Earlier this year, we published “EMIR and OTC Derivatives: Start preparing now“, which introduced the European Markets Infrastructure Regulation (“EMIR”). This regulation has an impact on both European and non-European firms.
In summary, there are 3 main aspects to EMIR:
Since our previous note, there has been some slippage in the expected roll-out of requirements. Specifically, because reporting can only begin 90 days after the registration of a trade repository for each derivative class, we now expect that the requirement to report credit and interest rate contracts will begin in mid-September 2013 rather than June, as we previously thought. Reporting for all other derivatives classes is currently expected to begin in January 2014, but this may also be delayed.
EMIR’s reporting and clearing obligations apply to both counterparties to a derivatives contract where either is an EU counterparty (i.e. established in an EU Member State). Note also that EMIR applies to two non-EU entities (that would be subject to the obligation if established in the EU) where they enter into a contract that has “a direct, substantial and foreseeable effect” within the EU, or where “necessary and appropriate to prevent evasion” of EMIR, although it remains to be seen how these anti-avoidance provisions will be applied. EMIR applies to all derivatives contracts as defined by MiFID, e.g. options, swaps, forwards, contracts for difference, FX derivatives and both cash and physically-settled commodities derivatives.
Overlap with Dodd-Frank:
Both EMIR and Dodd-Frank stem from the same G20 commitment to address the systemic risks posed by an unregulated global OTC market, but there are important differences: EMIR requires reporting by both counterparties, whereas Dodd-Frank requires only one (typically the registered Swap Dealer); EMIR requires the back-reporting of all contracts in existence on August 16, 2012 (when EMIR came into force), rather than on a “from this point on basis”; and Dodd-Frank driven reporting is required in real time, whereas under EMIR reporting is required by the end of the following business day.
Under EMIR, these apply to all OTC and exchange traded derivatives (unlike Dodd-Frank which is just OTC). There are approximately 60 data fields in total, covering the usual “who, what, when, how many and how much” aspects. Also required for all financial counterparties, and non-financial counterparties (NFCs) above certain thresholds, is the daily reporting of total exposures, including mark-to-market or model valuations on derivative positions, and posted collateral.
The detailed implementation of EMIR is still unfolding, and we will be issuing further alerts in the coming months, particularly in respect of significant issues, and ahead of major timetable events.
Please contact firstname.lastname@example.org or your regular ACA consultant with any questions on this alert.