The International Swaps and Derivatives Association (ISDA) has published a white paper concerning the European Commission’s proposals of 4 May 2017 concerning the review of the European Market Infrastructure Regulation (EMIR).

The ISDA notes that according to the Commission, the aim of the proposals is to “eliminate disproportionate costs and burdens to small companies” that might impede their access to markets, without putting financial stability at risk.

The ISDA states that the Commission’s proposals go some way to meeting this objective but suggests certain other, targeted modifications. The white paper outlines some of the proposed modifications.

For example:

  • the ISDA argues that the EMIR reporting regime would be further enhanced by introducing an entity based reporting framework, where sole responsibility for reporting is assigned to one counterparty. The ISDA states that this would bring the EU into line with other major jurisdictions, including the United States;
  • the EMIR review proposals modify the definition of a financial counterparty to include alternative investment funds (AIFs), which are currently categorised as non-financial counterparties. The ISDA argues that the change could have unintended consequences, the definition is not territorially limited, so in theory covers all hedge funds globally, regardless of where they are domiciled or where they trade;
  • the ISDA also believes that all transactions with EU and non-EU central banks, debt management offices and multilateral development banks should be exempt from the EMIR requirements, in line with the treatment in other jurisdictions;
  • the ISDA notes that many of the changes proposed by the Commission would take effect 20 days after publication in the EU’s Official Journal. The ISDA feels that this is too short and may cause practical difficulties. A longer effective date is called for;
  • the ISDA notes that there is also some uncertainty over the effective dates of some of the proposals;
  • the Commission has proposed important changes to the clearing obligation but the ISDA argues that further adjustments would help smaller users. For example, for the small financials proposal, the ISDA argues that the Commission should make the threshold calculation optional, so those firms that want to clear, or think their derivatives activity is in excess of the threshold, are not required to conduct the calculation;
  • the ISDA calls for greater global consistency on margin rules, especially on the treatment of foreign exchange; and
  • the ISDA calls for more clarity on how the equivalence process will work in practice.

View ISDA publishes EMIR refit whitepaper, 3 November 2017