The European Securities and Markets Authority (ESMA) published an updated Q&A on the implementation of the Regulation on over-the-counter (OTC) derivatives, central counterparties (CCPs) and trade repositories (TRs) Regulation 648/2012 (EMIR). Within the new Q&A is some further guidance on the treatment of sub-funds in an umbrella fund as well as the definition of financial counterparty and its application to EU AIFs and non-EU AIFs.

The updated Q&A includes a table setting out which questions and answers have been added or updated as at 21 May 2014, and to which Article(s) in EMIR the updated questions relate. They concern the following topics:

  • Funds, counterparties (general question).
  • Status of counterparties covered by the AIFMD (general question).
  • Authorised or registered alternative investment fund managers (AIFM) (OTC question).
  • Calculation of the clearing threshold (OTC question).
  • Intragroup transactions (OTC question).
  • Public register (OTC question).
  • Classification of non-EU central banks (OTC question).
  • Segregation and portability (CCP question).
  • Organisational requirements (CCP question).
  • Risk committee (CCP question).
  • Prudential requirements (CCP question).

ESMA wrote to the European Commission informing the Commission of its intention to ease certain frontloading requirements under EMIR. The frontloading requirement is the obligation to clear certain OTC derivative contracts entered into after a CCP has been authorised under EMIR and before the date of application of the clearing obligation. Under the frontloading rules, a contract concluded on a bilateral basis following authorisation of a CCP might become subject to the central clearing obligation before its expiration date.

ESMA believes that the frontloading procedure creates uncertainties for derivatives end-users while the exact terms of the clearing obligation have not been defined. This could have adverse impact on risk hedging and financial stability. The letter outlines ESMA’s plan to resolve confusion in the regulations and seeks the Commissions views on its proposals.