The European Commission has announced that it has adopted a new set of rules, which set out the levels and types of collateral that OTC derivatives counterparties must exchange bilaterally if the transaction is not cleared through a central clearing counterparty (CCP).

The Commission explains that, should one counterparty to the transaction default, the margin collected will protect the non-defaulting counterparty against resulting losses. The decision takes the form of a 'delegated regulation' and is now subject to an objection period by the European Parliament and the Council after which it will be published in the Official Journal. The implementation of the rules will begin one month after the entry into force of the delegated regulation.

Rules on the central clearing of derivatives were introduced as part of global efforts to mitigate systemic risks to financial stability, following the 2008 financial crisis. Over-the-counter (OTC) derivatives were regulated by the EU in 2012 under the European Market Infrastructure Regulation (EMIR). The Commission states: “EMIR required certain derivatives to be centrally cleared to reduce risks. The first clearing obligations came into operation this year. For those derivatives not centrally cleared EMIR requires bilateral exchange of collateral to mitigate risks.”