On 12 July 2013, the European Securities and Market Authority (“ESMA”) published a discussion paper (the “Discussion Paper”) on the clearing obligations applicable under the European Markets Infrastructure Regulation (“EMIR”), on which they are seeking stakeholder’s views on regulatory technical standards (“RTS”) which will implement provisions of EMIR.

EMIR provides for the obligation to centrally clear over-the-counter (“OTC”) derivative contracts and will lead to the collection of post-trade data. It is hoped that the collection of such data will lead to the increased transparency and stability of the financial system as a whole. Pursuant to EMIR, ESMA is obliged to draft RTS identifying the class of OTC derivatives that should be subject to the clearing obligation. The RTS must stipulate the date from which this obligation takes effect and whether any phase-in procedures will apply.

The Discussion Paper also examines the categories of counterparties to which the obligations shall apply along with the minimum remaining maturity of the OTC derivative contracts referred to in EMIR.

In addition, the Discussion Paper explores the classification of OTC derivative contracts, focussing primarily on the class of the asset. This distinction includes classes such as the interest rate derivatives, credit derivatives, equity derivatives, foreign exchange derivatives and commodity derivatives and acts as the starting point of the examination before each category is further refined within these classes.

In defining the classes, a number of factors will be considered, including:

  • the standardisation, volume and liquidity of relevant classes of OTC derivatives;
  • the availability of data related to the OTC derivative markets; and
  • the experience in clearing and the international regulatory framework.

It should be noted that the clearing obligation, which is the central focus of the Discussion Paper, only applies to financial counterparties and non-financial counterparties above the clearing threshold.

The deadline for receipt of responses to the Discussion Paper is the 12 September 2013. The feedback received will be taken into consideration by ESMA when drafting the RTS which will be subsequently submitted to the European Commission for approval.