Name of Legislation:
Regulation of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories, also known as European Market Infrastructure Regulation (EMIR)
Status of Legislation:
Proposed text released to Parliament and Council by the European Commission on September 15, 2010.
Number of Pages:
Number of Rulemakings:
25 instances where technical, regulatory or implementation standards or rules require further development.
The Parliament and Council (member states) will review the text to formulate their respective positions before negotiating among themselves and with the Commission on the final wording of EMIR, a process known as trilogue.
Timing for Enactment:
Market expectation is that a final agreement will be reached in the second half of 2011.
Highlights of the Legislation:
OTC Derivatives: Clearing and Reporting Obligations: The draft text calls for mandatory centralized clearing of all standardized derivatives trades through central counterparties (CCPs) and requires that all trades (both cleared and non-cleared) be reported to an authorized trade repository.
Cash Instruments: The draft text encourages support for, but does not mandate, interoperability of CCPs operating in cash instrument clearing. Operational requirements for trade repositories: The draft text mandates that repositories be located within the E.U., have robust and transparent operational procedures and guarantee access for regulators to data. The text also allows for the recognition and authorization of third-country (those based outside the E.U.) trade repositories if they meet certain regulatory criteria.
Operational and Prudential Requirements for CCPs: The draft text calls for independent governance and transparent operational processes and policies to resolve potential conflicts of interest regarding ownership of CCPs. It also establishes appropriate minimum prudential defenses, including mandatory capital requirements, mandatory default funds and appropriate asset segregation, to ensure the CCP is protected in the event of member default. These provisions apply to both OTC derivatives CCPs and cash-instrument CCPs.
DTCC operates global repositories for both over-thecounter (OTC) credit and equity derivatives. Its U.S.-regulated Warehouse Trust Company LLC operates the global trade repository for the global OTC credit derivatives market, with a gross notional value of US$26.3 trillion (as of October 10, 2010). The recently launched European subsidiary, DTCC Derivatives Repository Ltd, houses the global equity derivatives trade reporting repository. It will also hold an identical data set of credit default swap (CDS) transactions as those registered in Warehouse Trust. DTCC Derivatives Repository Ltd is regulated by the U.K. Financial Services Authority.