Tag: ESAs

ESAs

ESAs Review on Variation Margin Challenges for FX Forwards

The European Supervisory Authorities (ESAs) today released a statement acknowledging challenges for certain counterparties to exchange variation margin for physically settled FX forwards under EMIR by January 3, 2018.

Based on the material presented to the ESAs, it notes the implementation appears to mainly pose a challenge regarding transactions with certain end users.

The requirement to exchange variation margin for physically settled FX forwards is part of a globally agreed framework that aims to ensure safer derivatives markets by limiting the counterparty risk from derivatives trading partners, notes ESAs. The international standards state that variation margining of physically settled FX forwards is both an established practice among significant market participants and that it is a prudent risk management tool that limits the build-up of systemic risk, and thus that variation margining should apply to physically settled FX forwards.