EMIR: One Minute Guide

What is EMIR?

In 2009 the G20 pledged to undertake reforms aimed at increasing transparency and reducing systemic counterparty risk in the over-the-counter (OTC) derivatives market. The European market infrastructure regulation (EMIR) implements most of these pledged reforms in the European Union (EU). EMIR covers OTC derivatives, central clearing counterparties (CCPs) and trade repositories (TRs). EMIR entered into force on 16 August 2012 with the first obligations relating to TRs and CCPs coming into force in March 2013. The final key requirements are due to come into force in the second half of 2015 with some provisions being phased in until 2020.

KEY EMIR REQUIREMENTS

• Reporting: all new and outstanding derivatives contracts are required to be reported to an authorised TR.
• Clearing: the European Securities and Markets Authority (ESMA) can impose mandatory clearing obligations through a CCP for eligible OTC derivative contracts once a CCP has been authorised under EMIR for that type of contract.
• Non-cleared transactions: for contracts that do not qualify for mandatory clearing, all counterparties are required to comply with operational risk management requirements (including timely confirmation, valuation, reconciliation, compression and dispute resolution).
• Collateral: for financial counterparties, contracts not cleared through a CCP will be subject to bilateral collateral requirements.
• Non-financial counterparties: will only be subject to clearing and bilateral collateral requirements if their OTC derivatives positions are large enough and are not directly reducing commercial risks or related to treasury financing activity.
• Common rules: for CCPs and TRs.

WHICH ENTITIES DOES EMIR APPLY TO?

EMIR applies to entities established in the EU entering into derivatives contracts, and in some cases indirectly to non-EU entities trading with EU parties (although non-EU counterparties will not have to report to a TR). There are two main categories of counterparty to a derivatives contract:

• Financial counterparties (FCs), including banks, insurers, investment firms and fund managers.
• Non-financial counterparties (NFCs), ie any counterparty that is not classified as a financial counterparty, including entities