On February 7, 2013, it was announced that the Economic and Monetary Affairs (ECON) Committee of the European Parliament (EP) was withdrawing its objection to the technical standards (TS) for the regulation on over-the-counter derivatives, central counterparties and trade repositories, commonly known as the European Markets Infrastructure Regulation (EMIR).
The TS supplement the level 1 text of EMIR, which came into force in August 2012. It is the TS that define who exactly will be affected by EMIR, and how.
Following the endorsement of the TS in December 2012 by the European Commission (EC), after they were published by the European Securities and Markets Authority in September 2012, the TS were undergoing the last review prior to their publication in the Official Journal of the European Union. Many market participants expected the EP’s review to a procedural, rubber-stamping exercise.
However, on January 24, 2013, it was confirmed that the ECON Committee was to publish a motion for a resolution to reject certain TS. One of the reasons given for mooting the rejection was the view that the EC had gone beyond its remit for the TS, set out for it in the level 1 text of EMIR, when drafting the TS.
The TS in question related to matters including, inter alia:
- The clearing threshold for non-financial counterparties, particularly the condition that if the clearing threshold for one asset class was exceeded by a counterparty, then the counterparty would be automatically held to have exceeded the threshold for all asset classes; and
- The requirement for timely confirmations, in particular how this obligation would affect smaller, non-financial counterparties.
If the TS had been rejected, then the EC would have been required to put forward new TS. This may have, in turn, have delayed the publication of the TS, and ultimately, the coming into force of EMIR.
However, on February 7, 2013, the EP withdrew the resolution calling for the rejection of the draft TS. The withdrawal of the objection was based on certain assurances given by the EC, including the assurance that the EC would publish frequent ‘questions and answer’ booklets to cover any matters over which there arose legal uncertainty.
EMIR has been tabled as the US equivalent of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank). As currently drafted, market participants undertaking activities in both the US and European markets may be subject to both Dodd Frank and EMIR, requiring, them, for example, to report trades to both European and US regulators.
To avoid market participants having to report to two sets of regulators, European regulators are meeting with their US counterparts over the course of Q1 and Q2 2013, to advise the United States that EMIR should be accepted as being as strict as Dodd Frank. If accepted, market participants complying with EMIR would be deemed to comply with Dodd Frank, and vice versa.
As the publication of the TS will not be delayed as much as initially thought, EMIR’s entry into force is not expected to be delayed. The first obligations (the reporting of credit and interest rate derivatives) is expected to apply from July 2013. The remaining obligations will come into force periodically, with EMIR expected to be fully in force by Summer 2014.