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November 08, 2018

ESMA proposed the draft regulatory technical standards on clearing obligation under European Market Infrastructure Regulation (EMIR). The draft standards amend Commission Delegated Regulations No 2015/2205, 2016/592, and 2016/1178 regarding the date at which the clearing obligation takes effect for certain types of contracts. These Commission Delegated Regulations on the clearing obligation mandate a range of interest rate and credit derivative classes to be cleared. The proposal includes an amendment of these three Commission Delegated Regulations, to facilitate certain novations during a specific time-window.

ESMA published the final report on the proposed regulatory standards, which explains the background to the proposals, details the rationale for the amendments, and outlines the proposal of ESMA. The amending draft regulatory technical standards proposed in Annex III aim to set out a limited exemption from the clearing obligation, creating a limited time-window that could allow for the novation of over-the-counter (OTC) derivative contracts from UK counterparties to EU-27 counterparties, without triggering the clearing obligation in respect of the newly novated contracts. The amendments would only apply if the UK leaves EU without the conclusion of a withdrawal agreement—that is, in case of a no-deal scenario.

Under Article 5 of the EMIR, ESMA has been entrusted to develop the draft technical standards specifying the:

  • Class of OTC derivatives that should be subject to the clearing obligation referred to in Article 4
  • Date or dates from which the clearing obligation takes effect, including any phase-in and the categories of counterparties to which the obligation applies
  • Minimum remaining maturity of the OTC derivative contracts referred to in Article 4(1)(b)(ii)

The final report is sent to EC to submit the draft technical standards presented in Annex for endorsement in the form of a Commission Delegated Regulation, which is a legally binding instrument applicable in all member states of EU. Following the endorsement, the standards are then subject to the review of the European Parliament and the Council. 


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Keywords: Europe, EU, UK, Securities, Brexit, OTC Derivatives, Clearing Obligation, EMIR, Novated Contracts, Regulatory Technical Standards, ESMA

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