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European Parliament Endorses EMIR Technical Standards

by Simone Goligorsky

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:

  1. 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
  2. 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 [...]

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European Commission Adopts EMIR Technical Standards

by Simone Goligorsky

On December 19, 2012, the European Commission (EC) adopted the technical standards (TS) for the regulation on over-the-counter (OTC) derivatives, central counterparties (CCPs) and trade repositories, commonly known as the European Markets Infrastructure Regulation (EMIR). 

The level 1 text of EMIR came into force on August 16, 2012, and will now be supplemented by the newly adopted TS.  The TS were initially proposed by the European Supervisory Authorities in September 2012, and the texts of the TS have now been adopted by the EC without amendment. 

However, in a press release from the EC, it is stated that one TS, submitted by the European Securities and Markets Authority (ESMA), has not been endorsed.  This particular TS relates to colleges of CCPs.  There are concerns over the legality of this provision, therefore ESMA has been asked to redraft this provision.  The redrafting is not expected to delay the coming into force of the obligations prescribed by the other TS.  No date has been set for the publication of the redrafted provision. 

The TS cover matters, including, inter alia: (i) the clearing of trades by financial, and in certain circumstances, non-financial counterparties, by central counterparties; (ii) the reporting of all trades that come within the scope of EMIR; and (iii) putting in place risk mitigation techniques for OTC derivatives contracts that are not cleared by CCPs.  

By adopting the TS now, the EC has met the deadline set at the G20 summit in Pittsburgh in 2009.  At the summit, it was agreed that global regulators would put in place legislation necessitating the mandatory clearing and reporting of transactions, in order to reform the derivatives market, which was, at the time, subject to very little regulation.  EMIR, and its US equivalent, the Dodd-Frank Wall Street Reform and Consumer Protection Act, are intended to improve the transparency of the derivatives trading markets.   

The TS are divided into two categories: regulatory TS and implementing TS.  The former are subject to review by the European Parliament and Council, who will have a month from December 19, to review the provisions.  The review period may be extended by a month, if necessary.  The implementing TS are not subject to review by the European Parliament and Council.  However, the implementing TS will not enter into force before the regulatory TS comes into force, since the two sets of standards complement each other, and are not stand-alone obligations.  The TS will enter into force on the twentieth day following their publication in the Official Journal of the European Union.   

Compliance with the provisions of EMIR by market participants may require, amongst others, the implementation of new IT systems, registration with a CCP and trade repository, and, for non-financial counterparties, an analysis of the trades that they undertake (as non-financial counterparties whose trading activities are below the thresholds prescribed in the TS will not be required to clear those trades).  As these activities may take some time, market participants are encouraged to actively engage [...]

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EMIR Enters into Force

by Prajakt Samant and Simone Goligorsky

On August 16, 2012, the European Market Infrastructure Regulation (EMIR) came into force, 20 days after the final text was published in the Official Journal of the European Union.  The Level 1 text will be supplemented with technical standards, which are due to be published later this year, and expected to come into force next year.  It is the technical standards that will define who exactly will be affected by EMIR, and how. 

The European Securities and Markets Association (ESMA) has also published the responses that it received from market participants to the June 2012 consultation on the draft technical standards.  Responses were received from, inter alia, asset managers, banks, government regulatory and enforcement bodies, insurance and pension funds, investment services, issuers, and regulated markets, exchanges and trading systems.

These responses will be taken into account when ESMA submits its proposals on the technical standards to the European Commission (the Commission) by September 30, 2012.  Following this submission, the Commission will have three months during which it must adopt the final technical standards.  The technical standards will cover matters including:

  • The threshold that non-financial counterparties will have to cross before their trades have to be cleared;

  • The exemptions for intragroup transfers;

  • The data to be reported regarding each trade; and

  • Data that will have to be provided by trade repositories to the relevant authorities and regulators. 

 The various provisions of EMIR are due to come into force at different times.  For example, the first clearing obligations are expected to be imposed from summer 2013.  Derivative contracts are expected to have to be reported from July 1, 2013.  By the end of December 2014, ESMA is expected to submit reports to the Commission on the functioning of EMIR.

With the final text of EMIR edging closer to completion, market participants are advised to ensure that they have the requisite systems in place, to guarantee that their trading activities are fully compliant with the requirements of EMIR.  




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