By way of derogation from Article 2(2), counterparties may provide in their risk management procedures that no collateral is exchanged in relation to non-centrally cleared OTC derivative contracts entered into with CCPs provided:1

1. (a) such CCPs are recognised by the Bank of England pursuant to Article 25 of Regulation (EU) No 648/2012 or by recognition order pursuant to Section 290 of the Financial Services and Markets Act 2000; and1

2. (b) such contracts are in respect of an activity which is carried on for the purposes of, or in connection with, the services or activities specified in the CCP’s recognition by the Bank of England pursuant to Article 25 of Regulation (EU) No 648/2012 or the CCP’s recognition order pursuant to Section 290 of the Financial Services and Markets Act 2000.1

By way of derogation from Article 2(2), counterparties may provide in their risk management procedures that no collateral is exchanged in relation to non-centrally cleared OTC derivative contracts entered into with non-financial counterparties that do not meet the conditions of Article 10(1)(b) of Regulation (EU) No 648/2012, or with non-financial entities established in a third country that would not meet the conditions of Article 10(1)(b) of Regulation (EU) No 648/2012 if they were established in the United Kingdom.

1. (1)

   By way of derogation from Article 2(2), counterparties may provide in their risk management procedures that no collateral is collected from a counterparty where the amount due from the last collection of collateral is equal to or lower than the amount agreed by the counterparties ("minimum transfer amount").

   The minimum transfer amount shall not exceed EUR 500000 or the equivalent amount in another currency.

2. (2)

   Where counterparties agree on a minimum transfer amount, the amount of collateral due shall be calculated as the sum of:

   1. (a)

      the variation margin due from its last collection calculated in accordance with Article 10, including any excess collateral;

   2. (b)

      the initial margin due from its last collection calculated in accordance with Article 11, including any excess collateral.

3. (3)

   Where the amount of collateral due exceeds the minimum transfer amount agreed by the counterparties, the collecting counterparty shall collect the full amount of collateral due without deduction of the minimum transfer amount.

4. (4)

   Counterparties may agree on separate minimum transfer amounts for initial and variation margins, provided that the sum of those minimum transfer amounts is equal to or lower than EUR 500000 or the equivalent amount in another currency.

5. (5)

   Where counterparties agree on separate minimum transfer amounts in accordance with paragraph 4, the collecting counterparty shall collect the full amount of initial or variation margin due without any deduction of those minimum transfer amounts where the amount of initial or variation collateral due exceeds the minimum transfer amount.

Where a counterparty is domiciled in a third country, counterparties may calculate margins on the basis of a netting set that includes the following types of contracts:

1. (a)

   non-centrally cleared OTC derivatives subject to margin requirements under this Regulation;

2. (b)

   contracts that meet both of the following conditions:

   1. (i)

      they are identified as non-centrally cleared OTC derivatives by the regulatory regime applicable to the counterparty domiciled in the third country;

   2. (ii)

      they are subject to margin rules in the regulatory regime applicable to the counterparty domiciled in the third country.