Shearman & Sterling LLP | Financial Regulatory Developments Focus | Delay to EU Clearing Obligation for "Category 3" and "Category 4" Counterparties
Financial Regulatory Developments Focus
  • Delay to EU Clearing Obligation for "Category 3" and "Category 4" Counterparties
    An amending Commission Delegated Regulation extending the deadline for compliance with clearing obligations for certain counterparties dealing with OTC derivatives has been published in the Official Journal of the European Union. The European Market Infrastructure Regulation imposes a clearing obligation on certain classes of derivatives. The European Securities and Markets Authority has so far assessed that the clearing obligation should apply to interest rate swaps denominated in seven currencies (EUR, GBP, JPY, USD, NOK, PLN and SEK) and to two classes of credit default swaps indices (iTraxx Europe Main and iTraxx Europe Crossover). The clearing obligation is being phased in with those with the largest derivatives trading activity becoming subject to the obligation first. The obligation to clear OTC IRS denominated in the G4 currencies (EUR, GBP, JPY and USD) applied to clearing members of EU CCPs from June 21, 2016.

    The Delegated Regulation amends the Regulatory Technical Standards imposing the clearing obligation so that the timing of the clearing obligation for financial institutions with a low volume of derivatives trading activity (namely those with so-called "Category 3 and 4" counterparties, which are small financial counterparties and alternative investment funds or non-financial counterparties) is extended to June 21, 2019 for the clearing of OTC IRS and CDS. The European Securities and Markets Authority recommended the extension in a report published on November 14, 2016. The Delegated Regulation enters into force on May 19, 2017.

    View the amending Delegated Regulation.

    View ESMA's report.
    TOPIC: Derivatives