Joint trade association advocacy paper on equity option margin exemption under EMIR 3

The European Fund and Asset Management Association (EFAMA) published a joint trade association advocacy paper on equity option margin exemption under EMIR 3.
The exemption from margin requirements for single stock equity options and index equity options is being proposed. Equity options are used for hedging exposure to purchase prices, share buybacks, private equity transactions, and stake building in preparation for takeover bids, among others. The small size of the equity options market, the short maturities of such contracts, and the multiple benefits they offer for risk mitigation purposes make a permanent exemption from margin requirements relatively risk-free for financial stability. The temporary exemption is set to expire on January 4, 2024, but as the situation has not materially changed, the proposal suggests introducing a recital in EMIR 3 recognizing that equity options should be permanently exempt from margin requirements. This will help avoid market fragmentation, ensure a level playing field, and avoid competitive disadvantages, especially for EU counterparties dealing with US banks and non-EU clients.