The value of your investments can go down as well as up. Losses can exceed deposits on margin products. Please ensure you understand the risks.

The value of your investments can go down as well as up. Losses can exceed deposits on margin products. Please ensure you understand the risks.

{{ "2017-02-21 14:34:18Z" | moment:{inputFormat: 'YYYY-MM-DD HH:mm:ssZ'} }}

Implementation-of-EMIR-rules-variation-margin-exchange-stock-collateral-changes

Title: Implementation of new EMIR rules: variation margin exchange and stock collateral changes
Page Content:

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​As of 1 March 2017, new EU regulations enter into force for variation margin exchange and stock collateral eligibility. Affected counterparties are all financial counterparties as defined by the EU regulations, as well as certain non-financial counterparties.

As part of the implementation of the new regulations, Saxo will send out amendments to the Institutional Trading Agreement (ITA) which will be effective as of 1 March 2017.​

What is variation margin exchange (VM)?​
Variation margin exchange means that two counterparties governed by these rules can, on a daily basis, exchange variation margin (basically the collateralisation of unrealised profit/loss) for OTC derivatives subject to these rules.

​What is stock collateral eligibil​ity?
Only stocks that are part of a main index as defined by the regulation will be eligible for collateral. Any clients that are significantly affected by this change will be contacted directly.​


Saxo ​has implemented a solution that enables institutional clients subject to the requirement to collect variation margin (VM) on a daily basis. In practice, Saxo will allow you to withdraw cash corresponding to any unrealised profit from products in scope on condition that certain criteria are met (see description below).

Products in scope are :

  • FX options
  • Rolling FX spot
  • FX forwards (except for physically settled)
  • Options on Futures (except where there is a daily reset of profit/loss)
  • Contract Futures (except where there is a daily reset of profit/loss)
  • CFDs

The regulation applies both ways, where both you and Saxo can collect variation margin.

The variation margin system will function in parallel to the existing margin requirements under the ITA, but you will still need to comply with all initial margin (IM) requirements irrespective of the new VM setup. Accordingly, the VM setup is in addition to, and not a substitution of, any margin required to be posted by clients under the ITA.

In order to comply with the regulation, Saxo will allow you to transfer any cash collateral you are entitled to as VM out of Saxo, on the condition ​that you have fulfilled all margin requirements (see below). The transfer of VM can also be made to your Saxo account.

According to the regulation, VM shall be calculated at least daily. Saxo will perform a real time calculation of VM that will be displayed via the trading platforms.

 Calculation of VM displayed in trading platforms

Criteria for collecting variation margin

Minimum transfer amount
The EU regulations allow for a minimum transfer amount of EUR 500,000, or EUR 500,000 equivalent of non-EUR VM. As Saxo will implement this functionality, you will only be able to collect VM if the VM to be collected is equal to or above EUR 500,000, or EUR 500,000 equivalent of non-EUR VM.  The VM to be collected is defined in the regulation as:

VM{Unrealised P&L for product in scope}-Previosuly Collected VM+Previously Posted VM

Given that the minimum amount allowable for withdrawal is EUR 500,000, or its non-EUR equivalent, if you have an unrealised profit of EUR 450,000 then you will not be able to collect any VM in the scenario where previously collected VM and previously posted VM is zero.

Sufficient collateral to cover general margin requirements
If you have collectible VM of EUR 500,000 or above, you are allowed to collect that VM.  This can be done though transferring cash to another Saxo account or to an external cash account in your company’s name. If the collected VM is transferred to a Saxo account, the counterparty risk against Saxo is unchanged. You can use that cash as any other cash (such as the buying of stocks and bonds), thereby using the VM to add to existing market exposure.

If the collected VM is transferred to an external account, the amount available for margin trading will decrease by the same amount. This means that, in principle, a collection of VM may lead to you having an insufficient amount left for margin trading, which would imply that Saxo will need to close down any margin positions immediately after paying out the VM should there be a situation where your margin utilisation (MU) goes above 100%. You can avoid this by not requesting the VM to be transferred out of Saxo. In the case of a transfer request, Saxo will, in order to protect you, not pay out an amount unless otherwise previously agreed with you. This means that a request for transfer of VM out of Saxo will only happen automatically if you still have sufficient remaining collateral to support any IM requirements you might have.

Transferring VM out of Saxo
The first time you request a transfer of VM out of Saxo, a variation margin account (VMA) will be created under  your account structure. However, you do not have to wait for the first transfer instruction and can request that such an account be created at any time. It is recommended that you ask for such an account beforehand, in order to avoid risk of the first VM exchange being delayed.

Saxo collection of variation margin

Saxo can also collect VM, and the minimum transfer amount is zero. Given that you have posted collateral to support margin trading, Saxo will, in general, not need to collect additional collateral (i.e. extra cash) from you if you have sufficient collateral to support open positions. However, you should be aware that if a transfer has been requested and VM is to be collected and transferred out of Saxo, Saxo will request cash back should the VM level drop below the original transfer amount.

As an example: you are entitled to collect VM of EUR 600,000 and have asked for this amount to be transferred to an external account. Once the transfer is completed, and should the unrealised profit drop from EUR 600,000 to EUR 590,000, Saxo will be entitled to collect EUR 10,000 back in cash from you.

Time lines
Saxo will calculate VM in real time, while making the information available via the trading platform. You may, at any time, and during business hours, ask for the VM to be collected. A request should be made before 9 AM UTC in order to benefit from same-day processing of the order. The request should be sent to Saxo following the normal cash withdrawal procedures. If the request is sent before the cut-off time, the requested amount will be delivered to you by the next business day, subject to the criteria described above. In case Saxo requests VM back and does so before the cut-off time, you must initiate the pay back of VM the same day (i.e. initiate the necessary payment instructions).

Examples

Scenario 1
The client VM at the time of the pay-out request = EUR 450,000.
Collateral available for margin trading at the time of the pay-out request = EUR 2,000,000
Total margin requirement at the time of the pay-out request = EUR 600,000
Net previously posted and collected VM (variation account cash balance) = EUR 0

The VM is below the minimum transfer amount of EUR 500,000, so you will not be able to collect any VM. This represents no change compared to today.

Scenario 2
The client VM at the time of the pay-out request = EUR 600,000
Collateral available for margin trading at the time of the pay-out request = EUR 2,000,000
Total margin requirement at the time of the pay-out request = EUR 1,500,000
Net previously posted and collected VM (variation account cash balance) = EUR 0

The VM is above the minimum transfer amount of EUR 500,000. If you ask for the VM to be transferred to an external account, the total collateral available for margin trading would decrease from EUR 2,000,000 to EUR 1,400,000. This is insufficient to cover margin requirement of EUR 1,500,000. In this case, no transfer will be made unless otherwise agreed with you, since the pay-out will initiate a stop out procedure. You can avoid immediate stop out by only asking for EUR 500,000 to be transferred out of Saxo and keep the remaining VM of EUR 100,000 in Saxo, thereby maintaining sufficient collateral to satisfy the total margin requirement of EUR 1,500,000. You can also choose not to request the transfer of the EUR 600,000 to an external account.

Scenario 3
The client VM at the time of the pay-out request = EUR 600,000 (at T+0)
Collateral available for margin trading at the time of the pay-out request = EUR 2,000,000
Total margin requirement at the time of the pay-out request = EUR 600,000
Net previously posted and collected VM (variation account cash balance) = EUR 0

The VM is above the minimum transfer amount of EUR 500,000. If you ask for the VM to be transferred to an external account, the total collateral available for margin trading will decrease from EUR 2,000,000 to EUR 1,400,000. This amount is still sufficient to cover the total margin requirement. As such, the transfer will be made. You don’t have to ask for the VM to be transferred out of Saxo, but may choose to do so.

If at T+1, the VM drops from EUR 600,000 to EUR 500,000. You are only entitled to VM collection of EUR 500,000. Given that you had EUR 600,000 transferred out of Saxo, Saxo will reclaim EUR 100,000. You must transfer the EUR 100,000 to Saxo by the next business day, given that Saxo  makes the request before the cut-off time of 9 AM UTC.

Scenario 4
The client VM at the time of the pay-out request = EUR -600,000, (i.e. unrealised loss = EUR 600,000)
Collateral available for margin trading at the time of the pay-out request = EUR 2,000,000
Total margin requirement at the time of the pay-out request = EUR 600,000
Net previously posted and collected VM (variation account cash balance) = EUR 0

Saxo is entitled to collect VM of EUR 600,000. Given that you have sufficient collateral to cover the total margin requirement, Saxo will, in general, not call for additional collateral, but is entitled to do so at any time.

While every effort has been made to accurately describe the new functionality, in case of any discrepancies between what is described here and the terms of the amended ITA, the amended ITA will be legally binding.

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