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ESMA issued its final draft regulatory technical standards (RTS) that define the scope of interest rate swaps that must be cleared under EMIR. Before applying, the RTS must be formally adopted and published. This is expected to take place at some point in Q1 2015.
The RTS will “enter into force” 20 days after they are published. Assuming the RTS are formally adopted and published in Q1 2015, counterparties, including buy-side firms, who are direct clearing members will be classed as category 1, and will be required to start clearing in Q3 2015.
Institutional clients who are designated as category 2 counterparties are expected to start clearing by Q1 2016, and from Q3 2016 for category 3. EMIR mandatory clearing also applies to certain non-financial counterparties; it is expected that this will apply from Q1 2018. Counterparties whose aggregate month-end average notional amount of non-cleared derivatives in the three months before the RTS enter into force is above €8 billion will be in category 2. Counterparties who fall below this threshold will be in category 3.
The main frontloading requirement will apply to uncleared contracts entered into by counterparties in categories 1 and 2 following the formal adoption and publication of the RTS. Contracts that are close to expiring when the counterparty’s clearing obligation takes effect will be excluded from frontloading. Frontloading for category 3 counterparties is expected to apply only in very limited circumstances. NFC+s are not subject to frontloading. Because of the different application of frontloading for categories 2 and 3, it will be important to establish which category you and/or your clients fall into before the front loading window opens.