EMIR Refit: EU Clarification on Derivatives Trading and Clearing Obligations
07/12/2019The European Securities and Markets Authority has issued a Statement clarifying the application and interaction of the EU derivatives clearing and trading obligations following the entry into force of the revised European Market Infrastructure Regulation, known as EMIR Refit.
EMIR Refit has, subject to limited exceptions, applied directly across the EU since June 17, 2019. EMIR Refit amended the definition of a Financial Counterparty, bringing central securities depositories authorized under the EU Central Securities Depositories Regulation within scope and categorizing all Alternative Investment Funds as FCs (or, for non-EU funds, as third-country entities equivalent to FCs). It also introduced a clearing threshold for FCs, meaning that small FCs are exempt from the clearing obligation. In addition, Non-Financial Counterparties that meet the clearing threshold no longer must clear all derivatives that they enter that are subject to the clearing obligation, but only those derivatives in the asset class for which they have exceeded the threshold.
The derivatives trading obligation under the Markets in Financial Instruments Regulation requires certain derivatives to be executed on trading venues. The trading obligation applies to all FCs, i.e. not just those above the new EMIR threshold. It also applies to NFCs that meet the clearing threshold, as defined in EMIR, but does not limit the trading obligation for NFCs to the asset class for which the clearing obligation has been exceeded. Therefore, the trading obligation applies to a wider set of counterparties than the clearing obligation.
ESMA requests that national regulators provide regulatory forebearance for FC- and appropriate NFCs until such time as clarification is provided on whether the MiFIR trading obligation will be formally aligned with the EMIR Refit clearing obligation. Such a clarification will emerge as ESMA prepares its report to the Commission on the point and will be confirmed in the European Commission's report to the European Parliament and Council of the European Union, including any recommendations for legislative changes. ESMA's report is due by May 18, 2020 and the Commission's report is due by December 18, 2020.
ESMA also explains that the timing of the derivatives trading obligation in MiFIR should be aligned with the timing of the clearing obligation as provided under the revised EMIR provisions. Before EMIR Refit, the clearing obligation was phased in according to the type and size of counterparty and the asset class. FCs in Category 3 - FCs with less than €8 billion in aggregate month-end average of outstanding gross notional amount of uncleared derivatives at group level - were due to start clearing interest rate and credit derivatives subject to the clearing obligation on June 21, 2019, according to the relevant secondary legislation. ESMA confirms that the dates set out in the secondary legislation are no longer relevant and that the clearing obligation will apply four months after a counterparty notifies ESMA and its national regulator that it has crossed the clearing threshold or if the counterparty does not calculate whether it has passed the threshold. ESMA states that the trading obligation trigger should match the date of the clearing obligation as provided for under EMIR Refit. Although ESMA's statement does not address the issue, a similar outcome may apply to NFCs meeting the clearing threshold for interest rate derivatives denominated in CZK, DKK, HUF, NOK, SEK and PLN and subject to the clearing obligation from August 9, 2019.
View ESMA's statement.
View details of EMIR Refit.
View details of the MiFIR trading obligation.
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