From the Regulators

Proposals detail margin requirements that counterparties should exchange in non-centrally cleared trades

By James Langton |

European securities, banking and insurance regulators have launched a second round of consultations on margin requirements for over-the-counter derivatives that aren't cleared through a central counterparty, the European Supervisory Authorities (ESAs) announced on Wednesday.

This round of consultations was launched following "an intense engagement" with other regulators and the financial industry, the ESA says.

The proposals detail the margin that counterparties should exchange in non-centrally cleared trades, as well as the methodologies that should be used to calculate those margins. They also set out the criteria for eligible collateral, and establish criteria to ensure that this collateral is sufficiently diversified.

Regulators have also reviewed, or clarified, several aspects of the proposed rules, the ESA says, including: concentration limits for sovereign debt securities; requirements for trading documentation; and the minimum credit quality of collateral.

This latest round of consultations is part of a long-running effort to enhance oversight and regulation in the OTC derivatives markets in the wake of the global financial crisis.

The so-called European Market Infrastructure Regulation (EMIR) establishes rules to increase the safety and transparency of the OTC derivatives markets, requires OTC derivative contracts to be cleared, that derivative transactions be reported to trade repositories, and it sets a framework to enhance the safety of central counterparties (CCP).

Comments on this latest consultation are due by July 10, and the ESA plans to hold a public hearing into the issues it covers on June 18 in London.