Intragroup exemption from the exchange of collateral

Publication of Commission Delegated Regulation (EU) 2016/2251 providing for Procedures for Intragroup Exemptions

 

This section provides important information regarding the application/notification procedure for the intragroup exemption from the exchange of collateral:

  
Financial Counterparties (FCs) under the supervision of the CSSF: if they intend to apply for this exemption, they are required to contact the CSSF (e-mail: emir_fcp_ige@cssf.lu; phone: (+352) 26 25 1 - 2792) in advance and before starting the procedure as described in the section ‘How to make an application/notification’.

 
Non-Financial Counterparties (NFCs): they must follow the procedure as described in the section ‘How to make an application/notification’ without contacting the CSSF prior to the application/notification.

  
Commission Delegated Regulation (EU) 2016/2251 with regard to regulatory technical standards for risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty (CCP) has been adopted by the European Commission on 4 October 2016 and entered into force on 4 January 2017 (hereafter the “RTS”). This RTS is corrected by the Commission Delegated Regulation (EU) 2017/323 of 20 January 2017 (hereafter the “correcting RTS”).

 
The RTS sets out, among others, the requirements concerning the risk management procedures for the margin exchange of collateral for non-centrally cleared OTC derivatives transactions, the approaches to be applied for the margin calculation, the procedures around the margin collection, the eligibility, valuation and treatment of collateral, the operational aspects and requirements concerning the trading documentation.

 
The RTS also foresees the procedures for the counterparties and the competent authorities to be followed when applying exemptions for intragroup transactions, the applicable criteria on what should be considered as practical or legal impediment to the prompt transfer of own funds and repayment of liabilities arising from OTC derivative contracts between the counterparties belonging to the same group.

  
Moreover, Article 36 of the RTS provides different phase-in periods for the application of the initial and variation margins.

 

Application of initial margins (Article 36 of the RTS)

 

With regard to initial margins, where both counterparties have, or belong to groups each of which has, an aggregate average notional amount of non-centrally cleared derivatives [1] above the following thresholds, a deferred date of application is foreseen:

  • above EUR 3 000 billion 4 February 2017 [2]
  • above EUR 2 250 billion from 1 September 2017
  • above EUR 1 500 billion from 1 September 2018
  • above EUR 750 billion from 1 September 2019
  • above EUR 8 billion from 1 September 2020

 

Application of variation margins (Article 37 of the RTS)

 

With regard to variation margins, the obligations set out in Articles 9(1), 10 and 12 apply as follows:
(1) for counterparties both of which have, or belong to groups each of which has, an aggregate average notional amount of non-centrally cleared OTC derivatives above EUR 3000 billion, from 4 February 2017 [3] ;
(2) for other counterparties, from 1 March 2017 [3].


Dates of application for specific derivative contracts

 

In respect of contracts for foreign exchange forwards referred to in point (a) of Article 27, the variation margin shall apply on one of the following dates, whichever is earlier:

(1) 31 December 2018, where the Regulation referred to in point (2) below does not yet apply;
(2) the date of entry into application of Commission Delegated Regulation [4] specifying some technical elements related to the definition of financial instruments with regard to physically settled foreign exchange forwards or the date determined pursuant to Article 37(1) of Commission Delegated Regulation (EU) 2016/2251, whichever is the later.

 

In respect of all non-centrally cleared OTC derivatives which are single-stock equity options or index options, the variation margins and initial margins as referred to in Article 36(1) and Article 37 of the RTS shall apply from 3 years after the date of entry into force of the RTS.

  
Exemption from the exchange of collateral


As defined in Article 11(6) to Article 11(10) of Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (EMIR), financial counterparties established in Luxembourg and where the CSSF is the competent authority [5], and non-financial counterparties established in Luxembourg can make use of the exemptions from the exchange of collateral obligation for intragroup transactions in OTC derivatives contracts.


They have to apply [6]/notify [7]  to the CSSF before the intended use of the exemption in accordance with the below described procedure.


Intragroup transactions with third-country counterparties


As long as no implementing act has been adopted pursuant to Article 13(2) of EMIR, intragroup transactions in non-centrally cleared OTC derivative contracts between a counterparty established in Luxembourg and a third-country counterparty enjoy a deferred application of initial margins as foreseen in Article 36(2) of the RTS.


Template for intragroup exemption from the exchange of collateral


The provided template is published for information only and should enable counterparties to prepare their application/notification. Applicants can preview this form in order to be able to gather all required information before submitting their application/notification via the interactive form. This form cannot be used to submit a signed version of the application/notification.

 
Template


How to make an application/notification?

 

Applying/notifying counterparties are required to obtain a recent external legal opinion evidencing the existence or nonexistence of legal impediments to the prompt transfer of own funds or repayment of liabilities (in accordance with Article 11(5) to Article 11(10) of Regulation (EU) No 648/2012 and Article 33 of Commission Delegated Regulation (EU) 2016/2251 which has to be sent, together with the application, to the CSSF.
  
Application/notification for intragroup exemptions can be submitted to the CSSF by applying all of the following steps:


1) filling in the interactive form which is available under https://emircollateral.apps.cssf.lu/ 


2) after having submitted the interactive form under step 1), the pdf file, which is automatically generated by the interactive form, must be printed, signed and sent to the CSSF to the e-mail address as detailed on the signature page of the pdf file. The applying/notifying party must include in the email of the application/notification the supporting documents as outlined in Article 18(2) of Commission Delegated Regulation 149/2013;


3) the documents sent to the CSSF under step 2) must be sent by mail to the CSSF’s address [8] in accordance with Article 18(1) of Commission Delegated Regulation 149/2013. The written file must contain a duly signed confirmation that the information submitted in the written application/notification under step 3) is the same as the information submitted via the interactive form under step 1).

 

Decision of the CSSF


Financial counterparties will be informed by the CSSF of its positive or negative decision in writing. For non-financial counterparties, the exemption is valid unless the CSSF does not agree upon fulfilment of the conditions foreseen in the respective articles of EMIR [9]. In the latter case, the non-financial counterparties will be informed by the CSSF in writing.


In accordance with Article 32(11) of the RTS, the relevant counterparty can submit another application/notification where there has been a material change in the circumstances that formed the basis of CSSF’s negative decision or objection.


Changes to the information provided in the interactive form


If any change to the information provided in the form occur after exemption from the collateral obligation was granted and if such change has an impact on the fulfilment of the conditions set out in paragraphs 6, 7, 8, 9 or 10 of Article 11 of EMIR, the CSSF must be informed immediately by written notice to be sent to the following e-mail addresses:
For financial counterparties: emir_fcp_ige@cssf.lu
For non-financial counterparties: emir_nfcp@cssf.lu
by mentioning in the subject line of your e-mail: EMIR-IG exemption.


The CSSF may object to the application for the exemption or withdraw its positive decision following any change in the circumstances that formed the basis of the CSSF’s decision.


Publication Requirement


In accordance with Article 20 of Commission Delegated Regulation 149/2013, the following information on the intragroup exemption of exchange of collateral must be disclosed publicly:


(a) the legal counterparties to the transactions including their LEI Codes;
(b) the relationship between the counterparties;
(c) whether the exemption is a full exemption or a partial exemption;
(d) the notional aggregate amount of the OTC derivative contracts for which the intragroup exemption applies.


The counterparties are required to provide the relevant link to the above mentioned publication to the following email address once an exemption is granted:
For financial counterparties: emir_fcp_ige@cssf.lu
For non-financial counterparties: emir_nfcp@cssf.lu

 

         

[1] The calculation of the aggregate average notional amount of non-centrally cleared derivatives is detailed in Article 39 of the RTS.

[2] However, in accordance with Article 38(2) of the RTS, where a counterparty established in the European Union enters into a non-cleared OTC derivative contract with another counterparty which belongs to the same group, the date of application shall be 4 July 2017.
[3] However, in accordance with Article 38(2) of the RTS, where a counterparty established in the European Union enters into a non-cleared OTC derivative contract with another counterparty which belongs to the same group, the date of application shall be 4 July 2017. 

[4] C(2016) 2398 final.
[5] According to the law of 15 March 2016 on OTC derivatives, central counterparties and trade repositories and amending different laws relating to financial services.

[6] Application in case of a Financial Counterparty (FC).
[7] Notification in case of a Non-Financial Counterparty (NFC).
[8] CSSF, L-2991 Luxembourg. 
[9]
Articles 11(7), 11(9) and 11(10) of EMIR.  

 

 

 

 

Intragroup exemptions

Notifications/applications for intragroup exemptions from the exchange of collateral via the interactive form