Definition
- European Market Infrastructure Regulation (EMIR) is one of the first major EU regulatory response to the 2008 crisis, in line with G20 requirements.
- The regulation aims to reshape the whole OTC Derivatives market and make it more transparent and secured through a set of dedicated requirements. EMIR contributes as well to the rise, empowerment and reinforcement of market infrastructures such as Trade Repositories and Central Counterparties.
- EMIR is in force since August 2012, and the first Risk Mitigation Techniques entered into force on 15 March 2013. Yet, important regulatory provisions, including margin requirements and clearing obligations, are phased-in and major changes are not yet all applied.
- Furthermore, the regulation is scalable:
- New delegated acts could be issued to amend or complete the framework
- Current review by European Commission in the frame of the regulatory fitness and performance program (REFIT) which aims to reduce burdens for smallest financial and non-financial counterparties
- EMIR is part of a global framework along with MAR, CSDR, SFTR and MIFIR which are bringing deep transformation on European trade and post-trade environment.
Characteristics
What is EMIR all about?
- Reduction of systemic risk:
- Central clearing of standardised OTC Derivatives contracts including major Interest Rate Swaps in G4 currencies, and Credit Default Swaps which are mandatory tradable under MIFIR
- A set of Risk Mitigation Techniques for Derivatives contracts that are not centrally cleared, including both initial and variation margin requirements and potential appropriate and proportionate amount of capital to manage the risk not covered by the margins.
- Transparency: Both OTC Derivatives and Exchange-Traded Derivatives shall be reported to a Trade Repository in order to be monitored by the European regulators.
- Empowering the Central Counterparties by providing a frame on prudential, governance and operational dimensions in order to face the risk related to mandatory clearing and to provide different clearing models.
- Ensuring an effective transparency by providing business requirements for Trade Repositories aiming to perform checks on the data collected and revert to their client regarding the lack of relevance or accuracy.
Why is EMIR required?
Purposes
- Regulate the post-trade processing of OTC derivatives
- Set operational and governance standards for CCPs and TRs
Goals
- Reducing counterparty risks & operational risks ⇒ Central Counterparties
- Increasing transparency ⇒ Trade Repositories
