The European Market Infrastructure Regulation (EMIR) introduces the obligation to clear certain classes of over-the-counter (OTC) derivatives in central counterparties (CCPs) that have been authorised or recognised.

Three Delegated Regulations on the clearing obligation have so far entered into force, which mandate central clearing for some classes of:

  • OTC interest rate derivatives denominated in EUR, GBP, JPY and USD;
  • OTC index credit default swaps; and
  • OTC interest rate derivatives denominated in NOK, PLN and SEK.

To allow for the orderly application of the clearing obligation, counterparties are classified in four categories with a different date of application for each category.

Earlier this year, the European Securities and Markets Authority (ESMA) published a consultation paper (our blog entry is here) containing a proposal to extend the phase-in period for the clearing obligation to the smallest financial counterparties (those in Category 3), justified by the difficulties that those counterparties face when establishing the necessary clearing arrangements to meet their compliance deadline, the finalisation of relevant regulatory requirements and the limited impact in terms of systemic risk that these counterparties represent.

ESMA has now published its final report on the clearing obligation for financial counterparties with a limited volume of activity. In the report ESMA proposes to amend EMIR’s Delegated Regulations on the clearing obligation in order to prolong, by two years, the phase-in for financial counterparties with a limited volume of derivatives activity (those classified in Category 3 under the EMIR Delegated Regulations). ESMA is also proposing to align the three compliance dates for Category 3 firms in the Delegated Regulations regarding interest rate swaps and credit default swaps. The newly proposed compliance date would be 21 June 2019.

The final report will be submitted to the European Commission for endorsement of the draft RTS contained within it. From the date of submission, the Commission should take the decision whether to endorse the draft RTS within three months.

View ESMA asks Commission to delay central clearing for small financial counterparties, 14 November 2016