CHAPTER II

SPECIFIC PROVISIONS ON RISK MANAGEMENT PROCEDURES
SECTION 2

Exemptions in calculating levels of initial margin

Foreign exchange contracts
Article 27
By way of derogation from Article 2(2), counterparties may provide in their risk management procedures that initial margins are not collected with respect to:
1. physically settled OTC derivative contracts that solely involve the exchange of two different currencies on a specific future date at a fixed rate agreed on the trade date of the contract covering the exchange (‘foreign exchange forwards’);
2. physically settled OTC derivative contracts that solely involve an exchange of two different currencies on a specific date at a fixed rate that is agreed on the trade date of the contract covering the exchange, and a reverse exchange of the two currencies at a later date and at a fixed rate that is also agreed on the trade date of the contract covering the exchange (‘foreign exchange swaps’);
3. the exchange of principal of non-centrally cleared OTC derivative contracts under which counterparties exchange solely the principal amount and any interest payments in one currency for the principal amount and any interest payments in another currency, at specified points in time according to a specified formula (‘currency swap’).

Threshold based on notional amount
Article 28
1
By way of derogation from Article 2(2), counterparties may provide in their risk management procedures that initial margins are not collected for all new OTC derivative contracts entered into within a calendar year where one of the two counterparties has an aggregate month-end average notional amount of non-centrally cleared OTC derivatives for the months March, April and May of the preceding year of below EUR 8 billion.
The aggregate month-end average notional amount referred to in the first subparagraph shall be calculated at the counterparty level or at the group level where the counterparty belongs to a group.
2
Where a counterparty belongs to a group, the calculation of the group aggregate month-end average notional amount shall include all non-centrally cleared OTC derivative contracts of the group including all intragroup non-centrally cleared OTC derivatives contracts.
For the purposes of the first subparagraph, OTC derivative contracts which are internal transactions shall only be taken into account once.
3
UCITS authorised in accordance with Directive 2009/65/EC and alternative investment funds managed by alternative investment fund managers authorised or registered in accordance with Directive 2011/61/EU of the European Parliament and of the Council shall be considered distinct entities and treated separately when applying the thresholds referred to in paragraph 1 where the following conditions are met:
a
the funds are distinct segregated pools of assets for the purposes of the fund's insolvency or bankruptcy;
b
the segregated pools of assets are not collateralised, guaranteed or otherwise financially supported by other investment funds or their managers.

Threshold based on initial margin amounts
Article 29
1
By way of derogation from Article 2(2), counterparties may provide in their risk management procedures that initial margin collected is reduced by an amount up to EUR 50 million in the case of points (a) and (b) of this paragraph or EUR 10 million in the case of point (c) where:
a
neither counterparty belongs to any group;
b
the counterparties are part of different groups;
c
both counterparties belong to the same group.
2
Where a counterparty does not collect initial margins in accordance with paragraph 1(b), the risk management procedures referred to in Article 2(1) shall include provisions on monitoring, at group level, whether that threshold is exceeded and provisions for the retention of appropriate records of the group's exposures to each single counterparty in the same group.
3
UCITS authorised in accordance with Directive 2009/65/EC and alternative investment funds managed by alternative investment fund managers authorised or registered in accordance with Directive 2011/61/EU shall be considered distinct entities and treated separately when applying the thresholds referred to in paragraph 1 where the following conditions are met:
a
the funds are distinct segregated pools of assets for the purposes of the fund's insolvency or bankruptcy;
b
the segregated pools of assets are not collateralised, guaranteed or otherwise financially supported by other investment funds or their managers.
Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (OJ L 174, 1.7.2011, p. 1).