ESMA Regulation - European Market Infrastructure Regulation

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Timeline - European Market Infrastructure Regulation
Proposal Date EC Approval Effective Date
September 15, 2010 December 19, 2012 March 15, 2013

The European Market Infrastructure Regulation ("EMIR") is a set of standards for the regulation of OTC derivatives, central counterparties and trade repositories.<ref>Financial Services regulations adopted. New Europe Online. Retrieved on December 19, 2012.</ref>

On September 15, 2010, the European Commission published its final proposal for a Regulation of the European Council that sets out to increase stability within OTC derivatives market. The regulation, commonly known as European Market Infrastructure Regulation  or "EMIR" introduces:

  • a reporting  structure for OTC derivatives;
  • mandatory clearing requirement for eligible OTC derivatives;
  • measures to reduce counterparty credit risk and operational risk for bilaterally cleared OTC derivatives;
  • common rules for central counterparties (CCPs) and trade repositories; and 
  • rules on the establishment of interoperability between  CCPs.

After several consultations and comment requests, ESMA sent its final report on technical standards for EMIR to the European Commission on September 27, 2012. On December 19, 2012, the EC adopted nine regulatory and implementing technical standards, which finalize requirements for the mandatory clearing and reporting of transactions. The regulations entered the official journal on February 23, 2013 and became effective on March 15, 2013. Additional timelines can be found in the EMIR FAQ document.

EMIR Timeline[edit]

The EC approved all but one of the technical standards contained in the September 2012 final draft. Previous drafts of EMIR would have required the the competent authority of each central counterparty to establish a "regulatory college" prior to considering a CCP's application. The college was to consist of representatives of ESMA, the CCP's competent authority, and the competent authorities of other member states.<ref>Ireland: EMIR: Regulation On OTC Derivatives, Central Counterparties And Trade Repositories. Mondaq News. Retrieved on December 19, 2012.</ref> There was concern among the Commission as to the legality of such a requirement. It was decided that this standard should be redrafted and considered at a later date. <ref>Commission adopts technical standards for the Regulation on OTC derivatives, central counterparties and trade repositories. Retrieved on December 19, 2012.</ref>

In January 2013, two members of the European Parliament expressed concern over certain clearing requirements in the standards, specifically as they relate to non-financial companies that use derivatives to hedge risk.<ref>Clearing house push set for delay. Financial Times. Retrieved on January 25, 2013.</ref> The motion is calling for reviews of thresholds for clearing, the use of gross notional value of OTC positions to determine thresholds and the use of electronic confirmation. On February 4, 2013, the EP's Economic and Monetary Affairs Committee voted to reject certain technical standards regarding mandatory clearing for end-users.<ref>Further delays for clearing rules. Financial Times. Retrieved on February 4, 2013.</ref> On February 7, however, Parliament struck a deal with the European Commission that allows non-financial users of derivatives to be phased into EMIR at a yet-to-be-determined date. This will cover corporate entities that use OTC derivatives for hedging purposes.<ref>EMIR delay avoided with last-ditch deal. The Trade News. Retrieved on February 8, 2013.</ref>

The deal set the stage for a formal sign-off on the technical standards, which occurred on February 23, 2013 and the standards became effective March 15, 2013. In 2013, the EU continued to with U.S. regulators such as the CFTC to resolve extraterritoriality issues between EMIR and the Dodd-Frank Act.

On July 11, 2013, the CFTC and the European Union, led by Michel Barnier, the commissioner tasked with overseeing the developing the rules in Europe, announced the "Path Forward" toward synchronized regulation of the OTC derivatives market. The agreements in the joint statement include trade execution, clearing, and reporting requirements, uncleared swap margin, and treatment of offshore funds, branches and guaranteed affiliates. To view the "Path Forward" click HERE.

On August 30, 2013, per the request of the G20, a consortium of authorities responsible for OTC derivatives regulation in Australia, Brazil, the European Union, Hong Kong, Japan, Ontario, Quebec, Singapore, Switzerland and the United States issued a report regarding common understandings to improve the cross-border implementation of OTC derivatives reforms. The report reflects a number of substantive understandings to improve the cross-border implementation of OTC derivatives reforms. VIEW THE REPORT AND SUMMARY

As the negotiations continue among global regulators regarding international harmonization of rules, the status is updated in MarketsReformWiki on the Cross-Border Activities Regulation page.

Summary of the Standards[edit]

The six regulatory and three implementing standards are as follows. Click the "View PDF" link to view each standard document.
Regulatory Technical Standards:

  • Requirements for central counterparties (View PDF)
  • Capital requirements for central counterparties (View PDF)
  • Indirect clearing arrangements, the clearing obligation, the public register, access to a trading venue, non-financial counterparties, risk mitigation techniques for OTC derivatives contracts not cleared by a CCP (View PDF)
  • Minimum details of the data to be reported to trade repositories (View PDF)
  • Application for registration as a trade repository (View PDF)
  • Data to be published and made available by trade repositories and operational standards for aggregating, comparing and accessing the data (View PDF)

Implementing Technical Standards:

  • Requirements for central counterparties (View PDF)
  • Minimum details of the data to be reported to trade repositories (View PDF)
  • Application for registration as a trade repository (View PDF)

Q&A on EMIR Implementation[edit]

The publication of EMIR has triggered several questions on such factors as:

  • the timing of implementation,
  • the scope the requirements and
  • the position of third country CCPs and trade repositories.

In March 2013, ESMA issued "Frequently Asked Questions" and "Q&A" documents to answer questions on supervision and application of EMIR. The documents have been updated several times in 2013 and 2014 as new information on implementation became available. The most recent documents, July 10, 2014, can be found below.

Related Documents: Frequently Asked Questions; Q&A on EMIR Implementation[edit]


Technical Standards History[edit]

Final Draft Technical Standards for the Regulation on OTC Derivatives, CCPs and Trade Repositories - September 27, 2012[edit]

On September 27, 2012 The European Securities and Markets Authority (ESMA), published the final report of its Draft Technical Standards for the Regulation on OTC Derivatives, CCPs and Trade Repositories, also known as the European Market Infrastructure Regulation, or "EMIR." <ref>ESMA defines standards for derivatives and CCPs. ESMA. Retrieved on October 4, 2012.</ref> EMIR introduces new methods to improve transparency and decreased risks associated with the OTC derivatives market while creating common rules for CCPs and for TRs. This final report includes the feedback from the June 25, 2012 consultation and the proposed changes made by ESMA.

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Draft Technical Standards for the Regulation on OTC Derivatives, CCPs and Trade Repositories - June 25, 2012[edit]

ESMA released a consultation paper on its technical standards under the Regulation on OTC derivatives, central counterparties and trade repositories (EMIR). The paper is divided into three separate sections and follows the same structure of EMIR. The first section focuses on OTC derivatives and the clearing obligation, risk mitigation techniques for contracts not cleared by a CCP and exemptions to specific requirements. The second part focuses on CCP requirements and the third part deals with trade repositories, specifically reporting obligation and the content and format of the information to be reported to trade repositories.

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Proposed Revision of UCITS - May 22nd, 2015[edit]

On May 22nd, 2015 ESMA released an opinion on the effects of EMIR on the UCITS directive. The opinion paper proposes that ETDS and OTC derivatives should treated the same. Rather the agency proposed that there should be a distinction between centrally cleared and non-centrally cleared derivatives to take into account the low counter-party risk of centrally cleared OTC derivatives.

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