Bilateral margin exemption extended to legacy OTC contracts
The European Supervisory Authorities have proposed amending draft technical standards to extend initial margin exemptions to existing uncleared OTC derivative contracts when a counterparty falls below the 8 billion euro threshold. The rules allow margin collection relief as early as June 1.
Relief for legacy portfolios
The European Banking Authority, together with EIOPA and ESMA, published a final report proposing amendments to Regulatory Technical Standards under EMIR regarding non-centrally cleared OTC derivatives.
Under current rules in Regulation (EU) 2016/2251, counterparties can derogate from initial margin collection for new trades if one entity's aggregate month-end average notional amount (AANA) for March, April, and May falls below EUR 8 billion.
However, existing transactions previously required ongoing margin calculation, custodial management, and collateral exchange.
The new draft standards extend this exemption to cover outstanding contracts once a counterparty drops below the threshold, allowing initial margins to be released.
Asymmetric timeline for compliance
The proposed framework introduces an asymmetric compliance schedule to ease operational transitions.
Counterparties falling below the EUR 8 billion threshold can cease margin collection and release collateral as early as 1 June.
Conversely, counterparties crossing above the threshold retain additional preparation time, becoming subject to initial margin requirements for new contracts on 1 January of the following year.
This mechanism aligns EU practice with international standards while maintaining legal certainty for equity options under EMIR 3.
Practical relief with unresolved gaps
This proposal delivers practical relief by eliminating unnecessary custodial costs for legacy derivative portfolios.
Yet by skipping a full public consultation, regulators missed an opportunity to gather empirical sectoral data.
Differentiating the rules between banks and insurers remains a key task for future regulatory reviews.