OTC Clearing and EMIR

In a recent speech David Lawton, Acting Director of Markets at the FSA, provided an update on the progress in implementing the proposed EU regulation covering the trading of OTC derivatives – which is commonly referred to as EMIR (an acronym for the European Market Infrastructure Regulation).

The initiative stems from an agreement in September 2009 by the G20 leaders that all standardised OTC derivative contracts should be cleared through a central counterparty by the end of 2012. The European Commission initially published its proposals in September 2010 – see Regulatory Roundup 21 for a brief summary – whilst the European Parliament got around to adopting the final text on 29 March this year, although as will be seen below there is still more work to be done.

Strictly speaking, EMIR only addresses part of the G20 agreement, with delivery of the remainder via an update to MiFID and CRD 4.

In brief, the G20 agreement concluded that:

All standardised OTC derivative contracts should be traded on exchanges or electronic trading platforms where appropriate (update to MiFID);

All standardised OTC derivative contracts should be cleared through central counterparties by end-2012 at the latest (EMIR);

OTC derivative contracts should be reported to trade repositories (EMIR); and

Non-centrally cleared contracts should be subject to higher capital requirements (CRD IV).

ESMA published its consultation paper on draft technical standards on 25 June inviting responses by 5 August.

As was said in the speech “We recognise that the implementation timetable is challenging … uncertainty around some of the rules makes timely preparation harder”.