On June 25, the European Securities and Markets Authority (ESMA) issued a consultation paper on its proposed technical standards under the EU Regulation on OTC Derivatives, Central Counterparties and Trade Repositories. The Regulation generally known as the European Market Infrastructure Regulation (EMIR), was adopted by the European Parliament on March 29, 2012 (as reported in the March 30, 2012 edition of Corporate and Financial Weekly Digest). It is intended to improve the functioning of OTC derivatives markets in the European Union by reducing risks via the use of central clearing and risk mitigation techniques, increasing transparency via trade repositories and ensuring sound and resilient central counterparties (CCPs).

The Consultation Paper contains draft Regulatory Technical Standards and draft Implementing Technical Standards which set out the specific details of how EMIR’s requirements are to be implemented. The requirements set out in the draft standards are designed to ensure:

Reduction of counterparty risks by:

  • Defining the framework for the application of the clearing obligation;
  • Specifying the risk mitigation techniques for OTC derivatives not centrally cleared;
  • Laying down the requirements for the application of exemptions to non-financial counterparties and intragroup transactions.

Increased transparency by:

  • Specifying the details of derivatives transactions that need to be reported to trade repositories;
  • Defining the trade repositories’ data to be made available to relevant authorities; and
  • Setting the information to be provided to ESMA for the authorization and supervision of trade repositories.

Safe and resilient CCPs by:

  • A comprehensive set of organizational, conduct of business and prudential requirements for CCPs.

The consultation closes on August 5 and the final draft standards are intended to be submitted to the EU Commission for endorsement by September 30, 2012.

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