European Market Infrastructure Regulation

European Market Infrastructure Regulation ( EMIR acronym ) is an EU regulation of off-exchange trading in derivative products. Core of the regulation is the obligation of market participants to clear their OTC derivative transactions default on a central counterparty and the reporting of these OTC trades to a trade repository. With the EU Regulation No 648/2012 became on OTC derivatives, central counterparties and trade repositories EMIR immediate legal effect for the EU member countries. With the implementation of EMIR, the EU authority ESMA is responsible.

History

On September 15, 2008, Lehman Brothers filed for bankruptcy and thus exacerbated the global financial crisis.

The Heads of State and Government of the leading industrial nations decided in September 2009 as part of the G -20 Summit in Pittsburgh to make the OTC derivatives ( "OTC derivatives trading " ) transparent and secure. To this end, at the latest by the end of 2012, standardized OTC derivatives transactions through central counterparties ( " central counterparty " ) are expected. For OTC derivative transactions that do not pass through the central clearing, then to apply the lender of higher capital requirements. For all OTC derivative transactions should be reported to trade repositories ( "trade repository "). By monitoring the implementation of the Financial Stability Board (FSB ) has been entrusted.

In July 2012, the European Parliament and European Council adopted Regulation (EU ) No 648/ 2012 on OTC derivatives, central counterparties and trade repositories ( EMIR ), is tasked with the implementation of ESMA.

Content of the Regulation

Gist of EMIR are three things:

When clearing and reportable derivative transactions ( options, futures, swaps, forward rate agreements and any other derivative contracts ) for the purposes of EMIR following financial instruments under MiFID definition shall apply:

  • Derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash,
  • Derivative contracts relating to commodities that must be settled in cash or at the request of the parties may be settled in cash,
  • Derivative contracts relating to commodities that can be physically settled provided that they are traded on a regulated market and / or MTF,
  • Have other derivative transactions relating to commodities that can be physically settled not be used for commercial purposes, and characteristics of other derivative financial instruments,
  • Derivative transactions for the transfer of credit risk,
  • Financial contracts for differences,
  • Derivative contracts relating to climatic variables, freight rates, emission allowances or inflation rates and other official economic statistics that must be settled in cash or may be settled in cash at the request of either party.

The clearing obligation applies to trading participants in the financial sector ( "financial counterparties " ) that are subject to financial supervision in the European Union. This particular securities dealers, financial institutions, insurance companies ( life and property ), reinsurance undertaking, investment funds under the UCITS Directive, pension funds and alternative investment funds are included under the AIFM Directive. Trading participants from the non- financial sector ( " non-financial counterparties " ) are also subject to the EMIR rules, as far as "fit for purpose " is. In practical terms, to the clearing obligation shall apply for those trading participants from the non- financial sector who are committed to a greater extent derivatives that are used not only to hedge the economic risks of their business. On the other hand can be exempted from the clearing obligation, hedge risks directly related to the commercial activities or the financing by the Treasury of a company.

The test of whether a company is clearing obligation must be performed by all companies, at least one of the above Have derivatives. For companies from the non- financial sector are to check whether derivatives are used to a greater extent, clearing thresholds in various derivatives classes defined (). Accordingly applies

Implementation

EMIR entered the twentieth day following publication in the EU Official Journal in force, ie on 16 August 2012. On 27 September 2012, ESMA published the final draft regulatory ( RTS) and technical (ITS ) standards as an implementing provision of EMIR. The impact of EMIR Regulation on the German financial center can not yet foresee final. Apart from technical implementation problems but the German financial center is characterized quite competitive strengthening effect from.

Derivative (finance) Central Counterparty Clearing
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