EMIR Variation Margin Rules Effective March 1, 2017

One of the regulatory pillars of the European Market Infrastructure Regulation ("EMIR") is the requirement for parties to collateralize the marked-to-market exposure in over-the-counter derivatives transactions ("OTC derivatives") that are not cleared by a central clearing system. This requirement is commonly referred to as posting or exchanging variation margin ("VM").

Effective March 1, 2017, the VM requirement to post margin collateral under EMIR will apply to most counterparties entering into OTC derivatives with EU financial institutions. These requirements will have two major consequences for derivatives counterparties:

• Existing ISDA documentation that customarily governs OTC derivatives transactions will either require amendment or replacement with new, recently published ISDA documentation, which will ensure compliance; and