In the February issue of In Practice, we look at how the European Market Infrastructure Regulation No. 648/2012 (EMIR) dated 4 July 2012 imposes a number of requirements on counterparties to derivative contracts, central counterparties and their clearing members and trade repositories. It introduced the obligation on central counterparties to clear certain classes of over-the-counter (OTC) derivatives under the EMIR framework.
EMIR requires each central counterparty and its clearing members to offer its clients a choice between omnibus and individual client segregation of positions and collateral, in relation to cleared derivatives transactions and related accounts maintained at the central counterparty.
Clearing members should review information provided by each EU and third country central counterparty regarding their segregation offerings, which should include further information on the legal and other implications of particular segregation models and applicable insolvency laws.
In the current economic climate where the insolvency of all kinds of financial institutions is still a real risk, this exercise needs to be undertaken very carefully indeed.
This article first appeared in Corporate Rescue and Insolvency February 2015 Edition EMIR .