EMIR: ESAs propose adoption of revised initial margin timetable

The European Supervisory Authorities (ESAs) have published a revised Final Report setting out proposed revisions to the Margin RTS to bring them into line with market expectations and developments.

This revised Final Report is an update from the previous version of the Final Report that the ESAs submitted to the European Commission in December 2019 and updates the timing of Phases 5 and 6 of the initial margin requirements to follow the one year deferrals proposed by BCBS/IOSCO in April 2020 as a result of COVID-19.

The key proposed revisions to the current Margin RTS, as updated, are now:

• Extension of the implementation timetable for regulatory initial margin requirements, to align with the latest timetable set out by BCBS/IOSCO last month. This would mean that:
  • the Phase 5 implementation deadline of 1 September 2021 would apply to counterparties with an Aggregate Average Notional Amount (AANA) of EUR 50 billion across the last business day of March, April and May 2021: and
  • the new Phase 6 implementation deadline of 1 September 2022 would apply to counterparties with an AANA of over EUR 8 billion across the last business day of March, April and May 2022.
• Exemption of physically-settled FX forwards and physically-settled FX swaps from the requirement to exchange variation margin, where at least one of the counterparties is not a credit institution or a MiFID investment firm (or any third country equivalent).
• Extension of the temporary exemption for single-stock equity options or index options from both the variation margin and initial margin requirements until 4 January 2021.
• Extension of the temporary intra-group exemption until 21 December 2020.

The proposed amendments have been sent to the European Commission for endorsement, following which they will be subject to a period of non-objection from the European Parliament and the Council. Given that it will take some time for this procedure to be completed, and especially bearing in mind that the temporary exemptions mentioned above already expired in January 2020 and the Phase 5 currently still in force applies from 1 September 2020 and to counterparties with an AANA of only EUR 8 billion, the ESAs also state that they expect competent authorities to exercise regulatory forbearance and to apply the margin requirements “in a risk-based and proportionate manner” until the proposed revisions enter into force.