23 July 2021
Since the last time we released the implementation dynamics of the initial margin in February 2021, new changes have taken place in the regulatory measures in various regions, and the documents and agreements in the relevant financial markets have also been updated. We released a new issue of dynamic update newsletter as follows for the reference of market participants.
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The European Union's European Market Infrastructure Regulatory Regulations (EU EMIR Regulations ). The European Commission recently made equivalent decisions on several third-place jurisdictions, including Hong Kong, China and Singapore. On July 5, 2021, the European Commission published six EMIR rule equivalence decisions in the “European Gazette”. These determinations will take effect on the 20th day after the publication date (that is, July 26, 2021). This batch of equivalent decisions involves the prudential regulators of six third jurisdictions (ie Australia, Brazil, Canada, Hong Kong, Singapore, and the United States) on margin and other risk mitigation technologies for non-liquidated OTC derivatives. Regulatory requirements. If you are interested in viewing further details of the equivalent decision, please click here . It is worthy of the attention of Asian institutions that a party subject to EMIR rules can, in accordance with the equivalent decision of the European Union, agree that the party originally subject to the Hong Kong Monetary Authority’s margin rules or the Singapore Monetary Authority’s margin rules only needs to comply with Hong Kong in terms of the settlement of margin by both parties. Or Singapore's regulatory requirements, without being subject to the margin requirements in the EMIR rules (the specific scope and conditions are subject to equivalent decisions).
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The UK's European market infrastructure regulatory rules (UK EMIR rules ). For counterparties who may be subject to the UK EMIR rules, it should be noted that the UK law has transformed the EU No. 2016/2251 "European Commission Authorization Regulations" into the UK, forming a "binding technical standard" (BTS) , The British Prudential Regulation Authority and the British Financial Conduct Authority recently revised this BTS, which took effect on June 30, 2021. At present, the technical standards of the United Kingdom have been consistent with the EU Technical Standards for Margin Supervision (RTS). The latest revisions involve:
> For physical delivery of foreign exchange forward and swap products, exchange margin is exempted (but this exemption is not as good as transactions between credit institutions or investment companies)
> Gradual implementation of the initial margin schedule
> Suspended exemption of exchange margin for stock option products
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Counterparty in Taiwan . More and more counterparties will fall into the coverage of the fifth and sixth implementation stages of the initial margin. If you need to exchange initial margin with counterparties in Taiwan, you should pay attention to the local regulatory requirements applicable to specific types of counterparties in Taiwan (such as insurance companies) and how these requirements affect the effective establishment of initial margin security interests. Margin rules implemented in different jurisdictions may contain several exemptions, and whether these exemptions can be relied upon is worthy of careful study.
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Mainland China counterparties . Although Mainland China has not yet implemented any margin requirements for non-centrally cleared derivatives, financial institutions established in accordance with Chinese law are subject to the margin requirements of the foreign jurisdiction where the counterparty is located due to transactions with foreign counterparties, and therefore need to be an initial margin Preparations were made in time for the implementation of the fifth and sixth phases. At present, China is still regarded by the market as a jurisdiction for non-net calculations. Therefore, there will be some thorny issues under the margin rules of the United States, the European Union, and the United Kingdom.
> The EU and the UK stipulate that if the counterparties in the domain (ie EU and UK) conduct transactions with third country counterparties but cannot confirm the legal enforceability of the third country’s net calculation and/or segregation agreement, the initial receipt and payment can be exempted Margin (there are still other conditions that need to be met), and is subject to the limit of total transaction volume (the notional amount of transactions without margin is not more than 2.5% of the group-wide OTC derivative transactions).
> According to the US margin rules, both parties to the transaction must consider whether to collect the initial margin in full or on a net basis, and how to execute it.
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South Korean counterparty . ISDA recently released the "2021 Korean Law Security Agreement for Initial Margin (IM)" and the "Won Initial Margin Collateral Addendum" for use with the "ISDA 2019 Initial Margin Collateral Transfer Agreement" "(KRW Collateral (IM) Addendum for use with the ISDA 2019 Collateral Transfer Agreement for Initial Margin (IM)). A counterparty who intends to use Korean Won collateral as initial margin should pay attention to the recently released information and consider whether it is necessary to re-enter or revise any contracts.
Linklaters Law Firm accepted the commission of the International Swaps and Derivatives Association ("ISDA") to assist in drafting the next generation of initial margin documents, and developed a document management platform called "ISDA Create" for ISDA to negotiate online And the legal documents for drafting the initial deposit. We also provide legal services on initial deposit for a large number of Asian clients. We are happy to assist you in implementing arrangements to advance the initial deposit. Click "Read more" to view the FAQs on initial margin implementation.
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