OTC derivatives

ESMA Discussion Paper on Calculation of Counterparty Risk by UCITS for OTC Derivatives Subject to EMIR Clearing

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On July 23, ESMA published a discussion paper on how the limits on counterparty risk in centrally cleared OTC derivative transactions under the UCITS IV Directive should be calculated, and whether the same rules for both OTC transactions that are centrally cleared and for exchange-traded derivatives (ETDs) should be applied.

The UCITS IV Directive allows UCITS to invest in both ETDs and OTC derivatives, but only investments in OTC derivatives are currently subject to counterparty risk exposure limits.

The consultation closes on October 22, 2014.  ESMA will use the feedback to determine its final views on the appropriate way forward, including a possible recommendation to the European Commission on a modification of UCITS IV.  Discussion Paper.

Speech on FCA Priorities Relating to Asset Management, MiFID II and EMIR

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On September 12, the FCA published a speech by Martin Wheatley, FCA Chief Executive, on the FCA’s plans for 2014, which focus on issues relating to asset management, MiFID II and EMIR (the Regulation on OTC derivatives, central counterparties and trade repositories) (Regulation 648/2012).  Speech.

FSMA (OTC Derivatives, CCPs and TRs) (No. 2) Regulations Published

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On August 5, the Financial Services and Markets Act 2000 (FSMA) (OTC Derivatives, Central Counterparties (CCPs) and Trade Repositories (TRs)) (No. 2) Regulations 2013 SI 2013/1908 were published.  The regulations were made on July 30, and the majority of the regulations will come into force on August 26.

The regulations relate to the clearing of financial transactions through recognized clearing houses.  The regulations implement in part Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories (EMIR) and amend the following:

  • Supervisory, investigatory and enforcement powers of the Bank of England and the Financial Conduct Authority.
  • Companies Act 1989 to facilitate segregation and transfer of indirect clients’ assets and positions.
  • Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchanges and Clearing Houses) Regulations 2001(S.I. 2001/995) (the Recognition Requirements Regulations).  They impose new requirements on recognized central counterparties and recognized clearing houses, which are not central counterparties.  Regulations. 

ESMA Publishes Q&As on EMIR

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On August 8, the European Securities and Markets Authority (ESMA) published Questions and Answers on the implementation of Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories (EMIR).

ESMA’s statutory role is to build a common supervisory culture by promoting common supervisory approaches and practices.  The Q&As were published to achieve a consistent application of EMIR.  The first version of this document was published on March 20, and the second version on June 6.  This document is expected to be updated and expanded as and when appropriate.

This version of the Q&As provides guidance on a number of issues including clarification on calculation of the clearing threshold, the nature of segregation and portability and the requirements for registration of trade repositories.  Q&As.

EC Technical Standards for European Markets Infrastructure Regulation

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On December 19, 2012, the European Commission adopted nine regulatory and implementing technical standards to complement obligations defined under the European Markets Infrastructure Regulation on OTC derivatives, central counterparties and trade repositories.  The adoption of the technical standards finalizes requirements for the mandatory clearing and reporting of OTC derivatives transactions.  The technical standards will be effective 20 days after publication in the EU Official Journal.  EC Release.  

CFTC and International Regulators Issue Joint Statement on OTC Derivatives Market

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On December 4, the CFTC and over-the-counter (OTC) derivatives market regulators from Australia, Brazil, the EU, Hong Kong, Japan, Ontario, Quebec, Singapore and Switzerland issued a joint press statement outlining plans for cross-border rules for OTC derivatives.  The statement, which originated from a private meeting of regulators, discusses international plans for improving transparency and protecting against market abuse, specifically preventing regulatory gaps, reducing the potential for arbitrage opportunities and fostering a level playing field for market participants, intermediaries and infrastructures.  Joint Press Statement.

ESMA Proposed Rules on Derivatives, Central Counterparties and Trade Repositories

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On June 25, the European Securities and Markets Authority (ESMA) issued a consultation paper containing draft Regulatory Technical Standards and draft Implementing Technical Standards, which set out specific details of how the Regulation of the European Parliament and Council on OTC derivatives, central counterparties and trade repositories (EMIR) will be implemented. A public hearing will be held on July 12, and comments on the paper must be submitted by August 5. Press Release. Consultation Paper.