central counterparties (CCPs)

ESRB Reports on Revision of EMIR

 

On April 21, 2017, the European Systemic Risk Board (“ESRB“) published a report on the revision of the European Market Infrastructure Regulation (the “EMIR“).

The report welcomes the European Commission’s November 2016 report on the outcome of its EMIR review, which the Commission carried out under Article 85(1) of EMIR. The ESRB supports the Commission’s plan to revise EMIR to include an emergency mechanism for quickly suspending the clearing obligation and to increase the transparency and predictability of margin requirements.

The ESRB agrees with the Commission that no fundamental change to EMIR is currently required, although it does recognize that some aspects of EMIR could be improved, such as improving the trade data reporting framework and transparency by obliging central counterparties (“CCPs“) to publish qualitative and quantitative information consistent with the Committee on Payments and Market Infrastructures – Board of International Organization of Securities Commissions disclosure framework.

In addition, the report suggests that enhancing tools in EMIR that restrict procyclicality would reduce risks to financial stability and could simplify EMIR requirements and make them more efficient.

Although the ESRB recognizes the difficulties faced by some counterparties in meeting the clearing obligation, it supports a broad application of the obligation, including for pension scheme arrangements and large nonfinancial counterparties that are active in the derivatives market.

A comprehensive review of EMIR will be needed in the future. This comprehensive review should address issues such as the potential use of margins and haircuts to meet macroprudential objectives when the analysis needed to develop these tools has progressed.

The ESRB restates its previous proposals, including revising the determination mechanism of dedicated resources and interoperability arrangements. The ESRB reported on CCP interoperability arrangements in January 2016, and published two earlier reports on EMIR to assist the Commission with its Article 85 review of the Regulation in July 2015.

ESMA Signs Memorandum of Understanding on CCPs with New Zealand Regulators Under EMIR

 

On April 18, 2017, the European Securities and Markets Authority (“ESMA“) published a memorandum of understanding that it has entered into with the Reserve Bank of New Zealand and the Financial Markets Authority of New Zealand under Article 25 of the European Market Infrastructure Regulation (“EMIR“).

Article 25(2)(c) of EMIR requires the establishment of cooperation arrangements as a precondition for ESMA to recognize central counterparties (“CCPs“) established in New Zealand to provide clearing services to clearing members or trading venues established in the EU. The memorandum of understanding is designed to:

  • Ensure the fulfillment of the conditions set out in Article 25(2)(c) of EMIR.
  • Provide ESMA with adequate tools to monitor the ongoing compliance by the relevant CCPs with the recognition conditions set out in Article 25 of EMIR.

The memorandum of understanding is effective as of February 28, 2017, which is the date it was signed by the relevant authorities.

European Commission Publishes Draft Seventh Implementing Regulation Extending Transitional Periods Related to Own Fund Requirements for CCPS Exposures

 

On March 31, 2017, the European Commission published a draft version of an Implementing Regulation on the extension of the transitional periods related to own funds requirements for exposures to Central Counterparties (“CCPs“), set out in the Capital Requirements Regulation (Regulation 575/2013) (“CRR“) and EMIR.

The Commission adopted an initial Implementing Regulation (Regulation 591/2014) in June 2014, extending the 15-month periods referred to in Article 497(1) and (2) of the CRR and in the first and second subparagraphs of Article 89(5)(a) of EMIR by six months, to December 15, 2014. The most recent Implementing Regulation, adopted by the European Commission on December 9, 2016, extended the transitional periods to December 15, 2016.

To avoid market disruption and to prevent penalizing institutions by subjecting them to higher own funds requirements during the process of authorization and recognition of existing CCPs, the latest Implementing Regulation extends the transitional periods by an additional six months, to June 15, 2017.

European Commission Extends Transitional Period for Capital Requirements for Banks’ Exposures to CCPs

On June 4, 2015, the European Commission published the provisional text of the Implementing Regulation it has adopted to extend the transitional period for capital requirements for EU banking groups’ exposures to central counterparties (CCPs) under the Capital Requirements Regulation (Regulation 575/2013) (CRR).

The current transitional period, which was introduced by an earlier Implementing Regulation, expires on June 15, 2015. The new Implementing Regulation will extend the transitional period by six months to December 15, 2015.

In an accompanying press release, the Commission explains that capital charges for exposures to CCPs are higher if the CCP is not authorized or recognized under EMIR (that is, for a CCP not considered as “qualifying”). Since the authorization and recognition processes take time, the CRR provides a transitional period during which the higher capital requirements will not be applied, to ensure a level playing field. As the authorization and recognition processes for existing CCPs serving EU markets will not be fully completed by June 15, 2015, the Commission has extended the transitional phase to December 15, 2015.