This section contains facts about EMIR and related topics and is intended to serve primarily as a reference and guideance for corporations (NFCs). Basically, it covers the three main areas of EMIR, i.e. reporting, risk mitigation and clearing (which is very unlikely to apply for NFCs). This section does not contain e.g. information regarding technical changes of the reporting processes. For reporting-related issues please see the news section.
EMIR - Regulation Amendment 2016/2017
EMIR - Update May 2017
On May 4, 2017, the European Commission presented a proposal regarding ‘simpler and more efficient derivative rules’.
Under the proposal, reporting requirements are being streamlined for all counterparties. This will considerably reduce the administrative burden, while ensuring that the quality of data needed for monitoring derivatives markets and identifying financial stability risks is not lost. In particular, derivative transactions concluded on exchanges (so-called 'exchange-traded derivatives') will now only be reported by the CCP on behalf of both counterparties. To reduce the burden for all non-financial counterparties (corporates), transactions concluded between companies belonging to the same group (so-called 'intragroup transactions') will not have to be reported any longer, if one of the counterparties is a non-financial company. To reduce the burden for small non-financial counterparties, transactions between a financial counterparty and a small non-financial counterparty will be reported by the financial counterparty on behalf of both counterparties. Reporting on historic transactions will no longer be required. In addition, the proposal aims to improve the quality of reported data.
EMIR – EU Regulation
Regulation (EU) No 648/2012, better known as EMIR, is setting out the legislative framework and standards for regulating OTC derivatives, central counterparties and trade repositories. Here we provide the EMIR Regulation in the official EU languages - © European Union, http://eur-lex.europa.eu/homepage.html
EMIR – Financial Instruments
The EU Directive 2004/39/EC, better known as Markets in Financial Instruments Directive or 'MiFID', is an integral part of EMIR as it provides the list of financial instruments which are subject to EMIR. Please note that points 1. to 3. of Section C of Annex I have been exempted. We have put together the list of financial instruments in the following languages - © European Union, http://eur-lex.europa.eu/homepage.html
Overview of EMIR Requirements
The following table shows which entities are subject to specific EMIR requirements.
You will also find the details of each requirement on this site.
Timeline for EMIR Implementation
On November 7, 2013, ESMA appointed four trade repositories. The reporting will start on February 12, 2014 for all asset classes. Please remember that the first concrete deadline came into effect on March 15, 2013. Here is a summary of the deadlines and the associated requirements:
|Mar 15, 2013||Declaration to the relevant national authority whether clearing threshold is reached by a NFC. Start to comply with tighter trade confirmation deadlines.|
|Sep 15, 2013||Start of portfolio reconciliation, portfolio compression and dispute resolution.|
|Feb 12, 2014||Start of reporting obligation for all asset classes to a Trade Repository (TR).|
Registered Trade Repositories
The following trade repositories have been registered by ESMA:
Trade Reporting – Backloading of Trades
Overview of reporting / backloading timeline. Depending on whether the respective derivatives still exist on February 12, 2014, different rules will apply.
Please note that for transactions concluded on or after August 16, 2012 and still outstanding on February 12, 2014, according to ESMA (January 2014) the grace period of 90 days does not apply, they have to be reported on February 12, 2014 at the latest.
- Entities should focus on updating internal procedures and good-faith efforts to comply with the timelines and use electronic confirmation platforms where available
- Confirmation requirements apply to both counterparties
- Specific final confirmation deadlines are applicable per asset class, which are also tighended over time - see below table. Please note that the starting dates to comply with new confirmation deadlines are given by law and are not related to other dates like start of trade reporting
- Entities will be required to agree with counterparties before trading how portfolios will be regularly reviewed to identify any disagreements regarding key terms or valuations and reconciled
- They must cover the key trade terms and the valuation methodology
- They may be delegated to a counterparty or a third party
- The frequency of reconciliation is dependent on the status and number of trades
- Only applies to FCs and NFCs that have more than 500 trades outstanding with a single counterparty
- Compression is a mechanism by which similar or offsetting transactions can be replaced with a smaller number of transactions with a lower notional value amount
- There must be procedures in place to analyze the possibility to compress at least twice a year and to provide a reasonable and valid explanation if compression is not performed
- Entities need to have detailed procedures and processes in place to:
- Identify, record and monitor disputes regarding valuations and the exchange of collateral where applicable. They are required to record at least the length of time the dispute is outstanding, the counterparty and the amount in dispute
- Establish a specific process (e.g. third party arbitration) for disputes that remain unresolved for more than 5 business days
- FCs are required to report any disputes in valuation or exchange of collateral for an amount higher than EUR 15 million and outstanding for at least 15 business days
Clearing Obligation (irrelevant for NFC-)
Clearing obligation applies to FCs and NFC+s, i.e. non-financial counterparties exceeding the clearing threshold.
The clearing threshold (related to the gross notional values of trades) is an amount set by class of OTC derivative contracts according to ESMA Technical Standards as follows:
Not all OTC derivative contracts count towards the clearing threshold. Those OTC derivative contracts entered into in order to reduce risks relating to the commercial or treasury financing activity of the non-financial entity, or of non-financials of the group it belongs to, are excluded from the calculation of the clearing threshold (in other words: contracts for the purpose of “hedging” are excluded for the calculation of the threshold).
The clearing obligation would apply to all OTC derivatives contracts concluded after the clearing threshold was exceeded, irrespective of the asset class to which these OTC derivative contracts belong to and no matter which purpose they have (hedging or speculation).
Corporates will need to make notifications to the competent regulatory authorities, i.e. the relevant national authority and ESMA, once the gross notional value of derivative positions is exceeded. Only if the average rolling position over the previous thirty days exceeds further a threshold, then a future clearing oblgiation for newly concluded contracts applies. These calculations must be made with regard to positions held by all non-financial entities in the consolidated corporate group, regardless of whether the entities are located within the EU.
Non-financial companies may benefit from an exemption from the clearing obligation for intra-group OTC derivative contracts when certain conditions are met (including notification to, or authorization by the relevant competent authority).
Based on ESMA’s Q&A document, the following rules apply for calculating the clearing threshold within a group of counterparties:
- NFC (EU) with NFC (EU) of same group: double counting of trades.
- NFC (EU) of the group with external counterparty: single counting of trades.
- FC (EU) of the group with external counterparty: no counting of trades.
- NFC (Non-EU, but equivalent to EU) of the group with external counterparty: single counting of trades.
- NFC (EU) with NFC (Non-EU, but equivalent to EU) of same group: double counting of trades.
- Only speculative trades are considered;
- Thresholds are calculated on group level;
- Only fully consolidated entities are counted towards the clearing threshold;
- Netting per counterparty / contract type allowed;
- If hedging, then entire “chain” is hedging (i.e. bank with NFC, NFC intragroup trade with another NFC).
Daily Valuation of Contracts (irrelevant for NFC-)
- Only applies to FCs and NFC+s
- FCs and NFC+s are required to mark-to-market all outstanding OTC contracts on a daily basis
- Where market conditions prevent marking-to-market, market-to-model may be used if the model meets specific criteria and is documented and approved by the board of directors at least annually
LEI / GEI
The Legal Entity Identifier (LEI) is a 20 digit alpha-numeric reference code to uniquely identify parties to financial transactions worldwide throughout all markets and legal systems. The global LEI system would contribute to and facilitate many financial stability objectives by quickly and clearly identifying entities, corporate networks, and connections between issues and the issuer.
The General Entity Identifier (GEI) is a preliminary stage leading to the LEI and will be changed into this as soon as the global LEI system is established. All companies and funds worldwide should be clearly identifiable using this system. The national or supranational lawmakers determine which legal entities need a GEI. It is expected that the LEI will be required by many authorities and institutions worldwide once the global LEI system is in place.
Currently, the GEI is required for reporting within the scope of EMIR (European Market Infrastructure Regulation).
A GEI has to be obtained for every single legal entity (within the EU) of a group that has either internal derivative transactions or external transactions with e.g. local or any other banks, also outside the EU.
GEI registration is available e.g. on www.geiportal.com - provided by WM Datenservice. The registration costs EUR 150,- including the fee for the first year, prolongations will cost EUR 100,- per year.
LEIROC - The Legal Entity Identifier Regulatory Oversight Committee - is a committee of authorities from around the world working to coordinate and oversee a global system of legal entity identification. LEIROC was established after recommendations by the international Financial Stability Board (FSB) and subsequent endorsement by the Group of 20 (G-20) nations.
A list of all organizations or agencies (so-called pre-LOUs) belonging to the LEI/GEI system, and which have been endorsed by ESMA, can be found here.