EMIR: key facts about the margining of non-cleared OTC derivative transactions


Collection of collateral

To prevent the build-up of uncollateralised exposures, FC/NFC+ counterparties will be required to collect collateral in the form of initial margin and variation margin. This will apply whether or not their counterparty is established in the EU, subject to the opt-outs outlined in section “Opt-out options” below.

Initial Margin

Initial margin will be collected “gross” (i.e., as a two-way payment without the possibility of netting initial margin amounts against each other) within the business day following the entry into a non-cleared OTC transaction. The idea is for initial margin to cover the potential future exposure of an FC/NFC+ counterparty due to its counterparty’s default. Consequently, initial margin will need to be recalculated following a change to the portfolio of non-cleared OTC transactions between the counterparties (e.g., due to the termination of any non-cleared OTC transaction) and otherwise every 10th business day, in each case to reflect movements in counterparties’ risk positions.

The RTS require that initial margin is segregated from proprietary assets of any third party custodian and that the compliance by an FC/NFC+ counterparty with the requirements under the RTS on segregation is supported by legal opinion(s) to be obtained at least annually. In addition, the RTS require that initial margin is not subject to any rehypothecation or other reuse by a collecting FC/NFC+ counterparty.

Variation Margin

Variation margin will be collected “net” on a daily basis to reflect current exposures resulting from actual changes in market price calculated in accordance with the daily valuation requirement under Art. 11(2) of EMIR.

Opt-out options

Various exceptions to the requirement to collect margin (initial margin, variation margin or both) will be available.

These exceptions are broadly as follows:

  • An FC/NFC+ counterparty may agree: <br/> <br/> <br/>not to collect initial margin with respect to (i) physically-settled FX forwards; (ii) physically-settled FX swaps; or (iii) the exchange of principal of a currency swap; <br/> <br/> <br/>not to collect initial margin if it or its counterparty belongs to a consolidated group whose aggregate month-end average notional amount of non-cleared OTC transactions for June, July and August of the relevant year is below a certain threshold. The applicable threshold amounts are as follows:<br/>

From 1 December

Threshold Amount


€3 trillion


€2.25 trillion


€1.5 trillion


€0.75 trillion

2019 onwards

€8 billion

  • In addition, an FC may agree not to collect initial margin where the total initial margin calculated to be exchanged for all non-cleared OTC transactions between counterparties at group level is equal to or lower than €50 million.

Eligibility of collateral

A wide range of asset classes will be eligible as collateral, including cash, gold, various types of debt securities and equities. Most asset classes will be subject to further conditions, such as credit quality assessments (using an approved internal rating based approach or external ratings), haircuts and concentration limits (of 50%, 10% and 40% respectively, depending upon the asset class) to ensure sufficient diversity of collateral pools.

Operational procedures

A variety of operational requirements will be imposed on FC/NFC+ counterparties to ensure that the margining arrangements are implemented in a manner which minimises any potential operational risks. Among other things, the RTS highlight the need for (i) detailed policy documentation with regards to the exchange of collateral; (ii) transparent senior management reporting of material exceptions; (iii) escalation procedures (both internally and between the respective counterparties); (iv) processes to verify the liquidity of collateral; and (v) annual testing of operational procedures for the exchange of collateral.