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by Roland Kielman

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  • Financial reform in Europe reached a significant milestone in February, as E.U. lawmakers finalized the European Market Infrastructure Regulation (EMIR) after 18 months of negotiations.

    This groundbreaking legislation – which covers the E.U.’s 27 countries – now moves to the pan-European supervisor, the European Securities and Markets Authority (ESMA), which will seek to draft regulatory standards supporting the law before year-end.

    EMIR is one of Europe’s top policy responses to the G20 commitment to improve transparency and regulatory oversight of global over-the-counter (OTC) derivatives markets. The proposal determines, among other things, the clearing requirements for OTC derivatives, the reporting requirements for all derivatives, the operational standards for securities and derivatives central counterparties (CCPs) and the operational standards for derivatives trade repositories, such as DTCC’s recently launched Global Trade Repository for Interest Rates.

    “EMIR’s passage is a major achievement in European financial reform and a key step towards ensuring regulatory certainty at this time of momentous change in the financial services industry,” said Dan Cohen, DTCC managing director, Government Relations. “As EMIR enters its implementation phase, DTCC will continue to work with European supervisors to achieve our common goals of market transparency and risk mitigation in the global derivatives marketplace.”

    DTCC was an active participant in the development of EMIR, focusing specifically on the new regulatory framework for CCPs and derivatives trade repositories – two of the company’s primary service offerings in the European Union. DTCC will remain actively engaged with ESMA as it proceeds with the implementation of EMIR during the course of 2012, with its efforts spearheaded by the company’s Brusselsbased Government Relations office. Diana Chan, CEO of EuroCCP, was nominated by the U.K.’s Financial Services Authority to be a member of the ESMA Post-Trade Consultative Working Group, which assists in policy formation.

    18 months in the making

    The final EMIR proposal concludes 18 months of legislative drafting and political negotiation between Europe’s three lawmaking bodies – the Council of the European Union, the European Parliament and the European Commission.

    For the last several months, EMIR was the subject of a tripartite negotiation process known as trialogue, during which the three bodies reconcile their individual versions of the proposed legislation. After resolving lastminute disagreements over rules related to the authorization of central counterparties, European policymakers arrived at a final agreement on the regulation on February 9.

    ESMA aims for Q4 deadline

    With the legislative phase of EMIR completed, the work has begun to implement and enforce it throughout

    Europe. ESMA, the supervisor responsible for oversight of the derivatives markets and market infrastructures, is drafting the regulatory standards – the so-called Level 2 measures – that will decide many of the proposal’s technical details. ESMA is expected to finalize its Level 2 regulations by year-end.

    Similar to U.S. regulators seeking to implement the Dodd-Frank Act, one of the main tasks for ESMA is to interpret EMIR to determine which financial products and market participants will be subject to new regulatory requirements. @