On December 18, 2017, the European Supervisory Authorities (ESAs) published a final report aiming to align the treatment of variation margin for physically settled foreign exchange forward transactions (FX Forwards) with supervisory guidance applicable in other key jurisdictions.
The amended draft variation margin regulatory technical standards on risk mitigation techniques for over-the-counter (OTC) derivatives not cleared by a central counterparty (Draft RTS) limit the requirement to collect variation margin for FX Forwards to only transactions concluded between “institutions,” defined by the ESAs as 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 European Union (EU).
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