Background
Following an agreement reached at the G-20 Pittsburgh Summit in September 2009, the EU agreed that all standard OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties (CCPs) by end-2012 at the latest.
The Regulation of the European Parliament and Council on OTC Derivatives, central counterparties (CCPs) and trade repositories (TRs) (Regulation 648/2012) (EMIR) is the legislative manifestation of these intentions. EMIR was published in the Official Journal of the European Union on 27 July 2012 and came into force on 16 August 2012.
Scope
EMIR applies to, amongst other entities, MiFID-authorised investment managers, UCITS, UCITS management companies and alternative investment funds (i.e. funds caught by AIFMD) each of which have been classified by EMIR as “financial counterparties”, to CCPs and to TRs.
Purpose
EMIR aims to improve transparency and reduce the risks associated with the OTC derivatives market. EMIR sets out clearing and bilateral risk-management requirements for OTC derivative contracts, reporting requirements for derivative contracts and seeks to establish common rules for the performance of activities of CCPs and TRs in addition to introducing an initial authorisation requirement for CCPs and registration regime for TRs.
Reporting Obligation
The reporting obligation for all derivatives is effective from 16 August 2012. Reporting obligations apply to both financial counterparties and CCPs. Both are obliged to ensure that the details of any derivative contracts they have concluded (as well as any modification or termination of that contract) is reported to an EU registered or a third country recognised TR. These reports must be made no later that the working day following the conclusion, modification or termination of that contract. This reporting obligation applies to derivative contracts which: (1) were entered into before 16 August 2012 and are outstanding on 16 August 2012; or (2) are entered into on or after 16 August 2012. Counterparties must keep a record of any derivative contract they have concluded and/or modified for at least 5 years following the termination of the contract.
Key Dates
While the requirement, for financial counterparties to commence transaction reporting to TRs will commence from 1 July 2013, the rules require firms to report transactions from 16 August 2012. This means that logs of relevant trades must be maintained as and from 16 August 2012.
Implementing Standards
It should be noted that though EMIR entered into force on 16 August, it remains for ESMA (and the European Supervisory Authority and European Banking Authority) to develop a number of draft regulatory and implementing technical standards for the European Commission. ESMA issued a consultation paper on 25 June 2012 containing draft standards regarding: (1) OTC derivatives and in particular the clearing obligation, risk mitigation techniques for contracts not cleared by a CCP and exemptions for non-financial counterparties and intra-group transactions; (2) the CCP requirements; and (3) TRs and the information to be reported to TRs and made available to the relevant authorities. The responses to the consultation have been received and published and ESMA is due to submit final draft regulatory and implementing technical standards to the European Commission by 30 September 2012.
For further information, please contact one of the key contacts listed above or your usual contact in our Asset Management and Investment Funds Team.
