19 March 2012

EACT response to ESMA consultation on the implementation of the new derivatives regulation (EMIR)

The European Association of Corporate Treasurers (EACT) has made a submission to the European Securities and Markets Authority (ESMA) on some fundamental issues in the Level 2 implementation of the new regulation of derivatives (EMIR).

EACT's document addresses areas of crucial importance to corporate treasurers, including the definition of derivative positions that will meet the test for exemption from central clearing and the working of the clearing threshold.

The drafting of EMIR recognised that the use of OTC derivatives by non-financial counterparties accounts for a very small proportion of the total outstandings; it was widely accepted that these transactions did not give rise to systemic risk in the recent financial crisis and are highly unlikely to do so in the future. EACT and non-financial counterparties in general welcomed the principles established in EMIR, which included setting out to ensure that the use of OTC derivatives to mitigate underlying risk outside the financial sector can continue so far as possible without a requirement for central clearing.

EACT therefore considers it of fundamental importance that in ESMA’s work on EMIR’s Level 2 technical standards, the key questions around the definition of “contracts [that] are objectively measurable as reducing risk” and of the clearing threshold are addressed in a way that does nothing to dilute the intent behind EMIR’s ‘exemption’ for non-financial counterparties.

It is EACT’s hope that the standards defined by ESMA will ensure that the overwhelming majority of non-financial counterparties will be able to continue to use OTC derivatives without introducing the threat to financial and economic instability and the liquidity risk that would be associated with any requirement to enter such transactions into central clearing.

Full paper

© EACT