The story behind the start of the rules on uncleared margin continued to unfold last week, with an announcement by the three ESAs (European Supervisory Authorities, i.e. ESMA, EBA and EIOPA) that they have rejected the last set of amendments proposed by the European Commission on July 28th (see here). The rules require that FCs and NFC+s exchange both variation margin and initial market on OTC derivatives trades not cleared via a CCP, with the rules to be rolled out using a phased timetable over the next few years. The rules originate from a commitment made at the 2009 G20 declaration in Pittsburgh, and were supposed to start globally on September 1st. In the end only some jurisdictions met this deadline, which also saw many companies start use to a standard Initial Margin model, led by ISDA, as discussed here on their web site.

The objections are detailed in this opinion document, and include a caution that the potential new wording may capture trades between a European counterparty, and a third country counterparty that would be NFC- if in the EU (see page 7). Such a ruling would greatly extend the scope of the rules, especially if the UK would be considered a third country after “Brexit”.

The rules are likely to impact much of the energy and commodities markets, partly because several entities are likely to become “FC” under the upcoming MiFID II Ancillary Activity test rules, and partly due to the general move to collect margin by most of the market. It is likely that in future more attention will need to be paid by the entire market to the topics of cash management and optimisation, as margining and clearing rules take effect.