Mapping Cross-Border Margin Requirements

The Financial Crisis of 2007-8 triggered a large-scale overhaul of European and Global Financial Services Regulation. Financial institutions are now subject to more far-reaching and onerous regulation, as well as the prospect of increased regulatory fines. The European Market Infrastructure Regulation (“EMIR”) (and parallel regimes in other G20 members countries) is part of this new landscape. With the aim of reducing counterparty and systemic risk, EMIR requires that so called “over-the-counter” derivative transactions are either cleared through a central counterparty, or that the parties (including certain non-financial entities) exchange collateral and undertake other riskmitigating measures. EU entities conducting over-the-counter derivative transactions and their non-EU counterparties must reconcile the EU rules with those that apply in the non-EU counterpart’s jurisdiction. The position in any given case will depend on numerous variables including the jurisdiction of the counterparty, the nature of the transaction, the collateral that would be provided and whether and to what extent the EU Commission has determined that the rules in the third country are equivalent to those in the EU. This paper outlines the needs of EU market participants in the context of this complex and evolving regulatory matrix and suggests key areas in which technology solutions may address those needs.