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March 13, 2019

EC published the Delegated Regulation (EU) 2019/396 that supplements the European Market Infrastructure Regulation (EMIR) regarding the date at which the clearing obligation takes effect for certain types of contracts. Regulation 2019/396 also amends the Delegated Regulations 2015/2205, 2016/592, and 2016/1178. Regulation 2019/396 shall enter into force on the day following that of its publication in the Official Journal of the European Union.

The clearing obligation laid down in EMIR does not take into account the eventuality of a member state withdrawing from EU. The challenges faced by the parties to an over-the-counter (OTC) derivative contract whose counterparties are established in UK are a direct consequence of an event that is beyond their control and may put them at a disadvantage compared to other counterparties in EU. The Commission Delegated Regulations (EU) 2015/2205, (EU) 2016/592, and (EU) 2016/1178 specify the dates from which the clearing obligation is slated to take effect for contracts pertaining to certain classes of OTC derivatives. In addition, these delegated regulations provide for different dates, depending on the category of counterparty to those contracts.

Counterparties cannot foresee what the status of a counterparty established in the UK might become or to what extent that counterparty would be able to continue providing certain services to the counterparties established in EU. To address such a situation, counterparties may want to novate the contract by replacing the counterparty established in UK with a counterparty in a member state. If, due to Brexit, the parties decide to replace a counterparty established in UK with a new counterparty established in EU, the novation of the contracts will trigger the clearing obligation if such novation occurs on or after the date from which the clearing obligation takes effect for that type of contract. As a result, the parties will have to clear that contract in an authorized or recognized central counterparty (CCP).

To ensure smooth functioning of the market and a level playing field between the counterparties established in EU, counterparties should be able to replace the counterparties established in UK with the counterparties established in a member state without triggering the clearing obligation. To allow for sufficient time to replace such counterparties, the date from which the clearing obligation takes effect for the novation of those contracts should be 12 months after the date of application of Regulation (EU) 2019/396. The Delegated Regulations (EU) 2015/2205, (EU) 2016/592, and (EU) 2016/1178 have been amended as follows:

  • A paragraph has been added in Article 3 of Regulations (EU) 2015/2205, (EU) 2016/592, and (EU) 2016/1178
  • Paragraph 3 in Article 4 of Regulations (EU) 2015/2205, (EU) 2016/592 and (EU) 2016/1178 has been replaced

Regulation (EU) 2019/396 shall apply from the date following that on which the Treaties cease to apply to and in UK, pursuant to Article 50(3) of the Treaty on EU. However, this Regulation shall not apply in case a withdrawal agreement concluded with UK has entered into force by that date, or a decision has been taken to extend the two-year period referred to in Article 50(3) of the Treaty on EU.


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Effective Date: March 14, 2019

Keywords: Europe, EU, UK, Banking, Securities, EMIR, Clearing Obligation, OTC Derivatives, CCP, Brexit, Regulation 2019/396, EC

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