European Market Infrastructure Regulation
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European Markets Infrastructure Regulation (EU Regulation 648/2012 (EUR Lex)), better known as “EMIR” is the result of a final proposal published by the European Commission on 15 September 2010, to increase stability within OTC derivative markets.
What EMIR does
The Regulation introduces:
- Reporting: a reporting obligation for OTC derivatives;
- Mandatory Clearing: a clearing obligation for eligible OTC derivatives;
- Uncleared derivatives margin: measures to reduce counterparty credit risk and operational risk for bilaterally cleared OTC derivatives;
- CCP rules: common rules for central counterparties (CCPs) and for trade repositories; and
- Interoperability rules: rules on the establishment of interoperability between CCPs.
Mandatory clearing
The EU Regulation follows, and facilitates within the EU, the commitment made by G20 leaders in Pittsburgh, September 2009, that:
- “All standardised OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by the end 2012 at the latest.[1] OTC derivative contracts should be reported to trade repositories. Non-centrally cleared contracts should be subject to higher capital requirements. We ask the FSB and its relevant members to assess regularly implementation and whether it is sufficient to improve transparency in the derivatives markets, mitigate systemic risk, and protect against market abuse.”
On a global level, work is being undertaken by CPSS and IOSCO (the Committee on Payment and Settlement Systems and International Organisation for Securities Commissions) to update and strengthen the existing standards for CCPs, CSDs, payments systems, collectively referred to as Financial Market Infrastructures (“FMI’s”) together with the treatment of trade repositories. To date the work of the group has been progressing well, where the revised Principles were published last year for public consultation and it is anticipated that they will be finalized later this year.
Trade reporting
There is trade reporting and transaction reporting and we won’t think any less of you if you get these confused — as long as you don’t of us — and one of them is mandated by EMIR, the other by MiFID.
Trade and transaction reporting in a Nutshell™
Trade reporting an obligation imposed by MiFID under Art. 28, is what the broker/dealer reports to the exchange immediately upon execution of the trade, to provide transparency and market information of where the stock is trading.
Transaction reporting is an obligation imposed on investment firms by Art. 25 of MiFID, and is much more detailed account of all transactions undertaken by that firm over the course of a day to the regulator, capturing who is buying and selling what.
EMIR refit
At some stage the European Commission was persuaded it might have over-reached on certain aspects, and accordingly rowed back in the so-called EMIR refit. This created yet more work for the contractor-minions of old London town.
See also
- EMIR refit
- Clearing thresholds - EMIR
- Portfolio reconciliation and dispute resolution - EMIR
- Financial counterparty
- Non-financial counterparty
- ↑ Yeah, well that didn’t happen.