Margin requirements for uncleared derivatives
Margin requirements for uncleared derivatives

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Margin requirements for uncleared derivatives
  • Background to margin requirements
  • Is the uncleared derivatives market important?
  • What is margin?
  • Why are there margin requirements?
  • BCBS/IOSCO Margin requirements for non centrally cleared derivatives
  • What requirements are set out in EMIR for uncleared derivatives?
  • ISDA documents
  • International developments
  • Anticipated issues with implementation of the requirements

BREXIT: The UK is leaving the EU on Exit Day (as defined in the European Union (Withdrawal) Act 2018). This has an impact on this Practice Note. For guidance, see Practice Note: Brexit—impact on finance transactions—Key issues for derivatives transactions and Brexit—impact on finance transactions—Derivatives and debt capital markets transactions—key SIs.

Background to margin requirements

Following the onset of the credit crunch in 2007, the G20 group of countries agreed that the largely unregulated over-the-counter (OTC) derivatives market presented a major risk to the stability of the financial markets generally. The G20 leaders made a statement in Pittsburg in September 2009, which included, at paragraph 13, that:

'all standardised OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest'.

This led to the adoption of European Market Infrastructure Regulation (EU) 648/2012 on the European Market Infrastructure Regulation (EMIR) in EU and the Dodd-Frank reform in US in an attempt to achieve this objective.

For more information on clearing, see Practice Notes: What is clearing?, Clearing obligations: central clearing process and the role of clearing houses and EMIR—essentials—Clearing obligation.

In 2011, the G20 added margin requirements for uncleared derivatives onto their reform programme and requested that the Basel Committee on Banking Supervision (BCBS), part of the Bank of International Settlements (BIS), and the International Organisation of Securities Commissions (IOSCO)