Emir Set to Become Reality in Europe

Terry Flanagan

While the new derivatives legislation in Europe has technically been in force since last summer, its regulatory requirements have, in effect, lain dormant until now.

This, though, is all set to change from this Friday as six of the detailed implementing measures, known as technical standards, are set to come into force for the European Markets Infrastructure Regulation (Emir), which is part of a global push to see all standardized over-the-counter derivatives contracts pushed through centralized clearing and on to exchange-like venues in a bid to increase transparency and reduce systemic risk.

The U.S., the other main global derivatives hub, with its Dodd-Frank Act, is slightly ahead of Europe in unleashing the reforms although some of the detailed new rules on both sides of the Atlantic have still yet to be agreed upon by policymakers.

“It seemed as though Emir was never going to become law, but it’s now reality,” said Sally Nicholson, a director specializing in treasury and commodity trading matters at PwC, an audit firm and consultant, in a recent blog.

“On March 15, the first of these regulations will apply with further requirements being phased in over 2013 and 2014.”

Thus, many buy-side market participants are likely to be subject to OTC clearing and reporting obligations from March 15 in Europe.

The extraterritorial reach of the rules on both sides of the Atlantic is causing concern among many market participants and has the potential to cause irreconcilable conflicts for the derivatives industry.

The U.S., for instance, has mandated the trading of swaps on to a new type of trading platform called a swap execution facility, while Europe is requiring that all standardized OTC derivatives products be cleared centrally and reported to a trade repository.

Meanwhile, the International Swaps and Derivatives Association (Isda), a trade body, has recently released a protocol—the Isda March 2013 Emir NFC Representation Protocol—designed at helping swap market participants in conforming with the new Emir rules in Europe.

Isda has also issued a Timely Confirmation Amendment Agreement that market participants can use as part of their toolkit for compliance with the obligation imposed by Emir to provide timely confirmation of the terms of an uncleared OTC derivative contract.

“Emir imposes a range of new regulatory obligations on OTC derivatives market participants” said Robert Pickel, chief executive of Isda. “As we begin to implement Emir, the Isda March 2013 Emir NFC Representation Protocol and the Timely Confirmation Amendment Agreement are the first in a series of tools that Isda plans to make available to market participants to facilitate their compliance with Emir.”

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