EC welcomed the political agreement reached by the European Parliament and EU member states on the targeted reform of the European Market Infrastructure Regulation (EMIR). This political agreement will be followed by further technical work before the European Parliament and the Council can formally adopt the final texts.
This regulation was adopted in 2012 following the financial crisis to better manage and monitor the risks arising from derivatives markets for financial stability. The reform will provide simpler and more proportionate rules for over-the-counter (OTC) derivatives, helping to reduce costs and regulatory burdens for market participants without compromising financial stability. First presented by the Commission in 2017, this initiative builds on the results of the EC Call for Evidence, a public consultation looking at the cumulative effect of the new financial sector rules put in place since the crisis, and is a prime example of better regulation in practice: the revised rules improve the efficiency of the market while maintaining prudential objectives.
The reform of the EMIR will bring more proportionate rules for corporates. It exempts the smallest financial counterparties from the clearing obligation, while ensuring that the overwhelming majority of trades in the relevant classes of derivatives continues to be cleared in central counterparties. The reporting requirements, which ensure that supervisors dispose of full information on derivatives markets, are streamlined and will be more proportionate while the quality of the reported data is ensured. Some more time is granted to developing solutions for pension funds before they have to start clearing derivatives in central counterparties. The progress towards these clearing solutions will be carefully monitored.
EMIR implements the 2009 G20 commitment to increase the stability of the OTC derivatives market in the EU. The main objective of EMIR is to reduce systemic risk by increasing the transparency of the OTC derivatives market, by mitigating the counterparty credit risk, and by reducing the operational risk associated with OTC derivatives. It includes several measures: that all standardized OTC derivatives contracts be cleared through central counterparties (CCPs) and that OTC derivatives contracts be reported to trade repositories.
Related Link: Press Release
Keywords: Europe, EU, Banking, Securities, EMIR, OTC Derivatives, Clearing Obligation, Pension Funds, CCPs, EC
Sam leads the quantitative research team within the CreditEdge™ research group. In this role, he develops novel risk and forecasting solutions for financial institutions while providing thought leadership on related trends in global financial markets.
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