The EU will delay the introduction of collateral rules for uncleared swaps until the end of the year, a move that could disrupt global adoption of the rules.
The delay means that the EU will adopt the initial margin rules later than the September deadline issued by US and global regulators.
Deepak Sitlani, derivatives partner at global law firm Linklaters, believes that a delay in implementation would allow any uncertainties to be corrected.
“A delayed implementation is certainly welcome. The industry has been working hard to implement based on draft rules that included mistakes and ambiguities.
“Hopefully now there will be an opportunity to fix those and for the market to build systems and develop documentation based on a finalised set of rules rather than a draft,” said Sitlani.
Sitlani suggests that ambiguities in the rules include limiting institutions that can hold cash margin to EU entities, the timing for the transitional exemption for FX forwards, as well as the process for applying for an intragroup exemption.
However, the decision could lead to a potential conflict between US and EU entities over the harmonization of the margin rules.
“The question now is whether there will be some sort of relief under the US rules. I suspect US entities would feel hard done by if they had to collect initial margin at a time when their EU counterparts didn’t.”