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Derive the best of the European Market Infrastructure Regulation (EMIR)

EMIR addresses the risk of OTC trading by imposing new requirements:

  • Clearing: standardised derivative contracts should be cleared through central counterparties in order to reduce the risk in the financial system
  • Margin and capital: clearing counterparty shall have permanent, available and separate initial and variation margins in the form of highly liquid collateral
  • Reporting: all OTC derivative contracts should be reported to trade repositories

EMIR requirements

Clearing obligation

Which institutions?

The clearing obligation applies to financial counterparties (banks, insurers, asset managers, etc.) and to non-financial counterparties. There will be exemptions for pension funds (3-year grace period) and intra-group transactions.


To comply with the new clearing obligation, the counterparty should be a clearing member, a client of a clearing member (direct client) or a client of a client by having agreed indirect clearing arrangements. This strategic choice will depend on the best compromise between protection (full omnibus-account model or individual segregation) and operational efficiency.


Which products?

ESMA will assess the application of the clearing obligation for OTC derivatives based on a top-down approach (from ESMA to local market) and a bottom-up approach (from local market to ESMA). The following criteria are to be followed in identifying the class of contract subject to clearing:

  • Degree of standardisation
  • Volume of trading and liquidity
  • Availability of pricing information

Margin and capital

The counterparty risk mitigation on cleared OTC derivative transactions forces counterparties to pay (from day one) initial and variation margins in highly liquid collateral (cash, gold, government bonds, etc.).


No cleared transactions will be subject to additional capital requirements.


Trade repositories

Daily reporting to the competent authority will be required for all trades (OTC cleared, OTC not cleared but also exchanged ones) in order to identify potential pockets of systemic risk.


These new trade repositories (around 30 fields to be reported) not only concern trades openings but also modifications and terminations.

Focus on

EMIR News Alert
Regular new alerts to keep you informed on the European Market Infrastructure Regulation (EMIR).
OTC Derivatives - The new cost of trading | Whitepaper
Far reaching reform of the OTC derivatives markets is taking shape in Europe under the EMIR. We expect the price for this regulation to be an additional total annual cost of €15.5 billion.
EMIR - How will it impact your business? European Market Infrastructure Regulation (EMIR) - How will it impact your business?
EMIR introduces sweeping requirements aimed at reducing counterparty risk, improving transparency and mitigating systemic risk. The requirements will, in some shape or form, affect all participants in OTC derivative markets.
EMIR - Are you prepared to report your derivatives transactions? EMIR - Are you prepared to report your derivatives transactions?
Reporting of any derivatives to Trade Repository is one of the main requirement introduced by EMIR.

Contacts

  • Benjamin Collette
    Partner - Strategy & Corporate Finance Leader
  • Xavier Zaegel
    Partner - Capital Markets/Financial Risk Leader
  • Laurent Collet
    Directeur - Corporate Strategy
  • Christopher Stuart-Sinclair
    Directeur - Regulatory Consulting
  • ExternalURL
    Francesca Messini
    Manager - Capital Markets/Financial Risk

Related links

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    Circular CSSF 13/557
    Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories
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    Draft technical standards under the Regulation (EU) No 648/2012 of the European Parliament
    Final report of the European Securities and Markets Authority (ESMA)
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    Capital Requirements for Central Counterparties under Regulation (EU) No 648/2012
    Final draft Regulatory Technical Standards from the European Banking Authority (EBA)
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    CSSF reminder on EMIR
    The CSSF wishes to remind all concerned entities of the obligations applicable to them under Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories

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