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30.09.2015 | KPMG Law Insights

Derivate – Insights – Derivatives | Edition No. 4/2015

Dear readers,

With the introduction of new rules on central clearing for interest rate derivatives by the European Commission the developments concerning EMIR are gaining speed once again. Once the RTS is published in the official journal the countdown towards mandatory clearing starts ticking.

In addition, in the course of reviewing EMIR, ESMA has recommended changes to the EMIR framework. These changes include, inter alia, removing the hedging exemption. This could result in a big number of NFCs becoming subject to the clearing obligation.

But not only ESMA has been busy lately. The Committee on Payments and Market Infrastructures (CPMI) and the International Organisation of Securities Commissions (IOSCO) are continuing on their harmonization work on key OTC derivatives data elements for meaningful aggregation on a global basis. In this context they published consultative reports on the harmonization of the Unique Transaction Identifier (UTI) and on other key derivatives data elements.

To obtain an overview of the developments, please find below last month’s most relevant news concerning EMIR and other derivatives regulations.

Sincerely yours,

Andres Prescher

EC

Clearing obligation under EMIR enters into force

On 6 August 2015 the European Commission adopted a Delegated Regulation on central clearing for OTC interest rate derivatives. Contracts covered by the regulation will be subject to mandatory clearing through central counterparties (CCPs). The Delegated Regulation covers interest rate swaps in Euro, Sterling, Yen and US Dollars, which have certain characteristics, such as a specific reference index, a specific maturity or a particular notional type.

The relevant contracts are:

  • Fixed-to-Float-Interest Rate Swaps (IRS), also known as “Plain Vanilla” Interest Rate Swaps;
  • Float-to-Float-Swaps, also known as “Basis Swaps”;
  • Forward-Rate-Agreements (FRAs); and
  • Overnight-Index-Swaps (OIS);

The clearing obligation will enter into force subject to scrutiny by the European Parliament and Council of the EU, and will consecutively be established over a period of three years. Thus, smaller market participants will have more time for implementation.

Please find here the press release.

ESMA

ESMA recommends changes to EMIR framework

The European Securities and Markets Authority (ESMA) published on 13 August 2015 four reports focused on how the European Markets Infrastructure Regulation (EMIR) framework has been functioning, and provided input and recommendations for the European Commission’s (EC) EMIR review.

Three of the reports are required under Article 85 of EMIR, and cover non-financial counterparties (NFCs), pro-cyclicality and the segregation and portability for CCPs. The fourth report responds to the EC’s review including recommendations on amending EMIR in relation to the clearing obligation, the recognition of third country CCPs and the supervision and enforcement procedures for trade repositories.

Inter alia, ESMA proposed to remove the hedging exemption for NFCs. According to EMIR, NFCs are only subject to the clearing obligation when they exceed a certain threshold. Hedging transactions are currently not calculated against that threshold. According to ESMA’s recommendation, in the future the total number of derivatives shall be the decisive factor for the clearing obligation. This could result in a big number of NFCs becoming subject to the clearing obligation. However, it is currently still unclear whether and to what extent the EC will follow this proposal. Market participants are well advised to keep these developments on their radar screen to be able to properly and timely react to possible changes.

Please find here the press release.

ESMA

ESMA consults on review of EMIR standards relating to CCP client accounts

On 28 August 2015, the European Securities and Markets Authority (ESMA) started a public consultation on the review of Article 26 of its Regulatory Technical Standard 153/2013 under the European Market Infrastructure Regulation (EMIR), which deals with central counterparties’ (CCPs) client accounts.

The consultation is aimed at:

  • CCPs;
  • Their clearing members; and
  • Financial and non-financial counterparties accessing CCP services as clients of clearing members.

ESMA is seeking stakeholders’ feedback until 30 September 2015.

Please find here the press release.

ESMA

ESMA updates list of authorized CCPs and Public Register – BME Clearing extends services

The European Securities and Markets Authority (ESMA) has on 29 July 2015 published an update of its list of central counterparties (CCPs) which are authorised under the European Markets Infrastructure Regulation (EMIR) and its Public Register for the clearing obligation.

The update relates to BME Clearing which was authorized on 21 July 2015 to extend its activities and services to clear OTC interest rate derivatives and certain cash equities (OTC and regulated market).

Please find here the press release.

IOSCO/CPMI

Consultative Report on the Harmonisation of the Unique Transaction Identifier issued by CPMI and IOSCO

The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) have published on 19 August 2015 a consultative report on the harmonisation of the Unique Transaction Identifier (UTI).

The report is based on the 2012 CPSS-IOSCO report on OTC derivatives data reporting and aggregation requirements, the 2013 CPSS-IOSCO report on authorities’ access to trade repository data and the 2014 FSB feasibility study on approaches to aggregate OTC derivatives data, which provided the starting point for the harmonisation work on key OTC derivatives data elements for meaningful aggregation on a global basis.

This consultative report is one part of the harmonisation group’s response to its mandate. It focuses on the harmonised global UTI, whose purpose is to uniquely identify each OTC derivative transaction required to be reported to trade repositories. The objective is to produce clear guidance as to UTI definition, format and usage that meets the needs of UTI users, and that is global in scale and jurisdiction-agnostic, thus facilitating the consistent global aggregation of OTC derivatives transaction data.

Responses and comments to the report can be sent to both the CPMI and the IOSCO by 30 September 2015.

Please find here the press release.

OSCO/CPMI

Consultative Report on the Harmonisation of Key Derivatives Data Elements issued by CPMI and IOSCO

In addition to the above mentioned report regarding the Harmonisation of the Unique Transaction Identifier (UTI) the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) have published on 2 September 2015 a consultative report entitled Harmonisation of Key OTC Derivatives Data Elements (other than UTI, and Unique Product Identifier, UPI) – First Batch.

This consultative report is part of the harmonisation work on key OTC derivatives data elements for meaningful aggregation on a global basis. Besides this consultative report, CPMI and IOSCO have already issued a consultative report on harmonisation of the UTI (see above). The current report focuses on OTC derivatives’ basic economic terms that are considered important for consistent and meaningful aggregation on a global basis.

The report seeks comments on these proposals as well as responses to certain general and specific questions by 9 October 2015.

Please find here the press release.

IOSCO

IOSCO publishes Report on Post-Trade Transparency in the Credit Default Swaps Market

The International Organization of Securities Commissions (IOSCO) published on 7 August 2015 the final report “Post-Trade Transparency in the Credit Default Swaps Market”, which analyzes the potential impact of mandatory post-trade transparency in the over-the-counter (OTC) credit default swaps (CDS) market.

In the report, IOSCO determines that enhancing post-trade transparency in the CDS market  –  including making the price and volume of individual transactions publicly available – would be valuable to market participants and other market observers. Therefore, IOSCO encourages each member jurisdiction to take steps towards, enhancing post-trade transparency in its CDS market.

Please find here the press release and the final report.

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