Rely on the most comprehensive, up-to-date legal content designed and curated by lawyers for lawyers
Work faster and smarter to improve your drafting productivity without increasing risk
Accelerate the creation and use of high quality and trusted legal documents and forms
Streamline how you manage your legal business with proven tools and processes
Manage risk and compliance in your organisation to reduce your risk profile
Stay up to date and informed with insights from our trusted experts, news and information sources
Access the best content in the industry, effortlessly — confident that your news is trustworthy and up to date.
Find up-to-date guidance on points of law and then easily pull up sources to support your advice with Lexis PSL
Check out our straightforward definitions of common legal terms.
Our trusted tax intelligence solutions, highly-regarded exam training and education materials help guide and tutor Tax professionals
Access our unrivalled global news content, business information and analytics solutions
Insurance, risk and compliance intelligence using big data, proprietary linking and advanced analytics.
A leading provider of software platforms for professional services firms
In-depth analysis, commentary and practical information to help you protect your business
LexisNexis Blogs shed light on topics affecting the legal profession and the issues you're facing
Legal professionals trust us to help navigate change. Find out how we help ensure they exceed expectations
Lex Chat is a LexisNexis current affairs podcast sharing insights on topics for the legal profession
Discuss the latest legal developments, ask questions, and share best practice with other LexisPSL subscribers
What are the clearing obligations for trades of over-the-counter (OTC) derivatives? Lewis Lee, associate at Morrison & Foerster, looks at the latest developments from the European Securities and Markets Authority (ESMA) in relation to centrally clearing interest rate derivatives.
Four interest rate swap (IRS) classes will need to be centrally cleared under ESMA’s final draft regulatory technical standards (RTS). The RTS define the types of IRS contracts which will have to be centrally cleared, the types of counterparties covered by the obligation and the dates by which central clearing of IRS will become mandatory. ESMA has submitted its final draft IRS RTS to the European Commission, which now has up to three months to endorse the standards.
The European Market Infrastructure Regulation (EMIR) places a number of obligations on counterparties to OTC derivative transactions. These include the central clearing of trades deemed to be subject to a ‘clearing obligation’. Although EMIR has been in force for over two years, the clearing requirement has taken time to implement and confirmation of its effective date for different asset classes and counterparties has remained dependent upon a number of factors—not least the requirement for ESMA to determine which classes of derivatives trades should, in accordance with the criteria required to be satisfied under EMIR, be mandatorily clearable. On 1 October 2014, ESMA published its final report covering draft technical standards on the clearing obligation in respect of interest rate OTC derivatives.
Among other things, the report provides details of the classes of interest rate derivative products that shall be centrally clearable, being:
The report also sets out details of when the clearing obligation is likely to apply, which is itself determined by a categorisation of market participants. Broadly, counterparties are divided into four categories, dependent upon their classification under EMIR and whether or not they are a clearing member of a clearinghouse or are an alternative investment fund. Details are also provided in respect of frontloading.
The report is submitted to the European Commission. The Commission has three months within which to adopt the draft RTS included therein in the form of a Commission Regulation. Assuming the RTS are adopted by the end of the three-month period, this means that the first phase of category 1 clearing obligations (ie those that are applicable to clearing members of a recognised or authorised central counterparty) will come into effect in mid-2015.
European entities that trade OTC derivatives and non-EU established entities that trade OTC derivatives with EU counterparties, or with other non-EU counterparties where there is a significant connection to the EU, should be aware of their classification under EMIR and the extent to which they might be subject to mandatory central clearing of their derivatives transactions. To the extent that a particular counterparty will be affected, it should consider the nature of any interest rate derivatives it trades (and whether such trades are likely to be subject to a ‘clearing obligation’) and the relevant counterparty’s consequent categorisation as presented in the report.
Interviewed by Anne Bruce.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
First published on LexisPSL Banking & Finance. Click here for a free trial.
Free trials are only available to individuals based in the UK
* denotes a required field
0330 161 1234