Types of transaction

Clearing transactions

What categories of equity derivatives transactions must be centrally cleared and what rules govern clearing?

See question 20 with respect to which categories of OTC equity derivatives must currently be centrally cleared. As noted in question 20, ESMA may, under EMIR, update the list of such OTC products from time to time. In any case, as noted in question 20, all listed equity derivatives in the MEFF exchange will be centrally cleared.

Exchange-trading

What categories of equity derivatives must be exchange-traded and what rules govern trading?

See questions 20, 21 and 22. Listed equity derivatives must be exchange-traded on an options exchange market, such as the MEFF exchange.

Collateral arrangements

Describe common collateral arrangements for listed, cleared and uncleared equity derivatives transactions.

In accordance with the Rule Book, the general conditions of any contracts traded on MEFF may establish specific conditions for the activity of any member in relation to such contracts.

There are no collateral arrangements applicable for listed OTC products on SIBE, although they will benefit from the general market guarantee as they will also be cleared through a CCP (Iberclear, in this case).

With respect to other unlisted OTC equity transactions, such as swaps and other security-based swaps, counterparties may typically document their collateral arrangement using a Credit Support Annex (CSA) such as that published by ISDA, under UK or US law, or Annex 3 of the CMOF model of assignment as security published by the AEB, under Spanish law. When using an ISDA CSA, counterparties should bear in mind that certain signing formalities and adjustments should be included to comply with RDL 5/2005 and therefore be valid and enforceable in Spain.

Exchanging collateral

Must counterparties exchange collateral for some categories of equity derivatives transactions?

With respect to listed equity derivatives, counterparties may exchange collateral through the MEFF exchange, as detailed in question 23.

With respect to other equity derivatives transactions, EMIR must be complied with. Although currently this legislation does not include the obligation to post collateral, where the OTC derivative contract has not been cleared through a CCP, there are certain risk management requirements that apply to all counterparties (including non-financial counterparties) in relation to:

  • timely confirmation of trade;
  • portfolio reconciliation;
  • dispute resolution procedures; and
  • portfolio compression.