Counterparties trading OTC-derivates (EMIR)
Based on the experiences of the 2008 financial crisis, the G20 decided in 2009 to increase the transparency and security of OTC (over-the-counter) derivatives trading. The G20 leaders specifically decided that in the future any standardized OTC derivatives would have to be cleared through central counterparties and that OTC derivatives must be reported to trade repositories.
What is EMIR?
Which counterparties are affected by EMIR?
- any investment firm authorized in accordance with Directive 2014/65/EC;
- any credit institution authorized in accordance with Directive 2013/36/EC;
- any insurance undertaking or reinsurance undertaking authorized in accordance with Directive 2009/138/EC;
- any UCITS and, where relevant, its management company, authorized in accordance with Directive 2009/65/EC, unless that UCITS is set up exclusively for the purpose of serving one or more employee share purchase plans;
- any institution for occupational retirement provision (IORP) as defined in point (1) of Article 6 of Directive (EU) 2016/2341 of the European Parliament and of the Council;
- any alternative investment fund (AIF), as defined in point (a) of Article 4(1) of Directive 2011/61/EU which is either established in the Union or managed by an alternative investment fund manager (AIFM) authorized or registered in accordance with Directive 2011/61/EU, unless that AIF is set up exclusively for the purpose of serving one or more employee share purchase plans, or unless that AIF is a securitization special purpose entity as referred to in point (g) of Article 2(3) of Directive 2011/61/EU, and, where relevant, its AIFM established in the Union.
- any central securities depository in accordance with Regulation 909/2014/EU
The Regulation contains the following elements in particular
- Under Article 4a of EMIR, financial counterparties are required to notify AFM and ESMA if they exceed the clearing threshold or if they do not calculate their positions. Financial counterparties that do not calculate their positions, or do calculate their positions and exceed the clearing threshold, are subject to the clearing obligation for all classes of OTC derivatives.
- Under Article 10 of EMIR, non-financial counterparties are required to notify AFM and ESMA if they exceed the clearing threshold or if they do not calculate their positions. Non-financial counterparties that do not calculate their positions are subject to the clearing obligation for all classes of OTC derivatives. Non-financial counterparties that do calculate their positions and exceed the clearing threshold are only subject to the clearing obligation for the classes of derivatives in which the clearing threshold was exceeded. Moreover, non-financial counterparties can exclude from the calculation OTC derivative contracts that are objectively measurable as reducing risks relating to their commercial activity.
To which financial instruments does EMIR apply?
OTC derivatives are derivatives within the meaning of points (4) to (10) of Section C of Annex I to Directive 2004/39/EU (Markets in Financial Instruments Directive – MiFID), which are not executed on a regulated market within the meaning of Article 4(1)(14) of MiFID or on a third-country market considered equivalent to a regulated market in accordance with Article 19(6) of MiFID. However, the requirement regarding reporting to trade repositories applies to all derivatives within the meaning of the afore mentioned Directive.