LONDON, Oct 4 (IFR) - The European Commission has adopted
new rules that will force swaps participants from January 2017
to post collateral against over-the-counter derivatives
exposures that are not cleared through central counterparties.
Just over a month after the new risk mitigation requirements
were implemented across the US, Canada and Japan, the European
Commission today endorsed regulatory technical standards
submitted by three European Supervisory Agencies.
The final rules, which form part of the European Market
Infrastructures Regulation, incorporate certain amendments to
the RTS, including the removal of concentration limits for
pension funds and an updated implementation timeline.
The final pillar of the G20 agreement, which aims to reduce
risk by increasing the amount of collateral backing derivatives
and incentivising the shift to central clearing, was put on hold
by the EC in the summer, throwing the globally agreed
implementation timeline into disarray.
"Long-awaited is a bit of an understatement," said Emma
Dwyer, partner at Allen & Overy.
"The industry will probably be breathing a sigh of relief
that this part of the non-cleared margin rules epic has finally
arrived. It's been a long journey and there's still a huge
amount of work to be done. One of the hurdles to getting on with
that work has now hopefully been overcome."
The most significant change from initial standards is the
removal of concentration limits for pension funds. The initial
rules required pension funds posting more than 1bn of
collateral with a single counterparty to diversify at least half
of the collateral across different sovereign debt issuers. The
commission ruled against that requirement, arguing that it would
force pension funds to take foreign currency risk.
The decision takes the form of a delegated regulation and is
now subject to an objection period by the European Parliament
and European Council. After that it will be published in the
EU's Official Journal for implementation one month later.
For the first wave of participants, with uncleared swaps
exposures of over 2.25trn, implementation is expected in
January 2017 - more than four months later than the
internationally agreed September 1 implementation deadline.
Industry participants have pushed aggressively for European
rules to come into line with the US in an effort to avoid
fragmentation along regional lines of the global swap market.
Implementation by the end of January at the latest is seen
as crucial if European regulators are to get back on track with
a global timeline that sees the entire industry forced to
exchange variation margin, reflecting daily price moves of
Additional counterparties with smaller exposures will be
forced to post initial margin in annual waves out to 2020.
(Reporting by Helen Bartholomew)