On November 23, the European Securities and Markets Authority (ESMA) published a final report on regulatory technical standards (RTS) on the risk mitigation techniques for OTC derivative contracts not cleared by central counterparties detailing bilateral margin requirements under the European Market Infrastructure Regulation (EMIR) (the Report).

The key amendments considered by ESMA in the Report include:

  • extending the deferred application date of clearing obligation for 18 months for intragroup transactions;
  • extending the temporary exemption for single-stock equity or index options in respect of bilateral margin requirements for three years;
  • preserving the characteristics of contracts from UK counterparties novated to EU counterparties without triggering bilateral margin or clearing obligation requirements under certain conditions. This limits situations where the original UK counterparty is no longer able to provide certain services within the European Union after the end of the transition period; and
  • altering the Clearing Delegated Regulations for Brexit-related novations of OTC derivative contracts to EU counterparties within a 12-month timeframe and updating the Regulations to harmonize with the changes introduced by EMIR Refit Regulation.

ESMA submitted the Report to the European Commission for endorsement.

ESMA expects national competent authorities to apply the EU framework regarding clearing obligations, intragroup OTC derivative contracts and OTC derivative contract novated from the United Kingdom to the European Union in a proportionate manner before the enactment of the RTS.

The Report is available here.