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EMIR 3.0, post-trade risk reduction services and the initial margin threshold: an unintended consequence
Post trade risk reduction (PTRR) services are not new to over-the-counter (OTC) derivatives markets. Through EMIR 3.0, policymakers acknowledged their function (reducing counterparty credit risk and/or operational risk) and fostered their usage by laying down the exemption from the clearing obligation. Admittedly, however, they did not consider any impact of PTRR on margin requirements for non-centrally cleared OTC derivatives. Performing PTRR – specifically portfolio rebalancing – is set to increase the aggregate average notional amount (AANA). As the latter is calculated to determine whether the initial margin (IM) threshold is exceeded, counterparties may opt to avoid using PTRR to avoid becoming subject to the burdensome IM requirements. An outcome not in line with the intention to foster PTRR.
9 JUN 2025
