{
  "url": "https://openlegislation.uk/eu-regulation-2016-2251/article-14",
  "json_url": "https://openlegislation.uk/eu-regulation-2016-2251/article-14.json",
  "legislation": "eur/2016/2251",
  "legislation_title": "Commission Delegated Regulation (EU) 2016/2251 of 4 October 2016 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories with regard to regulatory technical standards for risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty (Text with EEA relevance)",
  "legislation_url": "https://openlegislation.uk/eu-regulation-2016-2251",
  "path": "article/14",
  "kind": "article",
  "number": "14",
  "heading": "General requirements",
  "text": "1. Where a counterparty uses an initial margin model, that model may be developed by any of, or both, counterparties or by a third-party agent.\nWhere a counterparty uses an initial margin model developed by a third-party agent, the counterparty shall remain responsible for ensuring that that model complies with the requirements referred to in this Section.\n2. Initial margin models shall be developed in a way that captures all the significant risks arising from entering into the non-centrally cleared OTC derivative contracts included in the netting set, including the nature, scale, and complexity of those risks and shall meet the following requirements:\n(a) the model incorporates risk factors corresponding to the individual currencies in which those contracts in the netting set are denominated;\n(b) the model incorporates interest rate risk factors corresponding to the individual currencies in which those contracts are denominated;\n(c) the yield curve is divided into a minimum of six maturity buckets for exposures to interest-rate risk in the major currencies and markets;\n(d) the model captures the risk of movements between different yield curves and between different maturity buckets;\n(e) the model incorporates separate risk factors at least for each equity, equity index, commodity or commodity index which is significant for those contracts;\n(f) the model captures the risk arising from less liquid positions and positions with limited price transparency within realistic market scenarios;\n(g) the model captures the risk, otherwise not captured by other features of the model, arising from derivative contracts where the underlying asset class is credit;\n(h) the model captures the risk of movements between similar, but not identical, underlying risk factors and the exposure to changes in values arising from maturity mismatches;\n(i) the model captures main non-linear dependencies;\n(j) the model incorporates methodologies used for back-testing which include statistical tests of the model's performance;\n(k) the model determines which events trigger a model change, calibration or other remedial action.\n3. The risk management procedures referred to in Article 2(1) shall ensure that the performance of the model is monitored on a continuous basis including by back-testing the model at least every 3 months.\nFor the purposes of the first subparagraph, back testing shall include a comparison between the values produced by the model and the realised market values of the non-centrally cleared OTC derivative contracts in the netting set.\n4. The risk management procedures referred to in Article 2(1) shall outline the methodologies used for undertaking back-testing, including statistical tests of performance.\n5. The risk management procedures referred to in Article 2(1) shall describe what results of the back-testing would lead to a model change, recalibration or other remediation action.\n6. The risk management procedures referred to in Article 2(1) shall ensure that counterparties retain records of the results of the back-testing referred to in paragraph 3 of this Article.\n7. Counterparties shall provide all the information necessary to explain the calculation of a given value of the initial margin model to the other counterparty in a way that a knowledgeable third party would be able to verify that calculation.\n8. The initial margin model shall reflect parameter uncertainty, correlation, basis risk and data quality in a prudent manner.",
  "extent": "E+W+S+N.I.",
  "status": null,
  "version": "current",
  "annotations": [],
  "outstanding_effects": [],
  "provenance": {
    "source": "legislation.gov.uk",
    "source_url": "https://www.legislation.gov.uk/eur/2016/2251/article/14",
    "retrieved_at": "2026-11-01T14:45:18.172261+00:00"
  },
  "licence": "Open Government Licence v3.0",
  "licence_url": "https://www.nationalarchives.gov.uk/doc/open-government-licence/version/3/",
  "attribution": "Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives."
}