On 10 November 2023, the EACB joined 7 other trade associations representing a wide range of stakeholders in the European and global financial markets in a letter addressed to three European Supervisory Authorities: EIOPA, ESMA and EBA. The associations call for a practical approach to bridge the gap between 4 January 2024 and entry into force of EMIR 3 to avoid detrimental market disruption given the following situation.
The current temporary exemption from margin requirements for single-stock equity options or index options (‘equity options’) set out in the regulatory technical standards (RTS) on the risk mitigation techniques for OTC derivative contracts not cleared by a central counterparty (‘bilateral margin RTS’) has been repeatedly extended and is now set to expire on 4 January 2024.
Following the European Supervisory Authorities’ request (June 2023) that the co-legislators clarify in EMIR 3 what the permanent treatment of equity options should be, the co-legislators signalled their intention to provide a non-time limited exemption from bilateral margining requirements for these products.
In the absence of a timely action by the European Supervisory Authorities (ahead of the 4 January deadline) to bridge the gap between 4 January 2024 and entry into force of EMIR 3, EU market participants would have to comply with the bilateral margining requirement, including the exchange of variation and initial margin for a few months.
To avoid this highly disruptive situation the associations urge the European Supervisory Authorities to take appropriate action as soon as practicable to provide certainty to the market.