EU regulation of indirect clearing of derivatives
EU regulation of indirect clearing of derivatives

The following Financial Services practice note provides comprehensive and up to date legal information covering:

  • EU regulation of indirect clearing of derivatives
  • What is clearing of derivatives?
  • What is indirect clearing of derivatives?
  • Derivatives terminology
  • Indirect clearing of ETDs
  • Indirect clearing of OTC derivatives
  • EU regulatory framework
  • EMIR
  • MiFIR
  • Indirect clearing RTS under EMIR and MiFIR
  • More...

BREXIT: 11pm (GMT) on 31 December 2020 (‘IP completion day’) marked the end of the Brexit transition/implementation period entered into following the UK’s withdrawal from the EU. Following IP completion day, key transitional arrangements come to an end and significant changes begin to take effect across the UK’s legal regime. This document contains guidance on subjects impacted by these changes. Before continuing your research, see: Brexit and financial services: materials on the post-Brexit UK/EU regulatory regime.

What is clearing of derivatives?

Clearing is a process which eliminates the normal risk that a party to a derivatives transaction will default (counterparty risk).

The main parties involved in the clearing process are:

  1. a financial institution known as a clearing house, and

  2. other financial institutions, usually banks or brokers, which enter into a clearing agreement with the clearing house—these institutions are known as clearing members of the clearing house or simply clearing firms

In cleared transactions:

  1. all transactions are entered into by clearing members, which may do this for their own accounts or for the accounts of their clients, and

  2. the clearing house interposes itself between the clearing members who have entered into the transaction, becoming a party to every transaction—each party therefore is exposed to the risk of the clearing house but not to the risk of the other party

Clearing members do not need to be concerned with the identity or credit quality

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