The countdown is on! The second wave of European margin rules is fast approaching

13 June 2017
6 AM

Jenny Nilsson

As of January 3rd 2018 FX forwards will need to be collateralised under the European margin rules.

We have created a brief Q&A which highlights the key components of the regulation, what it means for your firm and how you can achieve compliance. 

What does this mean for the market?

  • Some firms that have never exchanged margin previously will need to do so for the first time
  • Many more agreements will need to be margined
  • Many more counterparties will be in scope

What are the key components of the regulation?

European non-cleared margin requirements cited the classification of an FX spot transaction in MiFID II as an important precursor to the inclusion of FX forwards in the rules. With the classification complete and the go live of MiFID II set for January 3rd 2018, all FX forwards will subsequently need to be collateralised.

I’ve never had to exchange collateral before, what does this mean for me?

  • Legal agreements will need to be negotiated and agreed in advance with your counterparties
  • You need to be able to calculate margin and have a process in place to exchange daily margin calls
  • You and your counterparties will not always agree on the amount of margin to be moved. Robust dispute resolution is imperative to be able to efficiently pinpoint where in your portfolio you have disputes and what is driving them

Why the large increase in margin call volumes? And what does that mean for the market?

  • A large number of counterparty relationships only trade FX. As a result, the amount of agreements they will have to margin will increase substantially as of January 3rd 2018 
  • With many more collateralised relationships, many more margin calculations need to be performed and many more margin calls need to be sent and agreed. This places increased strain on existing collateral management functions

I’m not in Europe but my counterparties are, what does this mean for me?

You are indirectly affected by the rules if you trade FX forwards with a European counterparty. All new FX forward trades that you do with your European counterparties will have to be margined according to the rules from January 3rd 2018.

Now I know the challenges, how can I make light of them?  

If you are looking to put a collateral management process in place for the first time, look for a solution that is quick to implement and allows you to optimise your operational resources.

Firms that will see an increase in margin call volume and amount of counterparties in scope need a scalable and exception-based collateral management solution. Bringing processes together and focusing on exceptions through automation will enable you to direct your resource where it matters – on risk and compliance.

triResolve Margin was recently voted the market leading collateral management solution by the industry.  Low cost, easy to implement and highly automated, triResolve Margin is unique in its ability to assist firms in overcoming the challenges presented above. Please get in touch if you wish to request a demo or discuss your specific requirements.