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EMIR

Rules on margin for uncleared trades may be delayed

See here for an article on the Reuters website about a speech by Steven Maijoor (Chair of ESMA), where he indicated that regulators are considering delaying the rules on margin for uncleared trades, which are currently scheduled to begin coming into force at the end of the year.

The rules mandate margin on derivatives trades that are not cleared. As things stand they would start to come in at the end of the year for those over a 3 trillion euro threshold. The threshold is to gradually decrease to 8bn euro by  2019. It is worth noting that the calculation of this threshold is different to the “clearing” threshold under EMIR in several ways. For example the hedge exclusion usually does not apply.

There have also been problems with trades executed with a counterparty in some third countries, which would the mean the rules coming in straight away.

The primary reason for the possible delay is being given that those to which it applies simply won’t be ready in time. It remains to be seen whether the delay will be agreed to.

In terms of the impact on the commodities and energy industry, it could be several fold: Firstly, those who trade with relevant third countries will be impacted straight away, regardless of threshold. Secondly, some could be over the threshold at some stage. But more importantly, the remainder could be pressured by financial counterparties either to margin regardless of the threshold, or to clear the trade (if it can be cleared), because of the capital benefits to the counterparty.

As a result, there is yet another reason why capital costs of trade are likely to increase.

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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