Down with opacity and shady deals!

Anne PlestedFollowing the MiFID II roadmap a significant milestone was reached in Brussels last week with the final text of EMIR (European Market Infrastructure Regulation) agreed on 9th February.

After 2 years of European Parliament debate this will bring to an end “the era of opacity and shady deals”, according to Michel Bernier the EU commissioner!

EMIR is one part of the history-making global effort to reduce systemic risk, through increased transparency of the OTC derivatives market and re-engineering of the infrastructure.

This will bring Europe closer to meeting the G20 commitment by the end of 2012: “all standardised OTC derivatives contracts should be traded on exchanges or electronic platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest …”.

EMIR obligations apply to financial institutions and to industrial companies dealing in derivatives, with rules covering OTC derivative transactions, central counterparties (CCP) and trade repositories. The US equivalent to EMIR is the Dodd-Frank Act (aka Title VII), the rules of which are expected to be completed in Q2/Q3 2012.

According to the FSA – The Regulation introduces:

  • a reporting obligation for OTC derivatives
  • a clearing obligation for eligible OTC derivatives
  • measures to reduce counterparty credit risk and operational risk for bilaterally cleared OTC derivatives
  • common rules for CCPs and for trade repositories
  • rules on the establishment of interoperability between CCPs

The next step is for ESMA to complete the development of the EMIR implementation details by the end of September this year. EMIR is expected to come into force during 2012; existing CCPs will have 2 years from that date to apply for recognition and trade repositories will have to apply for recognition during 2012.

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