June 24, 2016

Delay to the EU Uncleared Bilateral Margin Rules

Potential economic impact from a mis-match in timing of the new un-cleared margin rules between the EU and US (and the rest of the world)

At the FIA IDX event in London, it became apparent that the process of reviewing and formalising the rules for margin on un-cleared bilateral OTC business is not going to be complete for the intended start date in September 2017. Vanessa Mock, spokeswoman at the European Commission for Financial Services and Capital Markets Union, Taxation and Customs confirmed this to reporters. The story was picked up here:

At this point you can assume the deadlines in September 2016 and March 2017 will move, but don't rely on us formally of course.  What does it mean for firms trading between the US and the EU, given that the CFTC have already passed similar rules? A US firm subject to the CFTC rules is obliged to act two ways, to collect IM & VM from parties they trade with, and to post IM and VM too. Whereas, without the same EU rules, an EU based firm will have no obligation to post VM or IM to a US firm (under the new rules), as they are outside the CFTC jurisdiction, but would gladly receive additional IM and VM from the US.

According to sources US firms are appealing to the CFTC to mirror the delay to avoid putting them at a disadvantage. If anyone knows more on this situation, please post it in the comments or email us directly.

Meanwhile, Asian firms can't even comply with the proposed global rules due to the requirement to post collateral on T+1, as their day is 14 hours ahead of the US, coverage at Risk here:

And it's a while since I saw the Risk home page but the new design with rectangular bricks looks familiar, I wonder where they got their inspiration from?….

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