On December 15, 2016, the European Union (EU) took the final step in implementing regulatory technical standards (RTS) for risk mitigation techniques for uncleared derivatives by publishing the RTS in the Official Journal. The RTS supplements EMIR by setting out the levels of variation margin (VM) and initial margin (IM) as well as the types of collateral that over-the-counter (OTC) derivatives counterparties must exchange in a bilateral transaction that is not cleared through a central counterparty (CCP).

The RTS was initially adopted by the European Commission (EC) on October 4, 2017, and will be "in force" on January 4, 2017 (known as the "Date of Entry into Force," which is 20 days after publication in the Official Journal) for the largest financial entities. The actual compliance date, however, will be February 4, 2017 (one month after the "in force" date).

Below is a chart showing the implementation schedule for both IM and VM in the EU.

While the delayed EU margin implementation disrupted the simultaneous worldwide margin implementation envisioned under the Basel Committee on Banking Supervision (BCBS) and the International Organization Securities Commission (IOSCO) guidance, the March 1 and September 1, 2017 compliance dates will bring the EU in line with other major jurisdictions such as the US and Japan (see Practice Note, The Dodd-Frank Act: Margin Posting and Collection Rules for Uncleared Swaps: Final BCBS/IOSCO Guidelines on Uncleared Swap Margin Collateral).

Since the beginning of the implementation of VM and IM requirements, parties have had to undergo the renegotiation of their swap transaction documentation, including the credit support annex (CSA) under an ISDA Master Agreement. In response to this, ISDA has released new CSAs to support IM and VM requirements, as well as protocols to assist parties in the documentation process. For more information on these new ISDA documents, see Legal Updates:

ISDA Publishes 2016 Phase One Credit Support Annex for Initial Margin.

ISDA Publishes 2016 Variation Margin Protocol to Help Parties Comply with Margin Rules for Uncleared Swaps.

ISDA and IHS Markit Announce 2016 Variation Margin Protocol and ISDA Amend; ISDA releases Protocol Guide and Fact Sheet.

For a flow chart detailing VM and IM compliance, see Checklist, Flow Chart: Margin Compliance for Uncleared Swaps.

For more information on risk mitigation techniques with EMIR, see Practice Notes, EMIR: requirement to clear OTC derivative contracts through a CCP and EMIR: risk mitigation requirements for uncleared OTC derivatives.

For more information on EMIR, see Practice Note, EMIR: overview.