On 13 September 2013 the European Securities and Markets Authority (ESMA) published an updated version of its implementation timetable for Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC Derivatives, Central Counterparties and Trade Repositories (EMIR). The updated timetable confirms that the first trade repositories are now not expected to be confirmed before 7 November 2013. As a result, reporting to trade repositories by counterparties is not due to start before February 2014.

On 15 September 2013, the second wave of obligations under EMIR, relating to risk mitigation techniques for non-centrally cleared OTC derivative contracts, came into force. These obligations follow on from the timely confirmation and reporting obligations that entered into force on 15 March 2013.

The obligations relate to the portfolio reconciliation, dispute resolution and portfolio compression requirements under EMIR (as summarised below), and apply in respect of all OTC derivative contracts not cleared by a central counterparty (CCP). The obligations affect both financial counterparties (FCs) and non-financial counterparties (NFCs) under EMIR, and may also indirectly impact upon non-EU third country entities (TCEs) who transact with FCs and NFCs.

The specific requirements to be complied with are set out in detail in the European Commission Delegated Regulations (EU) No 149/2013 (the Regulations), but in summary are as follows:

  • Portfolio Reconciliation – FCs and NFCs to an OTC derivative contract must agree in writing (or via other equivalent electronic means) with each of their counterparties on the arrangements under which portfolios are to be reconciled. The portfolio reconciliation is required to cover key trade terms, whilst the frequency of the reconciliation (daily, weekly or quarterly) is determined by the number of outstanding OTC derivative contracts between the counterparties at a given time pursuant to article 13(3) of the Regulations.
  • Dispute Resolution – FCs and NFCs must have in place agreed detailed procedures and processes in relation to the identification, recording, and monitoring of disputes relating to the recognition or valuation of OTC derivative contracts concluded and to the exchange of collateral between counterparties, with processes in place for those disputes not resolved within 5 business days. Disputes relating to an OTC derivative contract, its valuation or the exchange of collateral for an amount or a value higher than €15 million, and outstanding for at least 15 business days, must be reported to the relevant competent authority.
  • Portfolio Compression – FCs and NFCs with 500 or more OTC derivative contracts outstanding with a counterparty which are not centrally cleared are required to have in place procedures to regularly, and at least twice a year, analyse the possibility of conducting a portfolio compression exercise in order to reduce their counterparty credit risk and engage in such a portfolio compression exercise.

On 17 September 2013 ESMA published a list of responses to its discussion paper regarding the EMIR clearing obligations, and in particular the regulatory technical standards ESMA is required to draft under article 5(2) of EMIR, following the close of the consultation period on 12 September 2013.

On 3 September 2013,ESMA published its advice to the European Commission on the equivalence of the regulatory regimes of certain non-EU countries under EMIR. The Commission is expected to use ESMA's technical advice to prepare possible equivalence decisions. The third country rules were compared with EMIR requirements for central clearing, reporting, CCPs, TRs and non-financial counterparties as well as risk mitigation techniques for uncleared trades. Conditional equivalence is proposed to the following regimes:

  • Hong Kong, Japan, Singapore and the US for CCPs.
  • The US and Japan for central clearing, requirements for non-financial counterparties and risk mitigation techniques for uncleared trades.
  • The US for TRs.

For Australia, Canada, Hong Kong, India, Singapore, South Korea and Switzerland, ESMA will be delivering its advice on areas not previously covered by 1 October 2013. CCPs from third countries that want to continue to be offering clearing services directly to EU clearing members will have to apply for ESMA recognition by 15 September 2013.

On 13 September 2013, a delegated Regulation (Regulation 876/2013) containing regulatory technical standards (RTS) on colleges for central counterparties (CCPs) relating to EMIR was published in the Official Journal of the EU (OJ). The delegated Regulation will enter into force on the twentieth day following its publication in the OJ.

The RTS set out in the delegated Regulation, which are required under Article 18 of EMIR, address the operational organisation and governance of supervisory colleges that must be set up to scrutinise the application of a CCP for authorisation under EMIR.