On July 13, 2016, ESMA launched a consultation on proposals to delay the application of the clearing obligation for FCs and AIFs with a limited volume of derivatives activity.

EMIR imposes a clearing obligation on certain classes of derivatives. ESMA has so far assessed that the clearing obligation should apply to interest rate swaps denominated in seven currencies (EUR, GBP, JPY, USD NOK, PLN and SEK) and to two classes of credit default swaps indices: iTraxx Europe Main and iTraxx Europe Crossover. The obligation to clear OTC IRS denominated in the G4 currencies (EUR, GBP, JPY and USD) applied to entities that are clearing notes of EU CCPs from June 21, 2016.

The clearing obligation is phased in according to the category of a counterparty under a four-fold structure. Those categories are: (i) clearing members for at least one of the relevant asset classes of at least one CCP authorized or recognized to clear one of those classes; (ii) FCs and AIFs belonging to a group whose group aggregate month end average of outstanding notional amount of non-centrally cleared derivatives for the three months following the relevant clearing obligation entering into force is above €8 billion; (iii) FCs and AIFs not in either categories (i) or (ii); and (iv) non-financial counterparties subject to the clearing obligation that are not in any of the other categories. ESMA is proposing to delay the implementation of the clearing obligation for a further two years for FCs and AIFs not in either category (i) or (ii) (i.e. category (iii)-(iv) counterparties). The clearing obligation for these category (iii) counterparties is currently due to begin on June 21, 2017 for OTC IRS denominated in the G4 currencies, and on February 9, 2018 for European index CDS.

ESMA’s proposals are based on feedback it has received that these counterparties have been experiencing difficulties in connecting to CCPs, becoming a client of a clearing member or setting up indirect clearing arrangements. ESMA would like to learn more about those difficulties so that it can assess how to address the issue. The consultation closed on September 5, 2016.

The consultation paper is available at: https://www.esma.europa.eu/sites/default/files/library/2016- 1125_cp_on_clearing_obligation_for_financial_counterparties.pdf