The European Markets Infrastructure Regulation (EMIR) was adopted on 4 July 2012 and entered into force on 16 August 2012. However, the provisions of EMIR that need to be specified via technical standard will take effect when the relevant technical standard enters into force.
EMIR introduces provisions to improve transparency, establish common rules for central counterparties and for trade repositories and to reduce the risks associated with the over-the-counter (OTC) derivatives market. In this respect, it provides for the obligation to centrally clear OTC derivative contracts or to apply risk mitigation techniques such as the exchange of collateral. This obligation applies to OTC derivative contracts when counterparties are established in the EU.
When one counterparty is established in the EU and the other counterparty is established in a third country, the clearing obligation or risk mitigation requirements would apply subject to the mechanisms to avoid duplicative or conflicting rules (article 13 EMIR). When the two counterparties are established in third countries, EMIR would only apply under certain conditions developed via regulatory technical standards (RTS). The mechanisms to avoid duplicative or conflicting rules would also apply in such a case.
The conditions under which the clearing obligation or risk mitigation techniques should apply to a contract entered into by two third country counterparties relate to the direct, substantial and foreseeable effects of the contract within the EU or to the necessity or appropriateness to prevent the evasion of provisions of EMIR. These conditions are to be specified via a RTS.
Consultation
In July 2013, the European Securities and Markets Authority (ESMA) published a Consultation Paper concerning draft RTS on contracts having a direct, substantial and foreseeable effect within the EU and non-evasion of provisions of EMIR. The consultation closed on 16 September 2013. On 15 November 2013, ESMA submitted to the European Commission a final report which contained final draft RTS. The Commission had three months in which to decide whether to adopt the RTS.
Adoption
The Commission has now adopted the RTS specifying the contracts that are considered to have a direct, substantial and foreseeable effect within the EU or to prevent the evasion of rules and obligations. The RTS enter into force on the twentieth day following that of its publication in the Official Journal of the EU.
