European Market Infrastructure Regulation (EMIR) is the Regulation of the European Parliament and the Council of 4 July 2012 on OTC (over-the-counter) derivatives, central counterparties and trade repositories. This Regulation, as well as other related regulations, set requirements in relation to all the parties entering into transactions with derivatives. Full text of the EMIR is available through the following link: http://eur-lex.europa.eu/legal-content
EMIR applies to all transactions with derivatives such as options and futures contracts, currency forwards and swaps, margin forex and CFDs, as well as any other derivatives. Full list of financial instruments is available through the following link:
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do (Annex I, Section C, Articles 4-10).
- Providing reports on transactions with derivatives to trade repositories (institutions established for the purpose of collection, analysis, storage and transfer information on transactions with derivatives to regulatory authorities);
- Performing clearing with central counterparty for OTC derivatives;
- Implementation of risk mitigation measures for transactions in respect of which clearing with central counterparty is not required.
Starting 12 February 2014, the EU resident entities are required to provide reports about transactions with derivatives to one of the trade repositories. Such reports should be provided on the next day (T+1) after the transaction was concluded or changed. Providing reports can be delegated to another party of transaction or a third party. Full information on the procedure of reporting and the regularity of reporting is available through the following link:
EMIR requirements apply to transactions that have been concluded or executed starting 16 August 2012.
In order to ensure reporting to trade repositories, the EU resident entities should obtain the LEI (Legal Entity Identifier) code – a 20-digit code consisting of letters and numbers that identifies each legal entity participating in the transaction with derivatives as one of the parties to the transaction. The current list of authorities that provide LEI codes is available through the following link:
- Confirmation of transactions in a timely manner;
- Portfolio compression and reconcilation;
- Dispute resolution process.
If the notional value of transactions exceeds the clearing threshold, the client is obliged to perform clearing of OTC derivatives trades with central counterparty.
Effective clearing thresholds (established by European Securities and Markets Authority, ESMA), exceeding which there is an obligation to perform clearing:
- EUR 1 billion – notional value of the contract for OTC derivatives trades on debt securities and equity;
- EUR 3 billion – notional value of the contract for OTC derivatives trades on interest rates, currency pairs, commodities and other financial instruments.
Trades aimed at reducing business risks (hedging) are not taken into account when calculating the amount of the limit/threshold for clearing.