The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have opened a consultation on margin requirements for non-centrally cleared derivatives. The proposals are to:
- Make permanent the current temporary exemption, which is due to expire 4 January 2026, for single-stock equity options and index options from the UK bilateral margining requirements. The EU had the same temporary exemption until 24 December 2024 when the latest revisions to the European Market Infrastructure Regulation, known as EMIR 3, made the exemption permanent. We discuss this change and others in our client bulletin, "EMIR 3 - Impact on uncleared OTC derivatives markets". Both the UK and EU allow provision for the exemptions to change, if in future other jurisdictions implement margin requirements for these derivatives.
- Remove the obligation to exchange initial margin (IM) on outstanding legacy contracts for firms that subsequently fall out of scope of the requirement. This is intended to ease the operational burden on firms which is considered to be disproportionate to the lower systemic risk of such market participants and align with other jurisdictions.
- Allow UK firms, when transacting with a counterparty subject to margin requirements in another jurisdiction, to use that jurisdiction's threshold assessment calculation periods and entry into scope dates to determine whether those transactions are subject to IM requirements. This measure is intended to remove the current disincentive to trade with international counterparties that use different threshold assessment calculation periods and dates.
Responses to the consultation may be submitted until 27 June.
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