Front loading

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Front loading as applied to derivatives is a term that describes the obligation to clear centrally an OTC derivative instrument or contract that is applied retrospectively.

It arises because there is a gap between the time that a CCP is authorised under EMIR and ESMA’s decision to mandate central clearing of certain derivatives. During the early implementation stages of EMIR and the clearing obligation it may not be known at the time of executing a derivative trade whether it ultimately will be subject to frontloading or not.

It is not known at the outset whether to price the transaction on the assumption that it will, or will not, be subject to central clearing during the life of the transaction.

See also

Central clearing

Other links

Clear(ing) and present danger