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Putting the TIGER to sleep – ISDA’s proposal for putting intragroup margin exemptions on a permanent footing

ISDA have published a letter from their CEO to HM Treasury, the FCA, and the Bank of England proposing to reform aspects of UK EMIR that touch upon intragroup exemptions. The letter, sent in December 2022, was published on 5th January 2023. ISDA’s intervention has been triggered by the lack of content touching upon EMIR in Chancellor Hunt’s ‘Edinburgh Reforms’ of 9th December. As the ‘cliff edge’ of TIGER’s expiry is now less than a year away (December 2023), ISDA thinks it prudent to address the matter before the matter becomes critical.

At the moment, the Temporary IntraGroup Exemption Regime (given the obvious, but amusingly dramatic acronym TIGER), exempts firms trading within their larger group from clearing and margin requirements, when the counterparty is a non-UK entity. However, TIGER is due to expire on 31st December 2023. After that, intragroup trades would need to exchange initial and variation margin as if they were unrelated counterparties.

The EU is planning to amend EMIR’s intragroup regime through EMIR 3 in the same way (and TIGER was born out of an identical EU waiver). UK EMIR’s theoretical replacement, under the powers of the Financial Services and Markets Bill, does not have a set due date, and may not come into power before TIGER expires. Placing this on a permanent footing would ‘ensure a level playing field’ for UK counterparties, and not immediately place intragroup counterparties at a significant practical disadvantage compared to those in other jurisdictions. As it is unlikely that margin requirements will be introduced in other major jurisdictions, there is no point allowing that situation to automatically occur in the UK, when it can be placed on a permanent footing by the Government and regulators. This would stop the 6- and 12-monthly cycles of stress over impending exemption deadlines.

It is possible that, with the current trajectory of the UK government, this issue remains forgotten for much of the year by the Treasury, leaving UK firms with potentially onerous requirements that are not present in other major jurisdictions. Therefore, it is presumed that the Government will at least extend TIGER for another year or so, under increasing industry pressure in the latter half of the year, but it remains to be seen whether substantial action is taken by making the Regime a permanent fixture.

In a related proposal, ISDA notes that UK EMIR’s temporary exemption for counterparties in single-stock equity and index options transactions having to exchange IM and VM is also due to expire on 4th January 2024. The context and the potential ramifications are basically the same as the first suggestion – other jurisdictions (in this case, the US) are moving to remove the requirement altogether, so there is an incentive to make the current moratorium on exchanging margin a permanent state of affairs, so that UK companies do not suddenly find themselves subject to unnecessarily complex regulations for their relatively simple transactions.

There are three possible scenarios regarding the intragroup exemption from margin requirements come January 2024 (from most to least likely):

  • There is an extension to the temporary exemption.
  • They are permanently exempted from margin requirements.
  • The exemption has lapsed, and margin requirements will come into force.

While the latter is unlikely, it is still worth keeping an eye on developments in this area over the course of the year.

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