On September 27, the European Securities and Markets Authority (ESMA) published its final report containing draft technical standards for the EU Regulation on Over-the-Counter Derivatives, Central Counterparties and Trade Repositories (EU648/2012) (Regulation). The Regulation, which is generally known as the “European Market Infrastructure Regulation” or EMIR, was adopted by the European Parliament on March 29 (see the March 30, edition of Corporate and Financial Weekly Digest). EMIR is intended to improve the functioning of over-the-counter (OTC) derivatives markets in the European Union by reducing risks (by the use of central clearing and other risk mitigation techniques), increasing transparency (by the use of trade repositories) and mandating the use of central counterparties (CCPs) meeting approval and supervision criteria designed to ensure that CCPs are sound and resilient. The report sets out details of how ESMA considers certain of EMIR’s detailed requirements should be implemented.

The ESMA final report is the result of ESMA’s June 25 consultation paper on proposed technical standards (see the June 29 edition of Corporate and Financial Weekly Digest). It will be submitted to the European Commission (Commission) for its approval by September 30. The Commission has three months to decide whether to endorse ESMA’s draft technical standards.

The matters that ESMA consulted on included:

  • Defining the framework for the application of the mandatory clearing obligation;
  • Specifying the risk mitigation techniques for non-cleared OTC derivatives;
  • Requirements for the application of exemptions to the mandatory clearing obligation for non-financial counterparties and intragroup transactions.
  • Details of derivatives transactions required to be reported to trade repositories;
  • Details of data from trade repositories to be provided to relevant regulatory authorities;
  • Organizational, conduct of business and prudential requirements for the authorization of CCPs; and
  • Information to be provided by trade repositories in connection with their authorization and ongoing supervision.

Among the many detailed changes made to the draft standards which were the subject of ESMA’s June consultation are the following:

  • Substantial revisions to the requirements for indirect clearing arrangements;
  • Changes to the criteria for the assessment of whether particular contracts should be subject to mandatory clearing;
  • Changes to margin criteria including greater flexibility for portfolio margining models;
  • Amended risk mitigation criteria for OTC derivatives not cleared by a CCP;
  • Detailed changes to the CCP recognition criteria;
  • Amendments to the content and format of reports to trade repositories; and
  • Changes in the information required to be provided by trade repositories seeking authorization.

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In addition, on September 26, the European Banking Authority adopted its draft technical standards under EMIR on capital requirements for CCPs which will also be sent to the European Commission for approval.

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