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No Retrospective Effect for EMIR Swap Margin Rules

Risk Magazine is reporting that the European Securities and Markets Authority (ESMA) has confirmed that OTC derivatives trades executed before the relevant EMIR regulatory technical standards come into force will not be subject to rules regarding the posting of initial margin.

Article 11(3) of EMIR requires financial counterparty to have procedures in place governing the exchange of collateral “with respect to OTC derivative contracts that are entered into on or after 16 August 2012” (i.e. the date on which EMIR came into force). There was concern that that all trades executed after this date could be subject to “front-margining” despite the lack of regulatory guidance, and that the requirement to collateralise could be retroactively applied. Apparently, however, the rules will only apply to contracts concluded after the relevant technical standards come into force. In the interim period, counterparties are free to apply their own collateralisation rules in accordance with in Article 11(3).

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