EU ESMA Securities Brief

Headline

ESAs publish final report proposing to eliminate initial margin obligations for sub-threshold counterparties on existing uncleared OTC derivative contracts

Executive Summary

The EBA, EIOPA, and ESMA published a joint final report on August 3, 2026 proposing draft Regulatory Technical Standards to amend the bilateral margin framework under the EU uncleared derivatives margin delegated regulation. The proposed amendments would remove the requirement for counterparties below the €8 billion initial margin threshold to exchange initial margin on both new and existing uncleared OTC derivative contracts.

Bottom Line

The proposed RTS, if adopted, removes the initial margin exchange obligation for sub-threshold counterparties on both new and existing uncleared OTC derivative contracts, collapsing a bifurcated compliance structure that has required separate margin treatment for legacy and new books. The relief is not yet operative: Commission endorsement, followed by European Parliament and Council scrutiny, must precede publication in the Official Journal. Counterparties below the €8 billion threshold carry the existing-contract obligation until that legislative process concludes.

Key Regulatory Signals

• Existing-Contract Exemption Is the Structural Change: Under the current framework, sub-threshold counterparties are already exempt from initial margin on new contracts but must continue exchanging initial margin on existing contracts. The proposed RTS removes the existing-contract obligation entirely, closing the asymmetry that has persisted since the phased implementation of the bilateral margin rules.
• Sub-Threshold Counterparties Face a Reduced Operational Burden: Counterparties with aggregate average notional amounts below €8 billion, the threshold set by the European Market Infrastructure Regulation for initial margin exchange, would no longer need to maintain initial margin infrastructure for their legacy uncleared OTC derivative book once the RTS takes effect.
• Endorsement and Parliamentary Scrutiny Remain Ahead: The draft RTS has been submitted to the European Commission for endorsement. It then proceeds to European Parliament and Council scrutiny before publication in the Official Journal, meaning the relief is not yet operative and firms cannot act on it until that process concludes.
• International Consistency Is an Explicit Policy Driver: The ESAs cite alignment with treatment applied in other jurisdictions as a stated objective. This signals deliberate convergence with frameworks such as the BCBS-IOSCO margin requirements, where comparable phase-out logic has been applied to sub-threshold entities in other major markets.

Regulatory Delta

- The current bilateral margin delegated regulation has required sub-threshold counterparties to maintain initial margin on legacy contracts since phased implementation began in 2017. This proposal is the first ESA-level draft RTS to address that asymmetry directly.

- The central structural change is the extension of the new-contract exemption to existing contracts, eliminating the split treatment that has required firms to run parallel margin processes for new and legacy books.

- The proposal aligns with the ESAs' broader simplification agenda signaled in recent EMIR review consultations and mirrors the phase-out logic applied under the BCBS-IOSCO bilateral margin framework in other major jurisdictions.

Materiality Classification

HIGH — This action carries confirmed regulatory impact beyond its home jurisdiction.

Intelligence Outlook

Monitor the European Commission for endorsement of this rulemaking and the Official Journal for publication of the final RTS following Parliamentary and Council scrutiny.