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Final draft regulation amending margin requirements for FX forwards

18/01/2018

On 18 December 2017, the European Supervisory Authorities (ESAs) published a Final Report amending the requirements for risk-mitigation techniques for OTC derivatives not cleared by a central counterparty (CCP) with regard to physically settled foreign exchange (FX) forwards.

On 18 December 2017, the European Supervisory Authorities (ESAs) published a Final Report amending the requirements for risk-mitigation techniques for OTC derivatives not cleared by a central counterparty (CCP) with regard to physically settled foreign exchange (FX) forwards.

The ESAs now suggest limiting the requirement to collect variation margin for physically settled FX forwards exclusively to transactions concluded between ‘institutions’, within the meaning of the Capital Requirements Regulation (CRR), i.e. credit institutions and investment firms, or with an equivalent entity located in a third country that would meet the definition of ‘institution’ if located in the EU. Consequently, for this specific product, investment funds would be excluded from margin requirements for physically settled FX forwards.

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