04 October 2011

ECOFIN Council conclusions: Agreement reached on EMIR

The draft regulation calls for reporting of all derivative contracts to trade repositories (i.e. central data centres) and the clearing of standardised OTC derivative contracts through CCPs  in order to reduce counterparty risk (i.e. the risk of default by one party to the contract).

This is aimed at preventing the default of one market participant causing the collapse of other market players, thereby putting the entire financial system at risk. To be authorised, a CCP would, for instance, have to hold a minimum amount of capital.

The regulation is aimed at implementing commitments made by G20 leaders in September 2009. It would apply from the end of 2012.

The compromise proposed by the presidency allows room for further technical work, in the context of trialogue negotiations with the European Parliament, on how to negotiate and bring into force arrangements with third countries.

ESMA would be responsible for the identification of contracts subject to the clearing obligation, while national competent authorities, in coordination with a college of supervisors, would be responsible for authorising and supervising CCPs, except in the case of CCPs from third countries, which would have to be recognised by ESMA provided they meet certain conditions.

A national competent authority would be able to grant authorisation to a CCP following a positive opinion of the college of supervisors. But if the college issues a negative opinion, the national competent authority would have the right to ask the college to vote again and this time confirm its negative opinion through a mutual agreement by all college members except the authorities of the Member State concerned. Moreover, the draft proposal stipulates that no Member State can be discriminated as a venue for clearing services.

A CCP would be required to have a mutualised default fund to which members of the CCP would have to contribute.

The obligation to clear OTC derivatives contracts through a CCP and report them to trade repositories would apply to financial firms, while non-financial firms would only be subject to the rules if their OTC derivatives positions reach specified information and clearing thresholds, to be set by ESMA and the Commission, and are considered to be systemically important. Pension schemes would be exempt from the clearing obligation for a period of three years, extendable by another two years through a review clause.

Press release

Full conclusions

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