The European Securities and Markets Authority (ESMA) has published a consultation paper setting out draft regulatory technical standards (RTS) on the clearing obligation under the European Markets Infrastructure Regulation.

The consultation paper follows three previous consultation papers on the clearing obligation on interest rate derivative classes, credit derivative classes, foreign-exchange non-deliverable forward classes, as well as the publication of a final report on the clearing obligation on interest rate derivative classes, and a feedback statement on non-deliverable forward classes.

In this latest consultation paper ESMA proposes to keep the same approach and the same set of characteristics to define the classes. First of all, ESMA’s proposal is to continue creating one class of over-the-counter (OTC) derivative per product type, when product types are defined as follows: (i) fixed-to-float interest rate swaps (IRS), also referred to as plain vanilla IRS; (ii) float-to-float swaps, also referred to as basis swaps; (iii) forward rate agreements; and (iv) overnight index swaps.

In addition, within each of these product types, the following characteristics are used to further define the class: the floating reference rate, the settlement currency, the currency type (i.e. whether the contracts are based on a single currency or on multiple currencies), the maturity, the existence of embedded optionality and the notional amount type (constant, variable or conditional).

The additional classes on the new currencies proposed in the draft RTS are structured in the same way as the classes on the G4 currencies included in the draft RTS previously submitted to the European Commission. The additional classes consist of fixed-to-float IRS denominated in CZK, DKK, HUF, NOK, SEK and PLN as well as forward rate agreements denominated in NOK, SEK and PLN.

The deadline for comments on the consultation paper is 15 July 2015.

View ESMA consults on technical standard No 4 on central clearing of IRS, 11 May 2015