14 April 2014
The European Supervisory Authorities (ESAs) launched today a consultation on draft Regulatory Technical Standards (‘RTS') outlining the framework of the European Market Infrastructure Regulation (EMIR). These RTS cover the risk management procedures for counterparties in non-centrally cleared OTC derivatives, the criteria concerning intragroup exemptions and the definitions of practical and legal impediments. The consultation will allow gathering public views on how to ensure a proportionate implementation of the requirements, as well as any other specific aspects that need discussion. The consultation runs until 14 July 2014.
For those over-the-counter (OTC) derivative transactions that will not be subject to central clearing, these draft RTS prescribe that counterparties apply robust risk mitigation techniques to their bilateral relationships, which will include mandatory exchange of initial and variation margins. This will reduce counterparty credit risk, mitigate any potential systemic risk and ensure alignment with international standards. These draft RTS elaborate on the risk-management procedures for the exchange of collateral and on the procedures concerning intragroup exemptions including the criteria that identify practical and legal impediments to the prompt transfer of funds.
These draft RTS lay down the methodologies for the determination of the appropriate level of margins, the criteria that define liquid high-quality collateral, the list of eligible asset classes, collateral haircuts and concentration limits.
Given the substantial effort required for the operational implementation of this framework, the public consultation aims at ensuring that margin requirements are implemented in a proportionate fashion. Therefore, the consultation focuses on specific points such as the impact on small or medium-sized entities or entities from specific sectors, operational capabilities, the special treatment for covered bonds swaps, the use of internal models and concentration limits. In addition, the ESAs are proposing not to allow re-hypothecation of collateral collected for initial margins.
These draft RTS on risk-mitigation techniques for OTC derivative contracts not cleared by a CCP are developed on the basis of Article 11(15) of Regulation (EU) No 648/2012 (EMIR), which establishes provisions aimed at increasing the safety and transparency of the over-the-counter (OTC) derivatives markets in the EU.
Comments to this consultation can be sent clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 14 July 2014.
All contributions received will be published following the close of the consultation, unless requested otherwise.
The ESAs will hold a public hearing on the draft RTSs, which will take place at the EBA premises in London on 2 June 2014.
Note to the editors
In order to address risks related to the derivative markets, the European Parliament and the Council have adopted the European Market Infrastructure Regulation (EMIR) – formally known as Regulation EU No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (EMIR) as amended by Regulation (EU) No 575/2013 of the European Parliament and of The Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (CRR).
The EMIR establishes provisions aimed at increasing the safety and transparency of the OTC derivatives markets and requires OTC derivative contracts to be cleared, derivative transactions to be reported to trade repositories and sets a framework to enhance the safety of central counterparties (CCP).
The EMIR was published on 4 July 2012 and entered into force on 16 August 2012. It is directly applicable in all EU Member States.