Variation margin rules deadline upheld by ESMA
European asset managers and pension funds were expected to have implemented new variation margin (VM) requirements by 1 March after regulators rejected calls for the deadline to be put back. The European Securities and Market Authority (ESMA) said it would not follow suit with its US counterpart, which gave American firms a six-month relief period on implementing the new practice on mark-to-market margins for derivatives trades. The International Securities Derivatives Association, the Global FX division of the Global Financial Markets Association, the Investment Association, the Financial Services Roundtable, the ABA Securities Association and the American Council of Life Insurers all urged ESMA to delay the deadline.
Despite the US buy-side being given a six-month relief period for the impending variation margin rules, the European regulator has decided to uphold the original deadline of 1 March 2017.The European Securities and Market Authority (ESMA) explained the deadline was part of a globally agreed framework and the timeline for implementation has been known in the EU since 2015.“It is unfortunate that the financial industry has not managed to prepare for the implementation. Any further delays of the application of the EU rules would formally need to be implemented through EU legislation, which is not possible at this point in time due to the lengthy process for adopting EU legislation,” it said.Earlier this month, the US derivatives regulator delayed enforcement of the strict rules for asset managers and pension funds by six months. The ‘no-action’ relief from the Commodity Futures and Trading Commission (CFTC) will mean it will not punish pension funds, asset managers and insurance companies for failing to post and exchange variation margin (VM) for bilaterally traded derivatives until 1 September.“The facts on the ground cannot be ignored that as much as 90% of those end-users are not ready to meet the new requirements despite their best efforts to do so,” said Christopher Giancarlo, acting chairman of the CFTC.The International Securities Derivatives Association, along with the Global FX division of the Global Financial Markets Association, the Investment Association, Financial Services Roundtable, the ABA Securities Association and the American Council of Life Insurers all contributed to a letter sent to regulators.“The associations understand that as much as six months may be needed by many market participants to complete the legal and operational processes to comply with variation margin regulations,” the trade bodies said.