5 JULY 2017

FSB and CPMI IOSCO final reports on CCP resilience, recovery and resolution

The FSB and CPMI IOSCO published their final reports on CCP resilience, recovery and resolution:

  • CCP resilience guidance – CPMI and IOSCO are providing further guidance on the Principles and Key Considerations of the Principles for financial market infrastructures (PFMI) regarding financial risk management for CCPs, in particular on governance, credit and liquidity stress testing, coverage, margin, and a CCP’s contributions of its financial resources to losses.
  • CCP recovery guidance – CPMI and IOSCO have updated their 2014 guidance on recovery for financial market infrastructures to provide clarifications in four areas: (i) operationalisation of recovery plans (ii) replenishment of financial resources; (iii) non-default related losses; and (iv) transparency with respect to recovery tools and how they would be applied.
  • CCP resolution guidance – the FSB has finalised guidance which complements the FSB Key Attributes of Effective Resolution Regimes by providing guidance on implementing the Key Attributes in resolution arrangements for CCPs. The guidance sets out powers for resolution authorities to maintain the continuity of critical CCP functions; details on the use of loss allocation tools; and steps authorities should take to establish crisis management groups for relevant CCPs and develop resolution plans.

For more information:

28 JUNE 2017

CPMI IOSCO consult on framework for supervisory stress testing of CCPs

CPMI IOSCO published a consultative report on a proposed framework for supervisory stress testing (SST) of CCPs.

The framework sets out six components with underlying elements that describe the steps authorities would likely follow when designing and running an SST or multi-CCP SST, including:

  • setting the purpose and exercise specifications;
  • establishing governance arrangements;
  • developing stress scenarios;
  • data collection and protection;
  • aggregating results and developing analytical metrics; and
  • determining the use of results and disclosure.

The deadline to provide comments is 22 September 2017.

For more information: Framework for supervisory stress testing of central counterparties (CCPs) - consultative report

13 JUNE 2017

European Commission publishes proposal for the EMIR Review – Part 2 – supervision of EU and third country CCPs

The European Commission published a legislative text proposing further changes to the current EMIR framework on the supervision of EU and third country CCPs.

The proposal covers several aspects of the supervision of EU CCPs, with the creation of an ESMA CCP Executive Session, reinforcing ESMA powers and streamlining procedures.

Concerning third country CCPs, the proposal distinguishes between third country CCPs that can benefit from the current recognition system (Tier 1) from systemically important CCPs (Tier 2) that are directly supervised by ESMA and apply EMIR. These Tier 2 CCPs could, in some cases, be considered substantially too important to be recognised by ESMA and therefore be imposed to be established in the Union in order to be able to provide services to EU customers.

For more information: Legislative proposal amending EMIR - COM(2017)331

7 June 2017

The EU Commission extends the QCCP deadline to 15 December 2017

The European Commission (EC) published today a regulation to extend the transitional period related to own funds requirements for exposures to central counterparties to 15 December 2017.

As a reminder, the Capital Requirements Regulation permits European banks to apply a favourable treatment for their exposures to a CCP authorised or recognized by ESMA under EMIR, so-called qualifying CCPs (QCCPs). A transitional provision allows banks to treat CCPs not yet authorised or recognised by ESMA as QCCPs until a given date, which has now been pushed back 6 months, from 15 June 2017 to 15 December 2017.

Background: the Capital Requirements Regulation (CRR) permits EU banks and foreign subsidiaries of EU banks to be subject to favourable capital requirements for their exposures to a Qualified CCP (or QCCP), compared to a non-QCCP. A CCP gains a QCCP status in the EU if it has been authorised (in the case of EU CCP) or recognised (in the case of non-EU CCP) under EMIR. Foreign CCPs can only be recognised by ESMA if the EU Commission has taken a positive equivalence decision on the foreign regulatory regime for CCPs. However, the CRR also includes a transitional provision that allows CCPs not yet authorised/recognised to be treated as QCCPs by EU members until a given date (now set to be 15 December 2017), unless they receive EU recognition earlier.

For more information: Commission Implementing Regulation (EU) 2017/954

4 May 2017

European Commission publishes proposal for the EMIR Review

The European Commission published a legislative text proposing changes to the current EMIR framework.

Regarding clearing obligation/CCPs, the proposal notably includes:

  • Extension of the transitional exemption from the clearing obligation for Pension Scheme Arrangements for 3 additional years (after adoption).
  • Introduction of a clearing threshold for small financial counterparties.
  • A change in the calibration of the rules on the qualification of non-financial counterparties (NFCs) subject to clearing and margin requirements. In particular, NFCs clear only the asset classes for which they have breached the clearing threshold.
  • Requirement for clearing members and clients which provide clearing services to do so under Fair, Reasonable And Non Discriminatory (FRAND) commercial terms.
  • Clarification of the interaction between EMIR default management tools and national insolvency laws to ensure the insolvency remoteness of clients and indirect clients’ assets.
  • The introduction of a mechanism to suspend the clearing obligation.
  • Suppression of the frontloading requirement.
  • The obligation for the CCP to provide their clearing members with tools to simulate their initial margin requirements as well as with a detailed overview of the characteristics of the initial margin models they use.

Regarding trade reporting, the proposal notably includes:

  • Removal of the 'backloading' (obligation to report historic data to trade repositories).
  • Exemption to the reporting obligation for intragroup transactions involving small non-financial counterparties.
  • For exchange-traded derivatives transactions (ETDs), requirement for CCPs to report on behalf of both counterparties.
  • For transactions other than ETD transactions, the responsibility for reporting for transactions between a NFC - and a financial counterparty the reporting obligation of should be on the financial counterparty to the trade (SFTR approach)
  • Further harmonisation of the reporting rules and procedures;
  • Obligation for trade repositories to ensure the quality of data.
  • Increase of fines for infringements to EMIR requirements by trade repositories

The legislative proposal was accompanied with a Communication ‘Responding to challenges for critical financial market infrastructures’ which announces further steps to ensure the ‘safety and soundness of CCPs’ regarding enhanced supervision and third-country CCPs. The Commission intends to present further legislative proposals on these topics in June.

For more information:

2 May 2017

Publication of the delay of Category 3 clearing obligation in the Official journal

On 2 May, the Delegated Regulation extending the phase-in period of the three clearing obligations for small financial counterparties, so-called “Category 3 firms” was published at the Official Journal. The new compliance date is therefore 21 June 2019, and will apply to the three clearing obligation in Europe: G4 IRS, EEA IRS and CDS.

Clearing Obligation Timetable – new compliance date for Category 3 in red:

Catogories G4 IRS EEA IRS CDS
Category 1 21 Jun 2016 9 Feb 2017 9 Feb 2017
Category 2 21 Dec 2016 9 Aug 2017 9 Aug 2017
Category 3 21 Jun 2017
21 Jun 2019
9 Feb 2018
21 Jun 2019
9 Feb 2018
21 Jun 2019
Category 4 21 Dec 2018 9 Aug 2019 9 May 2019

For more information: Commission Delegated Regulation (EU) 2017/751

10 April 2017

ESMA publishes opinion on portfolio margining

On 10 April, ESMA published an opinion on portfolio margining requirements under Article 27 of EMIR. For the various asset classes, the opinion sets out the essential elements that need to be in common for an instrument or product to be considered the same for the purpose of portfolio margining. It also details that CCPs have to limit the reduction in margin requirement when portfolio-margining different instruments.

For more information: ESMA opinion on portfolio margining

31 March 2017

ESMA publishes final report on SFTR draft technical standards

ESMA published its final report on standards implementing the Securities Financing Transaction Regulation (SFTR). These Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS) include details on how financial and non-financial market participants will report their SFTs to an approved EU trade repository (TRs). In addition to the SFTR, ESMA is proposing certain amendments to the existing standards implementing EMIR. These amendments are to ensure a level-playing field for market participants with regard to registration and access rules.

ESMA’s final standards provide detailed provisions on:

  • SFT reporting – including the use of ISO 20022 methodology for reporting, validation and access to data;
  • data collection and availability – the use of standardised identifiers such as LEI, UTI and ISIN which should improve data quality and aggregation across TRs;
  • defined access levels for different public authorities;
  • registration and extension of registration of TRs;
  • exchange of data on sanctions between authorities.

Next steps:

  • The draft RTS/ITS are now subject to a 3-month period review by the EU Commission
  • This will be followed by a further 1-2 months scrutiny period by the EU Parliament and EU Council
  • The RTS are then published in the Official Journal and enter into force (i.e. it becomes legally binding)
  • For the application, the reporting obligation itself will be phased-in, depending on the type of counterparty.

For more information: ESMA Final Report - Technical standards under SFTR and certain amendments to EMIR

21 March 2017

European Commission consults on the operations of the European Supervisory Authorities

On 21 March, the European Commission (EC) published a public consultation on the operations of the three European Supervisory Authorities (ESAs): the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA).

The purpose of the consultation is twofold:

  • to gather evidence on the operations of the ESAs to evaluate their operations and to see whether they are delivering as expected considering their objectives to protect the public interest by contributing to the short, medium and long-term stability and effectiveness of the financial system, for the Union economy, its citizens and business;
  • and to build a clearer overview of areas where going forward the effectiveness and efficiency of the ESAs can be strengthened and improved. The results should provide a basis for concrete and coherent action by way of a legislative initiative, if required

The consultation is open until 16 May 2017. The EC is expected to put out a legislative proposal on the ESAs reform in October 2017, based on the consultation’s outcomes.

For more information: Public consultation on the operations of the European Supervisory Authorities

1 February 2017

FSB consults on draft guidance for CCP resolution and resolution planning

The Financial Stability Board (FSB) published a consultative document setting out draft guidance on central counterparty resolution and resolution planning. Comments on the consultative document should be submitted by 13 March 2017.

The guidance covers a number of aspects of CCP resolution planning which authorities should consider when developing frameworks for resolving failing CCPs, including:

  • policy objectives for CCP resolution planning to maintain financial stability;
  • powers that resolution authorities should have to ensure the effective resolution of CCPs, including potential indicators for considering when a CCP should enter resolution;
  • use of loss allocation tools in resolution and provisions necessary to protect creditor rights so the triggering of resolution by authorities does not leave creditors worse off than if the authorities had not stepped in; and
  • steps authorities should take for CCP resolution planning including assessing resolvability and considerations about the formation of crisis management groups for systemically important CCPs.

Based on the feedback to this consultation, the FSB intends to finalise its guidance in June 2017, in advance of the G20 Leaders’ Summit.

For more information: FSB consultative document – Guidance on Central Counterparty Resolution and Resolution Planning

23 January 2017

EMIR trade reporting - RTS and ITS published in the Official Journal

The amending EMIR Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS) for reporting to trade repositories were published in the Official Journal. The new requirements will apply from 1 November 2017.

For more information:

16 December 2016

European Commission issues additional equivalence decisions

The European Commission (EC) adopted some equivalence decisions for CCPs and trading venues in third-country jurisdictions. The EC determined that third-country rules meet the EU standards:

  • For clearing houses in India, Brazil, New Zealand, Japan Commodities, United Arab Emirates, and Dubai International Financial Centre.
  • For trading venues in Australia, Canada, Japan, and Singapore.

These implementing decisions will enter into force on 5 January 2017 (20 days after publication in the Official Journal).

Equivalence decisions form part of the wider process for non-EU financial infrastructures wishing to offer services in the EU. A country’s equivalence is a pre-requisite for the next step in the process, known as recognition. CCPs from these third-country jurisdictions will need to individually apply with ESMA in order to be recognised under EMIR.

For more information: European Commission press release

15 December 2016

EMIR RTS on risk mitigation techniques for non-centrally cleared derivatives published in Official Journal

The Regulatory Technical Standards (RTS) on risk-mitigation techniques for non-centrally cleared derivatives were published in the EU Official Journal. These RTS set out the levels and types of collateral that OTC derivatives counterparties must exchange bilaterally if the transaction is not cleared through a CCP. These RTS will enter into force on 4 January 2017 (i.e. 20 days after publication). The entry into force triggers the clock for the implementation, phased-in based on aggregate average notional amount of non-centrally cleared derivatives.

For more information: RTS on risk-mitigation techniques for non-centrally cleared derivatives

9 December 2016

The EU Commission extends the QCCP deadline to 15 June 2017

The European Commission (EC) extended the transitional period related to own funds requirements for exposures to central counterparties to 15 June 2017.

The EC notes that 21 non-EU CCPs have already been recognised by ESMA, but it states that some “third-country CCPs are still awaiting recognition and the recognition process will not be completed by 15 December 2016. If the transitional period is not extended, institutions established in the Union (or their subsidiaries established outside the Union) having exposures to the remaining third-country CCPs would be required to increase significantly their own funds for those exposures”.

Background: the Capital Requirements Regulation (CRR) permits EU banks and foreign subsidiaries of EU banks to be subject to favourable capital requirements for their exposures to a Qualified CCP (or QCCP), compared to a non-QCCP. A CCP gains a QCCP status in the EU if it has been authorised (in the case of EU CCP) or recognised (in the case of non-EU CCP) under EMIR. Foreign CCPs can only be recognised by ESMA if the EU Commission has taken a positive equivalence decision on the foreign regulatory regime for CCPs. However, the CRR also includes a transitional provision that allows CCPs not yet authorised/recognised to be treated as QCCPs by EU members until a given date (now set to be 15 June 2017), unless they receive EU recognition earlier.

For more information: Commission Implementing Regulation (EU) 2016/2227

28 November 2016

European Commission publishes its proposal on recovery and resolution of CCPs

The European Commission published its proposal for a Regulation on a framework for the recovery and resolution of central counterparties.

The proposed Regulation on CCP Recovery and Resolution is built on international standards, even if work is still on-going in international workstream led by the FSB and CPMI-IOSCO.

The Commission’s proposal is based on four key principles:

  • Preparation and prevention: first, the Commission intends to require CCPs to draw up recovery plans aimed at dealing with any financial distress scenarios, including defaults by clearing members of the CCP but also the materialisation of other risks and losses for the CCP itself, such as fraud or cyberattacks. Recovery plans are to be reviewed by the CCP's supervisor. In addition, authorities responsible for resolving CCPs (i.e. resolution authorities) would be required to prepare resolution plans on how CCPs would be restructured and their critical functions maintained in the – unlikely – event of a failure.
  • Early intervention: the Commission proposes to grant CCP supervisors specific powers to intervene in the operations of CCPs very early, even before they reach the point of failure or where their actions may be detrimental to overall financial stability. Supervisors could also require the CCPs to undertake specific actions in their recovery plan or to make changes to their business strategy or legal and operational structure. These powers would complement those of EMIR.
  • Resolution powers and tools: according to the Commission’s proposal, which is based on the FSB guidance, a CCP will be placed in resolution when it is failing or likely to fail, when no private sector alternative can avert failure, and when its failure would jeopardise the public interest and financial stability.
  • Cooperation between national authorities: given that CCPs are cross border in nature, with the biggest CCPs operating internationally, cooperation of national authorities to ensure effective planning and orderly resolution is very important. The Commission therefore proposes to set-up “resolution colleges” for each CCP containing all the relevant authorities, including ESMA and the EBA. The existing colleges under EMIR and the newly established resolution colleges should jointly undertake the specific tasks allocated to them under this proposed Regulation. ESMA is set to facilitate joint actions and act as a binding mediator if necessary.

This proposal will now be examined separately by the European Parliament and the Member States according to the ordinary legislative procedure (i.e. the co-decision procedure) until they both adopt their respective positions.

For more information: Proposal for a Regulation on a framework for the recovery and resolution of central counterparties

23 November 2016

European Commission publishes proposals on banking reform - CRR/CRD/BRRD/SRMR

The European Commission published its new banking reform package. This package is composed of the following 5 documents:

  • A revised Capital Requirement Regulation (CRR) and related annex
  • A revised Capital Requirement Directive (CRD)
  • A revised Bank Recovery and Resolution Directive (BRRD) regarding the ranking of unsecured debt instruments in insolvency hierarchy and regarding loss-absorbing and recapitalisation capacity of credit institutions and investment firms
  • A revised Single Resolution Mechanism Regulation (SRMR)

These 5 proposals will now be examined separately by the European Parliament and the Member States according to the ordinary legislative procedure (i.e. the co-decision procedure) until they both adopt their respective positions. Then, the three institutions will try to reach a compromise during trilogue meetings.

For more information: Press release on banking reform package

23 November 2016

European Commission publishes outcomes from its EMIR Review

The European Commission published its output from its review of the EMIR legislation, following a public consultation in the summer of 2015.

There was general support for the objectives of EMIR and its core requirements, including clearing, margin requirements, reporting, operational risk mitigation requirements and trade reporting. The Commission therefore proposes no fundamental changes to the core requirements of EMIR. Nonetheless, a number of areas were highlighted where the EMIR requirements could be adjusted in order to: (i) simplify and increase the efficiency of the requirements; and (ii) reduce disproportionate costs and burdens.

In particular, the Commission has identified the following changes/areas for further investigation:

  • Introducing a mechanism to suspend the clearing obligation (as recommended by ESMA and ESRB). The Commission will propose a mechanism for suspending a clearing obligation as part of the proposal on the CCP Recovery and Resolution for the purposes of resolution and consider the possibility to broaden the scope of the suspension of a clearing obligation for other appropriate purposes.
  • Facilitating the predictability of margin requirements. The Commission notes that better information sharing could make compliance with margin requirements more efficient for market participants and enable them to better manage their own assets. As for non-cleared transactions, the Commission suggest that a mandate for initial margin models to be endorsed by authorities could promote certainty for market participants and authorities alike.
  • Streamlining trade reporting. The Commission considers that further assessment of the current rules should be undertaken to take specific actions to achieve that goal. Furthermore, alternative methods for providing access to third country authorities of trade repositories' data that provide appropriate safeguards should also be explored.
  • Scope of transactions. The Commission considers it appropriate to review to what extent transactions entered into before the clearing obligation enters into force and intragroup transactions should remain in scope of the relevant requirements
  • Scope of entities. The Commission is keen to assess whether adjustments should be made to the scope of core requirements under EMIR in order to address the challenges faced by NFCs. In addition, further consideration should also be given to whether any NFCs, or only some of them based on the volume and type of activity in derivatives markets, should be captured by clearing and margin requirements.

The areas identified above as requiring further investigation will continue to be assessed ahead of the Commission publishing a legislative proposal to address these topics in 2017.

For more information: Report on EMIR Review

14 November 2016

ESMA proposes a delay to clearing obligation for small financial counterparties (Category 3)

ESMA published its final report on the clearing obligation for financial counterparties with a limited volume of activity. ESMA’s report proposes to extend the phase-in period for Category 3 firms. The newly proposed compliance date would be 21 June 2019, and would apply to the three clearing obligation: G4 IRS, EEA IRS and CDS.

ESMA’s final report was submitted to the European Commission for endorsement of the draft RTS for this new compliance date. The European Commission now has three months to decide whether or not to endorse the RTS. It will then be followed by a one to two month review period by the European Parliament/Council.

For more information: Final Report on the clearing obligation for financial counterparties with a limited volume of activity

30 September 2016

ESMA consults on future reporting rules for securities financing transactions (SFTs)

ESMA published a consultation paper on draft technical standards implementing the Securities Financing Transaction Regulation (SFTR), which aims to increase the transparency of shadow banking activities. Securities financing transactions (SFTs) include repurchase transactions, securities lending and sell/buy-back transactions. The SFTR will require both financial and non-financial market participants to report details of their SFTs to an approved EU trade repository. These details will include the composition of the collateral, whether the collateral is available for reuse or has been reused, the substitution of collateral at the end of the day and the haircuts applied.

Deadline to respond is 30 November 2016.

For more information: Consultation Paper on Draft RTS and ITS under SFTR and amendments to related EMIR RTS

16 August 2016

FSB publishes discussion note on Essential Aspects of CCP Resolution Planning

The Financial Stability Board (FSB) published a discussion note covering a number of aspects of CCP resolution planning, including: timing of entry into resolution; adequacy of financial resources; tools for returning to a matched book and allocating default and non-default losses; application of the No Creditor Worse Off safeguard and treatment of the CCP’s equity in resolution; and cross-border cooperation and effectiveness of resolution actions.

Comments on the discussion note should be submitted by 17 October 2016.

For more information: Discussion note on Essential Aspects of CCP Resolution Planning

16 August 2016

CPMI-IOSCO consults on resilience and recovery of CCPs

CPMI-IOSCO published a Consultative report on “Resilience and recovery of central counterparties (CCPs): Further guidance on the PFMI”. It proposes more granular descriptions of how CCPs are expected to implement key parts of the PFMI to further improve their resilience and recovery planning. In particular, the report provides proposed guidance on the following key aspects of a CCP’s financial risk management framework: (i) governance and disclosure relating to the CCP’s risk management framework; (ii) credit and liquidity stress testing; (iii) coverage of credit and liquidity resource requirements; (iv) margin; (v) a CCP’s contribution of its own financial resources to losses; and (vi) recovery planning.

Comments on the consultative report should be submitted by 18 October 2016.

For more information: Consultative report on Resilience and recovery of central counterparties (CCPs): Further guidance on the PFMI

20 July 2016

Clearing Obligation for IRS in certain EEA currencies published in Official Journal

The European Commission published in the Official Journal the EEA Rates Clearing Obligation RTS. The RTS will now enter into force on 9 August 2016 (i.e. 20 days after this publication). The entry into force triggers the clock for the phased-in implementation by type of counterparty.

Categorisation and start of mandate

Catogories Composition of category Phase-in Start of mandate
Category 1 Counterparties which, at the point of entry into force of the EEA RTS, are CMs of at least one of the classes of the EEA IRS or G4 IRS subject to the mandate RTS Entry into force + 6 months 9 February 2017
Category 2 Financials + Alternative investment funds above a threshold of non-cleared OTC derivatives* RTS Entry into force + 12 months 9 August 2017
Category 3 Financials + Alternative investment funds RTS Entry into force + 18 months 9 February 2018
Category 4 Non-Financials (not included in Cat 1-2-3) RTS Entry into force + 3 years 9 August 2019

Products subject to the mandate:

1)Fixed-to-float

Reference Index Settlement Currency Maturity Notional Type
NIBOR NOK 28D-10Y Constant or Variable
WIBOR PLN 28D-10Y Constant or Variable
STIBOR SEK 28D-15Y Constant or Variable

2)Forward rate agreement

Reference Index Settlement Currency Maturity Notional Type
NIBOR NOK 3D-2Y Constant or Variable
WIBOR PLN 3D-2Y Constant or Variable
STIBOR SEK 3D-2Y Constant or Variable

For more information: : EEA Rates Clearing Obligation RTS and Corrigendum

8 JUNE 2016

The EU Commission extends the QCCP deadline to 15 December 2016

The European Commission (“EC”) published today a regulation to extend the transitional period related to own funds requirements for exposures to central counterparties to 15 December 2016.

As a reminder, the Capital Requirements Regulation permits European banks to apply a favourable treatment for their exposures to a CCP authorised or recognized by ESMA under EMIR, so-called qualifying CCPs (“QCCPs”). A transitional provision allows banks to treat CCPs not yet authorised or recognised by ESMA as QCCPs until a given date, which has now been pushed back 6 months, from 15 June 2016 to 15 December 2016.

Background: the Capital Requirements Regulation (CRR) permits EU banks and foreign subsidiaries of EU banks to be subject to favourable capital requirements for their exposures to a Qualified CCP (or QCCP), compared to a non-QCCP. A CCP gains a QCCP status in the EU if it has been authorised (in the case of EU CCP) or recognised (in the case of non-EU CCP) under EMIR. Foreign CCPs can only be recognised by ESMA if the EU Commission has taken a positive equivalence decision on the foreign regulatory regime for CCPs. However, the CRR also includes a transitional provision that allows CCPs not yet authorised/recognised to be treated as QCCPs by EU members until a given date (now set to be 15 December 2016), unless they receive EU recognition earlier.

For more information: Commission Implementing Regulation (EU) 2016/892

26 May 2016

ESMA publishes final draft RTS on indirect client clearing

The European Securities and Markets Authority (ESMA) published two final draft regulatory technical standards (RTS) on indirect clearing for OTC (under EMIR) and ETD (under MiFIR). The RTS provide provisions on the choice of account, default management and treatment of long chains of indirect clients.

The draft RTS on indirect clients are now submitted for endorsement to the European Commission which has three month to accept or reject them. This is followed by a non-objection period by the European Parliament and Council.

For more information: Draft regulatory technical standards on indirect clearing arrangements under EMIR and MiFIR

26 May 2016

Publication in the Official Journal of EMIR RTS to allow one-day gross model in Europe

The European Commission published in the Official Journal a delegated regulation amending the technical standards for requirements for CCPs related to the Margin Period of Risk (MPOR) for client accounts. The amended RTS will enter into force 20 days later, on 15 June 2016.

The RTS amends Article 26 of RTS No 153/2013 with respect to client accounts in order to allow CCPs authorised under EMIR to apply a one-day liquidation period for financial instruments other than OTC derivatives held in a gross omnibus or individually segregated account.

For more information: Commission Delegated Regulation (EU) 2016/822

19 April 2016

Clearing Obligation for CDS published in Official Journal

The European Commission published the CDS Clearing Obligation regulatory technical standards (RTS) in the Official Journal. The RTS will now enter into force on 9 May 2016 (i.e. 20 days after this publication). The entry into force triggers the clock for the phased-in implementation by type of counterparty.

Categorisation and start of mandate

Catogories Composition of category Phase-in Start of mandate
Category 1 Counterparties which, at the point of entry into force of the EEA RTS, are CMs of at least one of the classes of the EEA IRS or G4 IRS subject to the mandate RTS Entry into force + 9 months 9 February 2017
Category 2 Financials + Alternative investment funds above a threshold of non-cleared OTC derivatives* RTS Entry into force + 15 months 9 August 2017
Category 3 Financials + Alternative investment funds RTS Entry into force + 21 months 9 February 2018
Category 4 Non-Financials (not included in Cat 1-2-3) RTS Entry into force + 3 years 9 May 2019

Products subject to the mandate:

Type Sub Type Geographical Zone Reference Index Settlement Currency Series Tenor
Index CDS Untranched Index Europe iTraxx Europe Main EUR 17 onwards 5Y
Index CDS Untranched Index Europe iTraxx Europe Crossover EUR 17 onwards 5Y

For more information: CDS Clearing Obligation RTS

15 March 2016

European Commission has adopted equivalence decision for CCPs in USA

The European Commission adopted the EU-US equivalence decision for CCPs. The adoption of this Implementing Act is the formal legal approval of the political agreement reached between the European Commission and the CFTC on 10 February, and which received a positive vote in the European Securities Committee on 24 February.

The next steps are now for ESMA and the CFTC to agree on cooperation arrangement. It is a prerequisite for US CCPs individually applying for recognition by ESMA. Each US CCP seeking recognition will then need to confirm that their internal rules and procedures meet the conditions set out in the decision relating to the calculation of initial margins and the default fund.

For more information: European Commission press release

11 March 2016

ESMA publishes a Discussion Paper on Draft RTS and ITS under SFTR

ESMA published a discussion paper on standards implementing the Securities Financing Transaction Regulation (SFTR) seeking input on how financial and non-financial market participants will report their SFTs to an approved EU trade repository (TRs). The discussion paper covers the details related to the reporting obligation, the registration requirements for TRs, and the levels of access to data held in TRs. Deadline to respond to ESMA is 22 April 2016.

For more information: Discussion Paper on Draft RTS and ITS under SFTR

1 February 2016

ESMA publishes final report on CSDR Settlement Discipline RTS

ESMA published its final report on settlement discipline for the implementation of the Central Securities Depository Regulation (CSDR). The Regulatory Technical Standards (RTS) includes details on measures for preventing settlement fails, and measures for monitoring and addressing settlement fails, in particular the cash penalties mechanism and the buy-in process.

ESMA’s final report was submitted to the European Commission for endorsement of the draft RTS. The European Commission now has three months to decide whether or not to endorse the RTS. It will then be followed by a one to two month review period by the European Parliament/Council.

For more information: ESMA press release on settlement discipline RTS

23 December 2015

SFTR published in the Official Journal

The Securities Financing Transactions Regulation (SFTR) was published in the Official Journal. The new rules on transparency provide for the reporting of details regarding SFTs concluded by all market participants, whether they are financial or non-financial entities, including the composition of the collateral, whether the collateral is available for reuse or has been reused, the substitution of collateral at the end of the day and the haircuts applied. SFTR will enter into force and apply as of 12 January 2016. However the application of certain provisions, notably the reporting requirement, will happen at a later stage.

For more information: Regulation (EU) 2015/2365

15 December 2015

The EU Commission extends the QCCP deadline to 15 June 2016

The EU Commission extended the QCCP deadline by an extra 6 months, from 15 December 2015 to 15 June 2016. The extension is important in the context of the equivalence debate between EU and US. It will allow more time for the EU Commission to reach a positive equivalence decision on the US regime so that ESMA can recognise US CCPs and allow them to offer services to EU members.

Background: the Capital Requirements Regulation (CRR) permits EU banks and foreign subsidiaries of EU banks to be subject to favourable capital requirements for their exposures to a Qualified CCP (or QCCP), compared to a non-QCCP. A CCP gains a QCCP status in the EU if it has been authorised (in the case of EU CCP) or recognised (in the case of non-EU CCP) under EMIR. Foreign CCPs can only be recognised by ESMA if the EU Commission has taken a positive equivalence decision on the foreign regulatory regime for CCPs. However, the CRR also includes a transitional provision that allows CCPs not yet authorised/recognised to be treated as QCCPs by EU members until a given date (now set to be 15 June 2016), unless they receive EU recognition earlier.

For more information: implementing regulation extending the transitional period related to own funds requirements for exposures to CCPs

2 December 2015

EU Commission publishes final rules on G4 IRS mandate under EMIR

On 1st December, the EU Commission published the rules on the clearing mandate for G4 IRS in the EU Official Journal. The rules will enter into force on 21st December 2015 (i.e. 20 days following the publication). The entry into force triggers the clock for the phased-in implementation by type of counterparty.

Categorisation and start of mandate

CATEGORISATION PHASE - IN START OF MANDATE
Category 1 Clearing member G4 IRS as of December 21, 2015 6 months from RTS entry into force June 21, 2016
Category 2 Financials + Alternative investment funds above a threshold of non-cleared OTC derivatives 12 months from RTS entry into force Dec 21 2016
Category 3 Financials + Alternative investment funds 18 months from RTS entry into force June 21, 2017
Category 4 Non-Financials (not included in Cat 1-2-3) 3 yrs from RTS entry into force Dec 21, 2018

Products subject to the mandate:

1) Basis swaps

Reference Index Settlement Currency Maturity Notional Type
EURIBOR EUR 28D-50Y Constant or Variable
LIBOR GBP 28D-50Y Constant or Variable
LIBOR JPY 28D-30Y Constant or Variable
LIBOR USD 28D-50Y Constant or Variable

2) Fixed-to-Float interest rate swaps

Reference Index Settlement Currency Maturity Notional Type
EURIBOR EUR 28D-50Y Constant or Variable
LIBOR GBP 28D-50Y Constant or Variable
LIBOR JPY 28D-30Y Constant or Variable
LIBOR USD 28D-50Y Constant or Variable

3) Forward rate agreement

Reference Index Settlement Currency Maturity Notional Type
EURIBOR EUR 3D-3Y Constant or Variable
LIBOR GBP 3D-3Y Constant or Variable
LIBOR USD 3D-3Y Constant or Variable

4) Overnight index swaps

Reference Index Settlement Currency Maturity Notional Type
EONIA EUR 7D-3Y Constant or Variable
FedFunds USD 7D-3Y Constant or Variable
SONIA GBP 7D-3Y Constant or Variable

For more information: EU Commission rules on G4 IRS clearing mandate

12 November 2015

ESMA issues final report on clearing mandate for IRS in certain EEA currencies

Following a public consultation in May, ESMA today published its final proposed regulatory technical standards (RTS) under EMIR on the clearing obligation for IRS in certain EEA currencies.
The mandate will be phased in by type of counterparty. Category 1 is expected to be subject to the mandate from end 2016. Category 1 includes current clearing members of a CCP authorised or recognised in the EU to clear either G4 IRS or EEA IRS subject to the mandate.

CLASSES PROPOSED TO BE SUBJECT TO THE MANDATE:

Fixed-to-float

Reference Index Settlement Currency Maturity Notional Type
NIBOR NOK 28D-10Y Constant or Variable
WIBOR PLN 28D-10Y Constant or Variable
STIBOR SEK 28D-15Y Constant or Variable

Forward rate agreement

Reference Index Settlement Currency Maturity Notional Type
NIBOR NOK 3D-2Y Constant or Variable
WIBOR PLN 3D-2Y Constant or Variable
STIBOR SEK 3D-2Y Constant or Variable

NEXT STEPS:

      - By Feb 2016: EU Commission is expected to endorse ESMA's RTS
      - Q2 2016: EU Parliament and Council will express their non-objection on the RTS. After this step, the RTS are expected to be published in the EU Official Journal and enter into force
      - The mandate starts according to a phase in by type of counterparty

For more information: ESMA final proposed regulatory technical standards

07 October 2015

ESMA issues final draft RTS on CDS clearing mandate

On 2nd October, ESMA finalised the draft regulatory technical standard (RTS) for the central clearing of Credit Default Swaps (CDS). For background, EMIR, with the overarching objective of reducing systemic risk, introduces the obligation to clear certain classes of OTC derivatives via CCPs that have been authorised (European CCPs) or recognised (third-country CCPs) to offer services in the EU.

Proposed scope of CDS mandate: today's final proposal by ESMA, which follows a consultation issued last year, imposes a clearing obligation on two iTraxx Index CDS:

  • Untranched iTraxx Index CDS (Main, EUR, 5Y; series 17 onwards) and
  • Untranched iTraxx Index CDS (Crossover, EUR, 5Y; series 17 onwards).

Proposed categorisation of counterparties and proposed phased-in application:

Category Composition of category ESMA proposed phase-in Expected application of clearing mandate
Category 1 Current clearing members 9 months from RTS entry into force Q4 2016/ Q1 2017
Category 2 Financials + Alternative investment funds above a threshold of non-cleared OTC derivatives 15 months from RTS entry into force Q2 2017/ Q3 2017
Category 3 Financials + Alternative investment funds 21 months from RTS entry into force Q4 2017/ Q1 2018
Category 4 Non-Financials 3 yrs from RTS entry into force Q1 2019/ Q2 2019

Frontloading:

Frontloading is the obligation under EMIR to clear certain contracts that certain counterparties have entered into with each other before the clearing obligation takes effect. The frontloading obligation will only apply to Category 1 and in Category 2. The frontloading period for CDS contracts starts to apply 5 months after the date of entry into force, both for counterparties in Category 1 and in Category 2.

Next steps:
  • The draft RTS are now subject to a 3-month period review by the EU Commission
  • This will be followed by a further 1-2 months scrutiny period by the EU Parliament and EU Council
  • The RTS are then published in the Official Journal and the mandate enters into force (i.e. it becomes legally binding)
  • The RTS could enter into force around February 2016

For more information:
Link to ESMA draft regulatory technical standard

28 August 2015

EU Commission adopts rules for mandatory clearing of interest rate derivatives in Europe

On 6 August the EU Commission adopted the regulatory technical standards (RTS) under EMIR on the clearing obligation for interest rate derivatives denominated in the G4 currencies.

The classes which will be mandated for clearing are:

  • Basis swaps denominated in EUR, GBP and USD with 28D-50Y maturity and denominated in JPY with 28D-30Y maturity; Constant and Variable Notional types
  • Fixed-to-float interest rate swaps denominated in EUR, GBP and USD with 28D-50Y maturity and denominated in JPY with 28D-30Y maturity; Constant and Variable Notional types
  • Forward rate agreements denominated in EUR, GBP and USD with 3D-3Y maturity; Constant and Variable Notional types
  • Overnight index swaps denominated in EUR, GBP and USD with 7D-3Y maturity; Constant and Variable Notional types

Timing: before entering into force, the RTS will be subject to a 3 month review period by the European Parliament and Council. They will then be published in the Official Journal and enter into force 20 days later. The application of the mandate will be phased in over three years to allow additional time for smaller market participants to begin complying. Category 1 is expected to start clearing as of April 2016, as EU Commission Lord Hill has recently announced. The implementation of the mandate will occur as follows:

  • CAT 1 (clearing members of IRS subject to the mandate): 6 months from entry into force of RTS (Q2 2016 - April)
  • CAT 2 (Financials + Alternative investment funds above EUR 8 billion threshold): 12 months from entry into force of RTS (Q4 2016)
  • CAT 3 (Financials + Alternative investment funds below EUR 8 billion threshold): 18 months from entry into force of RTS (Q2 2017)
  • CAT 4 (Non-Financials): 3 yrs from entry into force of RTS (Q4 2018)

14 May 2015

ESMA issues a proposal for the clearing obligation of IRS denominated in certain EEA currencies

ESMA launched a consultation on the Regulatory Technical Standards (RTS) on the clearing obligation for additional classes of OTC interest rate derivatives that were not included in the first IRS proposal (which covered the G4 currencies). The consultation closes on 15 July. The addition consists of IRS denominated in the following EEA currencies:
        - fixed-to-float interest rate swaps denominated in CZK, DKK, HUF, NOK and PLN with 28D-5Y maturity and denominated in SEK with 28D-15Y maturity; single settlement currency and constant/variable notional
        - forward rate agreements denominated in NOK and PLN with 3D-1Y maturity and denominated in SEK with 3D-2Y maturity ; single settlement currency and constant/variable notional

PROPOSED CATEGORIES and START DATE OF CLEARING MANDATE:

The approach to the categorisation of the counterparties is as follows:

Category 1 Counterparties which, at the point of entry into force of the RTS, are members of at least one of the classes included in the EEA currencies RTS 6 or 9 months from RTS entry into force*
Category 2 Financials + Alternative investment funds above a certain threshold of non-cleared OTC derivatives 12 or 15 months from RTS entry into force*
Category 3 Financials + Alternative investment funds 18 or 21 months from RTS entry into force*
Category 4 Non-Financials 3 yrs or 3 yrs+3 months from RTS entry into force*

* The proposal regarding the dates of application of the clearing obligation in respect of the EEA currencies RTS is the following:
        - 1st scenario: 6/12/18/36 months after the entry into force of the EEA currencies RTS for categories 1 to 4 respectively, if such RTS is published in the Official Journal more than 3 months after the G4 currencies RTS
        - 2nd scenario: 9/15/21/39 months after the entry into force of the EEA currencies RTS for categories 1 to 4 respectively, if such RTS is published in the Official Journal less than 3 months after the G4 currencies RTS

FRONTLOADING: The approach to frontloading remains the same as that proposed for other classes: it only applies to OTC derivatives entered into by CAT 1 and 2.

  • CAT 1 will have to clear contracts entered into between 2 months after the entry into force of the RTS and the start of the mandate if their contract has a remaining maturity of more than 6 months on the date the mandate starts.
  • CAT 2 will have to clear contracts entered into between 5 months after the entry into force of the RTS and the start of the mandate if their contract has a remaining maturity of more than 6 months on the date the mandate starts.

For more information:

ESMA consultation on the clearing obligation for IRS in EEA currencies

29 March 2015

The ECB and the Bank of England announced measures to enhance financial stability in relation to centrally cleared EU markets

On 29 March, the ECB and the Bank of England announced a series of measures aimed at enhancing financial stability in relation to centrally cleared markets within the EU.

  • The ECB and the BoE have agreed enhanced arrangements for information exchange and cooperation regarding UK CCPs with significant euro-denominated business.
  • The ECB and the BoE extended the scope of their standing swap line in order, should it be necessary and without pre-committing to the provision of liquidity, to facilitate the provision of multi-currency liquidity support by both central banks to CCPs established in the UK and euro area respectively.
  • The ECB and UK government have agreed the withdrawal of the remaining two UK legal challenges before the ECJ against the ECB location policy

For more information

Link to BoE press release:

18 March 2015

BCBS-IOSCO publish revised standards on margin requirements for non-centrally cleared OTC derivatives

On 18 March, BCBS and IOSCO released a revised framework for margin requirements for non-centrally cleared derivatives. The revisions introduce:

  • A delay from 1 December 2015 to 1 September 2016 for the implementation of requirements to exchange both initial margin and variation margin
  • A two-tier arrangement for the requirement to exchange variation margin. Entities with activity in OTC derivatives above a given threshold will be subject to this requirement from 1 September 2016; those entities below such threshold will be subject to this requirement from 1 March 2017.

For more information

Link to the BCBS-IOSCO report

3 February 2015

EU Commission extends pension fund exemption from clearing obligation to August 2017

Today the European Commission published its report recommending that pension funds be granted a further two-year exemption from the central clearing requirements. Under EMIR pension funds are temporarily exempted from the clearing obligation until August 2015. The Commission report extends this exemption until August 2017. As anticipated, the report concludes that CCPs need time to find solutions for pension funds to post non-cash variation margin and encourages CCPs to continue working on finding technical solutions. Please note that the exemption could be further extended by one year, to August 2018, if necessary. During the exemption period, pension funds entering into OTC derivatives transactions will be subject to bilateral margin rules.

For more information

Press release: http://europa.eu/rapid/press-release_IP-15-3643_en.htm
EC report: http://ec.europa.eu/finance/financial-markets/docs/derivatives/150203-report_en.pdf

12 December 2014

Publication of EU regulation on extension to QCCP transitional

The Implementing Regulation granting 6 more months extension from 15 December 2014 to the transitional period for capital requirements for EU banks' exposures to CCPs under the Capital Requirements Regulation (CRR) has been published in the EU Official Journal (OJ).

The deadline by which EU and non-EU CCPs would be required to obtain EMIR authorisation and recognition respectively, and hence QCCP status to continue offering more favourable capital requirements to their members and clients, has been officially extended to the 15th June 2015.

1 October 2014

ESMA issued final proposed rules for central clearing of Interest Rate Swaps

The European Securities and Markets Authority (ESMA) submitted to the European Commission for endorsement regulatory technical standards (RTS) for the central clearing of Interest Rate Swaps (IRS). Following endorsement by the European Commission, the European Council and the European Parliament must provide their non-objection to these RTS. Entry into force of the RTS will be 20 days after the publication in the EU Official Journal. Entry into force is expected around February 2015.

The RTS specifies the types of IRS contracts which will be subject to mandatory clearing obligation, the dates on which the mandate becomes effective for each type of counterparty and the conditions for a contract to be subject to frontloading.

What's covered

ESMA proposes a clearing mandate for four IRS classes:

  • Basis swaps denominated in EUR, GBP, USD with 28D-50Y; JPY with 28D-30Y maturity
  • Fixed-to-float swaps denominated in EUR, GBP, USD with 28D-50Y; JPY with 28D-30Y maturity
  • Forward rate agreements denominated in EUR, GBP, USD with 3D-3Y maturity; and
  • Overnight index swaps denominated in EUR, GBP, USD with 7D-3Y maturity.

Category Definitions

ESMA proposes the following definitions of counterparties.

  • CATEGORY 1
    Clearing members for at least one of the classes of OTC derivatives subject to the clearing obligation of at least one authorised or recognised CCP under EMIR.
  • CATEGORY 2
    Financial counterparties + AIFs not included in category 1, which belong to a group whose aggregate month-end average notional amount of non-centrally cleared derivatives for the last three months preceding the entry into force of the RTS is above EUR 8 billion.
  • CATEGORY 3
    Financial counterparties + AIFs not included in category 1 and 2.
  • CATEGORY 4
    Non-financial counterparties above the clearing threshold not included in category 1,2 and 3.

When will this impact you?

Step Time Frame Date (Estimate)
Endorsement by EC Within 3 months from RTS submission Jan 2015
Approval by EU Parliament and Council Within 1-2 months from EC endorsement Feb 2015
Entry into Force Effective 20 days after publication Feb 2015
CAT 1: Clearing Members 6 months from Entry into Force Aug 2015
CAT 2: Non-Clearing Members above Euro 8bn threshold 12 months from Entry into Force Feb 2016
CAT 3 : Non-Clearing Members below Euro 8bn threshold 18 months from Entry into Force Aug 2016
CAT 4 : Non-Financial counterparties above the clearing threshold 3 years from Entry into Force Feb 2018

Frontloading:

The requirement that IRS, with a minimum remaining maturity (MRM) of 6-months, traded in the period from the publication of the RTS in the Official Journal to the end of the associated phase-in period, have to be cleared by the time the clearing obligation enters into effect, will only apply to Category 1 and Category 2 entities. The frontloading requirement does not apply to NFCs, and the MRM for Category 3 entities has been set at a level so as to exclude all trades from the requirement.

July 2014

ESMA consults on a clearing mandate for IRS and CDS - July 2014

ESMA launched a first round of consultations to prepare for central clearing under EMIR. The two consultation papers seek stakeholders' views on draft rules (RTS) for the clearing of IRS and CDS respectively. For equity derivatives and interest rate futures and options which are currently offered for clearing, ESMA decided that a clearing obligation is not necessary at this stage.

  • The consultation on IRS closes on 18 August and proposes a mandate for the following four classes:
Type Settlement currency   Maturity   
Basis swaps EUR;USD;GPB;JPY 28D-50Y
Fixed-to-float interest rate swaps    EUR;USD;GPB;JPY 28D-50Y
Forward rate agreements EUR;USD;GPB 3D-3Y
Overnight index swaps EUR;USD;GPB 7D-3Y

  • The consultation on CDS closes on 18 September and proposes a mandate for CDS on iTraxx Europe Main and iTraxx Europe Crossover with 5Y maturity.

Expected timing for clearing mandate:

The table below gives an estimate for the start of the clearing mandate on the basis of ESMA proposed phased-in timeline per type of counterparty. The proposed timeline has already drawn criticism from the banks, which are claiming that most of the prospective clients, falling under Category 2 below, would only be forced to start clearing at some point in 2016, when many institutions built their business on the expectation that client clearing would take off in 2015. ESMA's counter-argument is that counterparties will only have the legal certainty on the products to be cleared after the rules are finalised and the phased in period for Category 2 (18 months) is justified by 'the time counterparties will need to put clearing arrangements in place, the large number of clients caught by the regime and the fact that category two firms include a lot of less-sophisticated counterparties'.

Type of counterparty Proposed phased-in timeline ESTIMATE
CATEGORY 1
current clearing members
6 months
after the entry into force of RTS**
CIRCA Q3 2015
1 month later for CDS
CATEGORY 2
Financial counterparties
18 months
after the entry into force of the RTS**
CIRCA Q3 2016
1 month later for CDS
CATEGORY 3
Non-financial counterparties
(exceeding the clearing threshold)
3 years
after the entry into force of the RTS**
CIRCA Q1 2018
1 month later for CDS

**The entry into force of the RTS depends on the following process for adoption in Brussels:
    -    ESMA submit RTS to EU Commission, which has 3 months to endorse
    -    Following this the EU Parliament and Council have 1 month (extendable to 2 months) to object to the EU Commission endorsement.
    -    Final RTS are published in the Official Journal and enter into force 20 days later, i.e. become legally binding. We expected this to happen between January and March for both IRS and CDS.

Frontloading
The consultation includes ESMA proposed approach to the frontloading obligation, which is the obligation to clear certain OTC derivatives entered into a period prior to the beginning of the clearing mandate. ESMA proposal substantially limits the impact of this obligation, due to concerns raised by market participants that this obligation may lead to pricing uncertainty for trades executed during the frontloading period.
ESMA, officially supported by the EU Commission, proposes that only OTC derivatives contracts traded between the entry into force of the RTS and the date on which the clearing obligation takes effect will have to be cleared if they have a remaining maturity longer than 6 months when the clearing obligation takes effect

June 2014

25 June 2014

CFTC Staff extends No-Action relief for LCH Ltd to clear swaps executed on SEFs

The CFTC's Division of Clearing and Risk (DCR) extended existing no-action relief to permit LCH Ltd to continue to clear swaps executed on a SEFs or DCMs. The extended no-action relief expires on the sooner of: 31 December 2014 or the date on which the CFTC grants Ltd's application to extend its existing DCO license to explicitly state that Ltd can clear swaps executed on SEFs and DCMs.


For more information:
CFTC No-Action Letter:

03/06/2014

EU Commission extends transitionals for QCCP status under Capital Requirements Regulation

The European Commission issued the Implementing Regulation that extends the transitional provisions under the Capital Requirements Regulation (CRR) related to own funds requirements for banks' exposures to CCPs until 15 December 2014. Until this date CCPs that have not yet been authorised/recognised under EMIR, included LCH LLC, can be considered Qualifying CCPs (QCCPs). Banks using QCCPs will be subject to more favorable capital requirements for their exposure to CCPs.

April 2014

14/04/2014

ESMA/EBA/EIOPA issue a consultation on risk management standards for non-centrally cleared OTC derivatives

The Basel Committee issued the final standards for calculating regulatory capital for banks' exposures to CCPs. The final standards will replace the interim capital requirements published in July 2012 which the Europe Union and the US have implemented as of 1 January 2014. The final standards will take effect on 1 January 2017 and the interim requirements will continue to apply until then.

Following this consultation, and on the basis of the relevant input received, the European Supervisory Authorities will finalise their jointly developed proposed rules and submit them to the EU Commission for endorsement before the end of 2014. The requirements will be phased-in over a period of four years starting on 1 December 2015.

For more information:
Risk Mitigation for OTC derivatives

10/04/2014

Basel Committee issues final standard for calculating regulatory capital for banks' exposures to CCPs

The Basel Committee issued the final standards for calculating regulatory capital for banks' exposures to CCPs. The final standards will replace the interim capital requirements published in July 2012 which the Europe Union and the US have implemented as of 1 January 2014. The final standards will take effect on 1 January 2017 and the interim requirements will continue to apply until then.

For more information:
Basel Committee press release

March 2014

18/03/2014

NASDAQ OMX receives authorisation under EMIR

On 18 March 2014, ESMA received notification of the authorisation of NASDAQ OMX as the first EU-based CCP under EMIR. ESMA also received notification of the list of OTC derivatives that NASDAQ OMX has been authorised to clear and which, therefore, may be subject to a clearing and frontloading obligations in the future.

ESMA will now draft regulatory technical standards (RTS) proposing which of the classes of products NASDAQ OMX has been authorised to clear should be subject to mandatory clearing. The clearing obligation procedure is triggered every time a new CCP clearing OTC derivatives is authorised. "This means that if CCPs are authorised on different dates, several clearing obligation procedures may run in parallel. For each of these procedures, ESMA has up to six months from the time of the notifications to draft the respective RTS, consult and submit them for endorsement to the European Commission. After the Commission's endorsement, the RTS are subject to a non-objection period by both the European Council and Parliament, after which the clearing obligation will be phased-in per type of counterparties".

For more information:
List of derivatives cleared by NASDAQ OMX on ESMA's register

February 2014

US trade execution mandate for certain swaps starts this month

The CFTC recently announced that a number of Made Available to Trade (MAT) submissions by registered SEFs have gone into effect. The SEFs are Javelin SEF (Rates), trueEX (Rates) and Tradeweb (Rates and Credit). The swaps covered by these submissions will be required to be executed on any SEF that lists them as of:

  • February 15, 2014 (Javelin)
  • February 21, 2014 (trueEX)
  • February 26, 2014 (Tradeweb)

12/02/2014

CFTC and European Commission Announce Progress on Harmonizing Regulatory Framework for SEFs and MTFs

On 12 February, the CFTC took another step to ease the transition to mandatory SEF trading. The step took the form of an announcement from the CFTC and European Commission that they have made significant progress towards harmonizing the regulatory framework for SEFs and MTFs. As a result of this progress, CFTC staff issued a conditional no-action letter providing relief:

  • For qualifying MTFs (QMTFs) from the SEF registration requirement;
  • Permitting parties to satisfy mandatory SEF execution requirements by trading on qualifying MTFs;
  • For swap dealers and major swap participants executing swap transactions on qualifying MTFs from certain requirements CFTC business conduct rules.

To become a QMTF, an MTF must submit a request to the CFTC by 24 March 2014 and meet the conditions in the broader no-action letter.

For more information

Link to No-action letter: http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/14-16.pdf


15/01/2014

QCCP Status of LCH Limited ("LTD"), LCH SA ("SA") and LCH LLC ("LLC")

Download PDF


15/11/2013

CFTC Issues Final Rules Implementing the CPSS-IOSCO Principles for Financial Market Infrastructures and QCCP Status

The CFTC finalized rules to implement the CPSS-IOSCO Principles for Financial Market Utilities (PFMIs). This is an important step for the CFTC because only CCPs that are supervised in a jurisdiction that has domestic rules and regulations that are consistent with the PFMIs can be qualified CCPs (QCCPs) for purposes of the Basel III bank capital rules. Banks receive favorable capital treatment for exposures related to the clearing of derivatives through a QCCP. The final rules apply to DCOs that have been designated as systemically important by the US Financial Stability Oversight Council (FSOC) and to other DCOs that choose to opt-into the rules in order to become a QCCP.

For more information

Press release: http://www.cftc.gov/PressRoom/PressReleases/pr6773-13
Final Rule: http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/federalregister111513.pdf


07/11/2013

ESMA registers first four trade repositories - EMIR reporting obligation to start on 12 February 2014

On 7th November, ESMA has approved the registrations of the first four trade repositories (TRs) under EMIR. The following entities are registered as TRs for the European Union (EU):

  • DTCC Derivatives Repository Ltd. (DDRL), based in the United Kingdom;
  • Krajowy Depozyt Papierow Wartosciowych S.A. (KDPW), based in Poland;
  • Regis-TR S.A., based in Luxembourg; and
  • UnaVista Ltd, based in the United Kingdom.

The registrations will take effect on 14 November 2013, with the reporting obligation beginning on 12 February 2014, i.e. 90 working days after the official registration date.

The registered TRs cover all derivative asset classes -commodities, credit, foreign exchange, equity, interest rates and others - irrespective of whether the contracts are traded on or off exchange.

ESMA's announcement: http://www.esma.europa.eu/content/ESMA-registers-trade-repositories


13/09/2013

EMIR - new start date for reporting of OTC derivatives

On 13 September, the European Securities and Markets Authority (ESMA) has published an updated version of its EMIR implementation timetable. The key timeline change relates to the registration of the first trade repositories (TRs) which is now expected to occur not before November. Consequently, counterparties' reporting to trade repositories for all derivatives is not expected to start before February 2014.

For more information:
http://www.esma.europa.eu/news/Trade-Repository-registration-approval-not-expected-7-November-reporting-begin-February-2014?t=326&o=home


03/09/2013

EMIR - ESMA's advice to the EU Commission on the equivalence between third countries' derivatives rules and EMIR

On 3 September, the European Securities and Markets Authority (ESMA) issued its technical advice to the EU Commission on whether certain third countries have in place rules that are equivalent to EMIR with respect to clearing and reporting of derivatives transactions, and CCPs' and Trade repositories' (TRs) requirements. ESMA proposed conditional equivalence in respect of certain countries, including the US.

The EU Commission may, at its discretion, use this advice to make an equivalence decision in respect of these third countries. With a positive equivalence decision in place:

  1. ESMA may recognize CCPs and TRs established in these countries allowing them to offer services to EU firms;
  2. EU firms may comply with the rules of these countries, instead of EMIR, to fulfill their clearing, reporting and risk mitigation requirements for uncleared derivatives.

For more information:
http://www.esma.europa.eu/Press%20Release%20-%20ESMA%20advises%20Commission%20on%20equivalence%20of%20non-European%20derivatives%20rules


02/09/2013

BCBS-IOSCO's final standards for margin requirements for non-centrally cleared derivatives

On 2 September, the Basel Committee for Banking Supervision and the International Organization of Securities Commissions (together BCBS-IOSCO) published the final international standards for margin requirements for non-centrally cleared derivatives. The standards will be implemented in EMIR via supplementing rules called Regulatory Technical Standards (RTS) to be drafted by the European Securities and Markets Authority (ESMA) and approved by the EU Commission.

For more information:
http://www.bis.org/press/p130902.htm


02/09/2013

FSB's report on the progress of the OTC derivatives reforms implementation

On 2 September, the Financial Stability Board (FSB) issued its sixth progress report on OTC derivatives markets reform implementation. The report notes that the actual use of centralised infrastructure by market participants is most advanced in trade reporting and central clearing of OTC interest rate and credit derivatives.

For more information:
http://www.financialstabilityboard.org/publications/r_130902b.pdf


August 2013

Recovery and Resolution of FMIs

In August, the Committee on Payment and Settlement Systems and the International Organization of Securities Commissions (together CPSS-IOSCO) issued guidance on the recovery of financial market infrastructures (FMIs), including CCPs; the Financial Stability Board (FSB) issued guidance on the resolution of FMIs. These are open for comments until 11 and 15 October 2013 respectively.

The European Commission is expected to issue a proposal on the recovery and resolution of FMIs in 2014.

For more information:
CPSS IOSCO's guidance: http://www.bis.org/press/p130812.htm
FSB's guidance: http://www.financialstabilityboard.org/publications/r_130812a.pdf


June/July 2013

EU and US approve rules to implement the capital requirements under Basel III

In June and July 2013 respectively the European Union and the US issued final regulations implementing the Basel III Capital Framework, including the interim framework on capital treatment of bank exposures to central counterparties (CCPs). The regulations are applicable as of January 2014.

In the mean time, the Basel Committee of Banking Supervision (BCBS) is developing a final framework for the capital treatment of banks' exposures to CCPs. The aim of this framework is to ensure that banks' exposures to CCPs are adequately capitalised, while also preserving incentives for central clearing.

Once finalized, this will substitute the interim framework and the European Union and the US will update their regulations accordingly.

For more information:
US implementation of Basel III: http://www.federalreserve.gov/newsevents/press/bcreg/20130702a.htm
EU implementation of Basel III:http://ec.europa.eu/internal_market/bank/regcapital/legislation_in_force_en.htm
BCBS framework for capital treatment of banks' exposures to CCPs:http://www.bis.org/publ/bcbs253.htm