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EU non-cleared margin rules “clarification” confusion cleared-up

The EC has rushed to publish an addendum correcting the most glaring error in its 28 July RTS on non-cleared margin rules. The RTS stated that the first implementation of IM in the EU would be 1 September 2017, a full year after all other countries who are following the BCBS/IOSCO timetable. The addendum clarifies that this date was a “drafting error”. In fact, IM implementation is synchronised with VM- for firms with an aggregate average notional of non-cleared derivatives above €3 trillion, IM and VM obligations will commence one month after the regulations’ entry into force. On the slightly unsafe assumption that the EU is able to succeed in producing a final RTS by year-end, VM/IM requirements would take effect in February 2017. However, it would be no surprise to see Category 1 IM/VM effectively merged with the 1 March 2017 Category 2 commencement date.

For the avoidance of doubt, the latest EU non-cleared margin timeline is as follows:

VM Category 1 (>EUR 3trn.)- one month after entry into force of the Regulation

VM Category 2 (all other entities)- the latest of 1 March 2017 or the Category 1 date

IM Category 1 (>EUR 3trn.) – one month after entry into force of the Regulation

IM Category 2- (>EUR 2.25trn.)- 1 September 2017

IM Category 3- (>EUR 1.5trn.)- 1 September 2018

IM Category 4- (>EUR 750bn.)- 1 September 2019

IM Category 5- (>EUR 8bn.)- 1 September 2020

The addendum also goes some way to clarifying a number of other drafting errors that were so egregious that they could not have been read as anything but mistakes. An example might be:

“Article 36(2)(b)(i) should read: ‘…cleared OTC derivatives above below EUR 3000bn;”

The addendum clears up the most misleading of the mistakes, but the revised text is still very far from being a model of legal clarity, it is still riddled with inconsistent references. Given the highly consequential nature of margin rule details and the extent of the delay the EU is already contemplating, perhaps an extra day to proof read their own rules before publication might be in order.

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