founded Coherence, a consulting firm specializing in credit risk in commodity and energy trading as well as software product management. The credit practice ultimately became part of Sirius Solutions, where he was the Managing Director of Europe. He has also held management roles at KWI and Iris Financial, among other organizations. Mr. Handler holds a degree in computer science from Imperial College, University of London.


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